Tuesday, February 05, 2013

Charlotte DNC Study Raises The Bar and A Few Questions

Charlotte, North Carolina, down-state from where I live and once practiced visitor-centric economic and cultural development has raised the bar for communities still obsessed with facilities and mega-events.

Independent economic assessments, some conducted over a period of more than 30 years and looking at 50 different host communities and areas have found no discernable net impact from mega-events.

So Charlotte followed the example of analysis released last summer for Indianapolis after hosting the Super Bowl and had a similar input-output analysis conducted of the impact of the Democratic National Convention (DNC) hosted there last September.

Though executed by extremely reputable companies using a well-proven methodology with which I am very familiar and have used for many years and executed by individuals I know and respect, neither micro-analysis is enough to refute the earlier longitudinal analysis.  These studies do, however, provide additional details.

While input-output is very reliable when measuring impact over time, such as the annual impact of tourism on a community, experts caution when applying it to events of very short duration.  Still Indianapolis and Charlotte are to be commended for raising the bar several notches for future hosts considering these and similar mega-events.

Released last week, the Charlotte analysis of the DNC also raises some questions that weren’t probed in news reports.  In fact, it took a little digging to find the actual report.  Answers to these questions can better illuminate future efforts by other destination communities.

But first an observation.

Charlotte has always benefited from superb community-destination marketing (DMO) professionals.  However, a seemingly odd kind of co-dependency with business and civic officials there has made the organization seem trapped in an old-school, sales-driven and facilities-obsessed model.

This is usually symptomatic of when a community becomes captive to downtown interests rather than left free to pursue the broader, community-wide objective of reaping a community’s full share of visitor-centric economic and cultural development through holistic marketing.

As noted by the nation’s preeminent expert in marketing, Dr. Philip Kotler, it is rare to find even business people who understand marketing, let alone civic officials.  So they often turn to sales instead of marketing or glitzy advertising campaigns, which are ironically sold by people working in sales.

There was some speculation that the joint study on the DNC was conducted because the DMO had used inflated estimates to secure the event but this seems unlikely.  The organization has long been familiar with the methodology used in the DNC study and has deployed it many times to measure the overall impact of visitors on that community.

However, sales-driven DMOs may feel the need to override their research departments to make a proposed event appear greater than unsubstantiated estimates made by past host communities.  However, more often than not, this is a result of pressure from business and government interests eager to host the event.

Sales-driven DMOs are also often guilty of failing to re-calibrate the formulas used to benchmark mega-events with local variables easily obtained from their marketing research arms and various secondary studies on length of stay and spending patterns.

In this day and age, there is simply no excuse for a significant gap between the pre-booking estimate of impact and the post-event analysis of a mega-event, but if there is a culprit it is most likely a combination of booster hubris and political pressure.

The DNC analysis recently conducted for Charlotte is excellent and much more intricate than what was trumpeted by the news media.  All but one business publication seemed to fall into the trap, possibly set by the news release, of leading with the combined figure of direct, indirect and induced impact rather than putting the focus on direct spending and noting the other impacts later in the coverage.

Here are a few questions the study raised in my mind:

  • It is natural that the study tries to measure impact not on individual counties but by lumping six counties together.  Doing an analysis on each county would have been far more accurate but probably cost prohibitive.  This is important because there are no regional tax structures, only county and state.

The study makes a valiant attempt to estimate economic leakage and existing business dislocated by the huge event. It seems that lumping the counties made that task impossible.  Would it be far more revealing to conduct an analysis on each county and then add the impacts while fully accounting for leaking and dislocation?

  • The study notes that lodging businesses benefit the most by far and deducts 15% of those revenues for the amount redistributed to non-resident owners and for various fees.

However, that is the average under normal circumstances.  The huge DNC event increased occupancy by 63% over those dates the previous year and expert yield management increased the average rate for a rented room by an exorbitant 180%.

According to my friends in that business, isn’t it far more likely that under those circumstances the 15% deduction from impact should be more like 30-40%?

Also, is it really realistic to assume that existing visitor and resident spending was merely postponed?  In my experience it is usually forgone.

  • The estimate of direct spending includes $34.5 million in visitor-related spending and $42.2 million spent by three host organization to cover meals and upgrade facilities etc.

However, since a third or more of those donations were extracted from the local economy making them unavailable for other uses there, isn’t there a case to be made that this portion should be deducted from impact rather than added to it?

  • It is noted that many services were provided to the event in-kind by local governments including not only security for increased solid waste removal etc.

Shouldn’t the dollar estimate for these services be deducted from the direct impact?

  • Much was made by officials announcing the impact about the visibility generated by coverage of the event and the impression on delegates, news media and others attending.

However, shouldn’t the estimate of this impact be adjusted by estimating what the local private donations and in-kind public expenses could have generated if invested directly by the DMO into a longer-term, more sustainable earned media campaign?

There are many good reasons to host events, especially of the size that would be complimentary with existing business. But studies have long shown that mega-events themselves have little or no residual impact on community visibility and image, even if repeated every 18 months or so.

Sales/facilities-driven DMOs and communities are often not open to these questions. They seem locked in a perpetual and co-dependent dance - glorifying facilities, then subsidizing mega-events in hopes of masking performance gaps.

Then using these events as a rationale for an “arms race” with other communities for new or expanded facilities, all the while failing to fully exploit their community’s potential for visitor-centric cultural and economic development.

This is what makes these sales-driven DMOs highly vulnerable when in turn their communities try to passively-aggressively chain them to specific facilities rather than enabling fulfillment of their community’s broader tourism interests.

Once trapped in this cycle, it is very difficult to evolve instead to a far more productive market-driven approach but Indianapolis and Charlotte must still be commended for raising the bar.

If others follow and the measurement of impact becomes more and more strict, it will add greatly to the measurement of the one in ten visitors who attend events such as these.

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