It is clear that the island’s Â£ 50million investment in the film industry has had a low return on investment, a Tynwald committee concluded.
And the Public Accounts Committee report reveals that opportunities were missed that could have prevented the Â£ 26million loss from the Media Development Fund.
The commission’s inquiry was first set up by Tynwald in 2018 following a motion from then-Douglas South MHK and Vannin’s Liberal leader Kate Beecroft.
He had agreed that further investigations were needed, but his final report had only been released now, with delays caused by changes in the composition of the committee and potential for perceived conflicts of interest.
Over 100 movies and TV shows have been produced on the island, generating tens of millions of pounds in VAT and other taxes.
But when the VAT rules changed in 2007, the number of films shot here declined.
That year, the management of the film industry and the Â£ 50million Media Development Fund were transferred to CinemaNX. It has made investments totaling Â£ 39,706,652 in 20 films.
Over Â£ 9million was lost on Zac Efron’s film ‘Me and Orson Welles’, which was partially filmed on the island.
Then, in 2012-13, management of the now depleted Â£ 25million fund was transferred from CinemaNX to Pinewood Film Advisors. Pinewood has invested Â£ 20,019,662 in 10 films.
A total of Â£ 20.6million was written off on films made while CinemaNX managed the Media Development Fund.
An additional Â£ 6.2million was written off on films made when Pinewood advisers were in charge.
The PAC report notes that if there had been no further investment in cinema in 2007 and instead the Â£ 50million in the Media Development Fund had simply been invested and had generated interest, the resulting balance could have exceeded just over Â£ 60million.
The committee recognized that he was benefiting from hindsight.
He concludes: âAfter 2007, it is clear that there has been a low return on investment, but it is a very one-dimensional view and it would be easy to simply criticize when what was clearly at stake were strenuous efforts to diversify the Manx economy.
“However, there is no doubt in our minds that there were quitting opportunities that were missed in 2007 and 2012 before the Â£ 26million losses occurred.”
The decision to create CinemaNX did not come before Tynwald.
Tynwald, however, approved of the 2012 decision to team up with Pinewood.
Then-Treasury Minister Eddie Teare pointed to the findings of an Oxford Economics report that year which calculated investment in the island’s film industry had brought in Â£ 290million. sterling to the treasury, in large part thanks to VAT receipts.
Indeed, prior to 2007, the Isle of Man was able to retain all of the production tax accrued on film activities that had taken place on the island.
PAC said it was “unfortunate” that in 2012 pre-2007 income figures were still being cited to support claims of financial sustainability, “when in reality there was a new model in which the films invested did not bring in any tangible money Return ‘.
He said that in 2007 and 2012, a proper business case including some costed options would have helped policymakers.
The PAC report concludes that CinemaNX negotiated favorable terms for its work between 2007 and 2012 and that, had the details of the program been submitted to Tynwald for prior approval, the review could have “identified and presented a serious challenge. For the level of funding being made available.
He said he understood the political reluctance to move away from a long-standing investment program that had generated economic activity.
But he said if there had been clear goals and an agreed way to measure success and ROI, used to develop a business case for the CinemaNX proposal, it would have shown that it would be highly unlikely. that the new model supports the fund.
“We conclude that insufficient attention was paid to the financial basis of the CinemaNX proposal and that there was little justification for continuing to use public money in high-risk investments, where there was little likelihood that Individual film projects generate a profit, âthe report notes.
He concludes that the prospect of working with Pinewood Shepperton is part of the reason the Treasury persisted with what in 2007 seemed like a bad investment proposition.
The committee acknowledged that the 2012 decision to take a hedge investment in Pinewood shares brought in Â£ 10million, which covered depreciation of Â£ 6million for the period 2012-2017 – and again with the hindsight, this could be seen as a good proposition alongside the riskier investment in film projects.
In a second part of the report, the committee examined current government investment processes in the business sector.
He concluded that nothing is preventing a Â£ 50million investment in a project from being presented and voted on under the budget today, but this is less likely to happen because of business support programs, with investment limits, exist.
The PAC said it expects any investment proposal of this magnitude to be submitted to Tynwald for a stand-alone vote.
“We conclude that good governance dictates that investments using public funds should be reviewed annually to ensure that due consideration is given to whether profits are to be made or reinvested,” he concludes.
Independent Manx commentary, see page 16.