Select Committee on Public Accounts Minutes of Evidence



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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