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State Agency Transfers Oregon State Fair to Public Corporation

4/25/2014

By Timothy Herrick

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Midway rides, exhibits, concessions, 4H competitions, entertainment - fair managers and their staff spend nearly an entire year planning these and other components hoping their efforts add up to a successful fair. But there's always factors outside the fair organizer's control - such as the weather - that can impact how successful the annual event will be.

Ironically, in one of the rainiest regions in North America, a problem other than the weather is impacting a state fair and what remains to be seen is if reducing government involvement in the fair organization can turn things around.

Failing Fairgrounds
By all accounts, the Oregon State Fair, an 11-day event held in late August, is one of most successful, mid-sized West Coast fairs. But for the rest of the year, the Oregon State Fairgrounds & Exposition Center, the 185-acre fairgrounds on which the annual celebration of the Agriculture Industry and everything Oregon is held, has been losing money. Rental demand for the grounds and facilities have spiraled downward for years with no signs of the trend reversing itself.

The situation of a failing fairground of course did not suddenly emerge last year - nor is it unique to the Beaver State, although the long, somewhat convoluted solution has many unusual aspects.

Last year, the Oregon State Legislature enacted legislation that transfers control of the Oregon State Fairgrounds and Exposition Center from a state agency to a newly formed public corporation. The legislation created an 11-member Oregon State Fair Council, charged with supervising the formation of the public/private hybrid that will manage the fair and its 185-acre site - home to the Oregon State Fair since 1862.

The Oregon State Fairgrounds and Exposition Center was always managed by the state, and since 2005 was under the Parks and Recreation Department, a state agency. The Oregon State Fair Council is now the governing body for both fair and fairgrounds.

Council Formed
"The fair is doing fine, everybody in Oregon loves our fair," said Kerry Tymchuk, executive director, Oregon Historical Society, a member of the Oregon State Fair Council. "But the other 50 weeks a year, the fair grounds is hemorrhaging money. The buildings need repair and renovations, and there are not enough parties, trade shows and celebrations to make up for the losses, which have been growing."

In addition to Tymchuck, members of the committee include Loyal Burns, Board of Directors, Veterinary Services Inc. and sheep breeder; Janet Carlson, Marion County commissioner; Jon Chandler, chief executive officer, Oregon Homebuilders Association;  Gene Derfler, former Oregon Senate president;  George Jennings, attorney and shareholder, Garrett, Hemann, Robertson P.C.; Austin McGuigan, Community Development Director, Polk County; Anna Peterson, Salem mayor; Craig Smith, former vice president and chief financial officer, Chemeketa Community College; Larry Tokarski, president, Mountain West Investment Corporation, and Leah Perkins-Hagele, fairgrounds manager, Washington County Fair.

The Oregon State Fair Council will act as the board of directors of the new entity, its initial task is forming  a management team charged with upholding the success of the fair while developing marketing, renovation and other strategies that will enhance the year-round appeal of the fairgrounds. According to Tymchuk, the most immediate goal is hiring a fair manager, a process now taking place.

For 2014,  an interim fair manager has been hired and while any existing contracts will be honored, because of the temporary nature of the current status of the new entity, all contracts that came due for renewal in 2013 - including the Midway - could only be drawn for a single year term.

"Whoever is hired to run the fair will also run the fairground and the expo-center," said Tymchuk. "The hope is that the new corporation will form a plausible business model. The intent of the legislation was to give the council more time and leeway, and they won't have to operate under rule of government and be a little more innovative in how they market the exposition center. The fair is the anchor tenant of the fairground and we hope to build on its success."

Portland Threat
The scenario: the fairgrounds must be saved in order to save the fair. What is evident however is that  support for the Oregon State Fair is widespread. "As far as Oregonians are concerned, the most important issue is to keep the fair successful," said Tymchuk. "The agriculture community is very vital in the state, and that includes the nursery industry and the cattle industry, and they are very sup portative of anything that will keep the fair as an ongoing enterprise."

One of the conundrums undermining the profitability of the fairgrounds is that Salem - the capital of the state - is simply not as large and marketable as nearby Portland. The city of Salem - pop: 154,637 - is, according to Tymchuk., "only a 40 minute drive," away from Portland - pop: 587,865 in 2012. This metropolitan market is large enough - Pop: 2,289,800 - to support a fair and offers an array of attractions and amenities to attract conventions, meetings and touring entertainment acts, but Salem's quaint, and outdated, fairgrounds, is no longer able to compete with Portland and its Oregon Convention Center, McKnight Center, and Providence Stadium as well as the dozen of other meeting and exhibition venues.

"Any major act or trade show or expo is going to go to Portland," says Tymchuk. "That wasn't the case 20 years ago, when the buildings on the fairgrounds were rented year-round. Economically, the fairgrounds were not carrying their weight. Portland has been growing faster than Salem, and Portland is getting the vast majority of the business that the fairgrounds would accommodate."

Ensuring the fair remains in the state's capitol is an underlying intent of the transfer of control to a new entity. "One of the missions, and the legislature has made it clear, is that we want to keep the fair in Salem," said Tymchuk. "It is written in the state law."

Tymchuk added that the council discussed every option - including changing state law so the fair could be held in other location - but for the time being - essentially the next five years - the commitment is to the new public corporation making Salem-based fairgrounds a revenue-generating venture.

"Most of the facilities up in Portland are less than 10 years old," says  Don Hillman, President and CEO of Hillman Consulting. Hillman is serving as the Acting Fair Manager for the 2014 edition of the Oregon State Fair.
 
"Things have changed so much on the expo side," he said. "Back in the day, there was very little competition, we would be renting our buildings constantly. Fairgrounds used to have the corner, but we don't have the corner on that business anymore."

Fair Focus
Hillman has more than three decades of fair management experience, including CEO (1989-1994) of the Oregon State Fair, as well as stints with  the California State Fair and the Washington County Fair. According to Hillman, who lives in the Salem area, the council came to him with the request to help out this year. He has no interest in and is not seeking the manager position of the Oregon State Fair and Exposition Center.

 Hillman is reluctant to discuss future scenarios for the fairgrounds, insisting that his focus is "on the fair," although he said better marketing, renovating some of the existing structures and increasing some rental fees are likely options. In addition, according to Hillman, the fair's operating budget - about $4.8 million - was not cut by the legislation or otherwise affected by the formation of the Oregon State Fair Council.

Because of the constraints of this transition period, new contracts - for both vendors and sponsors - can only be for a year, although only approval from the council and not by any state agency is necessary. "The existing contracts with the parks department have been rolled over to the new contracts," Hillman said. "The ones that were new are only for one year."

Most of the major vendor contracts - other than the Midway - were for multi-years and rolled over into a single year term. There are no issue with these contracts. Sponsorship agreements were typically for one year periods so would have likely been negotiated anew anyway.

"The support has been tremendous and I suspect we may even gain sponsors," said Hillman.
 
Hillman sees the new configuration as benefitting the fair in the long run. "The fair has been a positive and is the  flagship event for the fairgrounds, and that is a very good thing. Most fairs are a government entity, which can mean higher paid employees and they have to go to bid on every contract. This kind of structure can provide a roadblock to a making a successful organization. The new corporation is removed from government rules, bureaucracy and levels of approval, so it can be a more vibrant, efficient and profitable organization."

If that is the result, a stronger operational model for the fairgrounds will benefit the fair. "With both entities stronger, the fair can make real business decisions and be a better, more valuable fair than if it stayed part of a government agency,"  said Hillman.

Midway Support
In spite of the temporary measure of short term contracts this year, vendors for the fair seem ready to cooperate and are optimistic with the state's transfer of control.  "We are doing what  we can to  help facilitate the fair," said  Ronald E. Burback, CEO of Funtastic Shows.

Although adamant in Funtastic's support for the Oregon State Fair, when contract negations begin - likely soon after the conclusion of the 2014 fair - Burback is not sure what to expect. "If they want to, they may extend the contract  or they may go out to bid, in which case, we will do what will help the fair. We have had a great run there. "

Burback, a Northwest-based midway provider, has been in the carnival ride business since 1947, although in the last decade he has scaled back operations of Funtastic, his still covers about 40 events a season. At the Oregon State Fair, the footprint includes 42 rides and 45 concessions, including  15  food stands. Funtastic has been the midway provider for the Oregon State Fair for 35 years, and until this year, the contracts were always  multi-year agreements.

The last Oregon State Fair contract with Funtastic  was for eight years. "We never had a one-year contract before," said Burback. "Don Hillman extended the existing contract for an additional year. Basically nothing changed in the contract. So what will happen next year, we will just wait and see."

"The Oregon Fair is a good fair that usually makes money, depending on the weather," said Burback. "It is the off season where there is a problem. That is the story with Oregon and a lot of fairs have the same problem."

 Burback believes the state agency's abdication of control will solve the money pit predicament of the fairgrounds. "They took the fairgrounds, put it in the parks department and the park departments doesn't run fairs or fairgrounds, they run parks. It was not a good fit.  The parks people were wonderful people, but they don't have a business management identity. Now the fair is not unlike other fairs, which have their own board and manager."

The key to this new Oregon paradigm, according to Burback, is the removal of time-consuming obstacle state agencies are prone to - a systematic decision making process that requires layers of approval. "With this new council, the fair manager will not have to jump  through  hoops to get something approved. It can be very laborious and with a fair, there are times things need to move swiftly for the best outcome."

Burback believes the new, more flexible business model will allow the true value of the fairgrounds to be realized. "The fairgrounds are  pure gold, they've just been under-utilized," said Burback. "If good business people are put in place, I know they'll wake up to that fact that the fairgrounds, not counting the fair, has a huge potential for profitability."


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