DALTON CONVENTION CENTER: A BEACON OR WHITE ELEPHANT?

For AAEW Business Case Student Competition

INTRODUCTION
Director of Tourism for the Dalton (Georgia, USA) Convention Center and Visitors Bureau, Brett
Huske, sat at his desk poring over several documents. Recalling his more than 30 years of
experience in the tourism-related industry, he was aware of the rewards and challenges of holding
positions in the top resort areas of Aspen, Hawaii, Key West, and Austin. Brett came to Dalton in
2010 and was promoted to his current position in 2013. He found the Dalton Convention Center
position to be especially demanding given the changes experienced by their major customer, the
area floorcovering industry.
The Northwest Georgia Trade and Convention Center, now called the Dalton (Georgia)
Convention Center, is visibly perched on a hillside overlooking downtown Dalton, the county seat
of Whitfield County. Although Brett was not a native of the Dalton area, he was aware that much
of the population are long-term residents, who were familiar with the area’s background and the
initial motivation for developing the center to support the needs of the floorcovering manufacturers
and their supply chain partners (see: http://www.visitdaltonga.com/convention-center).
The Center was built in 1991with the expectation that it would be heavily used by the carpet
industry to serve the industry’s customers and vendors, as well as provide a convention center for
the local carpet industry and company training events. The City of Dalton and Whitfield County
decided a joint venture to build the convention center would be a sound investment. The
convention center would generate business activity in the area and repay the investment through
increased tax revenues.
When the carpet industry consolidated and matured, the convention center’s purpose
changed. With fewer manufacturers, there was no longer the need for large industry trade shows.
The stalling economy during the 2007-2009 recession severely impacted the carpet industry and
as a result, the anticipated usage of the Convention Center has not met expectations. While it is
operating full-time, it is operating at less than its available capacity. A convention center could be
a valuable asset for any area and some of the municipal officials believed the Dalton Convention
Center could have a positive impact on the city of Dalton, Whitfield County, and the surrounding
communities. However, given the joint city and county funding model, one of the challenges was
finding a way to communicate the positive aspects of the Convention Center so that the city and
county governments and the local residents could see it as a good investment of funds, rather than
“the white elephant on the hill.” Brett wondered aloud, “What is to be the Dalton Convention
Center’s future?”
Although the center hosted company-specific events, academic and political forums,
annual meetings of the local electric utility, weekend cat shows, bird shows, Civil War shows, and
even a number of private weddings and events, the community still believed the Convention Center
was poorly utilized and a drain to taxpayers and businesses who funded the Center. Private events

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were not published on the convention center’s website, and the community did not know about
many scheduled events.

OWNERSHIP STRUCTURE
The City of Dalton and Whitfield County each contributes 50% of the operating income shortfall
each year. In addition, each contributes 50% of all capital improvements and/or debt service, if
any. The Convention Center was formed by an act of the Georgia legislature and is tax-exempt.
Accordingly, any modifications to the agreement must be approved by the state legislature.

TAX REVENUES
Georgia laws allowed the City of Dalton and Whitfield County to increase the hotel/motel tax from
6% to 7%, with 50% of the amount in excess of 5% to be used for tourism, conventions, and trade
shows. The amount used for the Dalton Convention Center is determined by the City of Dalton
and Whitfield County. Eighteen hotels are located within the City of Dalton, and two hotels are
located within Whitfield County. The hotel and motel tax revenues expected for 2017 by the City
of Dalton and Whitfield County are $1,300,000 and $244,246, respectively. Some County leaders
see this tax revenue allocation as a sore spot because the cost of the convention center must be
split 50/50.

CONVENTION CENTERS
A convention center is built to provide a facility that can serve a variety of uses for large groups,
most notably to bring together businesses of a single or related industry(ies) for product exhibitions
and other promotional activities. Convention centers are located in many cities around the world.
More than 500 operate in the United States and several operate in the state of Georgia, most notably
the World Conference Center in Atlanta. Typically, they have one or more large auditoriums, with
several smaller rooms designed as concert halls and meeting rooms. Total square footage limits
the size and types of events that can be accommodated. Several centers in the United States offer
more than 2 million square feet and can attract exceptionally large events and international
participants.
Convention Centers provide benefits to communities, but their primary purpose is usually
economic development. Attracting people to conferences and other events can be an effective way
to bring new funding into a community. Conference attendees will spend money on hotels,
restaurants, and tourism, which stimulates the local economy. Economic impacts include all the
financial effects on a community that an event or a facility may provide. Financial benefits include
an increase in sales across the community that are not directly from the facility, increases in
property values, increases in employment, or an increase in wage levels. When multipliers are
applied to estimate the economic impacts on a community, care must be taken to omit mere shifts
of employment and resources from one activity to another, since no incremental benefit to the
community is derived from people simply changing jobs. For example, increases in hotel

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occupancy indicate new money entering a community, whereas catering a local event merely shifts
the income for the event from one local provider to another.
DALTON CONVENTION CENTER

The Dalton Convention Center is

home to the Georgia Athletic
High School Coaches’ Hall of
Fame, has as arena with a
maximum seating capacity of
2,100, and is home to the Georgia
Rampage of the Xtreme Indoor
Football League and the Dalton
State College Roadrunners
basketball team.

Figure 1 – The Dalton Georgia Convention Center

The Convention Center contains numerous rooms, banquet halls, and a lecture hall, in addition to
the arena. The high demand months (called the “blue months” by the Center are March, April,
November and December. The “J months” (January, June, and July) are the low demand month,
and demand in all other months falls in between. Market segment revenue by percentage is
summarized below:

Market segment revenue by percent

Corporate (Shaw, US Foods, Alliant, Health Care One, Service Electric, etc.) 25%
Consumer Shows (gun show, civil war show, circus, basketball games, etc.) 23%
Social (weddings, proms, graduations, etc.) 22%
Associations (N.Georgia Electric, N.Georgia Health Care,
N.Georgia Pest Control, Turkey Federaton, etc.) 20%
Religious (St. Joseph’s Church, Jehovah Witness, Church of God, etc.) 10%
Total 100%

The convention center does not have standard prices. Instead, charges for all customers
and events are developed by Brett and/or the Marketing Director, taking into account space
requirements, demand at that time or year, plus direct costs of events. At a minimum, prices will
be greater than the variable and direct costs of events; however, the Convention Center cannot
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always charge enough to cover fixed facility costs and overheads in the lower demand months. As
Brett said, “We are better off financially if we can cover some of the fixed costs as long as we
cover all of the variable costs. In addition, the community benefits from the economic impact of
attendees staying in the hotels and eating in area restaurants – business these proprietors would not
have if the Convention Center did not attract people to the community with our events.”
Measuring economic impact is more subjective than measuring operating revenue and cost;
however, convention and trade centers and special events that bring visitors to an area are widely
considered to have a positive economic impact on a community. The Dalton Chamber of
Commerce published an article on the economic impact of the Convention Center in 2014.1 At
the beginning of 2017, Brett commissioned an economic impact study to convince the city and
county of the value of the facility. The study indicated the economic benefit the community
received by operating the center was approximately $5 million for 2017. The calculation of the
benefit was based on number of Dalton Convention Center event nights at $140.50 per night
multiplied by the total number of event guests staying overnight at hotels in the area plus the
number of event nights at $55 per night multiplied by total event guests that were not staying
overnights.

FINANCIAL SUMMARY OF CURRENT OPERATIONS

The primary sources of revenue are related to events held in the convention center. Total Revenue
for the 2017 calendar year was $1,269,660 with $690,501 (54.4%) from the sale of food and
beverages (of which 76.5% was from catering and 23.5% from concessions), and 45.1% from room
rental and related fees associated with events held at the Convention Center (per Convention
Center budget tracking reports). A breakdown of the revenue and expenses is presented in Exhibit
1. Salaries are noted as fixed costs, while wages are variable. Other payroll related costs should
be classified as fixed or variable based on the ratio of salaries to wages. Event costs are generally
variable and other costs could be fixed or variable. According to the City of Dalton financial
manager, even if the convention center operations were discontinued, the City and County would
continue to spend approximately $240,000 per year to maintain the building until it could be sold
or repurposed (unavoidable costs). The full financial statements for years 2017 and 2016 are
presented in Exhibit 2.

BRETT’S PREDICAMENT
Brett Huske believed he needed to take definitive actions to better address the current perception
of the Convention Center with the City and County. After considering all the forces in play, he
began making a list of the possibilities, realizing that some of the options would be mutually
exclusive, requiring him to eliminate some options. Further complicating the decision process, he

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The article can be obtained at https://daltonchamber.wordpress.com/2013/08/14/northwest-
georgia-trade-and-convention-center-economic-impact-for-dalton/.
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knew that community leaders wanted actions with quick results. Brett needs your help to develop
a recommendation to present to the City and County.
CASE ASSIGNMENT QUESTIONS
___________________________________________________________________________

1. Identify the costs that are fixed, variable, and semi-variable. State your rationale for the
categorization. Prepare a contribution margin income statement. What does this analysis
suggest about the importance of the convention center?

2. Estimate the continuing funding requirements to the City and the County if operation of
the Convention Center were discontinued. What does this analysis suggest about the
importance of the convention center?

3. Consider the economic impact of the Convention Center to the community. Discuss
advantages and disadvantages of relying on economic impact to justify operating the
Dalton Convention Center. How much positive economic impact is needed to justify the
continued operation of the Center from a financial standpoint?

4. Consider the financial accounting definitions of an asset and a liability. Assess whether
the convention center is a net contributor to the community or a net loser from a financial
standpoint. What intangible benefits does the Center provide to the community, and how
can they be valued? How would you communicate both the tangible and intangible benefits
of the convention center to the local governments and citizens?

(Note: Some more information is withheld at this time, and at least two more questions will
be provided impromptu on November 6, 2019 for the student participants to process and
answer in the actual competition.)

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Exhibit 1 – Key Components of Revenue and Expense

Dalton Convention Center Analysis of Excerpted Profit and Loss Statement Information for the calendar
year ended December 31, 2017

Revenues
Food and beverage
Catering $528,198
Concessions 162,304
690,502
Room rental & fees 567,411
Other 11,747
Total Revenue 1,269,660

Cost of Goods Sold 134,328

Gross Profit $1,135,332

Operating expenses for 2017:

Salaries and wages
Full-time salaries (fixed) $746,923
Part-time wages (variable) 254,438
Total salaries and wages 1,001,361

Benefits (related to salaries and wages) 121,676

Insurance – Workers Comp 5,850
Payroll taxes 67,105
Total payroll expenses 1,195,992

Building Operation
Building supplies 40,105
Data processing 18,102
Equipment maintenance (elevator, HVAC, other) 24,035
Insurance – Non- workers comp 34,792
Electricity 129,661
Gas 18,777
Water and waste 16,145
Depreciation 561,805
Miscellaneous Event Costs
Equipment rental (for events) 4,371
Linens (for events) 13,978
Other G&A 99,236

Total Non-COGS Expenses $2,156,999

Operating Loss ($1,021,667)

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Exhibit 2 – Dalton Convention Center Financial Statements
Panel A – Balance Sheet

STATEMENTS OF NET POSITION

DECEMBER 31, 2017 AND 2016

ASSETS

Current assets: 2017 2016

Cash and cash equivalents $ 522,957 $ 624,463
Accounts receivable 148,723 139,868
Intergovernmental receivable - local 17,617 171,765
Inventory 23,019 20,942
Prepaid expense 25,123 24,145
Total current assets 737,439 981,183

Noncurrent assets:
Non-depreciable capital assets 2,896,295 3,019,187
Depreciable capital assets, net 7,251,452 6,962,139
Total noncurrent assets 10,147,747 9,981,326

Total assets $10,885,186 $10,962,509

LIABILITIES AND NET POSITION

Current liabilities:
Accounts payable 172,398 386,044
Due to City of Dalton 89,302 179,179
Accrued salaries and bonuses 56,117 54,931
Accrued compensated absences 86,693 80,213
Accrued expenses 9,926 15,142
Customer deposits 79,877 81,059
Total current liabilities $ 494,313 $ 796,568

Net position:
Investment in capital assets 10,147,747 9,981,326
Unrestricted 243,126 184,615
Total net position $10,390,873 $10,165,941

TOTAL LIABILITIES AND NET POSITION $10,885,186 $10,962,509

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Exhibit 2 – Dalton Convention Center Financial Statements (cont.)
Panel B – Income Statement

STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

Operating revenues: 2017 2016___

Event and rental revenue $1,269,660 $1,442,274

Operating expenses:
Event costs 591,460 664,426
Facility and administration 1,138,062 1,186,340
Depreciation 561,805 515,165
Total operating expenses 2,291,327 2,365,931

Operating income (loss) (1,021,667) (923,657)

Non-operating revenues (expenses):
Interest income 1,533 573
Gain (loss) on disposal of assets 6,685 8,855
Intergovernmental revenue - local 1,238,381 1,223,013
Total non-operating revenues (expenses): 1,246,599 1,232,441

Change in net position 224,932 308,784

Total net position - beginning 10,165,941 9,857,157

Total net position – ending $10,390,873 $10,165,941

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Exhibit 2 – Dalton Convention Center Financial Statements (cont.)
Panel C – Statements of Cash Flows

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

2017 2016
Cash flows from operating activities:
Cash received from customers $1,259,623 $1,469,957
Cash paid to employees (996,400) (963,090)
Cash paid to suppliers (1,037,250) (811,953)
Net cash used by operating activities (774,027) (305,086)

Cash flows from non-capital financing activities:

Cash received from other governments 692,797 450,900
Net cash provided by non-capital financing activities 692,797 450,900

Cash flows from capital and related financing activities:

Acquisition and construction of capital assets (728,226) (408,353)
Cash received from other governments for capital acquisition 699,732 638,000
Proceeds from the sale of assets 6,685 14,407
Net cash provided (used) by capital and related financing activities (21,809) 244,054

Cash flows from investing activities:

Interest on investments 1,533 573
Net cash provided by non-capital financing activities 1,533 573

Net increase (decrease) in cash and cash equivalents (101,506) 390,441

Cash and cash equivalents at beginning of year 624,463 234,022

Cash and cash equivalents at end of year $ 522,957 $ 624,463

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Exhibit 2 – Dalton Convention Center Financial Statements (cont.)
Panel C – Statements of Cash Flows (cont.)

STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31,2017 AND 2016

Reconciliation of operating income to net cash provided by operating activities:

2017 2016
Operating income (loss) $(1,021,667) $ (923,657)

Adjustments to reconcile operating income to net cash

provided by operating activities:
Depreciation 561,805 515,165

Changes in assets and liabilities:

(Increase) decrease in:
Accounts receivable (8,855) 21,267
Inventory (2,077) (3,307)
Prepaid expenses (978) 3,440
Accounts payable (213,646) 50,842
Due to City of Dalton (89,877) (8,304)
Accrued salaries 1,186 21,364
Accrued compensated absences 6,480 14,354
Accrued expenses (5,216) (2,666)
Customer deposits (1,182) 6,416

Total adjustments 247,640 618,571

Net cash provided (used) by operating activities $(774,027) $(305,086)

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