Since passing in May, Chicago’s legislative reform to its convention industry has entered its first phase of implementation. That has largely centered around tangible operational changes as well as specific cost savings for show organizers and exhibitors. Going forward, McCormick Place will move into its next phase,which will involve a significant debt restructuring to help absorb the cost saving implementations as well as fund new investments. Finally, the MPEA will submit an RFP to take the management of McCormick Place private.

In a phone interview with EXPO,David Causton [pictured], general manager ofMcCormick Place, described the convention center’s plans in more detail.

Q: Talk about how you’re positioning and marketing the venue. What’s your approach now and how are the show organizers responding?

Causton: We picked the six initiatives of Phase I because we believe initial cost savings to exhibitors, show organizers and attendees, and the increased flexibility, particularly for exhibitors and the work that they could do in their booth, will be dramatic. That was by design. When we looked at all the changes we needed to implement over time with the legislation, we felt that rolling out those big six initially would give us a big bang for the buck.

The reaction from our customers has been very positive. We’re now going into our second show here that’s using the Phase I roll-out and we’ve already gotten some feedback that things have gone extremely well as related to the costs and the ability of the exhibitors to do a lot of the work themselves that they hadn’t done in the past.

From a marketing standpoint, what we’re trying to demonstrate to the whole convention and trade showmarket nationally is we have generated this flexibility of work that you can do that generates no bills, and that is putting us in alignment with much of our competition. Secondly, and more importantly, is we’re driving down costs. What exhibitors have told us through their show organizers is McCormick Place is a great destination and it has all the positive aspects of having a successful face-to-face meeting, but we had to figure out ways to lower costs at the facility.

Q: What specifically are the savings in these areas?

Causton: On the electrical front,when you look at the labor savings and you just take the fact that we’ve reduced the cost of a straight-time hour from $103 to $79, that’s over 23 percent savings for the customer. And since most of the billing we do is in straight time, you’re going to see that 23 percent flow through to the bottom line of the exhibitor.

On the service side, we took our competitive set that includes many of the national players and also looked at regional convention centers in the Midwest and we took every price that we offered for services and if we were below those costs of the competitive set we kept those costs; if we were not, we lowered our price to the competitive set. So from the exhibitor’s point of view, what they’re paying for the service should not be different than what they’re paying for the competition—and the electrical labor is now 23 percent cheaper.

On the food front when you go to our food courts that we operate with our in-house caterer, those costs have dropped 20 percent. When you order a catering function, those menus have dropped by 10 percent. In addition to that, for a gallon of coffee for example, we’ve lowered that cost to below our competitive set. That’s what I call the ‘All-In’price, which includes the menu price, the cost of gratuity and taxes.

Q: How are you absorbing those cost reductions?

Causton: This is part of the Phase II rollout. We’ll be restructuring our debt. We have received, under the legislation, permission fromthe general assembly to restructure our debt on what we need to pay off on the existing buildings that we have built. That will generate additional capital. That capital will be used in two ways. For a short-term period of four years, it will subsidize the costs for our business operations as it relates to the savings that we’re passing on to customers right now.

Additionally, it will allow us to invest in other projects that are going to generate revenue for us so that after four years, this will be an ongoing way to make sure that we’re going to keep covering these cost reductions. The first way that we’re going to use that money is to expand the Hyatt Regency McCormick Place, which is owned by the MPEA. We can add 400 rooms and generate additional profit fromthat. That will also fulfill a need that has been expressed to us by show organizers and exhibitors who want to have rooms closer to where the facility is located.

Q: Was the debt restructuring a reduction in interest?

Causton: It’s partly a reduction in interest and partly an extension of the life.

Q: You talked about the phased implementation. What’s ahead and how many phases will this have?

Causton: I don’t know what ultimately the total number of phases will be. But Phase II will include the creation of an advisory council.The council is important because moving forward, some of the other changes that wemay explore will require us to at least talk to the advisory council as we go through that process. It will bemade up of customers, contractors—both the EAC community and the official service contractors, labor, and representatives from the facility. That announcement will occur in September.

The other thing that has to happen in Phase II is we made a commitment when we passed the legislation in that even though we are providing electrical at cost we also agreed that the building will no longer be the exclusive provider of that service. We are working on a process by which we can prequalify a series of electrical contractors that will be on a certified list that show organizers can use and take bids from. We hope to announce in October the list that our customers can use going forward.

Also part of Phase II is over the next year we will privatize the management ofMcCormick Place completely. That will require us to put out a request for proposal. We are working now on creating the RFP for that.We have committed to September 15 for putting the RFP on the street to start the process of finding a private manager for the operation.That process will probably take up to a year.

We would become the largest privately managed facility in the country once we complete this process.

Q: How are you managing oversight of the changes you’ve made so far?

Causton: The critical thing for us is we’ve had on board for a while a facility floor manager. That individual is on the ground working closely with the contractors, whether official or show management, so that if there are any issues during implementation we’re there immediately to respond to them.

Examples could be whether or not the individuals doing the work themselves are actual exhibitors or employees of an exhibiting company. We are able resolve those issues to make sure what the legislation intended for is actually being carried out. That has worked extremely well.

As we move into some of our larger shows in the fall, we will be hiring a number of individuals that work with our facility floor manager and have them assigned to each individual building to make sure that we have a presence on the show floor to make sure all the stakeholders are working together cooperatively.

A future phase in January of 2011 will hire an auditor and the purpose of that is to make sure that all of the savings we are generation is being passed on to the end user—whether that be the exhibitor, show organizer or the attendee.