Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 140 - 159)



  140. Even so presumably your profits will soar, even if each spends a little bit less. You are talking about six or seven times the number of people. If you are talking about anything like that, then I would have thought your 30-year pay-off would reduce very, very rapidly indeed.

  (Mr O'Boyle) To try to expand on this impact of passing trade, the Bank of Scotland commissioned, as part of its due diligence back in 1998, before it took on the responsibilities to carry on the funding ERA, a detailed survey of the marketing, the museum, the operations. ERA forecast that the beneficial impact of Clarence Dock, because the design was pretty much known then, was between 30,000 and 50,000 visitors: not 100,000, 30,000 and 50,000. The low level was 30,000, the high level was 50,000 incremental visitors.

  141. I am not talking about Clarence Dock, I am talking about reducing the price of entry to zero and what is then going to happen. My understanding is that you said originally that you thought that would more or less fill the place. If it fills the place and we have a capacity of 1.3 million, you are not talking about an extra 100,000, extra 30,000, 50,000 or whatever, you are talking about 700,000 extra, more than that, almost one million extra, more than a million.

  (Mr O'Boyle) In terms of explaining how the visitor profile works for the year, to get to 1.3 million you have to have a flat assumption of visitors. In reality what happens is that it is driven by holidays. We are not in London, we are not on the tourist trail, therefore the real capacity is closer to 650,000.

  142. Six hundred and fifty thousand is more than three times your current figures. If you suddenly go to three times your current figures within two years, that is going to make a very considerable difference to your profits; it must do. If you are talking about the possibility of a pay-off in 30 years, in your current projections, with a little bit extra for the dock, then surely you are talking about a great deal fewer than 30 years if you get that sort of figure of throughput.

  (Mr O'Boyle) Potentially there is an increase there. The point I made about the amount of money you can actually take from these facilities is that they are finite facilities. They have a limited number of seats and therefore a limit on capacity and income.

  143. What is the capacity of your car parks and restaurants?

  (Mr O'Boyle) The car park as part of the new development is run by the developer not by RAI.

  144. Let me put it a different way. Sorry to cut you off. How much of the capacity you have is filled at present?

  (Mr O'Boyle) Probably one third on normal holidays. On bank holidays it is pretty much full to capacity and we have had overflows.

  145. Assuming we are talking about a normal day, we are talking about roughly one third.

  (Mr O'Boyle) Possibly even less.

  146. So if we get the sort of figures you are talking about, you will have three times the number of people going through.

  (Mr O'Boyle) I accept that but in the new development scheme the car park is not ours. The car park is actually owned by the whole of the site and it is managed by the developer. We only have a share of the income from the car park. The car park is handed over to the developer as part of the transaction.

  147. The share income will then go up by three.

  (Mr O'Boyle) And that is factored into our models which allows us to show that we can pay back the private sector debt.

  148. That 30-year pay-off has factored into it three times the car park income and three times the restaurant income.

  (Mr O'Boyle) It has factored growth. Whether it is actually three times, I am perfectly happy to show you.

  149. You were indicating it was a lot less than that. It would be very interesting to see what your predictions will be for your likely pay-off period if you get the sort of growth we are talking about here when the price is reduced to zero. Could we ask for that after the event?

  (Mr O'Boyle) We can certainly run the model. The model we had, which was produced as part of the due diligence for the deal in 1999, does clearly show the assumptions around the beneficial impact from the passing trade and the development. I am very happy to run that on an assumption basis where we do not have any income coming in.

  150. May I come back now to page 3, figure 2, which has been mentioned a lot, the visitor numbers? May I ask first of all whether the bottom line, the actual line, includes the schools and tourists?

  (Mr Wilson) These figures include all people who come to the museum as visitors but they exclude corporate clients. A lot of museum visitor figures include those but because of the nature of this deal we took out Mr O'Boyle's corporate clients from these figures. These are the people who come free or paying to the museum itself.

  151. That is exactly comparable with the top line from Grant Leisure, is it?

  (Mr Wilson) Yes, it is.

  152. We are talking about something like one sixth of what they were predicting, rather less than one sixth, in the 1999 year and even less than that now because you have gone down again.

  (Mr Wilson) To one hundred and eighty thousand.

  153. We were concerned very much that the Dome had only half the figures expected. If the Dome had had one sixth of the figures expected they would have had two million people through there. This is staggeringly much worse than the Dome. Can you explain this at all?

  (Mr Wilson) We have tried to. There is a whole range of explanations and I would hesitate to go over them again because we do not know the answer. We do now have to live in the real world and if you would be interested I can tell you what our projections for the future are because we are now going into a potentially difficult three or four years while around us there is a building site. We are not thinking about hundreds of thousands more visitors or up to one million at the moment, we are being realistic and our visitor targets for the next three years are 200,000 in 2001-02, 250,000 in 2002-03 and 260,000 in 2003-04. What we hope eventually to achieve is somewhere between 300,000 and 400,000 visitors and that is our immediate goal.

  154. You said earlier that no consultant had said you would not achieve the predicted numbers. Is that not at variance with what you said about MORI, who quite clearly did say that if you priced it at the level you decided to price it you would not achieve the predicted numbers?

  (Mr Wilson) What I was trying to say and what I hope I did say was that all the consultants said that this was going to be especially attractive to people and therefore would achieve, or could achieve, should achieve, high numbers of visitors. In nothing any of the consultants said was there a suggestion that it would not be at the upper end of the sort of visitor numbers you can expect from something of this sort in the regions. They each came up with different numbers for different reasons with different sensitivities.

  155. You keep saying that but you also say that MORI told you that was not actually the case if you charged more than £5.

  (Mr Wilson) MORI said it was the case if you did charge only £5; they said there was a range and we had to be careful of the price sensitivity.

  156. They did, but given that you were going to price it at more than £5, I should have thought that was an argument for saying that particular consultant did quite clearly tell you that you would not achieve the predicted numbers.

  (Mr Wilson) I understand. That was why we were concerned within the Royal Armouries when a high pricing policy was initiated.

  157. Mr Young, you said earlier that you were proud of the fact that some projects you were running had exceeded the expected visitor numbers and some were less. Can you explain why the expectations of these various people, the various consultants are so very far out in some cases? I do not think anyone is actually six times the number predicted, they are not that good. But to be only one sixth of the number predicted is a very, very long way out. Why do you use these people?

  (Mr Young) The interesting thing about this project is that it was not the public sector who carried the risk of the revenue side. This was the first time we tested the market. If you look at page 15, table 8, it makes it clear that the total risk of operating costs and revenues being different from those projected lay solely with the private sector company. What we were doing here was testing the market. We did not offer any guarantee of stepping in at any particular revenue level or visitor level; the market carried the risk. The market made its forecasts, the market decided what consultants to believe or disbelieve. That was the case with this one and this of course is in 1993. Subsequent to that we have had a whole host of visitor attractions of various sorts and Lottery projects and we have discussed several of them here. Some have indeed exceeded—I do not think by as many as six times; I cannot think of one off hand which is six times as many but certainly the two I mentioned, Walsall and the Lowry centre are good examples of non London cases where it has been a huge excess over projections and within London Tate Modern has many more visitors than projected; not six times.

  158. Double?

  (Mr Young) I do not have the figures with me but that sort of scale. The figures are very high. I am only making the point that I come here always having to talk to you about ones which have gone wrong but there are some other ones which have gone very right.

  159. It does seem, does it not, that the science of predicting these things is really rather poor?

  (Mr Young) Yes.

  The Committee suspended from 6.04 p.m. to 6.11 p.m. for a division in the House.

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