A Persuasive Response to Critics Of L.A. Convention & Visitors Bureau

Michael, the Los Angeles Times has taken some journalistic swipes at L.A. Convention and Visitors Bureau operations, including the flight of scheduled conventions to other cities and the salaires and bonus' bureau staff. How do you respond to such criticism? What is the bureau's current strategy to improve its operations?

The status of this organization is not quite as unique as the articles in the Times may have suggested. Our industry in general, and in particular on the West Coast, has walked into some things that I would characterize as a perfect storm. The principal challenge we're faced with as an organization was identified very early on by those who did not want to see a new Convention Center hotel built downtown. Their argument was very simple: why build a large 1,200-room hotel right near the Convention Center when the business that's already on the books is too weak to fill the current supply? This seems like a pretty beguiling argument, until one realizes that headquarters hotels in this town, or in San Francisco or in Sacramento or in Philadelphia or in any major community, are not built to satisfy current demand but, frankly, to induce it. But that started a debate that became very public. We at this organization were particularly vulnerable to that debate because business suddenly began to fall away.

More than 40 cancellations took place over a period of about 24 months, from the latter part of 1999 to 2001. You can see the arguments being pretty persuasive, that well, wait a minute, not only are there not a lot of conventions on the books, but those that were "definite" are suddenly leaving, causing one to say "Well were those conventions, in effect, really on the books or were they something that was compiled to inflate the production of the bureau?" The controller's audit ultimately found no such thing happening.

But what they did find is that something happened in, I would say, July of 2000. Throughout the mid-'90s when we were moving conventions, literally doubling the number of conventions actually held, we were taking advantage of the fact that there was a lot of dust in San Diego and a lot of dust in Anaheim, because both of those markets kind of shut down as they began to aggressively expand their convention centers and began to build an enormous amount of new, premier hotel inventory. So while they were shut down building, we took advantage of that and a lot of the business that has currently shifted back to the cities from whence they came. In late 1999 and 2000, organizations woke up one day and said that the market equations that allowed us to choose L.A. in 1996 and '97 for our convention in 2003 an '04 suddenly changed.

Anaheim opened up with a remarkable assembly of new hotel inventory within walking distance of its convention center. San Diego is continuing to develop a very attractive and competitive and convenient product, and L.A. remains basically the same as it was in 1982. Were sort of a 21st century city with a 20th century hotel inventory, and we were marking time while these guys were aggressively creating a better mousetrap, and in 2000 and 2001 the market woke up and said, "The equation has changed, and we're going to be going elsewhere." In that perfect storm, first is the equation that says there's not enough business to create a new hotel. We, of course, argue back that you don't build it for the business that's there, but for the business that will come as a result of being there. Second, an enormous amount of cancellations take place, and third, is the events of 9-11, which put into suspended animation a whole series of influences on the success of most meetings and conventions markets. I'm not even talking about that other 79-percent of the economy which is influenced by pleasure travel, but just on the objectively measurable convention market.

Suddenly, the 10,000 people who had already committed to coming to L.A., arrived, but in smaller numbers. The attrition, as they call it, is something that cities throughout the country experienced and we found ourselves in the middle of that. So the debate on the health of the convention business in L.A. really is not inappropriate. We have a point of view that is shared by the lion's share of the hotel industry and most of our city government at this stage of the game that any tweaking or even a fundamental shift of the marketing policies of the sales organization-the bureau-is not going to alter the truth, that, as far as a meeting planner is concerned, the world in which they are choosing a site for their convention is no longer the same as it was in 1990. A meeting planner gets off of the plane in San Diego, looks around, and sees what's available to them, and then moves to Anaheim or San Francisco or Las Vegas, and sees, at minimum, 4,500 to up to 10,000 hotel rooms within walking distance. L.A. has 650 such rooms-all of them in hotels that have been around more than 20 years. It's just a very different market.

But Michael, when the perfect storm moves on, the sun peeks through the clouds, what remains standing? What's the goal? What's the opportunity that you need to be positioned to take advantage of when the storm has passed?

The sun will come out. It always has. The one operative tenet, the point that must influence almost all decisions made about marketing Los Angeles is the fact that a whole lot of people want to be here. In a world that doesn't have the threat or the reality of war; in a world that doesn't have an economy that causes discretionary income and discretionary travel to shrink; people will still want to come to Los Angeles. And 24.6 million of them came in what one would call a pretty bad year in 2002. I'll take it market by market, and again I'll start with the convention side of the equation.

The demand for what we have to sell is there, and it's there for a number of different reasons depending on the different market segments. With respect to the convention business, we just finished a study by an organization in Connecticut called Cannondale. that sent a very detailed questionnaire to 1,000 meeting planners. These are the serious decision makers of meetings and conventions that require more than 60,000 square feet of exhibit space. They were asked to respond to a series of questions to evaluate the decision making process, of bringing their convention to the western United States. 340 of them responded, which is an extraordinarily good response, as you know, for that kind of research, and the results were fascinating. And in some cases very affirming to the points I just made.

We have a convention center that the industry tells us is first class. Yes, it could always be bigger, but it is user friendly and it is smartly designed and it is well run. The single biggest critical factor in the decision to bring a convention, apart from availability on the calendar of our convention center, is hotel inventory. Where will my delegates or my membership sleep? If we can address that problem, we have got the elements of success for a national association market. We have an airport that is vastly more convenient to downtown L.A. than it is to Anaheim. Most Anaheim arrivals require a trip to LAX. it is also no picnic if you are coming from the central part of the United States to have a direct flight into San Diego. We have easy access and huge demand. Most national associations make money when they are in L.A. because they can draw such a large audience.

All we really need is to have that Convention Center headquarters hotel built. However, if it is placed today across from the Convention Center, as it is currently designed, the Staples area, it will not succeed, because it will not be able to draw what you and I would call self-contained business. Even if the Convention Center were occupied at 110-percent, a new headquarters hotel would only get something a little bit less than 40 percent of its occupancy from that convention center. So it needs to be able to draw its own meetings and convention business, and in order to do that, it has to be placed in a context that I would simply call fun and pretty.

Let's change the focus, Michael. For a number of years now there's been talk about a sports and entertainment overlay zone for downtown. Tell us about the status of that effort.

The sports and entertainment district, which has been assembled by AEG, Anschutz Entertainment Group, is now over 30-acres and is capable of creating a nurturing environment for a successful hotel. People in my shoes are inclined to find themselves leaning a little bit to hyperbole in talking about new development, but it would be very difficult to overstate the consequences of say 35-acres of new retail, entertainment, and dining establishments, all at street access, immediately around the Convention Center and Staples. The argument for a headquarters hotel, a 1,200-room property, has been there for years. But, if someone came up to us two years ago and said "Where do you want me to build it?" we would have cautioned them not to do that because it wouldn't be able to succeed. But, now that AEG has created this plan and assembled the land to do it, we have every reason to believe that that hotel can flourish in the environment of a sports and entertainment district.

Where does it stand right now? As we speak there are two processes afoot that are influencing it. The first is a lawsuit that involves the City of Los Angeles and the ownership of the Bonaventure Hotel and the management company that operates it. That organization is in dispute with the city regarding the formation of a public benefit corporation that would ultimately own and operate and sell the bonds for the construction of a new 1,200-room hotel. As long as that legal action is in place, the process of government to address all of the issues, in terms of getting development up and off the ground, just remains stopped. Nothing's going to happen until that is resolved.

The second is the county's interpretation of the Staples area as a redevelopment zone. The county inevitably stands to lose some revenue because the project is considered a redevelopment area and they are disputing that. They would like the sports and entertainment district to be excluded from the redevelopment area.

Who are your clients-your constituency, your board, the stakeholders that have to make these decisions and set the course, long-range and short-term, for you organization. To whom are you accountable?

We're a private corporation with a contract with the city. The private corporation is governed by a board of directors. That board, by any objective measure, represents some of the most effective and demanding business leaders in California. We now have approximately 18 hotel general managers who meet about every six weeks to direct and influence the goal setting and the programming for convention sales. We have another group that does exactly the same thing with international markets. And separately, there is a domestic marketing stakeholder group. My point is that we have a large number of responsible, involved, active and energetic business leaders who are very explicitly defining the direction of the organization and working quite closely with staff to see to it that where we're moving and what we're doing doesn't risk confusing motion with progress.

What's at stake is perfectly simple. The city chose to invest in the national association convention marketplace. It's decided we're going to spend $500 million on a very sophisticated, well-designed box. The purpose of that box is to bring in revenue from out there into this market that wouldn't otherwise be here. You know, 11,000 wallets landing within 3 hours of each other, and moving with great efficiency from the airport to hotels in downtown, emptying themselves out over a 72 hour period and all heading home is an enormous shot in the economic arm of the city-that's why cities build convention centers. They don't build them to "make money" for the convention center itself. They use them as economic catalysts.

This city decided to build this convention center and it opened in '94. If the city wants to be in this business, it will have to create the infrastructure to support that building, the same kinds of decisions that have been made by our competing markets, and that's what's at stake here. Either we are in the national association convention business or we're not.

In a post 9-11 world, how large is the international visitor marketplace that Los Angeles is marketing to, and what's this market's growth potential in the near and long term?

The international visitor market is a $4 billion direct cash business. About 20-percent of the visitors to L.A. come from the international market, but they represent one-third of all revenue. The prospects for Los Angeles, notwithstanding the immediate and obvious dampening effect of international military action, on that international picture are just extraordinary. Just take a look at what's happened to the visitor economy throughout the last 20 years.

If Los Angeles didn't exist, you'd have to invent it as a point to which all roads lead. By that, I mean all international air traffic. So we have as many visitors from Europe in ordinary times as we do from Asia. Globalization will put Los Angeles squarely in the middle as it has been for the last 10 or 15 years, and we will succeed there in some pretty exciting ways. Currently, LAX is being redesigned to be positioned primarily against this particular market segment. As far as the economy is concerned, short term we're going to find ourselves in paralysis on most of the international business. What we're going to be doing in the immediate future is taking a look at the domestic drive market and making it fiscally irresponsible for anyone who is in the business of putting their family in a car and looking for a place to go this summer, for them not to go to Los Angeles.