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As Overhaul of Chicago's McCormick Place Nears Completion,
the Owning State-City Agency Must Become Financially
Self-Sufficient by Mid-2014 for Success


By Kathy Bergen, Chicago TribuneMcClatchy-Tribune Regional News

June 27, 2012--After nearly a decade of turmoil that was marked by trade show exits, exhibitor outrage and financial instability, the agency that owns McCormick Place is close to completing an overhaul that officials hope will give the city a stronger hand in the hypercompetitive convention market.

Much of the agency's to-do list has been checked off during the past two years. Labor pacts aimed at easing exhibitor costs and hassles have been hammered out, the latest just last week. Moves to private management have been completed; food and electrical service prices have been slashed; unmanageable debt loads have been reduced by pushing payments further into the future; and borrowing power has been increased, opening the door to a long-awaited hotel expansion.

But for the massive endeavor to pass muster, the Metropolitan Pier and Exposition Authority, the state-city agency that owns the convention center and Navy Pier, must clear two more hurdles to keep the retooled convention business viable.

The agency, known as McPier, must become financially self-sufficient by mid-2014, when a four-year, $20 million-a-year state operating subsidy expires. The agency stripped out expenses as it turned over operation of the convention complex and the pier to private entities, but it also slashed its revenue when it eliminated markups on food and electrical service. So operations continue to lose money, as they have since fiscal 2009, when the recession left the industry reeling.

Revenue from a second hotel tower under construction at the Hyatt Regency McCormick Place is projected to fill the gap, assuming the city's trade show business holds up. Big convention customers have sought more hotel space within the convention complex, and as owner of the hotel, McPier keeps the profit after paying a management fee to Hyatt Hotels Corp.

The authority also is weighing sponsorship deals, the selling of naming rights and alternative uses for the lower levels of the Lakeside Center, which is the oldest building in the complex.

It also is under intense pressure from city hall and the governor's mansion to reverse the decline in its business through much of the last decade and to become a more powerful catalyst for economic activity in the region.

"I don't want a decade like the last one, so we need to roll up our sleeves and get to work as a team, and we're doing that," said Mayor Rahm Emanuel, citing the state-mandated overhaul and the labor pacts that he helped engineer.

In an effort to ramp up bookings and fill more hotel rooms, McPier has set more aggressive sales goals for Choose Chicago, the not-for-profit convention bureau that brings shows to McCormick Place. The bureau must book 50 pieces of business to boost its base fee of $975,000 this calendar year up to a maximum of $1.3 million. The overarching goal is to draw visitors who will spend money in the city, though McCormick Place also draws revenue by renting facilities and offering a variety of services, from phones to parking.

Likewise, SMG, the private operator of McCormick Place, must surpass several performance measures, including producing more revenue than budget goals, if it is to push its base fee of $450,000 up to $900,000.

"The incentive in both these contracts isn't a token; it's significant, to change behaviors," said formerMcDonald's Corp.Chief Executive Jack Greenberg, who is chairman of the authority's board.

McPier CEO Jim Reilly, who shepherded the revamp, said he believes the city has reached a turning point.

"In the spring of 2010, a lot of people were ready to write McCormick Place off, saying it's just going to collapse," Reilly said. "In two years, we've totally reversed that."

In a promising move, Reed Exhibitions, a major show manager that had been avoiding the city, last week committed three of its trade shows to dates at McCormick Place on the heels of a labor pact allowing stagehands, rather than show-floor electricians, to do audio-visual production work for presentations outside the exhibit area. The move is aimed at giving shows greater control over their productions.

"We appreciate all the changes Chicago has made," Nancy Walsh, Reed's executive vice president, said during the press conference about the announcement.

But some labor leaders remain cautious about whether their concessions will bring in enough new shows to replace the hours its members have given up under the new rules, which allow exhibitors to cut their labor costs by using smaller crews or doing more of their own booth set-up, rather than relying on tradesmen.

"Will it bring more shows? They say it will, and I can't argue that it isn't, but they are not setting any records, to my knowledge," said Frank Libby, president of the Chicago Regional Council of Carpenters.

The need for more shows is urgent, particularly because the slump in the housing market has left many in the building trades with too few hours to qualify for health insurance, said Terry Allen, business manager for the International Brotherhood of Electrical Workers Local 134, which recently reached the labor-sharing pact with the stagehands.

"I'm trying to find man-hours for my members. I can't wait for the economy to turn or for (Gov. Pat) Quinn to sign a gaming bill," he said. "They are dying out here. It's three years since a lot of them worked."

While the city has landed a string of new and renewed shows in recent months, it still has a long road ahead to rebuild business to earlier levels and beyond. In 2011, the city hosted 52 trade shows and conventions with 768,685 delegates, down from 75 shows with 1.3 million delegates in 2001, according to Choose Chicago data.

"The dilemma McCormick Place faces is that everyone is competing head-to-head for the same business with essentially the same set of competitive devices," said convention expert Heywood Sanders, a professor at the University of Texas at San Antonio. An oversupply of convention centers means the competition for shows is particularly fierce, which leads to heavy use of financial incentives, he said.

Grabbing a greater share of the nation's convention market while holding on to its existing base is critical for McPier if it is to break out of the red in the next two years. The cornerstone of its plan is to fill rooms in the second hotel tower.

The $110 million addition will open as early as next spring, bringing another 460 rooms to the hotel, which has 800. The expanded hotel may take a while to ramp up, and McPier officials project occupancy rates of only 55 percent and 59 percent in the first two fiscal years. This compares with a 65 percent rate in the existing hotel in the 2012 fiscal year, which will end Saturday.

"Even making the conservative estimates on the occupancy, we can make up the $20 million," said Reilly, referring to the state subsidy, which expires June 30, 2014.

The biggest wild card going forward is the economy, said Greenberg, McPier's chairman. "It affects attendance at these meetings and it affects all these trade associations that we'd surely want as customers," he said. The recession caused McPier's deficit to balloon in fiscal 2010.

Nationwide, the trade show industry has been stung not only by the recession but also by increased use of the Internet for marketing and by consolidation in various industries, which translates to fewer buyers on show floors.

McCormick Place officials say they are adapting by focusing on attracting midsize corporate and association gatherings that previously may have stuck to lower-cost venues in smaller cities. It's not a new strategy; that has been an aim since the West Building opened in 2007.

But with the recent restructuring of convention center operations, officials say their chances are strengthened.

"If the costs are relatively comparable ... does a midsize show want to play on Broadway or off-Broadway?" Reilly said. "We're Broadway. Orlando is Broadway for that matter. Las Vegas is Broadway. Minneapolis is not. Nice city, but ..."

But Sanders adds a word of caution: "Literally every center in the country says, 'Wouldn't you rather be here?'"

It also may be tough to win back shows that have moved elsewhere and liked what they found.

Manufacturing executive Steve McGuire, an exhibitor at the NPE plastics industry show, which left Chicago for Orlando, Fla., prefers that southern venue because it has so many hotels and restaurants within walking distance to the convention center.

"It was constant easy," he said. "People loved it."

kbergen@tribune.com

Twitter @kathy_bergen

___

(c)2012 the Chicago Tribune

Visit the Chicago Tribune at www.chicagotribune.com

Distributed by MCT Information Services



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