By Chris H. Sieroty
With SMG’s contract to operate the Ontario Convention Center set to expire in June, city officials have begun to explore their options. Among the possibilities are having city staff oversee the facility, approving a new contract with its current operator or contracting with a new company to operate the space.
Based in Philadelphia, SMG has operated the 225,000-square-foot, city-owned convention center for the past 10 years. Instead of the city council automatically approving another two-year contract, Ontario City Manager Gregory Devereaux told The Business Press that his staff was directed to prepare a report that would outline the best options for running the exhibit and meeting facility.
He said the report was scheduled to be completed in the first quarter and then presented to Mayor Pro-Tem Jim Bowman and Councilman Alan Wapner, who were chosen to lead a subcommittee to explore the city’s options for operating the convention center. The committee will then make recommendations to the city council, the city manager said.
“In these times, it’s prudent to explore what your options are in running the convention center in the most cost effective way,” Devereaux said. “In the end, we want to make a recommendation that would be the most economical. We do this constantly with all our departments and programs … this one just happens to be more public.”
The Ontario Convention Center, which was first opened in 1997 and operated as a non-profit for two years, operates at about a $1.5 million annual deficit. While city officials would like the convention center to break even or even show a profit, Devereaux said it acts “as a loss leader” in an effort to increase local TOT taxes (Transient Occupancy Tax) and business for local hotels and restaurants.
Wapner agreed, saying the review would give the city the opportunity to gage if the current contract was doing what it was supposed to do, increase the amount of TOT collected by the city.
“I’m concerned that the convention center is not generating enough TOT taxes,” Wapner said. “I don’t know if it’s because of the economy or the way it’s being managed or a combination of both. But this process will give us time to review how the facility is being run.”
In fiscal year 2007-2008, Ontario collected $11 million in gross TOT, according to a city official. In fiscal year 2008-2009 that declined to $8.7 million.
Grant Yee, the city’s finance director, said TOT were expected to decline to around $8 million in the current (2009-2010) fiscal year that ends June 30.
Wapner said he and other council members were also concerned if SMG was fulfilling commitments it made two years ago when their contract was renewed. Those commitments included using the company’s buying power to reduce costs, and a national marketing team to book larger conventions and trade shows at the facility and bringing down the convention center’s operating deficit.
“I’m not sure we’ve met our goal of building tourism and supporting local businesses while bringing down the operating deficit,” the councilman said. “Or even if it’s being operated in the best interests of the Ontario Convention Center or SMG.”
Bob Brown, an SMG employee and general manager of the convention center, said “We are following the direction of the city manager and city council and providing all the information they need to do their diligence of exploring the contract extension.”
In a report prepared by its staff, the Ontario Convention Center expected to generate $4.1 million in economic impact from 25 events in the third quarter that ended Sept. 30. Fourth-quarter economic impact figures were not available.
“No event is too big or too small, especially in this economy,” Director of Sales Amita Patel said in a statement. “We continue booking events and stirring business with visitors who will book rooms at local hotels and spend at local eateries and shops.”
In the statement, Brown added: “A convention center’s purpose is to generate economic impact. We support and help local businesses thrive with every event we book.”
Wapner, whose term ends in December 2010, expressed concern that SMG was not attracting large enough events that would increase occupancy rates at local hotels. In a report prepared by Bruce Baltin, senior vice president with PKF Consulting in Los Angeles, the economic downturn and modest increase in the hotel supply this year was expected to lead to “immense pressure and increased competition among local hotels.”
In 2010, the hotel market was expected to remain tough, but Baltin wrote the “long term outlook for the Inland Empire and Ontario is favorable.”
Overall, PKF Consulting predicted that 2009 year-end hotel occupancy rate in Ontario would be 60 percent, then showing a slight decline in 2010 to 59 percent before rising to 62 percent in 2011 and 2012.
“My job is to make sure (local) hotels survive through this economy,” Wapner said. “SMG’s job is to look at convention center’s bottom line, while my job is also to look at the bottom line for the city as a whole.”
Among the options is running the facility in house, but Devereaux said initial indications were that it would be unlikely “you would go purely in house” to operate the convention center because of the increased employee and pension costs.
He said the city had also been contacted by consultants seeking to represent the city in its negotiations with SMG and had received an inquiry from Global Spectrum about the possibility of replacing SMG. Messages left with Global Spectrum executive Todd Glickman were not returned.
Based in Philadelphia, Global Spectrum is a division of Comcast Spectacor, a sports and entertainment company which owns the Wachovia Center, Philadelphia Flyers, Philadelphia 76ers, and Comcast SportsNet. Global Spectrum was one of the companies that originally bid for the operating contract in 1999.
“I got a letter from another firm expressing interest,” said Wapner, who declined to identify the company. “There is interest out there.”
Wapner expressed the hope that a decision could be forthcoming by January but wanted to give city staff the time they needed to complete their report.
“We need to give SMG an answer by the end of January, but I don’t think it will make a difference if we take a couple of extra weeks,” he said. “Maybe in the end we’ll be able to strike a better deal with SMG.”