Despite deficit, center’s conventions often free
The last time the National Rifle Association came to Pittsburgh, in 2011, it took over the David L. Lawrence Convention Center for three days — and didn’t pay a cent for rent.
When the Veterans of Foreign Wars brought its national convention to town for five days in 2015, it got the same sweet deal — free space.
So did the Fraternal Order of Police when the organization used the venue for its national convention for five days in August 2015. And the National League of Cities got the same break for its 2016 convention.
With the exception of some prominent local shows, nearly everyone, it seems, is getting a deal
on rent at the convention center. If it’s not free, it’s being sharply discounted — even as the center itself piles up annual operating deficits.
So far, the shortages have been covered by hotel taxes and a yearly $1.7 million allocation from a state economic development and tourism fund financed by gambling revenues, Mary Conturo, Sports & Exhibition Authority executive director, said.
But the state money will run out this year, leaving convention center owner SEA and other local officials scrambling to find ways to replace it. It’s unclear at this point how — or if — they will fill that gap.
The Pittsburgh center is not the only one rummaging for ways to cover shortfalls. Ms. Conturo said many convention centers are “loss leaders” that run deficits. McCormick Place in Chicago, for example, chalked up an estimated $42.8 million deficit last year.
Discounts worth it?
A review by the Pittsburgh Post-Gazette of records provided by the SEA, the convention center owner, found the discounts given to convention and trade shows averaged 52.1 percent between 2013 and 2018.
Over the same period, the convention center racked up deficits ranging from $2.2 million to $4.6 million, in part because of breaks offered to draw out-of-towners to the Steel City.
To those who own, run or sell space in the 1.5 millionsquare-foot venue on the Allegheny riverfront, the giveaways or discounts seem a small price to pay for the tens of millions of dollars worth of economic impact the shows bring to the city, where delegates fill hotels and spend at restaurants, bars and other local attractions.
It’s not as if they’re alone in making such calculations.
Cities large and small, including big convention destinations like San Diego and Chicago, offer deals on space to try to lure many of the same shows Pittsburgh is going after, they said.
“Ninety-nine percent of the buildings in the country are offering [discounts], even the big markets,” said Tim Muldoon, the convention center general manager.
Craig Davis, president and CEO of VisitPittsburgh, whose job it is to bring conventions to town, likened the center’s full — or “rack” — rates to the sticker price of a car. Virtually nobody pays it. If local officials didn’t discount rates, it would be nearly impossible to attract conventions to Pittsburgh, he said.
“The bottom line is that if we want business in Pittsburgh, we’re going to have to find a way to offer assets at the best possible rate to get the attention of the customer,” he said.
He’ll get no argument from Don Welsh, president and CEO of Destinations International, which represents hundreds of convention and visitors bureaus in 15 countries, including the United States.
Discounting rent, he said, has become almost a matter of course in the industry, as the competition for conventions intensifies with more cities jumping into the chase.
“It’s never been more fierce to win a piece of business or to retain what you’ve got,” he said.
Unfair to taxpayers?
To some critics, the offers of free or discounted rent don’t add up — even as boosters boast about economic impact, the direct spending and the hotel room nights such shows generate.
In most cases, as in Pittsburgh, the discounts are subsidized, at least in part, through hotel taxes or other taxpayer dollars.
“The problem is, as everybody does this, nobody can really get ahead and you’re just throwing ever more public money into an environment already characterized by deep public subsidies and commitments,” said Heywood Sanders, a University of Texas at San Antonio professor who has extensively studied and written about the economics and impact of convention centers.
Allegheny County Controller Chelsa Wagner, who has fought to audit local authorities like the SEA, said there is a need for a formal review of the discounts offered by the convention center to determine if they are justified.
“When they’re happening not in the light of day, without the information being reviewed by the public, you really never know,” she said.
Ms. Wagner also questioned the practice of charging full rates for auto, home and garden and other local shows while offering big discounts to out-of-towners.
“These are public assets. When you look at winners and losers, if you’re looking at the shows that have an almost entirely local draw ... to see that they were charged full price is basically double charging our taxpayers,” she said.
Crunching the numbers
The 2011 NRA convention generated $23.7 million in economic impact, $570,438 in hotel taxes, more than $1 million in sales taxes, and 17,829 room nights for the city, according to VisitPittsburgh.
The NRA also paid $600,000 for utilities and other services provided by the venue, Mr. Muldoon said, even though it got a 20 percent discount on electricity and a 25 percent discount on internet service, according to its contract.
Combined, the $600,000 more than offset the $167,300 the NRA should have paid to rent the convention center, he said.
“If you even take out the whole economic impact of it, we made the right decision based on a lot of the amenities,”
Offsetting rents
Mr. Muldoon said.
Pittsburgh is not the only one to give away the convention center to the NRA. Dallas provided free rent to the group for its 2018 convention, a perk worth $410,618. Charlotte did the same in 2010.
Free rent is the “norm” for the NRA, said Mr. Sanders, even though the organization typically doesn’t generate a lot of hotel room nights because most of its attendees are “drive-in folks.”
NRA officials could not be reached for comment.
For the Pittsburgh convention, VisitPittsburgh and the Sports & Exhibition Authority covered the cost of the rent the NRA should have paid.
The SEA allocates $250,000 worth of credits annually to VisitPittsburgh to help subsidize rents. The tourism agency has its own pot of money, worth hundreds of thousands of dollars each year and funded through hotel taxes and private sources, for the same purpose.
A host of factors goes into how much local officials are willing to offset rents, including the size of the event, economic impact, the time of year it will take place, and spending both inside and outside the convention center.
“You’re trying to find the best customer for the time,” Mr. Davis said.
VisitPittsburgh is more likely to offer discounts for big conventions and those that take place at off-peak times, he noted. One example of that, he said, is the annual Anthrocon, or Furries, convention in Pittsburgh.
It usually arrives around the July 4 holiday, typically a hard time to book conventions, Mr. Davis said.
Samuel Conway, chairman and CEO of Anthrocon
Asking for free rent
Inc., said the Furries, in terms of rent, get a “small break for repeat business.” Between 2013 and 2018, they paid yearly rents ranging from $47,300 to $79,587.
But that, he stressed, is not what keeps them coming back to Pittsburgh.
It’s how welcoming the city has been to the group. “That’s what brought us there and that’s what keeps us there,” he said.
Last year, according to VisitPittsburgh, the Furries generated $8.5 million in economic impact, 6,005 room nights, $238,353 in hotel taxes and more than $400,000 in sales taxes.
“We’re comfortable with what we pay to the convention center in the spirit of helping the businesses of Pittsburgh,” Mr. Conway said. “It would be nice to get the rent free, but we don’t mind paying it.”
Another group that received free rent to party in Pittsburgh was the Veterans of Foreign Wars, which brought about 12,000 members here for five days in July 2015 to hear speeches from then-President Barack Obama and others.
VisitPittsburgh and the SEA covered the $88,645 flat fee for the convention center rental. The full rate, without any discounts, would have been about $150,000, Mr. Muldoon said.
But he added that the convention center made about $250,000 on the event, most of it in food and beverage sales. The conference also produced 11,969 hotel room nights, $10 million in economic impact, and nearly $750,000 in hotel and sales taxes.
Vanessa Kane, the VFW manager of meetings and events, said the group typically asks for free or nearly free rentals in its negotiations.
“We’re a not-for-profit. For us to pay the rent that most of the centers command, we’re not able to do that,” she said.
The VFW pays for electricity, food and beverage, and other costs associated with the convention, she noted.
“We’re basically getting a piece of real estate — four walls, a door and a ceiling. Anything that we’re going to do in there is going to cost us,” she said.
The group, Ms. Kane said, probably would not convene in a city where it couldn’t get a good deal. It considered Chicago for a future convention but backed off when officials wanted $262,000 for the rent.
Hard to compete Still running a deficit
Also in 2015, the convention center played host to the Fraternal Order of Police and some 6,000 of its members, with VisitPittsburgh and the SEA picking up the tab for the $128,500 in rent.
“We knew that we weren’t going to have as much direct revenue for that group. [VisitPittsburgh] wanted to continue to be aggressive and get that event so they actually cut us a check for $50,000 that we applied toward the rent,” Mr. Muldoon said.
According to VisitPittsburgh, the FOP convention generated $7 million in economic impact, 14,609 room nights, and $506,153 in hotel and sales taxes.
The event netted the convention center about $140,000. But neither that nor the money made on the VFW gathering or any of the other conventions that year were enough to offset the center’s $3 million deficit.
Overall, offers of totally free rent have become “less and less common” in the industry as a whole over the last three to five years, said Mr. Welsh of Destinations International.
But he conceded that there is a lot of pressure to make discount deals given how ferocious the competition has become. For those not willing to discuss discounts, it “becomes highly detrimental to a city” to even be considered for a meeting.
A study by consultant Conventions, Sports & Leisure International for the Los Angeles Department of Convention and Tourism Development last year found typical discounts ranged between 10 and 50 percent.
CS&L looked at convention centers in Anaheim, Atlanta, Chicago, San Francisco, New Orleans, Orlando, Portland, Ore., San Diego, Seattle and Vancouver.
“A 50 percent level is generally consistent with the high-end level of discounting at most comparable venues reviewed, and significantly higher than for centers in San Francisco and San Diego,” the report noted.
In rare situations, such as when food and beverage sales generate more than $1 million in revenue, rental discounts can reach 100 percent, it stated.
In some cases, the Pittsburgh center has started to base discounts on the amount of food and beverage conventioneers consume. If they don’t hit a predetermined estimate, the rent increases.
“Now they’re putting their money where their mouth is, truly,” Mr. Muldoon said. “It’s a safeguard for us, really, to ensure that we get revenue for the building.”
Paying full freight
Some shows pay full price to use Pittsburgh’s convention center — or close to it. Those would be the Pittsburgh Auto Show, the Pittsburgh Home and Garden Show, and others of that ilk that draw big crowds but no discounts.
The organizers don’t seem to mind.
John DeSantis, Home and Garden Show executive director, said he’s OK with paying the full freight because the out-of-town conventions that get discounts benefit the region.
“Consumer shows don’t get any breaks on anything and, candidly, we’re not complaining. It’s appropriate that the convention center be a loss leader because otherwise that money is going to St. Louis or Minneapolis,” he said.
“We’re not being gouged,” added Jill Costic, auto show director.
“We really don’t have anything bad to say. We’re treated very nicely and very fairly, and we enjoy the time we spend there.”
When it comes to politics, the convention center doesn’t appear to be inclined to bargain, either.
President Donald Trump paid $10,500 to rent space at the center for a campaign rally in April 2016. Democratic candidate Bernie Sanders paid $6,000 for a rally at the center in March of the same year.
Mr. Sanders rented less space, the reason for the price difference, Mr. Muldoon explained.
Both, he said, paid “very close to full rack” for the rentals.