July 04, 2013–The Hawaii Tourism Authority has ousted SMG Hawaii, which has run the underperforming Hawai’i Convention Center since it opened in 1998, and awarded the facility’s next contract to AEG Facilities of Los Angeles.
The tourism authority selected AEG Facilities on Wednesday from a field of four applicants, which included the incumbent SMG Hawaii, as well as Global Spectrum LP of Philadelphia and Honolulu’s CBRE Group Inc.
The contract with SMG Hawaii, which routinely fell short of expectations to fill Hawaii hotel rooms with high-spending business visitors, will expire in December. AEG Facilities, which begins a five-year center management contract on Jan. 1, is expected to work with the authority to retain most of the 70 or so employees who worked for SMG Hawaii.
The authority will pay the new contractor $17.9 million in 2014 to operate and market the center, which cost $350 million to build. While other details of the new contract were not made available, tourism authority President and CEO Mike McCartney said AEG Facilities will be expected to bolster the number of visitors who come to the state for business and events travel and the number of nights that they stay in hotels across the isles.
The Star-Advertiser has requested a copy of the proposals, but the authority will not release them until after Wednesday, the last day for contenders to appeal.
McCartney said the new operator needs to work with the authority to build a Hawaiian music and dance museum, which received $1 million in annual funding during this year’s legislative session, and identify other redevelopment opportunities for the center, which could include a hotel tower, restaurants, retail and live entertainment venues.
“Filling hotel rooms will definitely be part of our expectations,” McCartney said. “We have to do better and we have to improve the performance of the building. We have a special investigatory committee looking at ideas. We’ve said no to a casino, but multiple ideas are being considered.”
By early next year, McCartney will bring center redevelopment options to the tourism authority board for approval. While AEG Facilities would play a role in executing the ideas, McCartney said the company would not necessarily be the developer. “That would be something for the HTA board to decide at a later date,” he said.
McCartney said hiring a new center contractor and redeveloping it will hopefully turn its lackluster performance around. During the controversial planning phase for the center, taxpayers were promised that by 2008 it would draw up to 430,000 visitors a year and generate $1.9 billion in visitor spending. Now, at its 15-year point, the center is still bringing in less than half of the anticipated revenue. While McCartney said that the center has generated an average of $526 million in visitor spending annually over 10 years, the return to the state has been disappointing; for every tax dollar spent on the center only $1.40 in tax revenue has been generated.
“Most convention centers lose money as a stand-alone, but they are valued for their community economic impact,” McCartney said.
However, the center’s return to Hawaii taxpayers has been hard to quantify. Taxes generated from the spending of visitors and groups using the convention center has averaged only about $53 million per year for the past decade and have not been significantly higher than the center’s $38 million annual operating cost, which also includes debt repayment. The tourism authority still owes the state an estimated $370 million in principal and future interest payments, which are anticipated to be retired by 2027.
And, while SMG Hawaii won numerous facility awards and an “A-plus” review from Asia-Pacific Economic Cooperation organizers in 2011, it has struggled to reach targets for hotel room nights. (A room night is one hotel room occupied for one night.) Since 2002, the center has met its annual goal of 700,000 hotel room nights just once — when it generated 706,489 room nights in 2005. Last year, only 356,515 room nights were attributed to the center.
Times have been tough for the state’s entire meetings, conventions and incentive (MCI) business, which in 2012 grew by a lackluster 2 percent, bringing 405,251 of the visitors who arrived by air to Hawaii. That’s 5.2 percent of the total 7.87 million visitors who got off a plane last year.
“I’d like to see MCI visitors at least double,” McCartney said.
The tourism authority has set a goal of increasing its business-travel arrivals by 13 percent in each of the next three years. It’s a large target considering that market fell eight out of the past 15 years and has only grown more than 13 percent in three of the years since the Hawai’i Convention Center’s opening.
“We went with AEG because they have expertise in managing convention centers with a global marketing presence,” McCartney said. “Convention spaces around America have grown, but the number of conventions haven’t, so we’ll pivot to Asia as we look toward the future.”
Hawaii is AEG’s first foray into managing U.S. convention centers. While the company has interests in more than 100 venues across five continents, it manages only six convention centers, in Australia, Malaysia, Oman and Qatar.
AEG’s expertise in managing international properties in major cities also played a likely part in HTA’s decision, said Brian DiMartino, president of 21st Century Group, a Kihei, Maui-based hotel site-selection company catering to meetings and conferences.
“The potential to attract events and conferences from those locations would be hard to ignore,” DiMartino said.
The company’s reach in sports and entertainment was another draw, McCartney said. AEG, which is a subsidiary of the Anschutz Corp., has an ownership stake in the Los Angeles Lakers and owns and operates the Staples Center, which is the home to both the Lakers and Clippers of the NBA. In 2012, the SportsBusiness Journal named AEG founder and owner Phil Anschutz the fifth most influential person in sports business.
The company also operates the popular LA Live entertainment district, which is a 4 million-square-foot sports, entertainment and residential district adjacent to the Los Angeles Convention Center.
Keith Vieira, senior vice president of operations for Starwood Hotels & Resorts in Hawaii and French Polynesia, said AEG’s marketing connections and expertise in creating events could help the convention center cast a wider net.
“The convention center’s role isn’t to provide entertainment, but if they can give visitors a reason to come, it could broaden Hawaii’s group appeal,” Vieira said.
One of the company’s divisions, AEG Live, is embroiled in a lawsuit over the death of pop star Michael Jackson. His mother, Katherine Jackson, is suing the company for negligence, claiming that during preparations for the “This Is It” tour, AEG Live executives “hired, retained or supervised” Dr. Conrad Murray, who was later found guilty of involuntary manslaughter for his actions relating to the singer’s death.
