Think Vancouver: Convention centre II: Boon or boondoggle?

Vancouver residents have often heard the refrain that their city needs an expanded convention and exhibition centre. Over the past decade, this has practically become a mantra among politicians, business elites, and the media whenever they discuss the proposed $565-million convention megaproject on the waterfront.

Here's how the story goes. The Vancouver Convention and Exhibition Centre has been a resounding success since it opened adjacent to the Pan Pacific Hotel in 1987. However, the facility is now turning away lucrative business because it's too small to host larger conventions. Meanwhile, other cities competing with Vancouver are expanding their centres to capture a larger slice of this growing industry. Therefore, proponents argue, it's essential to more than triple the existing floor space to remain competitive.

The boosters readily concede that these buildings always lose money. However, they emphasize that the half-billion-dollar project, which is scheduled to open in 2008, will pay for itself by attracting massive tourist spending to Vancouver. Proponents often dangle the tantalizing prospect of hosting several conventions simultaneously, exponentially increasing revenue for local businesses. The underlying assumption is always that Vancouver's expanded convention centre will benefit from the 2010 Winter Games.

But what are the consequences for taxpayers and consumers if this expansion is based on several myths? What if it turns out that the North American convention industry is stuck in an irreversible rut, which may only get worse if the international price of oil continues rising? What if hosting the Olympics has no effect on attracting business to the expanded centre? The biggest North American trade shows are shrinking, according to industry data. Vancouver Convention and Exhibition Centre officials often mention how many events are cancelled because of a lack of space, but they rarely discuss how far attendance has fallen since the industry's heyday of the late 1990s.

The number of convention delegates at the Vancouver Convention and Exhibition Centre peaked in the fiscal year 1997-1998 at 314,553. By 2003-2004, attendance had declined by 43 percent to 180,466, though it's projected to rise to 196,935 by the end of this fiscal year. Over the past four full years, total attendance at the centre, including trade and consumer shows and special events, fell by 24 percent, according to PavCo, the B.C. Crown corporation that operates the facility.

PavCo admitted in its last annual report that as a result of declining foreign business and cancelled conventions, economic benefits generated in 2004 "fell significantly short of expectation". Meanwhile, SFU's Wosk Centre and various downtown hotels-including the Sheraton Vancouver Wall Centre Hotel, the Westin Bayshore Resort and Marina, the Hyatt Regency, and the Fairmont Hotel Vancouver-are creaming off some convention business with their own large meeting facilities.

Last January, a U.S academic published a devastating study for the Washington, D.C.-based Brookings Institution on the results of convention-centre expansions. Heywood Sanders, a professor of public administration at the University of Texas in San Antonio, described the rush to build convention centres as "a type of arms race", with 44 U.S. cities currently planning new or expanded facilities. He concluded that during the past 13 years, there has been a 51-percent increase in U.S. convention and exhibition space, even though the number of delegates at the 200 largest trade shows remains mired at 1993 levels.

Sanders told the Georgia Straight in a phone interview that major convention cities such as Chicago, New York, Atlanta, and New Orleans have experienced significant losses in convention activity in recent years, often after expanding. "When I hear a city like New Orleans has lost 40 percent or Atlanta 50 percent-Dallas is 52 percent; Los Angeles is at 62 percent-something is going on," Sanders said.

His paper listed other U.S. cities that have also suffered massive declines in convention visitors, including Charlotte, Cincinnati, Baltimore, Philadelphia, San Jose, St. Louis, and Boston. Even Las Vegas, a normally stellar convention destination, saw a drop in attendance after it doubled its exhibit-hall space in 2002. When asked if Vancouver might escape the trend, Sanders replied, "Maybe, but probably not."

Douglas L. Ducate, the Dallas-based president of the Center for Exhibition Industry Research, acknowledges that the convention business has fallen on tough times over the past four years. But he told the Straight that he doesn't think things are nearly as bad as Sanders suggests. CEIR, the promotional arm of the industry, claims that between 2000 and 2003, convention-centre revenues in the United States and Canada fell six percent and attendance dropped by just 2.1 percent.

Ducate remains bullish on the industry's long-term prospects, noting that 67 percent of exhibitions are owned by associations. He claimed that 1,000 new associations form each year in the United States and Canada, creating "fertile ground" for growth.

"With an association generally comes a desire to meet, and that meeting frequently is accompanied by an exhibition," he said.

Many people have attributed the industry's decline to the September 11, 2001, al-Qaeda attacks. Ducate, however, traced the origins to the buildup of technology spending prior to the year 2000. He said that after the millennium passed and there were no major systems breakdowns, companies slashed technology spending. This sector was responsible for 15 percent of all trade shows in 2000. The dot-com bubble then burst, followed by a U.S. recession. "By August 2001, 77 percent of American businesses had already curtailed travel," Ducate said.

Sanders said that after combing through 80 to 100 convention-centre feasibility studies, he has concluded that tourism operators aren't the major force driving investments in expansion projects. He claimed that the real behind-the-scenes promoters of convention centres are often major downtown property owners seeking massive public subsidies to their areas of the city. In most cases, he said, these buildings turn into costly white elephants.

"It has nothing to do with conventions," Sanders claimed. "It has to do with land."

One of the biggest boosters of the Vancouver Convention and Exhibition Centre expansion has been Graeme Stamp, chairman of the Vancouver Board of Trade and executive vice-president of Fairmont Developments Inc. (formerly Marathon Developments Inc.). Stamp's company developed the nearby Coal Harbour lands and the Waterfront Centre hotel and office complex. Marathon, which once employed Premier Gordon Campbell, also sold the land for the convention-centre expansion in 2003 to the provincial government for $27.5 million. Stamp, a former chairman of Tourism Vancouver, did not respond to the Straight's request for an interview.

In many cities, including Vancouver, convention-centre expansions are partially financed through new taxes or levies. The owners of tourism-related businesses-restaurants, tourist attractions, taxicabs, hotels, and sometimes retail stores-are often required to fork over tens of millions of dollars to cover the construction costs. The B.C. Liberal government quietly passed legislation last year enabling Tourism Vancouver to collect a "voluntary" levy from "tourist-related" businesses to raise $90 million toward the expansion of the convention and exhibition centre. The B.C. government and Tourism Vancouver won't work out the details until after the provincial election.

Rick Antonson, president and CEO of Tourism Vancouver, told the Straight that his organization is in the first part of a three-phase process to introduce the new fee. When asked if restaurants would be subject to the levy, Antonson replied, "Well, that would be down the road."

Liberal MLA Ted Nebbeling, the former minister responsible for the Olympic bid, recently told the Straight that he is not opposed to the concept of a tourism levy but disagrees with the lack of transparency. He also said that when he mentioned the levy to people in the restaurant and hotel industries, they gave him the "thumbs down", in part because they had no information.

"Would it be based on sales? Would it be based on square footage?" Nebbeling asked. "All of these things, I think, had to be worked out. That didn't happen."

Antonson said he has spoken to Nebbeling about his concerns, noting that the payments start "ramping up" after the 2010 Winter Games and levelling off in 2019.

When the Vancouver development-permit board met on February 28 to discuss the Vancouver Convention and Exhibition Centre expansion, the four senior city bureaucrats on the panel didn't seem too concerned about funding issues. The most prominent feature in the room was a magnificent architectural model spread over six tables. It conveyed the magnitude of the massive structure that will jut into Coal Harbour. At its highest point on the northeast corner, the grass-covered roof will stand 44 metres above the waterline. The combined exhibition, theatre, and ballroom space of the old and new facilities will be 516,000 square feet, about the size of five football fields. The model also showed "water lots", which are expected to generate revenue from businesses.

One person at the meeting, Coal Harbour resident Gerry Sieben, told the Straight that he fears the provincial government will try to raise additional funds by exploiting every possible commercial opportunity on the water. "What I'm worried about is it could be quite a tacky mess out there," Sieben said.

At $565 million, the waterfront expansion project will cost more than three times as much as General Motors Place. It's also $100 million more than the three fast ferries that sunk the last NDP government, though you won't read about that on the Vancouver Convention Centre Expansion Ltd. project Web site (www.vanconex.com/).

This expansion project has been in the works nearly as long as the centre has been in existence. While NDP Premier Mike Harcourt was in office, the Crown-owned B.C. Pavilion Corporation (now PavCo) commissioned the consulting firm KPMG to assess the need for an expanded centre. Its 1995 report persuaded the province to proceed. Concert Properties won a competition with the $1-billion Portside project, which proposed expanding the convention centre to the east with new cruise-ship facilities and a 1,000-room hotel.

After the federal government refused to provide any money, another NDP premier, Dan Miller, cancelled the project in 1999. Within days, Tourism Vancouver, the Vancouver Hotel Association, the Vancouver Board of Trade, and PavCo created a new Vancouver Convention Expansion Task Force. The task force commissioned KPMG to produce a new report, which concluded that the "status quo" was not an option.

Without an expansion to the convention centre, KPMG argued, Greater Vancouver's tourist industry would go into decline. KPMG also reiterated the now-familiar story that the existing convention and exhibition centre "is unable to effectively compete in an environment of increasing attendance and demands for additional exhibit space".

The election of the B.C. Liberals in 2001 and the growing momentum of Vancouver's Olympic bid sealed the deal. The federal government announced it would match the province's $202.5-million contribution to the capital costs. In late 2002, the Vancouver 2010 Bid Corporation signed a deal with PavCo requiring 390,000 square feet of convention space for international media covering the 2010 Winter Games.

"As in Atlanta, part of the logic of having an Olympics is all of the sudden you get a higher level of government involved spending lots of public capital dollars for buildings," Sanders told the Straight. "I mean, the Olympics ceased being about sports a long time ago. If you look at Athens, for example, or you look at Sydney or you look at Atlanta, these are about large-scale building projects."

Antonson told the Straight that the KPMG report was the "cornerstone" that justified the centre's expansion. However, Sanders suggested that Vancouver Convention and Exhibition Centre managers should be concerned about some of the data in the KPMG report, which was written near the peak of the market. KPMG noted that Tradeshow Week, an industry publication, had forecast the average size of the 200 largest conventions would reach 248,000 square feet by 2000-an increase of 22 percent from 1995. Sanders said the Tradeshow Week 200 average fell to 111,232 square feet by 2004.

"If the centre is expanded based on the feasibility study done by one of the major consulting firms, typically you don't get nearly the business that they promised or forecast," Sanders claimed.

The CEIR's Ducate criticized Sanders's reliance on Tradeshow Week's data of the 200 largest events. "They aren't indicative of what's going on in this industry: 18 percent of those shows are in sold-out positions, so they can't grow anyway," Ducate said. He claimed that 42 percent of trade shows occur in hotels, which he described as "farm teams" for bigger convention centres.

The KPMG report in 2000 also mentioned that technology-based shows were the fastest-growing category between 1998 and 1999, showing a 35-percent increase. Since then, the largest information-technology show in North America, Comdex, has been cancelled. Ducate predicted more technology-related trade shows in specialized fields in the future, rather than the massive, industry-wide extravaganzas like Comdex.

Tourism Vancouver's Antonson agreed with the Brookings Institution study's conclusion that many cities shouldn't have built or expanded their convention centres. However, Antonson claimed that Vancouver is one of only a dozen cities that should be doing this because it is already known for hosting conventions and it has a large supply of hotel rooms near the facility. "Vancouver is building the right-sized facility coming on at the right time, so it will be successful," he said.

Barbara Maple, PavCo's general manager of the existing facility, echoed Antonson's view that Sanders's study had some validity but didn't reflect Vancouver's "unique" position in the market. Convention-centre officials claim to have lost 136 events over the past four years due to a lack of space or available dates; 44 major events have already been "booked" into the expanded facility, they say, which means they're at some point in the sales process but not confirmed. "We're not signing contracts until we have the final product," Maple said.

In the meantime, there is the troubling issue of escalating construction costs. When the B.C. Liberal government announced a deal in 2003 with Marathon Realty to buy the site to the west of Canada Place, the then-minister in charge of the project, Rick Thorpe, guaranteed it would not go over budget. "It will be $495 million or less," Thorpe said in response to a question from the Straight.

The cost quickly rose another $40 million after the federal and provincial governments agreed to include a walkway linking the old centre with the new facility. Thorpe's successor, John Les, told a legislative committee last April that the $40-million addition would also cover "fairly significant" upgrades to the existing facility.

Three months later, the provincially owned Vancouver Convention Centre Expansion Project Ltd. issued a news release revealing yet another increase. This time, it stated that its $565-million budget had been approved. The additional $30 million would be financed by "projected" facility revenues.

The premier's most powerful deputy minister, Ken Dobell, chairs the project's board of directors. The recent provincial budget allocated $313 million for the construction period, including an $83-million advance to cover the tourism-industry's contribution. On February 24, Les told the Straight that the B.C. government will not put another nickel into the project beyond the current budget. "Even if they were to ask, as I said, the answer is no," Les said.

The KPMG study in 2000 forecast that in a "normalized year" of 2008, there would be an additional $224.4 million in delegate and exhibitor spending in the enlarged convention and exhibition facility. That would be a tremendous boost to the Vancouver economy, and generate sufficient tax revenues to offset the cost of the expansion project. It would also elevate the premier's standing in the eyes of future voters in time for the 2009 election, if he is still in office.

However, if the convention-industry trend here mirrors other cities outlined in the Brookings Institution report, Vancouver could wind up with a colossally expensive and highly visible monstrosity drowning in a sea of red ink. Under this scenario, the expansion project could easily become a powerful symbol of the hubris of the Gordon Campbell government-much in the same manner that the fast ferries on the other side of Burrard Inlet have come to represent the financial recklessness of the previous Glen Clark regime. -

CBC reporter Stephen Quinn offers more on this story tonight (March 3) on CBC TV's Canada Now at 6 p.m.