How Chicago Lost Dominance Over the Convention Industry
What will fill McCormick Place's space?
When the Metropolitan Pier and Exposition Authority (MPEA) announced in early April it would resort to asking the State of Illinois for a bailout of $15 million from the taxpayers to meet its imminent debt obligation, the request came despite the state’s chronic fiscal problems.
The latest in a train of events for the agency which operates McCormick Place and Navy Pier, the plea for a rescue from Springfield comes after the announcements two trade associations, the International Air-Conditioning, Heating, Refrigeration Institute and the International Housewares Association would not hold their annual meetings and trade shows at McCormick Place.
In addition to the loss of annual conventions, some 220 since the COVID-19 pandemic struck, the MPEA’s appeal for an infusion of $15 million in state funds comes at a moment in which the agency is unable to offer assurances a lifeline from the state will help salvage its sagging fortunes.
While much of the MPEA’s recent hardships have been dealt by the coronavirus, those who have convinced themselves the global pandemic is entirely responsible for the poor shape the MPEA finds itself in are searching for a convenient excuse or misreading recent events.
The earliest tradeshows and association meeting were originally held in hotel ballrooms. However, in the post-World War II era, as the trade show industry grew, venues large enough to accommodate thousands of attendees for the exhibition industry were in demand. Though Chicago featured the International Amphitheater at 42nd and Halsted, the facility was older, considered unsuitable for conventions and hosted too many special events for Chicago to compete for convention business.
Moreover, Mayor Richard J. Daley, the man whose leadership successfully spared Chicago from the midcentury decline which befell other Rust Belt cities, was anxious to invest in a convention hall and envisioned a facility which could energize Chicago’s economy, boost hotels and restaurants, provide jobs, and produce a real operating profit.
An adept politician, to Daley, Chicago was the perfect setting for a state-of-the-art convention center: Chicago was centrally located, had a modern mass transit system, and featured a roster of extravagant hotels, restaurants, theaters, museums and fashionable retail shops which made the Windy City an exceptionally pleasant place for trade show attendees to visit.
With the political influence of Robert McCormick, owner and publisher of the Chicago Tribune, the State of Illinois authorized the construction of a facility which would eventually bear the name McCormick Place in 1955. Ground broke in 1959, and in 1960 Chicago christened a gleaming, 360,000-square-foot exhibition hall, complete with conference rooms and the 5000-seat Arie Crown theater. Reduced to ashes in January 1967 fire, Mayor Daley oversaw the reconstruction of the convention center, which reopened its doors four years later in January 1971.
A new structure influenced by the designs of Ludwig Mies van der Rohe, McCormick Place’s re-emergence from the rubble of the fire which consumed it symbolized far more than simply the resumption of business and traffic on the convention floor, but the beginning of a forty-year period in which Chicago would rise to the pinnacle of the convention industry.
With a facility which outclassed all others on the North American continent, for the next four decades, McCormick Place would become an engine which yielded billions in revenue for Chicago and would attract over three million visitors yearly. Over the same period, McCormick Place vastly expanded in size to add over one-million square feet of exhibitor space, the construction of the Marriott Marquis Chicago and Hyatt Regency McCormick Place Hotels and Wintrust Arena.
A strategy which worked like a charm for years, McCormick Place, the gift which many expected to keep giving indefinitely, has seen its fortunes sputter sharply in the past decade, with several associations headlining annual conventions exiting Chicago. An exodus from McCormick Place which began over ten years ago with the National Hardware Association and Plastics Industry Association retreating from Chicago, several executives in the exhibition and convention industry fear McCormick Place’s future remains gloomy. Worse, they say it is unrealistic to presume McCormick Place will ever win back associations which departed Chicago.
Though the executives who cooperated with Chicago Contrarian say exhibitor and visitor numbers down from previous years is owed to COVID-19, they claim the decline in Chicago’s convention industry began prior to the pandemic and is attributed almost entirely to the enormous cost of exhibiting. Chicago, they say, priced itself out of the business and forced associations to hold annual conventions elsewhere.
To sufficiently comprehend why trade associations have bid farewell to Chicago, it is critical to understand the influential actors in the industry and the role they play. Though numerous groups play a role, the most important participants which have contributed to the fall of McCormick Place hosting conventions are associations, which represent a trade; a trade show’s general contractor, which plans, organizes, and supplies union labor; organized labor such as the Teamsters, Carpenters, Decorators and Riggers unions; Chicago’s hospitality sector, particularly hotels and restaurants; and both the City of Chicago and the MPEA.
With Chicago having to compete for business like no time before, just as it is vital to perceive who plays what role in hosting a convention in Chicago, it is critical to grasp how pricing is determined for conventions held at McCormick Place.
Under rules set by the MPEA, an association enters into an agreement with MPEA to rent floor space to host a show. The association then enlists an event management company to oversee the exposition, which provides labor and services for the installation and dismantlement of exhibit booths.
In Chicago, two management firms overshadow all others: Dallas-based Freeman and Las Vegas-based Global Experience Specialists (GES Global). Both are full-service suppliers to trade shows. Exhibitors, or the firms which present a product or service at the show, rent floor space from the association for the right to exhibit. Though the pricing differs in each settlement between the MPEA, the association, and the exhibitor, the cost is determined per square foot of space. While negotiations between associations, management firms and the MPEA are not broadcast to the public, the price per square foot increases in every successive deal negotiated. Naturally, the MPEA earns a profit from renting space to an association, and the association recoups costs by increasing floor-space-rental price to an exhibiting firm at a considerable increase.
To rent floor space from the MPEA, associations typically pay around $1.50 a square foot, but some associations are known to pay a rate nearing $2 per square foot. As one can suppose, the exhibiting company is bearing a remarkably high cost to exhibit, up to $40 per square foot, according to several executives in the trade show industry.
There was once a period in which McCormick Place provided stable jobs and steady work for thousands of tradesmen living in Chicago, its suburbs, and Northwest Indiana. However, several industry executives who represent companies exhibiting at McCormick Place say labor unions are a main reason why McCormick Place is in decline. Though Chicago once provided superior labor, industry executives say high union wages and rules which limit the amount of work an exhibitor can perform to install or dismantle an exhibit have left exhibiting companies seeking permanent alternatives to Chicago.
According to several executives, labor unions’ drastic rules are intended to force exhibitors to hire labor at an exorbitant cost. Under current labor rates established through negotiations between the MPEA and labor, carpenters earn $49.76, electricians $50.00, riggers $40.86, and teamsters $42.75 hourly. Though far from bottom-rung wages, these hourly earnings are deeply misleading and the cost per man hour is dramatically higher. Though rates vary between trades, the actual rate for carpenters, for example, stands at $93.19 hourly. The difference which nearly doubles an hourly rate is a combination of a $23.43 charge for union health benefits and insurance, and another $20 in overhead and profit claimed by the for the general contractor. A sum of which amounts to $43.43, the two-fold increase above straight-time wages is consistent across all Chicago labor unions in agreements with the MPEA.
As told by several exhibit executives, beginning in the early 1970s, labor successfully brokered contracts which yielded generous compensation, with unions responding to any pressure to limit the growth of wages by using its influence to compel lawmakers to plump for labor. A successful tactic, the rates for labor grew steadily and above market value as a result of labor unions successfully obtaining pay increases during contract negotiations, which are concluded every two or three years.
However, by the mid-1990s, labor costs had risen steadily, becoming almost unmanageable, and Chicago suffered the first of several consequential blows to its convention industry: Specifically citing the immense cost, the Consumer Technology Association, which held the summer Consumer Electronics Show at McCormick Place, abruptly deserted Chicago. A moment of panic, the MPEA and labor unions began to come under increasing pressure from both legislators and associations to ease some of McCormick Place’s burdensome work rules. Restrictions which, for example, forbade an exhibitor from trivialities such as plugging an electrical cord for a water cooler into an outlet or blowing up and placing a balloon on an exhibit without being billed a standard one hour minimum for electrical or decorator labor, several rush measures were adopted.
In the labor agreement with the MPEA in the mid-90s, unions signed on to a relaxation of work rules which allowed exhibitors renting smaller exhibit space to perform some work previously prohibited, made concessions on overtime hours and rates, and removed jurisdictional designations between trades. In the same compromise agreement, the teamsters and riggers union agreed reduce the number of personnel on crews.
Although a welcome move, the easing of work rules affected only smaller exhibitors and many other restrictive regulations stayed firmly in place. Some 15 years later, amid a good deal of quiet grumbling over expense from exhibitors, a shuffling of leadership at the MPEA, and intervention of the both the Illinois General Assembly and the courts, labor unions once again yielded to demands to cut costs.
In a landmark agreement in 2010, unions introduced the “Exhibitor Bill of Rights.” A gesture advanced by a coalition of unions after the Healthcare Information and Management Systems Society fled Chicago for Las Vegas and the Plastics Industry Trade Association’s triennial show, the NPE, moved to Orlando, Florida, labor agreed to broad changes. In the declaration, carpenters straight-time was extended dramatically, show managers and exhibitors were permitted to perform work on any size booth with hand, power or cordless tools, with the caveat employees performing work be employed for a six-month period prior to the show. Exhibitors were also allowed to operate and offload vehicles at McCormick Place’s docks. Unlike previous negotiated agreements, on the occasion labor proposed the “Exhibitor Bill of Rights,” unions included a provision which would audit fees and charges applied by general contractors.
A satisfactory gesture to exhibitors, while exhibiting companies had never expressed dissatisfaction with the quality of labor McCormick Place provided, industry executives note following the conclusion of the series of labor agreements from the mid-90s to 2010, there was also an improvement in attitude among laborers at the convention hall. Executives also state in the period after labor and the MPEA came to terms in 90s, instances of graft on the show floor and the theft of product during installation of booths, both of which were once prevalent, declined.
“At the break of the show, graft was so common, our people manning the booth spent as much as $200 to get our crates back,” said one attendee.
Despite union compromises, labor continued to be blamed for McCormick Place’s woes because labor is easy to blame. This, however, is a disfigurement of the truth. As labor repeatedly made sacrifices after the mid-90s, general contractors such as Freeman and GES conceded virtually nothing to exhibitors. Many industry executives who were frustrated with labor costs praised labor for relinquishing both hours and wages, which led to more competitive labor rates. The same executives, however, say other costs remained, some ridiculous. Directing their ire at the overpriced services provided by the MPEA, mainly cleaning prices which, depending on the size of the booth, executives say a simple cleaning could run into the thousands of dollars during the course of the show.
“We had a 60-by-40 booth for years. The cleaning bill was scandalous. For three nights, the cost was in the thousands of dollars to vacuum and wipe down the booth,” says one exhibit manager.
Some exhibit managers and executives also say booth amenities such as security, floral arrangements, audio-visual equipment, and internet and telecom services were significantly overpriced. Though executives who collaborated with Chicago Contrarian concede some of these services are frills, they also state unambiguously most are essential for an exhibitor to enjoy a successful show and no savings is realized through an exhibiting company purchasing equipment and having it installed by union labor.
“I cringed at our drayage bill,” one exhibit manager stated.
While many industry executives say the MPEA wrings as much from exhibiting companies as possible, much frustration over the experience of visiting Chicago for tradeshows resides with the general contractor. Though many exhibitors admit the labor charge Chicago-area general contractors impose on individual trades — $20 — is consistent with the charge found in other cities across the country, the one cost which made exhibiting in Chicago nearly intolerable is drayage.
Material handling at McCormick Place, drayage is a service in which freight is removed from tractor trailers from one of McCormick Place’s countless loading docks to the show floor and its return to trailers at the conclusion of the show. Though one may tend to believe this cost is related to teamster labor, the charge for drayage is measured by weight — $93.40 at a 100 lb. minimum and $45 for small packages — and not manpower or use of an industrial forklift. A service where general contractors realize its greatest profit and exhibitors pay the heaviest price, the cost of drayage was summarized by one exhibitor as “profiteering.”
An exhibit manager who represents a Chicago-area firm with business interests in the healthcare field recounts an exhibit consisting of dozens of panels, graphics, counters, AV equipment and furniture transported to Chicago in over 50 crates, skids, chairpaks, and fiber cases on six trailers.
After a four-day show, when presented with the invoice, drayage amounted to over $45,000. A staggering cost the exhibitor endured for years, after discussions with the association, the firm weighed options and withdrew from the show.
“We considered this decision not so much a protest, but good business. We exhibit at three health care shows every year. The cost (drayage) in Chicago is outrageous. It’s much worse in Boston ($1.58 per pound) or New York, but part of my job is to budget sensibly and this includes finding savings when practical. When we carefully considered business gained from the show against our expenses, we dropped out of the show and concentrated our marketing strategy on two similar shows in other cities. After a one-year absence from McCormick Place, we decided to return to Chicago, but only after downsizing slightly and contracting with our exhibit manufacturing firm to produce a new booth. Overall, our savings was substantial and the move did not harm business,” she says.
Though this exhibit manager confesses a part of the savings was a consequence of using lighter material for a new exhibit, when compared to cities such as Orlando or Atlanta in which drayage is as much as 30 percent less or more, she expressed no regret for taking a leave from the Chicago show. Further commenting on the future of exhibiting, she speculates some exhibitors will elect to decrease exhibit space rented, reduce the size of booth or, to evade excessive drayage fees, shift from an exhibit manufactured from plywood to fabric. Other smaller firms, she says, will decline to build exhibits and remain faithful to “pop-up” displays or units rented from the general contractor to further preserve savings.
While much of the discussion over the ongoing dilemma confronting McCormick Place revolves around what occurs inside the lakeside complex, part of the convention industry’s difficulty rests with Chicago’s hotels and restaurants.
“No one forced us to stay at our hotel, but we were paying more than other guests not affiliated with our association,” one attendee declared.
Though labor unions, associations, and general contractors have contributed mightily to the decline of McCormick Place, Chicago’s hotel industry and the city’s restaurants played an important part in driving business from the city. Unfortunately, this is another area into which associations extend themselves. A sector which profited considerably from conventions, depending on the size and length of the shows and attendees expected, associations reach agreements with numerous hotels to accommodate attendees for the length of a show. Referred to as a “hotel block,” while booking rooms for the duration of a show in an association’s block can ensure trade show discounts, lodging with other attendees for networking, exclusive guest amenities such as free internet, complimentary breakfasts or discounts on parking or at local restaurants, there is a distinct disadvantage in this apparently ideal compact.
A scheme in which both hotels and associations advertised to attendees as a convenience for accommodations for the span of the trade show, the unseen or understated caveat in this alleged convenience is hotels routinely raise their rates for rooms on attendees who signed on to the preferred rooms offered by the association for the convention. A dirty open secret in practice for years, as hotel earnings soared, Chicago hoteliers made compulsory payments to associations to remain in the trade association’s good graces.
The swindling of attendees, the increase in rates to hotel rooms is a primary reason local hotels never protested the City of Chicago’s heavy, double-digit tax imposed on hotel rooms: It allowed hotels to raise their rates on rooms and reap a significant revenue.
Worse still, the hotels at which attendees take up rooms and many of the restaurants at which they dine fall within the boundaries of the McCormick Place Navy Pier Hospitality Tax District, where they are exposed to Chicago’s punishing sales and restaurant tax. Extortionate taxes, the composite restaurant tax within the MPEA district in Chicago is 11.75 percent. For hotels, the tax rate is an astronomical 17.39 percent. Attendees are also exposed to other taxes, namely the MPEA Airport Departure Tax, which places levies on taxi, limousine, and shuttle departures from O’Hare International Airport.
“Competing cities didn’t sneak in. Those cities did it right in front of Chicago and the city did nothing,” one exhibit manufacturing firm owner asserted.
Why McCormick Place has lost its position of dominance in the convention industry is manifold, but not complicated. Though organized labor, associations, and general contractors all contributed to tradeshows severing ties with Chicago, it should not be too surprising to deduce the City of Chicago is largely culpable for the dire future McCormick Places faces.
While it is understandable successive mayors from Harold Washington to Rahm Emanuel embarked on a series of lakefront projects and high-value commercial development to revitalize the city’s struggling economy, Chicago mortgaged its future in 1986, 1997, 2007, and 2017 with expansions to McCormick Place. As Chicago increased space at the convention center, city and state leadership did so with virtually no evidence a larger facility would return on such a colossal investment. More troubling, as Chicago added floorspace to the convention center, elected officials remained oblivious to other cities quietly expanding their convention facilities. Willful blindness, Chicago failed to recognize cities across the nation could possibly compete with Chicago’s dominance over the convention industry. Though Las Vegas had long been Chicago’s main competition for business, Atlanta, Orlando, and Los Angeles all invested, some heavily, in convention halls to draw annual trade shows to their cities.
Many were successful in winning over business from Chicago. A lucrative business for local economies, smaller cities across the country also spent lavishly to draw conventions to their cities. Throughout the 1990s and up until 2005, San Francisco spent $190 million on refurbishing the Moscone Center, Boston spent $800 million on its exposition center, and Pittsburgh threw $350 million into the David Lawrence Convention Center. Lamentably, all these cities now host shows which were once located in Chicago.
Despite a lack of vision, where Chicago and the state committed its worst error over the management of McCormick Place was a failure to lead and manage an industry which handed gifts in abundance to Chicago and the state. As labor wages ran amok, union domination over Chicago prevented elected officials from speaking out and slowing down labor. As Chicago hotels raked in immense profit from a special class of visitors, Chicago’s political class remained silent and glowed with a soft smile over the steady stream of tax revenue. As Chicago-based exhibition contractors placed unreasonably high rates on services at McCormick Place, Chicago’s politicians refused to become involved over fear of accusations of meddling or alienating political donors.
Unfortunately, as decades of mismanagement, and poor civic leadership has had devastating consequences reaching beyond the loss of shows and revenue for the city, one question remains: Can Chicago retrieve business lost? The answer is, of course, challenging. For Chicago to reclaim the position it once held as the leader in the convention industry, Chicago can absorb lessons from Boston and New York. Both cities once held nearly complete control over the convention industry. However, because of civic malpractice, both cities witnessed a mass exodus of trade shows, owing largely to uncontrolled costs. Chicago is experiencing the same phenomenon today.
Though Chicago did, belatedly, step in to try to rein in soaring costs, the effort was aloof and typically revolved only around labor, which had already made sacrifices for the common good. For Chicago to preserve the convention industry, it must take several steps. First, Chicago must recognize the trade show industry is worth saving. Second, Chicago and the State of Illinois must halt any further investment in the convention facilities it oversees. Third, city leadership must lower some of the punitive taxes imposed on the sector. Last, and most important, Mayor Lightfoot and city officials must play an active role in discussions involving associations, labor, and businesses involved in the convention industry united in a commitment to returning business to McCormick Place by virtue of driving down cost.
Though such a task appears daunting, the City of Chicago does maintain significant leverage: Chicago’s main competitors in the convention industry, Las Vegas, Orlando, and Atlanta, are all allowing costs associated with conventions to rise sharply. An advantage for Chicago, should Mayor Lightfoot demonstrate political mettle, dialogue with associations, labor and trade show general contractors with the aim of making Chicago competitive again could reap rewards and entice associations to return to Chicago.
Recovery will not be easy, and the forecast calls for some pain whether Chicago can or cannot return McCormick Place to its position of preeminence in the convention industry. The first steps for Chicago to help are obvious, but it will require leadership, political will, and fiscal discipline. Chicago took the convention industry for granted and quite a bit is at stake. Billions in revenue for Chicago will be lost if Chicago does not act. If the Windy City does not take the initiative, associations will continue to flee, McCormick Place will become empty, and Chicago will soon be forced to explore alternative uses for McCormick Place.