Agenda item

The Chair of Scrutiny Board stated that he had requested the item considered by Cabinet on 16 October 2019 in relation to the future operating model for the Civic Halls be called-in. This was an important decision for the Council and the City and he considered it important that Scrutiny Board scrutinise the proposed solution and the market intelligence used to inform the decision.

The Board received a presentation from the Director of Finance which provided the background to the decision. The presentation had been prepared by the Council’s advisors, IPW, who were unable to attend the meeting due to previous commitments.

IPW had been appointed to advise on the different management options and to carry out market testing with prospective operators. IPW were leading industry advisors and had undertaken similar work for cities across the country (including 70% of UK arenas). IPW had also taken the lead on the development and operation of mid-scale venues in Hull, Swansea and Bradford.

IPW fed back that the Civic Halls was in a strong location with a strong catchment and a higher capacity than its competitors. The Hall was also known to have a good reputation amongst artists and promoters. The Board agreed that maximising income was critical and that it was vital to get what happened in the building right. Income generation would need to consider areas such as promoter relationships and secondary spends whilst also taking into consideration social value. 

Four primary operating models had been considered:

1.     Self-operation: In house through the Visitor Economy Team

2.     Self-operation: Trust

3.     External operation: Lease arrangement

4.     External operation: Management agreement

Each of the above options had different features in terms of control over the day to day operation, the level of financial exposure, the certainty of financial income (risk), the level of building risk retained by the Council and the level of annual financial return to the Council to contribute to the capital investment.

It was stated that an external operator would normally be expected to generate higher revenue surplus due to expertise, promoter networks and commerciality. Any external operator would also have programming freedom. The Board considered the different operating models and the associated levels of control, risk transfer and cost certainty. It was confirmed that the Council would be able to specify certain contractual requirements such as payment of the living wage.

Market testing had been carried out and discussions held with ten industry operators, with significant interest being shown from eight (very high). Feedback had been positive with operators considering that the venue would generate a profit, that they would be interested in a lease agreement and that there would be a strong guaranteed annual payment to the Council to support repaying the borrowing. Competition, catchment and product were key. It was confirmed that in any scenario, the Council would retain ownership of the building. 

The preferred option (option 3), was to have a lease arrangement with a private sector operator, paying annual rent to the Council. This type of arrangement was viable in a strong market where operators could be sure of a commercial return, with all operating risk transferred to the operator. This option would provide an opportunity for the Council to receive profit share above threshold.

The Director of Finance provided examples of similar projects including Bradford Odeon, Bonus Arena, Hull and Swansea Arena; all of which had been led by IPW.

The Board considered the use of the term world class when describing the Civic Halls. The Chief Executive stated that there had been a lot of testimony from acts who had appeared at the venue and feedback directly from the industry. It was however not clear what would constitute a world class venue and areas such as profitably, sold out performances and performers choosing to perform there were some possible criteria. The venue had a very good track record as was evidenced by eight out of the ten potential operators showing an interest in the building and it was hoped that it would become one of the leading venues of its type in the UK.

The question was raised as to what other, aspirational regeneration proposals might be feeding into this project such as proposed pedestrianisation of areas of the City centre.

The Director of Finance stated that IPW was aware of the broader aspirations but had looked at the facility for the facilities sake in this instance.

The Chief Executive confirmed that the Council consciously didn’t want to bring in other material factors that were not specific to the venue, but that it would be important to capitalise on the visitors who came to the City to visit the Civic Halls. 

It was stated by a councillor that it was important to see some success and that option 3 appeared to be the best option but that care had to be taken to ensure that all due diligence was carried out.

A suggestion was made that the Council should be able to run and manage venues such as the Civic Halls itself. The Board considered this option and although there was some sympathy with the suggestion, it was generally agreed that the Council was not always the best organisation to run a commercial facility dealing with bands and publicity and that the safest proposal was to bring the experts in with a contract in place to guarantee income for the Council. 

The Chief Executive stated that the Council could not underestimate the complexities of managing such a business and that the Council was dealing with the market leaders who understood the market and what drove consumer behaviour.  It was important to get to the market now and do the right deal with due diligence and everything built into the contract that the Council wanted. Once this was done the preferred operator could put their stamp on it and get it operating on a new, higher level by giving it the full range of facilities that modern day consumers demanded. The Chief Executive stated that he was very very confident that the Council could run a successful process and identify a leading operator who would generate income and the benefits that the Council wanted.

The Board agreed and stated that people in Wolverhampton deserved something better and that an external organisation could provide this.

The question was raised as to how much control the Council would retain to balance out requirements of need and not stifle smaller entertainment centres where the Council did have a role to play and how the Civic Halls would support these smaller venues. The Chief Executive stated that this would be taken into consideration as part of the City’s visitor offer and that it might be different but would complement what the Council already had to avoid competing markets in the City. It was confirmed that some soft market testing had already been carried out in the City and that had so far proven positive.

Regarding control, the Chief Executive stated that the Council would want the operator to fill the venue with acts that people wanted to see and that this would come down to the market. It was confirmed that safeguards and controls could be built into the contract to specify that the venue not be used for certain things as it was vital to build social value and maximize local benefits through supply chains. Trust would need to be placed in the operator to maximise financial return whilst maintaining public trust and reputation.

It was confirmed that Cabinet would be getting a further report with a full business case at a later date.

Resolved:     That Scrutiny Board, following consideration of the called-in decision and supporting information note the decision, which can now be implemented immediately;