Sequestration hits meetings industry

Short-term impact of federal budget deal failure costs venues millions; long-term impact could be devastating

  • by Lisa White
  • Published: March 27, 2013

National_Conference_Center.jpgThe National Conference Center in Leesburg, Va., said 60 percent of its business comes from federal contracts. The sequestration could be a disaster for convention spaces like the NCC.

When the U.S. government enacted mandatory spending cuts in the federal budget on March 1, the trickledown effects slowly began to be felt in various parts of the U.S. economy, including the  venue industry. Canceled government trade shows and curtailed travel have resulted in the industry facing millions of dollars in lost revenue.

“Our convention center was impacted prior to the cuts,” said Jan Addison, deputy GM of the Orange County Convention Center in Orlando. “On Feb. 25, the 2013 GSA Training and Expo, which was scheduled at our venue in May, was canceled. It is very unusual for an event to be canceled so last minute.”

The General Services Administration Show, an annual training and networking event that provides education on government acquisition processes, was to bring in 7,000 attendees to the convention center and provide approximately $13.3 million in economic impact to the area.

Sequestration was a couple of years in the making. It resulted from a deficit reduction deal between the White House and Congress to allow for the government’s borrowing limit to be raised. After the deal was approved, both parties agreed to raise the debt ceiling but also added spending caps over the next several years. A committee consisting of members from both parties was created to further trim the deficit. Because the deficit reduction plan was not met by March 1, $85 billion in Federal spending cuts ensued. Any business with a contract with the federal government — including convention centers — faced a potential breach of contract and a freeze on funds.

Some buildings, like the National Conference Center in Leesburg, Va., were hit very hard. About 60 percent of the National Conference Center business, or $15 million on average annually, came from federal government meetings.

“[The sequestration] is a disaster,” said Kurt Krause, general manager of the conference center. He said the poorly planned budget cut was supposed to have been a last resort for the White House and Congress, and now thousands of entities are suffering due to a lack of leadership in Washington, and many jobs will be unnecessarily lost. 

“Most people believe the greatest asset in business is humans, but what we’re finding out is corporations and the government are finding less time and money to invest in their human capital,” Krause said.

With its proximity to the MacDill Air Force Base, Tampa (Fla.) Convention Center hosts its fair share of military conferences and events. As a result, the sequestration has led to the convention center's losing three contract groups, which equals a loss of approximately $2 million in revenue, and revenue streams that represent food and beverage, retail and exhibitor-related services.

“One of these events was canceled a month out, and it’s a tough thing to deal with,” said Eric Blanc, convention center director of sales, marketing and convention services. “This doesn’t leave us a lot of time to do anything other than replace events with local business. Yet, there are not many groups out there looking for destinations to host events in August.”

Despite losing the GSA event, Addison said the Orange County Convention Center is one of the lucky ones.

“We have a lot of business on our books this year and are able to withstand the sequestration better than smaller venues,” she said.

The million-dollar question is the long-term effect of sequestration. If a deal isn’t reached and cuts retracted, many predict the impact will be much more far-reaching than the conventions and meetings industry.

“For example, if security at the airports is cut, it will make it more difficult for people to fly and add another deterrent for face-to-face meetings,” Addison said. “Meetings add a lot to the economy and, as an industry, we need to keep relaying that message.”

According to the Wall Street Journal, half of the sequester cuts relate to defense spending, while another portion encompasses housing, education and transportation programs. Agencies including the departments of energy, state, defense, labor, transportation, justice, and the National Institutes of Health are affected, and travel is one of the first to be eliminated or cut.

“In a Wall Street Journal article last month, it was relayed that the U.S. Government spent about $3.5 trillion last fiscal year, so trimming $85 billion is only a little more than 2 percent of the federal budget,” Addison said. “When we look at associations, convention centers are almost like educational institutions. The training provided at these facilities is invaluable. Cutting travel and training is short-term thinking.”

Benchmark Hospitality International (BHI) in The Woodlands, Texas, is seeing the effect of the sequestration on its hotel and resort properties located by military bases and major government centers.

“Although the impact is certainly property/region specific, the uncertainty of the influence on budgets is delaying decisions on meetings, reducing attendance commitments and shortening the booking cycle,” said Alex Cabañas president of BHI’s Business Development & Finance and current secretary of the IACC-Americas Board of Directors. “I don’t think anyone knows the long-term effects at this point. We are simply dealing with the short-term uncertainty effects for now.”

This has resulted in the Feb. 14 cancellation of the 2013 ANSO Convention, which was scheduled to take place May 6-10 in Arlington, Va. The event, which fosters the recognition and advancement of Hispanic officers in the uniformed naval services, is still on for next year in Washington, D.C.

The sequestration also has impacted local air shows. The Navy recently canceled a Blue Angels show in Vidalia, Ga. and similar events in three other cities. It is expected that dozens more will get the ax in the coming months, a major problem for festivals.

It also has been reported that close to 200 performances scheduled by the Air Force's formation-flying Thunderbirds and the Army's Golden Knights skydivers have been canceled.

Still, the full impact of sequestration has yet to be felt on the industry as a whole. IAVM is currently collecting data through its VenueDataSource research tool in order to report the broader impact to the venue industry.

“While the potential for event cancellations at our member venues due to sequestration is a real possibility, we have yet to hear significant reports of its impact,” said Susan Ferraro, IAVM’s marketing communications manager. “IAVM is confident that our member venues will be agile enough to adapt to the challenges set in motion by the sequester. As an association, we will continue to advocate for the benefits of face-to-face meetings and live events, and their value to the attendees, our member venues, and the industries, cities and towns that gain revenues from these types of events.”

Others in the industry are hopeful that the sequestration will be temporary and a new budget will be passed that results in more money for travel.

“I don’t foresee it getting better any time soon,” Blanc said. “From all indications in Washington, they are content with the sequestration process. We’re hunkering down like everyone else till the end of the year and hope things will turn a corner in 2014. If not, venues like us dependent on government business will have to refocus our efforts.”

Interviewed for this article: Jan Addison, (407) 685-9874; Eric Blanc, (813) 274-8511; Alex Cabañas, (281) 367-5757; Susan Ferraro, (972) 538-1011; Kurt Krause, (703) 724-5648

  • by Lisa White
  • Published: March 27, 2013