New McCormick Place operator, SMG, 'runs tight ship'
By Kathy Bergen
Tribune staff reporter
7:56 p.m. CDT, April 26, 2011
Soldier Field operator SMG, selected Tuesday to run McCormick Place, runs tight ships at other convention centers around the country, say trade show managers who have worked with the firm.
"They run a lean machine as far as the staff and operation folks necessary to run a facility and provide the services we need," said Felix Niespodziewanski, director of convention and meetings for the American College of Surgeons. "You don't see a lot of people walking around the building with folders and building badges, and you're wondering, 'What do they do?' "
The Philadelphia area-based firm is the dominant industry player, and its sports and entertainment division has operated Soldier Field for the Chicago Park District since 1994. Founded in 1977 by the late patriarch of Chicago's Pritzker family, it is now majority owned by American Capital Strategies Ltd., an investment bank. The firm manages 67 other convention centers.
The Metropolitan Pier and Exposition Authority, the state-city agency known as McPier that owns and operates the convention center, will turn over its day-to-day operations to SMG during a three-month transition. SMG will work for free in that period.
Its five-year; contract calls for an annual fee of $450,000, with the potential for another $450,000 if it meets goals to build revenue, cut expenses and satisfy customers. The fees will be adjusted for inflation, up to 3 percent a year.
McPier officials said they expect the deal to pay for itself, with an improved bottom line more than offsetting the management fee.
"The whole intent is to bring an even greater level of efficiency and management expertise to bear on what is the largest economic engine, after O'Hare, in northern Illinois," said Jim Reilly, the state-appointed trustee of McPier, who recommended SMG.
SMG, which manages 222 venues, including stadiums and theaters, has buying power that can bring cost savings on a broad range of items, from insurance to escalator maintenance, said Gregg Caren, senior vice president for strategic business development.
And the company will contribute its own sales efforts, using a national force that cross-sells its properties, he said.
"McCormick Place just expanded its sales force by about 200 people," Caren said. "It's just like Hyatt doing national sales."
SMG beat out Global Spectrum, a newer, smaller operation whose executive team includes Tom M. Mobley Jr., senior vice president/convention centers, who used to work for Reilly at McCormick Place. Its fee proposal was about the same as SMG's arrangement, said McPier officials, who didn't have the precise figures immediately available.
McCormick Place general manager David Causton will take the same role continue at SMG, a move that appears to sit well with trade show managers.
While the idea of a fresh start holds some appeal, McPier is undergoing such radical change that continuity is preferable, said Chris Price, point person for the Graph Expo and Print shows at McCormick Place.
"Even under political pressure, slowly but surely he has brought changes to the building," Price said. "He's not politically motivated. ... I believe he's fair and he understands how to deal with the challenges."
The move to private management is one aspect of the state-mandated overhaul under way. Another portion, allowing exhibitors to do their own set-up, was recently overturned in federal court, giving shows the jitters. McPier plans to appeal.
SMG officials said they have not yet negotiated a compensation package with Causton, who was not part of the bid selection process. He will take an early retirement package upon leaving McPier, but the amount of his pension is not finalized, McPier officials said Tuesday.
The firm is expected to hire other existing employees as well.
"Our modus operandi is never to go in and slash and burn," Caren said. "We will evaluate everyone there."
Still as McPier moves to private management at McCormick Place and turns over management of Navy Pier to a nonprofit, an undetermined number of staff reductions are expected at each venue. And central office personnel will be cut to 30 from 74.
Private management firms "have greater flexibility in terms of being able to employ temporary staff, and expand and contract as needed, as opposed to a civil service approach," said Doug Ducate, president and chief executive at the Center for Exhibition Industry Research.
Because they have incentives to build revenue, private firms also may book more local events -- parties, weddings and the like -- to plug occupancy gaps, observers said.
"These don't necessarily generate the convention attendance activity that is at the core of economic impact arguments," said Heywood Sanders, professor of public administration at the University of Texas in San Antonio. Cities look to convention centers to fill hotels, restaurants, shops and taxis.