Philly labor costs a top reason for lost convention business, report says

Posted: January 21, 2011

The price of union labor at the Convention Center has cost Philadelphia's hotel industry 400,000 nights of business between 2007 and 2009, according to a new report that takes a broad look at the center's operations, management, marketing, and business plans.

Labor costs were the single biggest reason for the lost business at the center during those years, the report said, with three dozen groups deciding to take their thousands of conventioneers somewhere other than Philadelphia.

The finding bolsters an argument by Ahmeenah Young, Convention Center president and chief executive, and her supporters that the building's existing labor structure undermines an ability to stay competitive even as the center readies to double in size with the completion in March of a $786 million expansion.

The state-ordered report made no outright recommendation about reducing the number of labor unions used to set up and break down convention and trade-show exhibits. It did, however, point out that no other facility has as many unions, with some engaging three or four at most.

To be sure, the report found that the building's union workforce is not the sole source of problems facing the Convention Center.

Among other challenges highlighted: The building's 83-person staff lacks experienced hospitality professionals in several areas; can do more to work cooperatively with labor union representatives; and has vacancies in key positions such as chief financial officer, chief technology officer, and national sales manager.

"Filling vacancies in key areas prior to expansion with qualified personnel who have convention/hospitality experience is critical," wrote report author Susan Sieger of Crossroads Consulting Services, based in Tampa, Fla. Sieger did not return a call Thursday.

Perhaps more notably, the report found that the Convention Center has bigger operating losses than comparable facilities that compete for business with Philadelphia. (Most convention centers are not moneymakers in and of themselves; they foster revenue by luring out-of-town, tax-generating conventioneers to hotels, restaurants, and shops.)

At the same time, the report pointed out that Philadelphia's operating losses are expected to balloon in fiscal 2012, the first full year for the expanded building, with total expenses estimated to climb to $35.6 million, from $24 million in fiscal 2010. Total revenue is projected to be $12 million; it was $8.4 million in 2010.

"There is no one best recommendation for designing or operating a facility as many unknown external factors impact operations over time and the dynamic nature of the industry requires flexibility," the report said.

But it made several suggestions in key areas, many based on an analysis of finances and practices at convention centers in Anaheim, Atlantic City, Boston, Denver, New York City, Los Angeles, San Francisco, San Diego, and Washington.

Buck Riley, the chairman of the 15-member Convention Center Authority board, declined Thursday to answer questions about the vacant staff positions, or the Crossroads report in general.

Speaking at the authority's monthly meeting, Riley lauded the 109-page report - which was not voted on nor discussed in detail - as "not fluff" and inclusive of "solid recommendations." He added: "I can say without equivocation the implementation of this report will require a lot of work by the management and by the board."

One priority, the report said, should be to decide whether to continue to employ a private company, now the Elliott-Lewis Corp., to provide labor to exhibitors. Only New York's Javits Center uses a similar model.

The report also called for a long-term labor agreement, which outlines union jurisdictions and work rules, to be negotiated as quickly as possible. The current deal expires August 2013.

Union representative Ryan Boyer, who is a Convention Center board member and business manager of the Laborers' District Council of Philadelphia & Vicinity, did not return a call.

Other recommendations included increasing the board's involvement in the budget process, reducing operating deficits, and defining clear roles and responsibilities for department heads.

But the Crossroads report also highlighted the Convention Center's many strengths. For instance, the building will offer the most contiguous exhibit space - 541,000 square feet - of any center in the Northeast, and will have the largest convention center ballroom on the East Coast, with 55,400 square feet.

Also, Philadelphia is one of the most easily accessible cities in the nation via air travel.

Just as important, the report said, the center's management is moving in the right direction by shifting from acting as a building landlord to a "hospitality-service provider."

"The Convention Center has transformed the city. Now the question gets down to long-term viability and sustainability," said State Rep. Dwight Evans (D., Phila.), a major supporter of the building since its inception in the 1980s, and Young's biggest political backer.

"The question is if there is the collective political will to do the things we have to do," he added.

Among other priority concerns, the report noted that with the additional visitors the expansion will draw, there are too few hotel rooms overall in the city, and particularly within walking distance of the Convention Center. A prolonged shortage of hotel rooms could threaten the building's long-term success.

"Future hotel supply both proximate to the [center] and citywide will play an important role in the expanded center's marketability, particularly relative to its ability to host simultaneous and/or conventions/trade shows with high attendance," the report said.

It also pointed out that Philadelphia has the third-highest tax on hotel rooms, at 15.2 percent, behind Anaheim and San Francisco. Just two years ago, city and tourism officials applauded a 1.2 percentage-point increase in the city's room tax, passed in part to help pay for the expansion.

The analysis was paid for by the state, which required the report to be done as part of a deal in which legislators agreed to use casino revenues to pay for the expansion. It cost $135,000.

At the time, Gov. Ed Rendell was hesitant to support the larger building, citing concerns about the lack of professional managers at the center and its operating costs. With the expansion, the state - and not the city - is now responsible for paying any operating deficit, as well as debt service related to state bonds issued to pay for the expansion.

"We made a big investment in bricks and mortar," said center board member Michael Masch, Rendell's former budget secretary, who called for the report to be done. "We will realize the benefits if we can continue to have an efficiently run center."

He added: "The most important thing for us right now is to have a good opening. . . . It is important for us to make a good first impression and a good second impression."


Contact staff writer Marcia Gelbart at 215-854-2338 or mgelbart@phillynews.com.

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