Convention Center Chronicles – Marginal Impact and Demand

What do we get? And who will come?

Those are the questions that have not been properly answered despite reams of Powerpoints and consultants reports.

In its presentation “Case for Expansion,” The Massachusetts Convention Center Authority makes the case that Boston “lost” out on a number of conventions because of our small size, availability or cost. (Note that expansion only addresses the first cause.) It is not clearly stated anywhere whether we “lost” these shows (as in the contract would have been absolutely, positively signed) or whether we were unable to compete for these shows against other cities.

The Authority then extrapolates from these “losses” a large amount of forgone economic impact, making the case for expanding the BCEC.

The problem with the analysis is that it ignores that the BCEC likely had an event (perhaps smaller) already in place for many of these dates. Therefore, any “loss” calculation should only take into account the marginal difference between the two events, not the total value of the “lost event.”

Likewise, we are told that the existing center is within the desired capacity range. We are not told what the marginal increase in events and room nights would be with an expanded center. In other words, if we are already close to full, how much getting bigger get us in comparison to the cost. This analysis should be the centerpiece of a data-driven case for expansion.

Another piece of information that caught my attention on slide 6 of the presentation, which deals with the national convention center market. It shows a practically unabated increase in square footage starting in the late 1980s.

But Hotel Room Demand (that key metric discussed in the last post) tells a different story. It marches inexorably upward, tracking net square footage, until 2000, when it drops. It recovers modestly, but then bumps along for the 2005-07 period, increasing just a few percentage points before it drops in response to the latest recession.

What you see is the ongoing expansion of convention space nationwide (more than 2.7 million square feet of new space has come on line or will come on line from 2007 to 2013) while hotel room demand has only increased by 2 percent from 2000 to 2010. That’s hardly a promising sign.

How well is the “Case for Expansion” made? We see weak increases in hotel room demand over a long period while capacity in the market appears to be expanding continuously. We have a flawed analysis of the cost of ‘lost’ shows and a lack of data on marginal impact. If there is a case for expansion, it is not made in a compelling way here.

Crossposted at Pioneer Institute’s blog.