San Diego Magazine / August 2004 / Unguided Tourism

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Unguided Tourism

SAN DIEGO’S $5 BILLION convention and tourism business is in turmoil. If the infighting isn’t sorted out soon, the region’s thirdlargest industry could lose market share to its top competitors, stalling its recovery from the aftermath of the 9/11 terrorist attacks and economic recession.

Can’t happen in America’s Finest City? Yes, it can—and is— say worried industry insiders, who claim new leadership is needed to unite the feuding factions behind their common goal of promoting San Diego as America’s finest convention and tourist destination.

The crux of the dispute is twofold: There is a fundamental disagreement within the industry over the primary role of the San Diego Convention & Visitors Bureau (ConVis), the agency responsible for marketing San Diego to convention and meeting planners and leisure tourists. At the same time, city funding to ConVis has been cut, and there is a furious debate over how the remaining dollars should be spent.

Prominent hotel owners say ConVis, headed by president and CEO Reint Reinders, has lost its bearings. As a result, marketing money is not being spent wisely, and bookings for hotel rooms are well short of projections, they argue. The nonprofit agency, they say, was created to put “heads in beds,” and unless there is a topdown reorganization of the bureau and the way it does business, the situation will only get worse.

“Over the years, ConVis has morphed into an organization with many missions and has become distracted from its original purpose, which is to fill hotel rooms,” says Bill Evans, a member of the Hotel-Motel Association board of directors and president of Evans Hotels.

ConVis supporters contend that Reinders and his staff, who take a “holistic,” community-based approach to marketing San Diego as a destination, are doing an excellent job. They point to the billions in annual visitor spending, one of the highest hotel occupancy rates in the nation, rising room rates and record collections of transient occupancy taxes, or TOT—the 10.5 percent room tax paid to the city by all hotel and motel guests. The problem, as they see it, is a group of hoteliers who put their self-interest ahead of the wider interests of a broadbased business community serving all visitors, be they convention delegates staying in pricy downtown hotels or day-trippers from Los Angeles browsing art museums in Balboa Park.

“Is ConVis worthy of criticism? Absolutely not,” says Joe Terzi, ConVis chairman and regional vice president of operations for Starwood Hotels & Resorts World-wide. “I think ConVis has performed exceptionally well over a period of time when other [cities] haven’t. San Diego, over the last four to five years, has been one of the strongest, if not the second strongest, hotel markets in the country.”

What’s really going on, some say, is that malcontents in the hotel industry are on a “witch hunt,” and their scapegoat is Reinders, who took the ConVis helm in 1991 and has two years remaining on his contract. Reinders’ case wasn’t helped any when it was revealed that in addition to his $225,000-a-year salary, he received an $81,000 bonus and a $50,000 interest-free loan last year.

Evans, who has been blamed for targeting Reinders, says that’s not the issue. “I don’t care about Reint,” Evans says. “I care about the people that work in my company. I care about the success of the convention center. I care about the message the world is getting about San Diego—which is no longer the image of sun, fun, beach and the zoo. It’s keno and bingo and blackjack.”

Evans’ comment reflects a belief that ConVis’ promotion of local casinos does little or nothing to contribute to TOT.

MEANWHILE, THE FEUD—which reached the boiling point during a tempestuous exchange in the mayor’s office in late May —is tarnishing the award-winning image ConVis enjoys outside the San Diego region.

And that is undermining the all-important convention and meeting business, the engine that fills hundreds of thousands of hotel rooms each year and drives TOT, a critical revenue source for the city’s general fund.

But the real problem is not ConVis, says hotel industry consultant Robert Rauch. Rather, it’s a lack of leadership and teamwork. “I’m not going to point fingers at Reint Reinders, but there is no leadership,” says Rauch, who is a ConVis board member, managing director of R.A. Rauch & Associates and director of San Diego State University’s Center for Hospitality & Tourism Research.

“I don’t believe ConVis has fallen short in any way,” he adds. “There are all these factions and people wanting to play political games . . . and the destination already has suffered. We’ve got to be a team, and there’s no team playing right now.”

Indeed, some prominent ConVis members have threatened to pull out and form a separate organization. In a letter to city manager Lamont Ewell, C. Terry Brown, chairman of the San Diego Lodging Industry Association and president of Atlas Hotels, says a “loose coalition” of local hospitality leadership “is working to bring about institutional change in the governance and structure of ConVis. . . . We must swing the pendulum back from the community- based organization that currently exists to one measured by productivity and a meaningful return on investment for all stakeholders.”

The association has also proposed a new hospitality organization, although its explicit purpose is unclear. In June, a roundtable meeting of industry leaders was hosted by the SDLIA to discuss the creation of a “hospitality/tourism alliance . . . that would serve as a clearinghouse for industry information and issues,” writes Brown in an e-mail message to those unable to attend the invitation-only meeting. Brown did not respond to requests for further comment.

Compounding the matter is a contentious city audit that cast a pall over ConVis—a preliminary finding is that taxpayer money may have been spent inappropriately on alcoholic beverages. Accusing fingers are pointed, again, at Reinders.

While most agree the audit is not a big deal—wining and dining convention and meeting planners is what ConVis officials do—public perception is damning, and that negative image hurt the agency when budget decisions were being made at City Hall. Reinders should have spent less time schmoozing on the golf course and more time schmoozing at City Hall, critics say.

The upshot: The cash-strapped City Council slashed its fiscal-year 2005 funding for ConVis by $2.7 million and shifted the responsibility for marketing and booking citywide conventions to the San Diego Convention Center Corporation, which operates the city’s waterfront convention center. That followed a $1.4 million hit in fiscal 2004. Combined, ConVis lost 30 percent of its city funding in two years.

As a percentage of TOT, ConVis funding has been sliced almost in half over the past decade, falling from 15.9 percent in 1995 to a projected 8.2 percent for fiscal 2005. Although the nonprofit bureau is an independent membership organization, about 85 percent of its annual budget comes from the city, with the remaining funds coming from member dues and assessments. “The cuts [to ConVis] were mostly budget-driven, but the audit provided the political cover to do it,” says Deputy Mayor Toni Atkins about the most recent budget cut.

REINDERS ACKNOWLEDGES he should have been paying more attention to politics. Nonetheless, he believes his record speaks for itself. Fiscal 2003 is considered a “banner year,” the best since 2000, San Diego’s top year for tourism. Visitor spending totaled $5.3 billion, and San Diego ranked third behind New York and Oahu in terms of hotel occupancy rates, pegging 69.5 percent. (The industry benchmark for profitability is 70 percent.) Fiscal 2004 did not meet projections, although the city was on track for a record $110 million in TOT money. “Isn’t that something that we ought to take a look at before we basically just kill ConVis?” Reinders wonders.

The city, Terzi says, has made shortsighted budget decisions that will have long-term consequences. “You are harming the organization whose primary role is to drive TOT collection,” he says. “You’re killing the golden goose.”

On that point, he and Evans agree. But Evans and other hoteliers believe the solution to the problem is restructuring the ConVis board so that the hotel industry, which funnels room taxes directly to city coffers, has greater representation. The Hotel-Motel Association initially proposed a 20- seat hotelier majority—then lowered the demand to 16—on the 39-member ConVis board. As San Diego Magazine went to press, the debate was still raging.

Atkins, who is also the City Council’s liaison to ConVis, is calling for “substantive discussions” to resolve the internal strife, rather than continuing to point fingers. “Given the audit and the issues that have come up around ConVis of late, I think it gave the opportunity for those who have a different opinion of ConVis the ability to move in for the kill, and that’s raw politics,” she says. A wiser move is to end the “schism” before any more harm is done, Atkins adds.

Rauch concurs, saying, “The good news is that these problems can be fixed.” To solve the immediate money problems, he believes an industrywide “self-assessment program” could generate the $25 million needed to properly market the San Diego region each year.

But accomplishing that, he says, “requires filling the leadership void.”