We Say Everything Is Wonderful

— 'Dear San Diego Tourism Industry: Stay as sweet as you are. Leave the vice to Vegas. But in playing the ingénue, don't get cute with the statistics, as your convention center is now doing. If the road you're taking looks treacherous, reverse course. Yours truly, the Flying Dutchman."

Tourism is San Diego's third-largest and fastest-growing industry, reportedly generating almost $6 billion in annual visitor spending, although that figure is concocted through the wonders of a multiplier, or ripple effect, that is sometimes considered statistical bloat. The local industry is doing very well, but in recent years it began concentrating too heavily on conventions and corporate meetings. Now convention centers are vastly overbuilt and the business itself is slumping -- a deadly combination.

Last month, San Diego's tourist industry was rattled by a news item. "Vegas Plans to Stay Sexy and Naughty to Lure Tourists," blared the headline in CasinoMagazine.com. The news: Las Vegas plans to spend $1.3 billion over the next five years to attract 5 million more tourists each year, bringing its total to 43 million visitors annually by year end 2009. Almost one-third of that sum, $400 million, will be spent on upgrading Sin City's convention center. A flood of advertising will continue to tout Vegas as a wicked place with a racy past, says the Las Vegas Convention and Visitors Authority.

That won't be difficult. For example, the chairman of the authority is Las Vegas Mayor Oscar Goodman, the former mob lawyer who has a vacation home in Coronado. The 2003 book, Of Rats and Men: Oscar Goodman's Life from Mob Mouthpiece to Mayor of Las Vegas, by John L. Smith, notes that the folks Goodman has defended have had these elegant aliases: "Jimmy the Weasel," "Richie the Fixer," and "Little Pussy." For more than 35 years, Goodman defended the likes of Meyer Lansky, Nicky Scarfo, Anthony Spilotro, brothel owner Joe Conforte, and ear-munching prizefighter Mike Tyson. Oscar Goodman is Las Vegas, where, as the ads blare, "What happens here, stays here."

"San Diego is the number-one U.S. destination for meetings, but when you are starving to death next to a lion, you know who will get eaten," says La Jolla-based tourism guru Jerry Morrison. "We can't compete with Las Vegas. Any one of the bigger hotels has as much or more meeting space as we have in the convention center. But most people can't stay in Vegas more than two days. You can't take your kids there. We have wholesome things -- the zoo, Wild Animal Park, SeaWorld."

San Diego also has an advantage that thrust it into the top national rankings in recent years: 68 percent of visitors drive here. After 9/11, air travel plunged. Tourist destinations that relied on airline travelers, such as San Francisco, took a pratfall. By 2003, San Diego had the fourth-largest travel market share in the U.S. This year, it's expected to fall to fifth place behind Orlando, Las Vegas, Los Angeles, and Chicago. Air travel is recovering. Morrison predicts San Diego's hotel-occupancy rate will inch up from 71.3 percent to 72.4 percent this year. As air and business travel recover, "many markets are outperforming San Diego," according to San Diego State's Center for Hospitality and Tourism Research.

San Diego tourism leaders will have to do some reading and some penance. The convention and meetings business is not going to be a bonanza. It's time to admit that the convention center addition has not been successful. A new study by the Brookings Institution concluded that the overall convention center marketplace is declining. In fact, attendance at the 200 largest trade shows is now back to 1993 levels.

Nonetheless, cities unwisely pour taxpayer money into new or expanded convention centers. Over the past ten years, public capital spending on convention centers has doubled to $2.4 billion annually. Convention space has soared by 50 percent since 1990. In the past five years, 34 cities have expanded their convention centers. One is San Diego. "San Diego has historically done very well, but the expansion has not performed nearly at the level that it was purported to," says Heywood Sanders, author of the Brookings study and professor of public administration at the University of Texas at San Antonio.

San Diego's convention center business "will stay flat for a while," says Sanders. The center misleadingly counted Super Bowl rooms among its 2003 figures; even knocking them out, room nights dropped from 2003 to 2004, consistent with the industry nationwide. "I don't expect it to go much further down for San Diego, but I don't expect it to grow terribly much. It's a very desirable destination, but in the midst of a brutally competitive market where lots of folks are offering a wide variety of incentives." San Diego hotels are more expensive: according to Morrison, room rates will average $116.19 this year, versus $96.49 in Orange County and a $91.27 average in other major U.S. markets.

Both Sanders and Morrison point to statistical bloat conjured up by the convention center. Room nights generated by the center are expected to grow by only 2 percent this year as convention attendance goes up only 4 percent. But the center claims that the total economic impact will leap 11.6 percent, to more than $1 billion, even though average hotel-room rates generated by conventions will rise only 2 percent. "They must have changed the way they calculate the impact," says Sanders. Morrison thinks they are diddling with the multiplier. The center won't say how it got that number.

"We put out this glowing stuff -- making zillions from the Holiday Bowl, say," says a key San Diego tourism executive. "We say everything is wonderful. It's just not true."

In particular, Sanders's study should be sobering: with the convention and meeting business turning vicious, transient occupancy taxes flowing from hotels near the convention center are not going to pay off the ballpark debt service anytime in the foreseeable future.

Can the Indian casinos offset Las Vegas competition? Not now. They would have to attract gamblers from Los Angeles and Orange County. In 2002, three casinos chipped in $600,000 for a multimedia campaign to woo Orange County players. It fell flat. Tom DiZinno, chairman of the advertising agency DiZinno Thompson, believes North County casinos get 10 percent of their business from outside San Diego, and Barona in East County may get a slightly higher percentage than that. But generally, Los Angeles and Orange County gamblers go to Temecula, Cabazon, and Palm Springs, say marketers. Outsiders aren't coming here in big numbers. "Is it a significant impact? Not yet," says Robert A. Rausch, head of the hospitality center at San Diego State.

"It is still mostly a regional drive market," says Sal Giametta of the San Diego Convention and Visitors Bureau. From an economic perspective, then, the Indian casinos, although they provide around 15,000 jobs and have certainly boosted the economic well-being of tribe members, are not a major net plus to the San Diego economy, because they are basically taking in money that would be spent elsewhere in the county. Economist Alan Gin thinks the Indian casinos may serve as an import substitution -- that is, keeping money that would go to Las Vegas in San Diego. But that's probably not a big number.

San Diego can't match Vegas for vulgarity or depravity. But the good news is that business travel is only 18 percent of the tourist business locally. The convention center's impact is 8 percent if you accept its figures, which you shouldn't. So there is still a big leisure market to enjoy wholesome things and a business market that gets sick of Vegas after two days.

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