What's the ROI of a Convention Center Event?

Was a youth volleyball tournament really worth $50 million to Minneapolis? A look at the opaque world of convention-bureau math.

Thousands of young athletes from all over the country converged upon Minneapolis this summer for the USA Volleyball Girls’ Junior National Championships.

During the 10-day event, they came, they ate, they slept, and then, the estimated 13,000 of them plus their 28,000 parents, siblings, coaches, referees and friends went home. In their wake, they left an estimated $50 million in economic impact, according to Meet Minneapolis, the city-funded nonprofit convention and visitors association, which works to draw groups to Minneapolis for events.

It’s not just big events, like the Super Bowl and the X Games that get big economic impact numbers attached to them. In June, Minneapolis had Homebrew Con, with an estimated 2,500 attendees and a $4.5 million windfall. In April, two weekends of volleyball in town for the Northern Lights Qualifier brought in an estimated $16 million.

Visitors bureaus in major cities across the U.S. often tout the economic impact resulting from events like these. Meet Minneapolis says the numbers highlight the importance of tourism in the area. But where some see a number that helps business leaders and policymakers understand the local economy, others roll their eyes and dismiss the numbers as fodder for a sort of convention-industrial complex.

Where the numbers come from

Meet Minneapolis estimates economic impact using a calculator created by Destinations International, a trade group for destination marketing professionals. The economic impact calculator estimates direct impact — the amount of money actually spent by visitors to an event, as well as indirect impact, which accounts for any extra spending, say, local companies have to do and any extra wages paid to employees for extra hours due to demand created by the event.

Some of the main inputs in the calculation are the number of attendees and the number of nights they’re expected to stay in hotels. The tournament was 10 days long, but event organizers did not assume teams would stay for its duration.

The calculator then takes into account the type of event — differentiating between, say, a quilters group, a professional sports event, and a doctors association — the number of attendees local versus non-local, expected hotel rooms booked, expected spending on food, retail, recreation, transportation and other costs, and local tax rates, runs a set of calculations on those numbers, and spits out a pretty precise number. In the case of the volleyball tournament, $52,510,290 in total impact, which is rounded down to $50 million for the press release. That includes $32.7 million in direct spending and $19.9 million in indirect spending. With an estimated $30.6 million spent by attendees directly, that means each visitor would be spending an estimated $750 at Minneapolis businesses, on hotels and transportation over the course of the event in a way that benefitted the Twin Cities.

Kevin Hanstad, Meet Minneapolis’ director of market research and public policy, calculates estimates of economic impact for events using the calculator.

He said the industry’s come a long way in making these estimates. Just over a decade ago, most destination marketing agencies often multiplied overnight visitors by expected spending per visitor to get an economic impact estimate.

He called the Destinations International calculator very good — not perfect, but sophisticated.

“We’re well aware of the criticisms. There are people who specialize in studying economic impact and who have data to demonstrate their point of view that big events like the Super Bowl or big events like conventions don’t actually contribute,” he said. “We would disagree with that, and that’s what’s important about this particular model, is it was created by experts in our industry.”

Hanstad argues that the estimates are useful, because understanding the economic impact of tourism events helps policymakers plan things like tax rates, as local taxes are offset by the sales and hotel taxes paid by tourists.

The gripe

Not everyone agrees. Heywood Sanders, a professor at the University of Texas at San Antonio, wrote the book on convention center math naysaying. Literally — it’s called “Convention Center Follies: Politics, Power and Public Investment in American Cities.”

“It’s essentially impossible to calculate them in any serious way,” Sanders said of economic impact estimates.

He casts doubt on the idea that convention center events generate the kinds of economic boons to cities that they claim, and says that publicly-financed convention centers rarely live up to their promises to revitalize downtowns.

“There’s a public face to this which is this story of economic impact and community benefit and all the rest, but underneath it is a story of, this is one way to create and sustain, or at least to attempt to revitalize your downtown,” he said.

Estimates of the economic impact of big events like conventions are used to bolster the case for convention center expansions and hotels, but they tend to be simplistic and rosy, Sanders said.

“There really is not a very clear description of exactly what local information is used, except that, armed with this information, [destination marketing organizations] are better prepared to make the case to policymakers for the ongoing growth and development of the meeting sector,” he said.

In April, Sanders was staying in downtown Minneapolis for an urban affairs meeting concurrent with the April Northern Lights volleyball event.

“If I could conclude anything from the number of parents or coaches who were riding up in the elevator with three to four pizzas in hand, they weren’t exactly eating out,” he said.

Perhaps by design, event calculators don’t always account for business that’s displaced when there’s a big convention in town, he said, though people in the industry argue that there’s a compression effect – when conventions are in town, people who might have stayed downtown were the rooms not booked might stay in Bloomington or Apple Valley.

There’s also the matter of incentives. Often, cities offer groups planning to host conventions taxpayer-subsidized incentives, which can include discounts on hotel rooms or free of very cheap conference space.

For the volleyball event, Meet Minneapolis’ calculation didn’t include the cost of any incentive. In fact, Meet Minneapolis wouldn’t disclose whether or not there was an incentive offered to USA Volleyball to host its tournament here, citing that the information is competitive. Spokeswoman Kristen Montag said incentives are commonly offered across the industry to convention groups.

Many critics argue that this amounts to the public subsidizing private business. The convention center’s operating subsidy from the city is $16 million a year, not including the cost of debt service, said City Council Member Lisa Goodman, whose district the convention center is in.

“I think there’s a tendency to be overly optimistic about the economic impact in order to convince the public that investments in these kinds of things make sense,” Goodman said.

The Minneapolis Convention Center opened in 1991 and expanded in 2002. When discussions come up to build additional hotel rooms to go alongside the convention center, they're often controversial.

“The convention hotel and convention center game is just basically a race to the bottom. First, there’s a convention center, then there has to be a hotel. Then there has to be an expansion of the center, then there needs to be another hotel,” she said.

Worth the cost?

While some say conventions bring a lot of money into the city, others ask whether tourism is even worth the trouble.

Meet Minneapolis says yes. An economic impact survey by a national group puts visitor spending at $7.6 billion per year in the Twin Cities metro, and Hanstad says 10 percent of jobs in the city of Minneapolis are in the tourism industry.

“It's more than a fun industry, it's a significant business,” Hanstad said.

Art Rolnick, a senior fellow at the Humphrey School of Public Affairs and former senior vice president and director of research at the Federal Reserve Bank of Minneapolis, disputes just how significant the industry is.

He said he’s not opposed to destination marketing organizations putting out numbers on economic impact, but he’s frustrated when he sees them used to build a case that tourism hugely affects the economy.

Yes, Rolnick makes the argument that tourism brings money from outside the state into it, but so do people from outside the state buying goods and services from Minnesota companies like General Mills, 3M and Target.

And when they buy those things remotely, they’re not putting extra strain on infrastructure and crowding up downtown by being here.

“The Minnesota state economy produces something like $335 billion a year,” he said, half of it created by the Twin Cities metro. “So when you talk about this windfall, relative to the state economy and what all the other businesses produce, this is a drop in the bucket.”

“Treat all businesses the same. Don’t try to pick winners,” he said.

Source:  TCBmag.com