Last week, a story in the Orlando Sentinel contained a financial figure that made my eyes pop.
In a piece about how Orange County spends the mounds of hotel-tax dollars it collects each year, Orlando Mayor Buddy Dyer mentioned that the county’s convention center had just run up a deficit of more than $21 million.
That seemed … huge.
I knew the convention center often lost money. It’s one of Central Florida’s dirty little secrets. The building is supposedly an economic driver. In reality, it’s a money pit — a rarely fully-used complex that sometimes has to bribe groups to come here by offering deep discounts or even free rentals.
Still, the last time I checked, the center lost a few million dollars a year — and actually managed to break even on occasion. Not anymore.
Over the last four years, the convention center has lost about a whopping $100 million, posting annual losses as high as $32 million a year.
To put that in perspective, $100 million is enough money to pay for two elementary schools, 10 electric buses and put 100 police officers on the street for a year.
So you can have all that — or you can cover the deficit costs of giving the AAU Girls’ Junior National Volleyball tournament a 90% rental-rate discount just to have some bodies in the building in July.
Orange County cut convention center’s rates by more than $1 million for AAU volleyball tourney
And don’t think that people are avoiding convention centers because of the pandemic. The market started shrinking and the county’s deficit started growing back in 2019 before anyone even heard of the coronavirus. Even when Central Florida’s tourism economy was booming this past year, the center still ran a deficit of around $20 million — more money lost than any pre-pandemic year.
Why? You probably already know the answer. Because people aren’t attending as many in-person meetings anymore. You know this from the number of Zoom meetings you now attend. Corporate bean-counters figured this out as well. While there will always be some market for big, in-person meetings, the demand is slowing.
Yet despite decreasing demand and increasing deficits, county commissioners recently voted to spend another half billion dollars to again expand the center that is already bigger than the Pentagon at 7 million square feet.
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Again, why? Because the hotel bosses in town told them to.
“It’s a great deal for them. They’re not paying a penny. Putting rooms on the books five or six years in advance gives them a guaranteed base.”
Those are the words of Heywood Sanders, a professor at the University of Texas at San Antonio who has been studying convention centers for decades. Sanders is one of the few people who studies the industry and isn’t paid by the industry. So he offers the kind of frank, no-nonsense analysis local leaders rarely hear or solicit.
If you listen to local convention boosters, they’ll tell you the center generates billions in local revenue. What they rarely talk about is where that revenue goes — primarily to hotels that pay low wages and ship their profits to corporate headquarters in other states.
One of the few convention complexes that doesn’t lose money regularly is in Chicago where local leaders realized they should run the hotels themselves. The authority there owns two big hotels near the center, the Hyatt Regency McCormick Place and the Marriott Marquis Chicago.
That has allowed taxpayers to save big. While Chicago lost a whopping $51 million running its center in 2019, according to its budget documents, the two hotels generated $53 million in profits, more than covering the loss.
Here, taxpayers cover the deficit in the form of hotel taxes, which other communities use for things like schools, transit and roads. And hotels scoop up the profits. A few are locally based, such as Rosen Resorts. But most send them back to headquarters in places like Maryland, Virginia and Illinois.
This is Central Florida’s definition of “return on investment.” Taxpayers invest. Hoteliers get the returns.
And that’s when the model is working well. Most conventional wisdom (pardon the pun) says the convention market is either shrinking or stagnant. Yet hoteliers and the consultants who make money by recommending constant expansions continue to persuade politicians to expand. (See the New York Times piece from a few years ago: “Nobody Is Going to Conventions. Convention Centers Are Growing Anyway.”)
As a result, convention centers are getting more desperate and recruiting lower-value shows — like the girls volleyball tournament or fan-centered events like MegaCon.
Those events are less valuable because the attendees spend less. Instead of a conventioneer booking a room for herself at the Waldorf Astoria and dining each night at high-end steakhouses, you have comic-book fans and teenage athletes jammed four-to-a-room at the Hampton Inn and ordering Papa John’s.
Still, the bottom line is that most all of the “economic activity” conventions generate is largely jobs in hotels and restaurants.
Other communities invest in high-wage medical, technology and manufacturing jobs. We spend billions to create more table-bussing and hotel-housekeeping jobs … and run a deficit in the process.
Only two county commissioners voted against the most recent expansion: Nicole Wilson and Emily Bonilla. Mayor Jerry Demings and the other four all greenlit expanding the money-losing center.
Oddly, members of this mostly Democratic board claimed they wanted to hear some hard economic data about the convention industry, but voted for the expansion before getting it. Spend first, ask questions later.
If commissioners are serious stewards about taxpayers’ money, they’ll bring in someone like Sanders who doesn’t profit off the convention industry or work at a college endowed by a hotelier. They’d ask for some skeptical analysis of the industry’s future — and why their own deficit-running building is so often empty before making it even bigger.
smaxwell@orlandosentinel.com
