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Complex Crisis

The Farm Show Complex, a top national horse show venue, is facing a $1.3 million deficit.  Looming rate increases of up to 70% jeopardize future of region's high profile equestrian events.

by Stephanie Lawson

Three years after the completion of a $86 million expansion, Harrisburg's Farm Show Complex is one of the country's top equestrian venues.  With 25 acres under a single roof, two large arenas and permanent and temporary stabling for hundreds of horses, the complex's climate-controlled, all weather facility is matched by few other venues. 

But all is not well in the state capital.  In mid-March Farm Show director Ed Nielsen announced his resignation, effective in May, concurrent with his projection that the facility will lose up to $1.3 million in the coming fiscal year if new shows are not booked.  Promoters of annual shows are struggling to come to terms with annual rate increases of 25 to 70 percent, coupled with few improvements in services, parking and traffic control. 

The most recent blow in promoters' eyes was the announcement that a 4.8-acre parcel of the parking lot will be sold to a hotel developer who plans to build a 140-suite hotel on the property.  Event promoters whose customers face parking shortages that sometimes cause hour long delays between leaving the interstate and entering the building—a distance of no more than a mile--want to know how 400 prime parking spaces will be replaced.  They are questioning the land's price--$600,000--and whether any of the money will be rechanneled back to the Farm Show to deal with the parking issue.

One show, the Pennsylvania RV and Camping Show, has voted with its feet, leaving the Farm Show Complex for the Giant Center in nearby Hershey, PA.   The show, organized for 38 years by the Pennsylvania Recreation Vehicle and Camping Association, is the country's largest RV trade/retail show, with 4,500 exhibitor personnel and 35,000 attendees.  Organizers say it is the 11th largest trade show held in the United States. 

"We could not come to terms over increased exhibitor costs associated with the newly expanded facilities in Harrisburg," Becky Lenington, PRVCA Executive Vice President said.  "It was time to change…the additional charges we were facing at the State Farm Show Complex just didn't make sense to our association or the show committee." Other one-time shows that were held in 2004 will not return in 2005.

Many of the region's highest profile equestrian events are held at the Farm Show Complex.  They give Pennsylvania's $10 billion horse industry a "face" even non-horse people can't miss.

The Standardbred Horse Sale is the world's largest, with millions of dollars changing hands each year.  The Pennsylvania National Horse Show is the country's largest multi-breed indoor horse show, bringing nearly 1,200 horses from across North America and an estimated $40 million into the Harrisburg economy.  Pennsylvania Horse World Expo, held in February, helped the Farm Show Complex have what was reportedly its largest day ever.

If these events cannot absorb rate increases approaching in some cases hundreds of thousands of dollars, what does the future hold?

Fully Funded

The Farm Show Complex expansion was funded by the 2001Governor's budget.  The expansion was fully funded by the state in that year, leaving no outstanding debt, though planners failed to budget for an increase in utilities. The looming $1.3 million deficit is due to operating expenses outpacing income.  The Farm Show Complex derives income from building rental, food sales and parking.  Only 33% of the complex's inventory (days and space) is currently used. 

The complex received $3 million from the state legislature this year.  Next year's proposed budget includes just $2.25 million.  More than a million dollars went to offset losses by the 2005 Farm Show, which had $1.9 million in costs and generated $840,000 in revenue. 

Adding to the complex's difficulties is a lack of marketing.  The current budget includes no money for marketing and next year's budget includes just $50,000.  The local convention and visitors bureau, which has in the past taken the lead in marketing the facility, is facing its own budget cutbacks and is no longer able to assume that role, Nielsen said.

He promised a marketing plan by the commission's next meeting in April. But implementing the plan will require hundreds of thousands of dollars, he said.

"We log inquiries and get a lot of calls for equine events and small shows, but very few from shows wanting to rent the whole complex," he said.

Small Shows Priced Out

The Keystone Classic, a two-day show produced by the non-profit Pennsylvania Saddlebred Horse Association, was held in 2003 at the Farm Show Complex's Equine Arena.  The show, which started in 1995 at Diamond 7 Arena in Dillsburg, moved to the Farm Show when it outgrew Diamond 7's stabling capacity.  The 2003 show, which attracted about 270 horses, lost about $2,000.  The Keystone Classic moved the next year to the Quentin Riding Club, where with fewer entries it made a profit of about $4,000.  The bill for the Farm Show rental was about $18,000 compared to $13,800 to rent the Quentin Riding Club, said Keystone Classic Chair Bobbie Jo Beck.

While the Farm Show staff was "accommodating and nice to work with, they were a bit disorganized and neglected to explain all the expenses we would be responsible for up front," Beck said.  "If we had known, it would have been difficult for us to decide to hold the show there because we couldn't have charged exhibitors enough to break even. It was not until we were committed that we found out the additional costs of manure removal and tractor rental were not included in the rental. This came well after prize lists and prices had been published for the show, so we had to absorb the additional expenses which left us on the negative side after the bills were all paid.

"They had given us a special first year rate and told us it would increase the second year.  And that was before they raised rates," she said.  "In addition to the cost is the fact that the facility is not conducive to a small indoor horse show.  We rented the equine barn, the equine arena and the hall. There was nowhere to warm up and no mats in the hall.  We had horses fall.

"There is potential but they would need to invest some money to make it more user friendly for a small horse show.  There are a lot of things they could have made better if they had put more thought into it."

Hotel Planned

Promoters have taken issue with the commission's decision to sell 4.8 acres of prime parking to Crossgates Inc. for $600,000.  The developer plans to construct a 140-suite Staybridge Suites hotel in the corner of the property bordered by Cameron Street and Elmerton Ave.  At a recent Farm Show Commission meeting, Crossgates VP Mike Tower reviewed the company's effort to reduce the hotel's footprint, thereby retaining as much land as possible for parking.

The money received for the land would normally be paid to the Department of General Services and not be used to offset Farm Show expenses or improvements.  Secretary of Agriculture Dennis Wolff said he would try to get the legislation authorizing the sale written so that the money would be returned to the Farm Show Complex to be used to purchase additional land for parking.

At the March meeting of the Farm Show Commission, Brad Hostetter, coordinator of Motorama, which is held at the complex, questioned the price of the land.  "You are selling the land for $126,000 an acre when you will have to spend a half million dollars an acre to replace it," he told the Commission.  "We have been told this is a done deal, pending legislative approval….As a promoter and a citizen, this is an outrage.  The promoters have been begging for more parking even before the addition of the Expo Hall and Equine Arena.  The Complex needs more parking, not a competing business on premises."

The developer told the Commission that his company had been selected for the project, an agreement had been drafted and Crossgates had signed it, though the state had not.

Robert Dobart, whose Equestrian Promotions holds the highly successful Pennsylvania Horse World Expo in late February, called the Farm Show "a wonderful facility with a great location.  But parking is a real issue," he told the Commission. 

"If you walked around the parking lot on Saturday (of HWE) every place there is to park had a car in it. We filled all the Farm Show lots and the (nearby) Harrisburg Area Community College lot and seven acres of unpaved space.  They have a need they can't support now and they will be losing hundreds of spaces to the hotel," he said.

Equestrian Promotions has seen "substantial increases" in rental rates and in the percentage of the gate paid to the Farm Show and has chosen not to raise ticket prices or rates for vendor space. 

"We take a big risk holding this show," Dobart said.  "If there is a catastrophic snow storm, we're in big trouble.  We need to make a certain amount of money to justify taking that risk or it just doesn't make sense.  Right now, even with an increase in attendance this year, we are not making what we believe is a reasonable profit for this show.

"We set our admission and booth rates three years ago based on what we were told at the time and now, since we haven't increased admission prices or booth rates, we are taking a beating."

His event also experienced major problems with traffic and food service for the third year in a row, despite meetings before and after each show to address them.  "Traffic was backed up onto I-81 and, for a short period, the wait from the exit into the building on Saturday was an hour.  There were four food cashiers for the entire Expo  Hall on Saturday so the food lines were 45 minutes to an hour long. 

"There were food stands open in the arena and the cafeteria was open, but at this show most of the people are in the Expo Center.  We have close to 2,000 people manning almost 500 booths who can't leave their booths for an hour  to get food."

The issue goes beyond customer dissatisfaction, he said.  "The Farm Show Bureau  leaves a substantial amount of money  on the table:  The money not spent on food because the lines are long and then they run out of food.  The money not spent on parking when they can't get people to the building.    These issues have surfaced every year and while there has been improvement much more work needs to be done.

Indeed, the Farm Show Commission heard a report by a college intern that told them promoters think the Farm Show is doing a fine job, with 87 percent reporting they are "satisfied" or "very satisfied" with the service they receive.  The same meeting was attended by representatives of at least five events who spoke about parking and other concerns.

70% Rate Increase

The Pennsylvania National Horse Show, which has been held at the complex for more than 50 years, is facing a 70 percent increase in rental rates for 2005, on top of 24 to 27 percent annual increases each of the last three years. In four years, rental and utilities for the same amount of space have tripled.  The show, which raises funds for the Harrisburg Kiwanis Youth Foundation and the Pennsylvania National Horse Show Foundation, aims for a surplus of over $50,000 to donate to charity when the show ends each year.  The 2004 show raised that amount.  But this year's increase in rental rates will absorb that surplus and more.  The horse show is ramping up efforts to attract more sponsors and seeking legislative grants to offset the rate increase. 

"The organizations that benefit count on the show for funding for their activities.  Every dollar that goes to rent is not available for charitable purposes.  Beyond its purpose as a fundraiser, the show exists for the enjoyment of its exhibitors and spectators," incoming chair Eugene Pepinsky said.  "This is a world class event and we pride ourselves on the quality of our exhibitors. But if we have to push too much cost onto exhibitors and ticket buyers there is a breaking point at which they have to decide whether it is economically feasible to participate.  We rely more on volunteers than paid staff.  We scrimp and get donations of time, services and products.  But horse people don't have unlimited resources and as entertainment, competing with other entertainment choices, ticket prices can't continue to rise to offset rate increases.

"To the extent that costs keep increasing beyond our control, it will reach a point where it's not economically feasible to continue," he said.

Farm Show Admission?

In addition to running the building, the PDA Farm Show Bureau runs three shows:  The All-American Dairy Show, the Keystone Livestock Exposition and the annual Farm Show, which in 2005 attracted 500,000 people, according to a PDA press release.  Unlike comparable shows the Farm Show charges no admission.  The Kentucky State Fair charges $5 in advance, $7 at the gate for ages 13+ and $2 in advance, $3 at the gate for children 3 to 12.  Eastern States Exposition, New England's state fair, charges $10 for ages 13+ and $8 for ages 6-12.  At an average of $5 per ticket, the Farm Show could raise as much as $2.5 million. 

Outgoing Farm Show Director Ed Nielsen requested that Pennsylvania Equestrian direct questions to Stephanie Meyers, PDA Press Secretary, who requested the questions in writing via email.  The questions and the PDA responses begin on page xx.  A tight deadline left no opportunity to request clarification. 

 

The Farm Show Responds

Outgoing Farm Show Director Ed Nielsen requested that Pennsylvania Equestrian direct questions to Stephanie Meyers, PDA Press Secretary, who requested the questions in writing via email.  Because of a tight deadline, there was no opportunity to ask for clarification.
 

1. Where did the $3million allocated by the legislature this year go?

The General Assembly funding of $3 M for FY04-05 went to directly support Complex operations.
 

2. Ed Nielsen indicated that the solution to the complex's financial problem is attracting additional regional, national and international shows. I am sure you are aware of the Brookings Institution study from Jan. 05 which documented unprecedented competition for shows (among venues) and overall attendance at shows down sharply to 1993 levels. Meanwhile the facility was built for agriculture and compared with other convention centers has issues with cleanliness, air quality, concrete floors, dated bathrooms, etc. In addition, the Center for Exhibition Industry Research (CEIR) says exhibition centers are not meant to make money but to generate economic activity for their host cities. Finally, a CEIR report says that that the winners of the "space race" are third generation centers that are "really big hotel rooms with hotel quality look and finish, excellent lighting, lots of amenities and high technology...for a facility to compete today it needs state of the art technology including scalable and shared Ethernet options, VLANS and VPNs, high speed WANS, video conferencing, fiber optic and wireless networking, satellite downlink and uplink capability and more."

When compared to the CEIR reports, everything Stephanie notes is true. A multi-use facility like the FSC will always have issues revolving around the mixed use nature of the facility.  That said, this unique complex can accommodate shows and events that many other facilities cannot. In addition, the new section provides for segmentation of shows and offers promoters significant flexibility.

The point about the "space race" is debatable. There are reports (Brookings Institution, January 2005) that claim there is no need for either new or expanded convention center space. Then there is CEIR arguing that there is a pick-up in demand for space that is expected to grow by 2-5%/ year. I'd suggest that the real winners of the future are those facilities that invest in having a facility-appropriate headquarters hotel on or near the property, state-of-the-art technology, continually improving facility and new services, adequately staffed and trained professionals (hospitality sales, marketing, exposition services, etc.) servicing the customers.

 

What is his vision regarding the type of shows that would move to the Farm Show Complex? Coupled with the $50,000 marketing budget, is that a viable road to profitability?

The Department of Agriculture's vision is to position the Farm Show Complex as a desirable multi-use venue for ag and commercial trade shows and other regional, state and national events. Further, we want to continue to add value to shows hosted at the Complex.

 

3. I am involved with the PNHS as a board member and marketing director, and I handle publicity and print the program for Horse World Expo. My observations are that cleanliness (bathrooms and floors in particular) is a major problem, as are insufficient food capacity, and traffic control. I know that both organizations have tried to address these issues and they don't seem to get better. Why is it so hard?

Based on customer feedback (an initiative solely started and continued by this Administration), the facility itself, services and staff courtesy have all improved significantly in the past 18 months. Restrooms are considerably cleaner than ever before, albeit antiquated in the older sections of the Complex. Floors are as clean as they can be, given the nature and age of the Complex. Steps are being taken now to improve uneven flooring in the older part of the Complex, as steps have been taken to improve flooring in the upper connector link (August 2004) and air quality during Farm Show in the Expo Hall (December 2003).

Traffic control has always been a challenge. With many shows being "unticketed" it is difficult at best to predict turnout and the related issues of parking and traffic control.  Consequently there are times when we have an abundance of parking space and shuttle buses (despite the show producers projections) and times when we are over run with massive volumes of traffic and simply not enough parking spaces or police traffic control. The use of technology could be very helpful in managing this situation, from control of traffic lights to remote cameras to anticipate and respond to increases/ decreases in traffic volume.
 

4. I know that the Farm Show lost about $1 million this year. How do KILE and the Dairy Show compare in terms of profitability?

The Keystone International Livestock Exposition and the All-American Dairy Show are state-sponsored shows and are integral to the mission of PDA, and as such have considerable value far beyond financial profitability that make these events mission-critical to PDA.
 

5. At the Farm Show Commission meeting, Mr. Nielsen mentioned the complex gets a lot of calls from equestrian events. How many end up holding an event at the building?

We've received numerous equine/equestrian "soft" inquiries about space availability and rental rates. In many cases, these organizations are simply looking for alternative venues for future events, so measuring conversions at this point is misleading.
 

6. Shows that rent the complex feel they are being asked to subsidize the PDA shows. Is that a fair assessment?

No, the current level of state support covers the cost of delivering the state-sponsored shows.
 

7. The Kentucky State Fair and Eastern States Exposition, both comparable to the Farm Show, charge admission ($7 to $10 per day for ages 13 up, a lesser amount for kids.) Farm Show admission could generate millions of dollars. Is any thought being given to charging admission for Farm Show?

The annual Farm Show is a service to the public and provides an opportunity to raise the awareness of agriculture and the important role it plays in our lives and economy.
 

8. I understand the building makes money from rentals, food, and parking - what percentage comes from each?

As of the current year-to-date performance (fiscal year ends June 30, 2005), 44% of total revenues come from facility rentals; 27% from paid parking; and 9% from food and beverage. Remainder comes from service charges and other related areas.
 

9.  One small horse show (250 horses) that had outgrown its previous facility rented the Equine barn and arena in 2003, lost money at rates much lower than those you're now charging, moved to the Quentin Riding Club and is $6000 ahead. Isn't it just too expensive?

The operating costs are what they are- the bigger issue is simply determining if there is adequate value for the costs of doing business. In many cases our customers believe there is enough value to justify the costs; they choose to stay with us and work to improve their return on investment. In others, customers choose to look elsewhere, in part financially-based, but there are also other variables that drive those decisions. All of that is driven by the economy and the unique nature of each event, and the fiscal viability of each supporting organization.
 

10. Why did Mr. Nielsen resign?

Mr. Nielsen accomplished what he was brought in to do, essentially transform and institutionalize improvements to the management and facility. As such, he has decided to pursue new professional challenges. We appreciate very much his hard work and commitment to the Complex.

 

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