The ownership of some of the UK’s biggest and most prestigious event spaces are increasingly coming under question. The future ownership of the NEC is up for offers and a number of venue projects are in various states of development across the UK. John Sharkey, CEO of the Scottish Exhibition and Conference Centre (SECC) looks at the nature of venues and asks ‘Who’d want to own a venue?’
‘Who’d want to own a venue?’ is a question being asked rather a lot of people at the moment.
Let’s track back and look at my own venue as a prelude. When the SECC was first sponsored in 1982, the Scottish Development Agency (SDA) prospectus document for one of the first public/private finance initiatives of its kind stated: “The character of exhibition centre operations? has required substantial public sector funding [the social and economic benefits are far greater than the direct revenues which can be captured by the centre, hence the need for public sector support]. At the same time, it is important to secure meaningful private sector participation, not least because of the managerial expertise which this can bring into the project, leading to a strong and efficient commercial performance”.
Where private equity financing was to be considered, following construction of the venue, it was to be on the basis of two fundamental conditions: the business should ‘stand on its own’, in that there is no explicit guarantee of any kind that private capital could be recovered in the event that the Centre was less successful than anticipated; and [that] the return on private equity would be entirely dependent on the operating profit secured by the centre”. Was the SDA a modern day venue’s Nostradamus?
The UK marketplace has both similar and different characteristics to our international neighbours and so the investment appetite should be shaped with this in mind.
In the US the convention and exhibition market is largely the domain of public sector-led development and either public or private sector management. The bed tax and convention and visitor bureau relationships are part of the mix in a strategy that is driving venue revenues to a lowest cost wins model. Organisers and service support companies are doing well but they have the whip hand.
The entertainment venues are largely annexed to sports such as basketball and ice hockey and they tend to be privately funded and run because of the ability to sweat sporting and entertainment footfall, and back this with strong sponsor propositions.
Europe is slightly different. The main global players such as Germany and Holland tend to have conference and exhibition or trade/consumer fair business largely dominated by exhibitions. So, while the funding is still from state/local government, these venues (e.g. Messe Frankfurt or Amsterdam RAI) are organiser-led and happen to own a venue (because they own and present the shows as well as the venues), as opposed to venue-led and looking for clients to present exhibitions or conferences.
When we look at the UK it would not surprise you to find that we tend to do our own thing. In the main (leaving aside London for the present) the public sector is still the protagonist as far as venue development is concerned.
London, as with most major cities, represents a variation because of the population, destination appeal and consumer footfall which can make business plans and residual values sufficiently attractive to entice private sector investment. Even here there is a public role in priming early infrastructure and roads/transport arrangements.
Contrasting other sectors also throws up some interesting comparisons. The hotel market used to be structured, with venue ownership and trading business all within the one silo. Then, with the need to get property off balance sheet following the last banking crisis, we now have building ownership much more distinctly separate from trading performance.
The football market is still a silo but driven I suspect by the heady risks of football operations. It is encouraging to see the Ricoh Arena look to diversify its business model to tip the balance in favour of a fully destination-based events product from one that relies more heavily on the sporting side of the business.
There is no doubt that across the world infrastructure assets, with safe and reliable income streams, have become the new ‘cool’ investment grade products with institutions willing to accept historically low yields and therefore offer relatively big purchase sums.
So what does this mean for the UK venue market? Well there is a bit of planet alignment going on at present.
From a buyer perspective, there is an attraction to physical assets generating a steady income stream. There is opportunity for wider capital development across these large sites and, if properly realised, the creation of a virtuous circle where increasing footfall creates more investment, which creates more footfall and so on.
There is also a view that portfolio consolidation could create cost reduction and revenue growth through operational efficiency and enlarged and attractive commercial inventory.
There is the attraction that a lot of the development risk has gone with completed developments and so there is attractiveness to asset acquisition at this stage. In Glasgow, for example, the development risk has now evaporated with the Hydro’s completion and a successful operating model having been delivered.
From a seller’s perspective there is the obvious attraction that comes from holding onto trophy assets and watching them generate economic impact, wealth and jobs for the local economy. But would this change under different ownership and, in these fiscally challenged times, is a handsome cheque too attractive to refuse when budgets are under pressure and other challenges (such as meeting equal pay claims) are sitting out there? Equally, are public service institutions the correct ownership repository for commercial businesses operating in private markets?
So, are we heading for an inevitable Klondike gold rush fuelled by NEC first off the starting blocks? That conundrum has still to be resolved. Price and timing is everything, as is the purchaser’s attitude to risks that can be controlled within the investment.
As ever, a bargain is only concluded when a seller and buyer’s view of value is matched and that is not certain here.
What is the client view on these developing scenarios; should they be concerned one way or another? A client will always be interested in what is best for their long-term success. Price, client care, visitor experience, fresh venues being regularly maintained, creative and entrepreneurial venue teams continuing to generate product offerings which make a client’s life, cost structure and their own business relationships easier, are always going to rank way above issues of ownership.
If I have learned anything over the last 12 years it is that if you get the product right, people and organisations will do business with you. Venue infrastructure (and ownership) is just one part along with creative and inspiring venue management and city propositions.
On a regional basis at least, venues will never be free from a relationship with the public sector regardless of private sector ownership and to some extent neither should they be. However, in order for private capital to enter the space, the investors must be free to manage their risks and generate return on their capital.
A new hybrid ownership model has to be developed in this space where the public sector is more than a stakeholder, but less than a shareholder; where the investor is in control of investment and clear on the risks it is free to manage but with an obligation to the community and region where it is placing its risk capital.
The Danes have a saying along the lines of: ‘There is no such thing as bad weather, just the wrong clothing’. The investment corollary is that there is no such thing as a bad investment, just bad timing. I think we are about to see if the timing is right and the NEC is the bellwether for an investment-led march into the venue market.