Sanders: 'Why would one use such a database to analyze events that on their face are irrelevant to Monona Terrace?'
As the Madison Common Council continues to wrestle with the question of whether it should subsidize a hotel to the tune of $44 million to help Monona Terrace Convention Center, the debate lingers over what benefits that hotel may or may not bring.
At the end of July, Aaron Olver, Madison's economic development director, made the case that the city stands to benefit from a new convention hotel, which is proposed as part of the massive Judge Doyle Square development.
At a meeting of the city's Board of Estimates, Olver claimed that his analysis of the national convention industry shows that Monona Terrace could draw about 20 additional large conventions to Madison.
He presented his results as an exhaustive analysis of conventions all over the United States, using a database that includes 16,700 events in the United States and Canada. Monona Terrace officials have long made this argument, but others question whether building such a facility will really do much to increase events there. As council members contemplate the high price tag, those claims have come under increased scrutiny.
In his presentation, Olver argued that the strategy could pay off. His message was clear: Investing in a new hotel for Monona Terrace (increasing its available rooms from 150 to 400) would help it compete in a fiercely competitive market and attract more big conventions. "We're able to accommodate 68% of the national events at our current room block," Olver told the Board of Estimates. "We can expand that to 89% at a 400-room block."
However, the database that Olver based his arguments on includes mostly events that would never come to Madison or Wisconsin. Many are groups from other states -- such as the New York City Wetlands Forum, the Texas Chiropractic Association, the University of Maryland Fire and Rescue Institute, Florida Tax Watch, the Municipal Electric Power Association of Virginia, Audubon of Florida, the California Public Defenders Association, the Ohio Crime Prevention Association, the Church of God of Virginia, the Texas Association of Counties and numerous other events specific to other states.
Others were industry groups that have no presence in Wisconsin, such as Whataburger, a fast-food chain based in Texas, which has restaurants around the South and Southwest. At least 40 of the events are Wisconsin groups.
The database comes from Destination Marketing Association International, a trade group for meeting planners.
In an email, Olver agrees many of the events in the database won't come to Madison. "This is an attempt to understand how many events of various sizes take place each year around the country," Olver writes. "This can then be compared to the events that are currently accommodated within the market to help understand the relative impact of a greater room block."
"This data includes events that will always take place elsewhere, events that will always take place in Wisconsin, and events that are mobile," Olver adds. "Because Wisconsin is almost exactly average in terms of size, it's reasonable to use the entire data set to understand the overall national market and the relative impact of a larger room block compared to current Monona Terrace performance."
But Heywood Sanders, a professor of public administration at the University of Texas at San Antonio and a vocal critic of the convention industry, finds this logic puzzling.
"Why would one use such a database to analyze events that on their face are irrelevant to Monona Terrace?" he asks. "It's not a reasonable representation of the market. How can you assess penetration of something that isn't a market?"
In a phone interview, Olver counters that his research is an attempt to determine the growth curve of the industry. "One of the things that people didn't really understand is what the demand curve for conferences really looks like," he says. "Is Monona Terrace addressing 10% of the market or 80% of the market?"
Olver offered several analogies, but was unable to explain in a way that made sense to an Isthmus reporter how looking at events that would never come here can illustrate a market growth curve for Monona Terrace.
Hotels vs. convention centers
Sanders says there is vital information not included in the database Olver analyzed, namely, which of these conventions typically use hotels instead of convention centers. The distinction matters because hotels have a competitive advantage over convention centers for events. Hotels can give away their meeting space because they know that they'll make money on conventioneers renting rooms. But Monona Terrace -- like most convention centers -- doesn't have any rooms to rent.
"If you're talking about groups that solely meet in hotels, then you're talking about Monona Terrace's capacity to compete with hotels," Sanders says. "If you're competing against a hotel for in-house business, there's a different kind of competitive reality because you're under one roof. If Monona Terrace charges anything more than zero for meeting space, it's not necessarily competitive with what a hotel can do in-house."
Both Gregg McManners, general manager of Monona Terrace, and Stephen Zanoni, manager of Madison's Concourse Hotel, have confirmed that hotels hold this advantage. But Olver does not touch on this dynamic in his market analysis. Instead, he argues that generating more large conventions to Monona Terrace will displace some of the terrace's smaller events into surrounding hotels.
In his presentation, Olver argues that bigger conventions are the ones that bring in the most revenue for the terrace, with 10% of the events providing 50% of the revenue. In 2013, the terrace held 67 conventions and conferences and 65 in 2012. But it also holds many smaller events, like business meetings, weddings, luncheons and holiday parties.
Olver's conclusion: "Shifting Monona Terrace's business mix toward conferences and conventions will increase revenue in a cost-effective way and stabilize and/or improve their bottom line."
But the spreadsheet Olver used to draw this conclusion -- which he provided to Isthmus -- could be interpreted differently. The spreadsheet shows large events from 2009 through 2013. The majority generated $10,000 to $50,000 in revenue for Monona Terrace. But there are a few outliers that generated in the $250,000 to $300,000 range. Although these events aren't identified in the spreadsheet, the figures -- including year, attendance and hotel room nights generated -- correspond exactly with separate data Monona Terrace provides for its events each year.
The conventions with the highest attendance are not the biggest revenue generators. Instead, the five biggest revenue generators all appear to be Trek Bicycle Corporation's annual sales meeting. "The argument that getting large conventions is the way to generate revenue, the data doesn't seem to justify that," Sanders says, noting the take for a large event is usually below $50,000. "These data seem to suggest that holding meetings by local corporations is the way to maximize revenue."
Overall, Sanders finds Olver's analysis lacking. "I'm a professor of public administration. I teach students who are in public administration and have and will go on to be public staff," he says. "The folks of Madison deserve staff that does thoughtful, credible, substantial analysis."
Ald. Chris Schmidt, council president, says he thought Olver's presentation last month was helpful, but other council members were confused by it. He says it's unlikely to be the decisive argument in the debate. The high price tag for the city -- which could run as high as $77.5 million -- has many council members undecided. Says Schmidt: "I don't know that there's going to be major shifts of opinion yet."
It's not the first time that data presented to advance the construction of a new hotel for Monona Terrace has been questioned. Monona Terrace annually compiles reports to show how much economic benefit events held there deliver to the city. But the reports, when viewed over several years, show inconsistent and implausible data. Monona Terrace responded to criticism this year by withholding in its latest report (PDF).
A January 2013 consultant report (PDF) by Charles Johnson, which urged Madison to build a 400- to 500-room hotel, has also been disputed. Critics -- including Sanders and Ald. David Ahrens -- say the data provided by Johnson don't support his claim that business will boom with a new hotel.
Conflicting data also makes it hard for outsiders to evaluate Monona Terrace's performance. Both Monona Terrace -- a city agency -- and the Greater Madison Convention and Visitors Bureau (which gets city funding and in turn promotes Monona Terrace, even paying some conventions to come here) keep statistics about the convention center's performance. But they offer wildly different data for some events.
For instance, the convention bureau lists 2012 IronMan attendance at 30,000 with direct spending in the city by participants at $2.9 million. But Monona Terrace lists attendance for the same event at 5,000 and cites direct spending at $5.1 million.
Madison has already subsidized one hotel for Monona Terrace, with the Hilton Madison Monona Terrace, which opened in 2001. This provides the terrace a block of 150 rooms, but that's not enough to meet the needs of larger conventions, terrace officials say. The rooms are also often too expensive for conventioneers. A new hotel would add a block of 250 rooms to draw on.
The city's negotiating team -- which includes Olver -- is working with the project developer, Bob Dunn, and is expected to present a proposal to the council in about a week. The project also includes replacing the aging Government East parking garage and building retail and high-end residential.
Isthmus has not been able to reach Dunn for comment.