Expectations too high for medical mart complex, some experts say

Christopher Kennedy, president of Merchandise Mart Properties, Inc., talks with city council members at Cleveland City Hall on Feb. 12.

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CLEVELAND -- Merchandise Mart Properties Inc. President Christopher Kennedy proclaims his company's plan for a taxpayer-funded medical mart and convention center here would turn Cleveland into "a Disney World for doctors."

Yet some medical-industry insiders and convention-world experts wonder whether MMPI's business plan for its partnership with Cuyahoga County isn't as fanciful as a Disney fairy tale.

The predictions for success -- which include nearly $1 billion a year in local economic benefits -- are based on assumptions that skeptical observers say are optimistic at best and grossly bloated at worst.

A potential consequence: The actual boost to the region could turn out to be a small fraction of the annual $990 million economic-impact turbocharge that has been forecast.
"People have tended to see these types of things as grand silver bullets that are going to solve everything, and they rarely do," said Heywood Sanders, a controversial researcher who specializes in dissecting convention centers.

At issue are several forecasts from Kennedy's Chicago-based company:

The complex will lure 60 medical conventions and 100 smaller health-care meetings each year -- between 5 percent and 10 percent of the most coveted slice of the convention and meetings industry. The meetings and trade shows will lure 300,000 attendees to Cuyahoga County each year, turning Greater Cleveland into the most successful medical-meetings mecca in the country, if not the world.

Each of those 300,000 out-of-towners will spend an average of $1,100 on lodging, food, travel, shopping and entertainment, for an influx of $330 million in annual direct spending.

Each of those $330 million will be respent, and respent again, in local businesses. The "multiplier effect" will ramp up the total economic impact to $990 million per year.

Sanders, a persistent industry critic, has followed the plan's evolution closely since MMPI proposed it in 2005. The professor of public administration at the University of Texas at San Antonio argues that the high-profile debates over where to build the complex are irrelevant: Clevelanders should be challenging whether the facility should be put up at all.

William Bowen, a professor at Cleveland State University's Levin College of Urban Affairs, oversaw a months-long graduate-student analysis of MMPI's plans, and he and his class came away unimpressed. (Find Bowen's class's analysis here) Said Bowen: "I disbelieve that there's an imaginable world where the sum of all those benefits would exceed the cost to the county."

The skepticism should start with the ambitious plan to dominate the medical-meetings business, some expert observers believe.

Competition is very stiff
"That sounds very, very aggressive to me," said Michael Hughes, vice president of research and consulting at Tradeshow Week and a 15-year industry watcher. "I don't think it would be completely out of the realm of possibility. But it would be a lot more than other cities."

More, for instance, than San Diego, the idyllic, perfect-weather seaside city that ranks among the nation's top convention and tourism destinations.

Medical meetings are "a very big part of what we try to draw" to the waterfront San Diego Convention Center, said Steven Johnson, vice president of public affairs there. That focus has made San Diego one of the top four cities in the country for health-care conventions.

How many does it host?

Sixteen in 2008, said Johnson.

In contrast, Cleveland will host none this year and has none slated for the future.

Given that 20 cities host half of all the nation's medical meetings, most towns would be happy to capture one-fourth of such meetings that San Diego gets -- the crumbs off its table. MMPI's business plan to nearly quadruple San Diego's plump market share could be seen as shooting to take not just the crumbs, but the meal and the table itself.

Indianapolis, the city that MMPI and local convention planners hold up as a convention-city model, covets those meetings, too. But the Indiana Convention Center's calendar for next year slates no medical meetings even close to the size that MMPI Senior Vice President Mark Falanga aims for.

Asked if Cleveland could pull off such a convention coup, Johnson paused for a moment, then answered with diplomacy.

"That seems, given the competition out there, to be very optimistic," he said.

Medical meetings are "very much the cream of the [convention] crop," Johnson said. "The competition for them is fierce."

Hughes believes in the mart concept and its power to draw medical shows to Cleveland. To aim for luring every midsize medical show once every 10 years is "an excellent goal," he said. "But that is what another 20 or 30 cities are shooting for."

Economic-impact data is aging
Merchandise Mart Properties has told Clevelanders the new complex will pump up the city's economy by nearly $1 billion a year.

That figure assumes the 300,000 projected attendees will spend $1,100 each ($505 on lodging, almost $300 on food, and more on car rental, sightseeing, shopping, parking, recreation). It further assumes the $1,100 per visitor is respent again and again.

Where does the $1,100 figure come from? It's based on an "industry average" from a 2005 study by the tourism-promoting Destination Marketing Association International Foundation.

The association has advised its membership in January that the 4-year-old data are no longer reliable "for the changing economic times."

And there's a growing consensus in the meetings industry that the $1,100 "average" never was accurate. The big hitch: The figure assumes a hotel stay of almost four nights per attendee. The reality is that most attendees leave far earlier -- and when they leave, their spending money goes home with them.

MMPI stands by the figure. The $1,100 estimate "is a number that resonates with us," Falanga said last month.

"I sign off on a lot of expense reports," he said, "and very few of them come in for less than that."

But, said Doug Ducate, president of the Center for Exhibition Industry Research, "Certainly the national trend has been fewer nights as visitors tend to want to get in and get out."

"They are far more efficient and better organized than visitors were 20 years ago," Ducate said last week. "The old mantra was arrive and wander around the exhibition hall and meeting rooms for three days. Not so today."

Sanders, the Texas-based industry analyst, told Congress in 2007 that in the previous year -- a period of robust meetings-industry growth after a post-9/11 slump -- convention attendees at the then-new Boston Convention and Exhibition Center stayed an average of 0.99 night each -- 2.5 nights below consultants' pre-construction predictions.

Also in 2006, San Diego conventioneers stayed an average of 1.26 nights, and in Washington, D.C., the three-year average stay was 1.15 nights per convention attendee, Sanders told a House committee studying publicly financed sports venues and convention centers.

How does it matter? If the average Cleveland convention visitor stays 1.5 nights instead of 3.56, spending would presumably decrease accordingly -- to $463 per visitor, instead of $1,100. So MMPI's estimate of annual direct visitor spending of $330 million would tumble to $139 million.

If the average conventioneer stay in Cleveland equaled the typical 1.26-night sojourn in San Diego, the complex would attract new direct visitor spending of $117 million -- barely more than one-third of MMPI's projection.

Another component of the $990 million-a-year economic-impact projection for the medical mart and convention center development is that every out-of-town dollar that comes to Cleveland translates into economic impact of triple that amount.

Merchandise Mart Properties and the local convention and visitors bureau, called Positively Cleveland, assume each dollar that out-of-town visitors spend here is spent two more times in the region. A dollar in direct spending equals $3 in economic impact -- a "multiplier" of 3.

Spending 'multiplier' has skeptics
MMPI and the tourism boosters apply that multiplier to their assumption of $1,100 in spending by 300,000 visitors equals $330 million in direct spending. The numbers then translate to $990 million in annual economic stimulus.

Or do they? Apparently, many -- even most -- other convention bureaus and boosters don't believe the numbers, because they use more-conservative multipliers.

Consultants at PriceWaterhouseCoopers told the now-defunct Cleveland-Cuyahoga County Convention Facilities Authority in 2005 that an appropriate effective multiplier would be 1.58 -- that every $1 in visitor money would bring $1.58 in overall economic impact.

The Knoxville Tourism and Sports Commission in Tennessee figures $1 in visitor money equates to $1.57 in economic impact. San Antonio, Texas, and many other convention-and-visitor bureaus figure each out-of-town dollar is circulated once more, for a multiplier of around 2.

Denver determined the $16.6 million in direct spending by attendees at last year's Democratic National Convention produced a total impact of $28.4 million -- an effective multiplier of 1.7.

In comparison, the $1-equals-$3 multiplier that pro-convention-center forces here have been using looks rosy. Apply a more conservative multiplier of 2 to MMPI's direct-spending figure of $330 million, and the impact forecast plummets from $990 million to $660 million.

And if both the direct-spending figure and the multiplier are too high? Then the overall economic-impact number -- the $990 million-a-year figure often used to drum up support for the Cleveland complex -- would be dramatically overstated.

Say direct spending is far below $1,100 per person -- closer, for instance, to the $389 that would result if each visitor spent at the predicted rate but stayed only for a San Diego average of 1.26 nights instead of 3.56 nights.

That would produce $128 million in average direct spending by 330,000 conventioneers here.

If the more typically used multiplier of 2 is applied to that $128 million figure, the result is a total annual economic impact of $256 million.

That's 74 percent below the $990 million forecast by MMPI.

MMPI dismisses that kind of analysis, with promises that the complex can be an economic engine for a region that definitely needs one. The $990 million forecast, says Falanga, is "as good as it gets."

"I think it's a fairly conservative multiplier," he said, "and a fair way of calculating."

Cuyahoga County Commissioner Tim Hagan has acknowledged that the economic-impact forecasts are "a shot in the dark" with "no assurances." But, he said, the plan is worthy of support.

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