By Steve Rhodes
“A three-month Crain’s investigation finds questions of profit and fairness clouding the future of McCormick Place, the linchpin of a Chicago convention industry that generates $8 billion in annual spending and supports 66,000 jobs,” James Ylisela reported on Monday.
“In 2009, when some big trade shows left or threatened to leave Chicago over price-gouging and labor practices at McCormick Place, lawmakers rushed through legislation imposing wage cuts and work-rule changes on unions at the convention center.
“But labor represents a relatively small share of exhibitors’ costs at McCormick Place. The reforms required no meaningful concessions from trade associations or a pair of show contractors that continue to squeeze exhibitors, who already bear most of the costs of conventions.
“Freeman and Global Experience Specialists Inc., which handle three out of four McCormick Place shows, still charge the same high rates exhibitors cite as their No. 1 complaint.”
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This is true. See Convention Wisdom, an excerpted summary of the story about McCormick Place I wrote for Chicago magazine in 2004, which included these passages:
“For all the talk of high labor costs in Chicago, convention officials still use wage rates as a selling point. A Web site dedicated to the McCormick Place West expansion boasts of average hourly pay that is lower than that in several other cities, including New York, San Francisco, Philadelphia, San Jose, and Atlantic City.
‘”We honestly don’t believe Chicago is out of line with its labor costs,’ says [Ken McAvoy, a senior vice president at Reed Exhibitions, which owns, among others, the National Hardware Show]. ‘We do believe that some of the work rules need to be reworked to make it easier to exhibit, but that’s no different than any of the other cities.’
“Indeed, work rules, not wage rates per se, are the issue in Chicago. Show managers are concerned with issues such as the size of work crews, the way overtime pay is calculated, and allowing exhibitors to do more of their own work instead of being required to hire union labor for certain tasks.”
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“Indeed, union officials say they’re willing to make further concessions as long as the pain is shared – something they’re not sure happened during the last round of negotiations in 1998. ‘We believe that we gave concessions that would keep and lure new business to Chicago,’ says Dennis Gannon, president of the Chicago Federation of Labor, AFL-CIO. ‘We don’t believe that the contractors ever passed that savings on to the customer.’
“The contractors say that’s nonsense. ‘All of the changes that did occur were passed on to exhibitors or show organizers if they were billed,’ says John Patronski, executive vice president of industry development for GES. Bob Lozier, executive vice president of Freeman, says that not only have the savings been passed on, but contractors have absorbed the 3.5 percent to 5 percent annual raises labor has received.
“Gannon doubts the contractors are suffering. ‘Follow the money,’ he says. ‘If you look at Freeman and GES’s profit margins over the last four years, they didn’t go down. But I can tell you that the money that was going in the pockets of the working men and working women down there went down from the concessions we had to come across with.’
“Further complicating the discussion is a confusing billing system that doesn’t break down costs with as much specificity as some would like. ‘The exact economics is a mystery,’ says [Mary Pat Heftman, a senior vice president with the National Restaurant Association]. ‘It’s so convoluted.’
“For example, according to [Leticia Peralta Davis, who was the chief executive officer of the Metropolitan Pier and Exposition Authority that is in charge of McCormick Place], the contractors are responsible for moving freight off the loading docks and into the exhibit halls, and it’s not clear how much of a markup they are getting. ‘There has to be transparency in the way contractors bill our customer,’ she says.”
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“Labor costs, aren’t the only factor on which convention centers compete. ‘They always like to try to blame the unions as to cost, but that’s only one of maybe 20 things,’ says McAvoy. ‘You’ve got to look at the hotel costs, the cab costs, the airfare costs, the restaurant costs, everything else.'”
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Back to Crain’s:
“These [contractor] charges are higher at McCormick Place than at some other convention centers, including Rosemont’s.
“At the same time, contractors reward the trade associations by covering some of their direct costs, then passing those costs on to exhibitors through higher prices for a range of services. Crain’s also finds that trade associations pad their profits by substantially marking up what exhibitors pay for floor space and hotel rooms controlled by the associations.
“‘The association managers have gone tone deaf to the needs of their exhibitors, and they’ve become addicted to the money they realize from the contractors,’ says Jim Wurm, executive director of the Exhibitor Appointed Contractors Assn., a Bend, Ore.-based non-profit advocacy group.
“Now McCormick Place is preparing to hand the contractors a lucrative new plum: exclusive rights to provide electrical services at trade shows. Last year’s legislation required McCormick Place electricians to perform that work at cost but allowed Freeman and GES to compete. Officials say they can no longer afford to be in the electrical business, opening the door for Las Vegas-based GES and Dallas-based Freeman to mark up those services and wipe out one of the most significant cost savings exhibitors won from the reforms.”
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“Exhibitors say the reforms save them money by allowing them to do more work in their booths without union labor. But industry surveys consistently show they are far less concerned about costs of labor than they are about costs imposed by contractors and trade associations.”
Here We Go Again
On the same day that Ylisela’s report appeared, the Car Care Show announced it was leaving McCormick Place for Las Vegas.
“The Car Care World Expo has decided against holding its 2013 trade show at McCormick Place due to higher labor costs and instead will go to Las Vegas,” Crain’s reported.
“Eric Wulf, chief executive officer of the Chicago-based International Carwash Assn., said that the uncertainty surrounding wide-sweeping reforms enacted last year by state legislators and currently being challenged by several unions forced the organization to withdraw its letter of intent to hold a future show in its hometown.
“‘Chicago simply is not a possibility given its work rules,’ Mr. Wulf said.”
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Actually, the Car Care Show wasn’t so much “lost” as it decided not to come here after all.
“A mid-sized convention has reversed its intention to go to Chicago in 2013 and will instead remain in Las Vegas,” the Las Vegas Review-Journal reported.
“Car Care World Expo, staged by the International Carwash Association, had earlier planned to return to its home base after being in Las Vegas since 2006. It has already booked the Sands Expo Center for next year.”
Which isn’t to say it isn’t a loss for Chicago because it is. But not a huge one.
“The expo has been shrinking in recent years. This year’s attendance dropped to 5,500, down one-fourth from two years ago and nearly half from the peak of 10,500, according to association numbers.
“Likewise, the number of exhibitors and square footage they rented, important income centers for the association, have declined in tandem.
“The show previously had gone into the Las Vegas Convention Center, but this year downshifted to the smaller Sands.”
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Back to Crain’s:
“The package of sweeping reforms, including changes in labor rules designed to make McCormick Place more competitive with rival convention cities, became law after the Illinois Legislature overrode Gov. Pat Quinn’s veto.
“Those reforms were challenged in court by several Chicago unions. A federal judge ruled in favor of the unions, but McCormick Place officials have asked that the reforms remain in place while the case is on appeal. The judge has yet to render an opinion on the request.”
The Car Care folks cited uncertainty over this legislation as a factor in their decision. So let’s put legislators and their poorly written bill ahead of the unions too when assigning blame. Contractors, legislators, unions. In that order.
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“Mayor Rahm Emanuel [Tuesday] said he’s concerned by the Car Care World Expo’s decision not to come to McCormick Place and pledged to be aggressive in trying to keep costs down at the lakefront convention center,” the Tribune reported.
Let’s hope he reads Ylisela’s piece.
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Comments welcome.
Posted on June 15, 2011