APPENDIX 5
SUPPLEMENTARY MEMORANDUM FROM THE NEW MILLENNIUM
EXPERIENCE COMPANY LIMITED (PAC 1999-2000/289)
Submitted by Mr David N James, Executive
Chairman and Accounting Officer, NMEC
1. Introduction
During the Oral Evidence Session of the Public
Accounts Committee's Inquiry into the Millennium Dome on Wednesday
15 November 2000, a number of issues were covered and were raised
on which I wish to provide clarification or on which I agreed
to provide further information.
Those issues and the further information are
set out below.
2. Sponsorship and Exhibition Zones (Questions
54, 56, 61, 62, 134, 135, 181, and 183)
The Committee raised a number of issues regarding
the quantum of sponsorship achieved, the number of exhibition
zones sponsored and the sponsorship contingency in the original
budget. I believe it would help the Committee's considerations
if I provided clarification to a number of my responses, firstly
by summarising the key points and then by setting out more detail
on them.
In summary, the 1997 indicative budget provided
for £195 million of sponsorship of which £20 million
was a contingency. The company's internal target was £150
million of cash sponsorship. At this stage there were to be twelve
exhibit zones and an enclosed "Drum" theatre in the
centre of the Dome. During the development of the initial outline
content, the Drum proposal was replaced by the current central
arena and Millennium Show and this change enabled the accommodation
of two additional exhibit zones plus Skyscape as a separate facility,
plus other subsidiary exhibition areas. In the end the Dome accommodated
fifteen zones (including the Our Town Story Stage) twelve of which
had sponsor or donor support. The current budget forecasts £118.3
million sponsorship income. In addition the project has delivered
an estimated £46 million of budget enhancement which includes
the sponsorship covering the costs of the two additional zones
referred to above. The items covered by this £46 million
delivered an enhanced visitor experience but they remained in
the ownership of, or at the revenue cost of, the sponsors. They
did not become part of NMEC's balance sheet and do not count against
the overall project cost of £793 million.
In more detail, the project's indicative budget
drawn up in May 1997 provided for £195 million of sponsorship,
of which £150 million became the company's internal cash
sponsorship target allowing for contingency in the budget. At
that stage the Dome's content, and, therefore, the "offer"
to sponsors was in development and the sponsorship market was
largely untested. Additionally, the stakeholders (Government and
Millennium Commission) recognised that the May 1997 budget was
a working budget subject to refinement as the project developed
over the months following the Government's go-ahead for the project
in June 1997. Also in May 1997 the intention had been that the
Dome would house an enclosed "Drum" theatre in its central
arena, and that there would be twelve exhibit zones in the Dome's
outer ring.
In November 1997 the Company's Board decided
that the Drum proposal was not viable or affordable within the
project's £758 million cash-limited budget. As the Company's
then Chief Executive wrote in her Statement in the Company's published
Annual Report and Financial Statements for the Year Ended 31 March
1999:
"The project's £758 million cash budget
has placed tight restrictions on the company's ability to accommodate
some very positive developments which serve to enhance the Millennium
Experience. For example, the original budget was based on twelve
exhibit zones at the Dome and a theatre structure at the centre
of the Dome. The latter was substituted in late 1997 with a reconfiguration
of the Dome's central area and with Skyscape (formerly known as
Babydome). These changes created the opportunity for further enhancements
to the visitor experience including an increase to fourteen exhibit
zones, the creation of Timekeepers soft play area, other subsidiary
exhibition areas, and the commissioning of the Blackadder film.
. . . The company had to identify a way of accommodating these
enhancements without exceeding the £758 million budget and
this has involved, inter alia, contractual arrangements
with the sponsors of the two additional zones to reflect design,
build, finance and ownership arrangements . . ."
The other "subsidiary exhibition areas"
included the provision of the Our Town Story Stage on which every
local education authority and library board in the UK will, by
31 December 2000, have performed its own story as part of the
national Our Town Story programme sponsored by McDonald's.
The essence of the above extract from the Chief
Executive's Statement reflects the evolving nature of the project
through the second half of 1997 and through 1998. The impact of
this on the sponsorship drive was that the "offer" to
sponsors was itself the subject of development during the course
of negotiations—especially with those sponsors who had first
expressed an interest in supporting the project in 1996 when the
Millennium Commission, via the Rt Hon Michael Heseltine MP, made
the initial approach to the private sector.
The costs and the compensating sponsorship of
the two zones additional exhibit zones referred to in the then
Chief Executive's Statement were taken off the company's books.
Consequently the costs were not additional to the £758 million
cash budget because they did not fall to the company to pay. In
addition, the accommodation of the separate Skyscape venue adjacent
to the Dome led to BskyB switching its sponsorship to that venue
from its original intention to sponsor the Play zone within the
Dome.
In the event, 12 of the 15 "zones"
(excluding Timekeepers) within the Dome received sponsorship support
(or donor support in the case of the Faith zone). Those without
such support are Rest, Play and Living Island. Additionally and
despite considerable efforts, the company was unable to attract
sponsorship support for the Millennium Show—arguably the
most spectacular aspect of the Millennium Experience.
At the time of the National Audit Office Report,
the company's sponsorship budget was £115 million cash and
value-in-kind (page 42, paragraph 3.18 of the Report). The current
budget reflects total sponsorship income of £118.3 million.
In addition the company estimates that the project has delivered
about £46 million value of budget enhancement which includes
the sponsorship covering the costs of the two additional exhibit
zones together with a range of expenditure by other sponsors on
Dome related activities. In respect of value in kind sponsorship,
and returning again to the then Chief Executive's Statement to
the published 1999 Annual Report and Financial Statements, she
recorded:
"As regards value in kind, the company only
includes in its accounts that which provides goods, works or services
for which the company would otherwise have had to pay and for
which there is a budget provision . . . The Culture, Media and
Sport parliamentary Select Committee, in its Report "Back
to the Dome" published on 25 March 1999 concluded that "In
our view, the stringent approach that has been taken to value-in-kind
is correct". . ."
Clearly it would have been ideal to achieve
the original sponsorship target. However, like much of the project,
the sponsorship aspect of the Millennium Experience broke new
ground—there were no established templates for the kind
of sponsorship arrangement attaching to the Dome. The major companies
involved drove hard bargains seeking, as they had to, the maximum
commercial benefit for their shareholders. In some instances NMEC
was taken to the wire; in others potential sponsors decided to
channel their sponsorship budgets elsewhere. The original sponsorship
target was severely testing. The fact that the company, in any
event, raised more than had been raised before in the UK for a
single event remains a notable achievement in the company's view.
In the final analysis, the total forecast cost of the project
stands at £793 million, some £35 million (approximately
5 per cent) over the original budget. The items represented by
the expenditure covered by the budget enhancement sponsorship
of £46 million delivered benefits for the project and the
visitor experience and remained in the ownership, or at the revenue
cost, of the sponsors. Accordingly they did not become part of
NMEC's balance sheet. It is, therefore, incorrect, to add the
£46 million to the total project cost.
3. Consultants (Questions 150, 151 and 152)
The Committee requested a schedule of consultants
who had been involved in work on visitor volume issues—this
is attached at Annex A. For clarification, the company did not
commission consultants to advise on the 1997 Business Plan visitor
volume target of 12 million. Data previously produced by ERA and
MORI in November 1996 prior to the company's establishment (and
referred to by Mr O'Connor, Director and Accounting Officer of
the Millennium Commission, in answer to Question 142) was used
by those who developed the indicative budget in 1997.
The company subsequently commissioned NOP to
undertake an ongoing tracking survey of people's attitudes towards
visiting the Dome and MORI to undertake qualitative market research.
As reported to the Committee, the costs involved have been above
£800,000.
4. Ticket Sales Channels (Unnumbered Question—Page
81)
As a matter of clarification, I am attaching,
at Annex B, details of the forecast and actual sales by channel.
5. Geographical/Regional Sales (Questions
286 and 287)
As indicated to the Committee in my response,
I have undertaken a review of the data held by the company regarding
geographical/regional ticket sales. I understand that the company
has, in the past, provided information in response to Parliamentary
Questions about sales in England, Scotland and Wales. I am now
able to provide a more detailed breakdown, including international
sales and this is set out in Annex C. I would, however, ask the
Committee to note, in particular, the caveats to this data as
set out in the introduction to the Annex.
6. E mail Marketing (Questions 300, 301, 302,
303, 304 and 310)
For clarification purposes, whilst the company
did not undertake what might be termed as "cold call"
e-mail marketing activities, it has made considerable use of the
Internet as part of its broad Marketing strategy. In addition
to its own Web site, through which Dome tickets can be purchased,
the company has advertised on those sites listed at Annex D. Overall
the company has invested about £600,000 in its internet activities.
7. Correspondence from the Chairman of the
Millennium Commission (The Secretary of State for Culture, Media
and Sport) to the Shareholder in February 2000 (Questions 320,
321 and 322)
The Committee Chairman asked if I would enumerate
the demonstrable effect of changes introduced by the company as
a result of the Millennium Commission Chairman's letter sent to
the Shareholder in February. (That letter and the then NMEC Chairman's
reply were reproduced on pages 50 and 51 of the National Audit
Office Report—The Millennium Dome).
The letter needs to be set against the background
of the decisions taken by the Board in January to take swift action
to deal with the operational problems experienced in the first
few weeks of opening. The key change made by the Board was the
replacement of the previous Chief Executive (Miss Jennifer A Page)
with the current Chief Executive (P Y Gerbeau). Miss Page's achievements
in getting the Dome project through its development and construction
phases under enormous pressures of time, of public and media glare,
and of the politics are, in my view, outstanding. It is, however,
generally recognised now that a different set of skills was required
to take the project through its operational phase. The then Chairman
and the Board recognised that early in January and took very urgent
steps to introduce the necessary change at the top that became
effective in early February. In addition individual non-executive
Board members (none of whom has received any remuneration for
their service) agreed to take an even more pro-active role where
their particular expertise could add value. Consideration was
also given to strengthening the Board—although it is never
easy (nor is it a quick process) to identify appropriately senior
and experienced individuals to serve on non-Departmental Public
Body Boards in the kind of circumstances that surrounded NMEC.
A new Executive Board member was appointed by the Shareholder
in May 2000 with a specific remit to work with the CEO to look
at cost savings and cost efficiency—at that stage all the
external pressure on the company focused on costs even though,
as the National Audit Office Report makes clear, it was the revenue
shortfall that was the major problem—and a new non-Executive
Board member, with PR and tourism expertise, was appointed by
the Shareholder in June 2000.
This was a time of high pressures and unique
circumstances that both the Board and the Executive had to contend
with. The Board were concerned with addressing the issues arising
as quickly as possible and effecting necessary changes throughout
the period. The timing of the then Chairman's written reply (30
March 2000) to the Commission Chairman's letter of February does
not imply that there was no concern and no action. As is evidenced
from the substance of the 30 March letter a great deal of thought
and discussion had gone into the issues concerning stakeholders
for some time. In response to the Committee's Question number
320, I do not believe that, had the then Chairman sent his written
reply earlier, it would have had any impact on the financial position
of NMEC.
8. The withdrawal of Dome Europe/Nomura (Questions
323, 325, 326)
The Committee Chairman asked for a note of my
view formally as to why the Dome Europe/Nomura deal for the sale
of the Dome fell through. As I indicated to the Committee in my
reply to Question 325, my correspondence in September with Mr
Guy Hands dealing with the specific issues he raised on behalf
of Nomura was placed in the House Libraries later that month.
For ease of reference I am attaching copies at Annex E to this
Memorandum.
My further views about the withdrawal of Dome
Europe arise from the experience and detailed knowledge I have
gained in undertaking many deals involving the sale of major assets
or companies to investor groups or Venture Capitalists. The structure
of the Dome competition reflected the original assumption that
this was an asset sale. The deal would have remained easier to
discharge had it remained an asset sale. However, during the course
of the negotiations, the deal evolved to include operational structures—thereby
transforming the sale into one of a business or going concern
purchase rather than a simple asset purchase. This created special
difficulties in presenting a Data Room capable of satisfying the
issues relating to a "business" sale as opposed to an
"asset" sale and these concerns are fully reflected
in the list of points, many themselves misunderstandings, in Guy
Hands' letter referred to above.
I must emphasise that nothing in these comments
should be taken as criticism of the Competition Team who I consider
to have demonstrated complete commitment and a high level of expertise
throughout this extended process.
9. Free Entry (Question 327)
The Committee asked what visitor volume might
have been expected had entry to the Dome been free of charge,
and whether other commercial revenue from any enhanced volume
might have exceeded the loss in ticket revenue. I do not believe
that there is a robust calculation that can be made in the circumstances.
However, in my opinion it is unlikely that the loss of ticket
income could have been met by such a strategy.
10. Project Cost (Question 331 and 332)
The issues raised in the break and referred
to in my Answer to Question 331, concerned the treatment of the
budget enhancement sponsorship of £46 million in the context
of the overall project cost. I have clarified this treatment in
the final paragraph of point 2 above.
11. Financial Information available to the
Board (Question 333)
As an example of the financial information provided
to the Board, I enclose the Financial Reports for May, June and
July 2000 at Annex F.
David N James
Executive Chairman and Accounting Officer
New Millennium Experience Company
29 November 2000
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