Victoria taxpayers eat conference centre losses

Victoria Conference Centre managers wish they could renegotiate catering deal with the Fairmont Empress

Victoria Conference Centre general manager Jocelyn Jenkyns stands inside Crystal Garden

Victoria taxpayers will shell out $764,954 this year to balance the books of the Victoria Conference Centre.

And it’s not the first time.

Despite a mandate to be self-financing, the conference centre required a property-tax contribution of $620,126 in 2010. The gulf between expenditures and revenues is projected to widen this year, meaning city taxes will cover 16 per cent of the conference centre’s $4.8-million budget.

“Over the last three years, we have cut internally about $800,000 out of our operating budget,” general manager Jocelyn Jenkyns reported to city council during the 2012 budget discussions. “We are continually trying to do a balancing act of generating sales, but also keeping an eye on expenses.”

Despite not filling job vacancies and taking other cost-cutting measures, the conference centre hasn’t found its balance.

So what’s behind the problem?

While it’s easy to point fingers at the economic downturn, simple hard times don’t tell the whole story.

For starters, the city opened the doors to a costly expansion into the Crystal Garden building in late 2008, only months after the recession hit. The move was a game changer for the centre’s financing.

A closer look at the issue, however, reveals another factor that runs much deeper. A 50-year contract with the Fairmont Empress Hotel is affecting the conference centre’s ability to turn a profit. The poor economy has only served to highlight the issue.

*       *       *

The contract dates back to 1987, when the City of Victoria signed an agreement with the Fairmont Empress, which owns the property.

It expires in 2037 and stipulates that the Empress will cater all conferences and pay a commission of five per cent on food sales and 10 per cent on beverage sales. It’s well below the market rate; commission in the industry commonly runs between 25 to 30 per cent, Jenkyns said.

“It’s always challenging when you write 50-year deals, and the world changes,” she said. “I don’t think anybody would ink a deal like that these days.”

Coun. Geoff Young, a councillor in 1987, recalls some concern at the time about awarding a food-and-beverage service monopoly. Because the hotel chain was also the landlord, however, the terms were non-negotiable.

“We had to reach a deal with them or find another site,” he said.

These days, the Empress pulls in about $3 million in food and beverage sales from conferences in an average year, said Jenkyns. From those sales, the conference centre earns about $160,000 in commission.

Industry expert Anne McCaw confirms the Victoria Conference Centre earns a low rate compared to other Canadian centres. But she pegs market commission rates a little wider: between 15 and 30 per cent.

“There probably aren’t a lot of centres that operate at 10, though I have heard of it,” said McCaw, past Canadian director for the International Association of Conference Centers.

Applying market rates to the Victoria Conference Centre would see annual revenues increase anywhere between $390,000 and $740,000.

*        *         *

It’s a situation Jenkyns tried to work around in 2009, when the conference centre expanded to include the Crystal Garden.

“The interpretation from the city was that it was not part of the original parcel of land that formed the conference centre, so it was not party to that original agreement,” she said.

She hired different caterers to serve in the Crystal Garden facility. The arrangement lasted a year before Jenkyns received a letter from the Fairmont Empress, outlining what the hotel perceived as a breach of contract.

“Fairmont is of the view that under its agreements with the City … it has exclusive right to provide catering services to the Victoria Conference Centre, including the Crystal Garden,” said Jenkyns of the letter’s contents.

The city disagreed with this interpretation, but ended its third-party catering contracts in the interest of maintaining a good relationship with the Empress.

Council newcomer Ben Isitt questioned the decision by the previous council.

“It doesn’t seem to me that the cost-benefit analysis, cumulatively in terms of long-term budget – even potential litigation – it could be worth pursuing,” he said.

Mayor Dean Fortin jumped in to silence any talk of litigation during the public meeting, held in late February. He made clear that one council member does not speak for the group.

Victoria city council has no appetite for a fight.

“There is absolutely no intent, at all, on the part of council to breach an existing contract with a service provider with whom we are completely satisfied,” said Coun. Marianne Alto, who sits on the conference centre committee.

“I think we have a special relationship to the Empress … and I’m not troubled by there being a slight differential between what you would consider to be market rates and our agreement with them,” she said.

“I would appreciate having a candid conversation with them about what the market can bear … and what they can afford, but only within the context of the agreement,” she said.

The question now is whether there is any appetite for friendly discussion.

While the operating agreement contains no clause for renegotiation, it could be modified if both parties agree.

Empress general manager Martin Leclerc insists, however, the current contract is fair.

“The commissions that the hotel gives to the Victoria Conference Centre, they are absolutely where they should be,” he said.

All table setup and teardown during conferences is done by Empress staff. Also, all parking revenue and retail revenue on the property goes to the city, he said.

“You can’t look at the catering rates in isolation, in silos,” Leclerc said. “Believe me, the catering business is not the most lucrative business.”

Looking at the wider picture, he spoke of the role the Empress plays in the community’s tourism industry.

“We have hundreds of employees here. The hotel pays $4,300 in property taxes per day. The relationship between the city and hotel has never been better.”

It’s a sentiment echoed by Jenkyns. “Nobody wants to go to court,” she said.

*        *        *

Looking at the Victoria Conference Centre’s budget in isolation also misses the bigger picture, according to those in the business.

“Many conference centres are subsidized by the tourism bureaus simply to bring the money to the city,” said McCaw, of the International Association of Conference Centers.

“The conference centre itself may look like it’s losing money, but the city, as a whole, is gaining.”

In Victoria, Jenkyns estimates the conference centre’s operations brings $60 million worth of hotel stays, restaurant visits and other purchases.

It’s one of 16 publicly run conference centres in Canada. Few are mandated to be self-financing as the Victoria centre is.

It’s about balancing greater good versus the city’s bottom line, she said.

rholmen@vicnews.com

Conference industry in transition

The recession has hurt Canadian conference centres, but they’re holding their own, especially compared to their American counterparts, said Anne McCaw, former Canadian director of the International Association of Conference Centers.

Some conferences are being cancelled, but the bigger trend is a decline in delegate numbers.

“Companies that may have sent two people to a conference in the past are now sending one, due to the economy,” she said.

Conferences are also shorter and more regionally based, meaning fewer hotel stays.

But McCaw sees a good future for conference centres, particularly for smaller ones, like in Victoria.

“A smaller centre can attract the demographics that are meeting now,” she said.

“As long as they’re keeping up with technology, they can link to other centres,” opening up the possibility of having joint meetings.

rholmen@vicnews.com

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