Filthy lucre

Filthy lucre

The UK's sex industry is estimated to be worth around u750m a yearand its figureheads are among the richest people in the country. Yet theCity shies away. Kate Spicer mulls over the industry's vital statistics.

A few months ago Berlin played host to an Erotik Fachmesse. It’s just one of many sex trade fairs around the world. The stands promote what are known as plastic prosthetics in polite society, dirty magazines for every sexual leaning imaginable (and some you won’t have thought of), and a plethora of objets d’art we associate with other people’s bedrooms.

The mostly continental exhibitors talk frankly about turnover, growth, distribution, who’s doing well and who isn’t. Over exhibition nibbles and a glass of Hock one young man says he’s read in a business magazine that the German sex industry is worth the same as the country’s bakery sector. How much that is exactly he can’t remember but it’s a lot of dough.

Everyone chortles at the limp pun, in the ingratiating way one does at business bunfights; yet the figure is certainly not a joke.

None of these people sell much to the UK – toys perhaps, some lingerie, specially censored videos. The British sex market is largely ignored by the world industry. Though liberals may complain about the UK’s arcane obscenity and censorship laws, save a few military dictatorships we possess the strictest in the developed world. Yet what those rules have created is a thriving national economy. With no one else producing visual goods to our strict standards, much of our porn is home-grown, particularly in terms of magazines.

How much the industry is worth is difficult to gauge. One major player in the adult entertainment industry, Northern & Shell, is a plc with an annual turnover of around u15m in 1994. Others have profits squirreled away in odd little companies and dark corners. Those people who might normally take an interest in what is undeniably an expanding and increasingly accepted industry seem clueless:

– The Government: no statistics, no recognition of it as a market in itself.

– The Economist: ‘We have done a few articles on censorship of the Internet; something on sex phone lines (at least they picked a booming part of the industry); and local councils and prostitution.’

– The Financial Times comes up with a rather sniffy: ‘Umm, we are aware it is a massive industry but it isn’t what an FT journalist would cover really.’

How big is the industry, the legitimate industry? Warning: those of a sensitive nature or used to dealing in precise figures may find the following calculations distressing. Four men have led the field since the sex boom started in the late 1960s. Paul Raymond was the first British porn king and still has a stable of seven household-name girlie magazines such as Mayfair, Escort, Club International and Razzle, as well as owning half of Soho. His holding company for all of these concerns – the Paul Raymond Organisation – is valued at #330m.

David Sullivan had the principle that sex sells well-learned even before finishing his degree at Queen Mary’s College in London in the early 1970s.

He reportedly swelled the economics society’s thin coffers by introducing topless dancers at the college disco. Nowadays he owns a little of everything and anything to do with copulation. He rakes a percentage off many of the services advertised in the newspapers he part-owns – the Daily and Sunday Sport. Parade is probably his best known magazine. Sullivan also has a string of the typical multi-millionaire status symbols – racehorses and a stud farm, property and, of course, a football team. Altogether, his concerns are valued at u200m. Sullivan himself admits that 70% of his wealth comes from the sex industry.

His partners in many of his ventures are the Gold brothers, David and Ralph, who are best known for the Ann Summers chain – the first company to bring saucy lingerie and sex aids to the British high street. They own the other 50% of Sport Newspapers and Birmingham City FC and, like Sullivan, have fingers in many pies. There are interesting correlations between the addresses of companies that advertise in the Sport and the Gold headquarters. Ann Summers is headed by Jacqueline Gold, the very acceptable and businesslike face increasingly appearing to front up these adult businesses. Sullivan, the Golds senior and Raymond may have deserved their sleazy labels to an extent, but there are no flies on Miss Gold who in 1993 won a Businesswoman of the Year contest. The Golds and their concerns are valued at u120m.

Excluding a proportion of the above’s worth to account for property and concerns outside the sex industry, but including the value of the Sport newspapers, the combined value of these three alone is just above u400m. Add on Northern & Shell’s concerns at u40m – chief executive Richard Desmond did not build on sex foundations as others did, but several floors of his empire are now dedicated to it – and you have a conservative combined industry figure of #450m.

How is one to account for over 200 licensed sex shops in this country, mail order companies, the odd hostess bar, strip joints, those catering to specialist markets – fetish clothing, schools of discipline, transformation shops for transvestite and transsexuals, video companies, erotic fiction publishers, Splosh the food fetish magazine? All small traders catering to an obsessive little market of sexual hobbyists. Then there are the distributors bringing in products from South East Asia and the US. What of the condom manufacturers? And what of WH Smiths and John Menzies who make 17% on the cover price of every adult magazine they distribute to newsagents, and a further 30% on the few they actually sell in their morally upstanding stores? The value of the top shelf market was recently estimated at u45m.

What indeed of BT, enjoying its 25% rake off from the adult phone sex lines at around #11.25m every month? This market was presumed dead after advertising was banished to all but the top shelf magazines – at the time an ad director at Express Newspapers said: ‘I expect that it will finish them off.’

A bigger blow was the proviso that users had to request an 0898 number from the operator. David Sullivan remembers the golden age of the sex lines: ‘I had #50,000 a week in residual business when they pulled the lines. If I’d never spent another penny on advertising I would have taken u6-7m in pure profit.’ Still, if anyone is going to find a way round the law, then it is this industry. The phone sex market currently stands at #540m a year, with BT still taking its 25% cut.

With no central body or industry champion trying to boost its image and sell shares in the City, one can only guess at the sex industry’s worth.

A figure of around u750m is a cautious estimate. Experts claim prostitution alone costs the Government up to #2bn a year in unpaid tax on revenue worth 0.5% of GDP (Accountancy Age, 5 August).

The epic wealth of the four main players in the legitimate industry is well documented. But few of them want to brag about how they made their money, most are content, or at least resigned, to keeping a low profile.

Richard Desmond had ambitions to float Northern & Shell back in the late 1980s.

On the face of it, the company has little to be ashamed of, just the magazines Penthouse and Forum which are at the more respectable end of the adult market. However, Northern & Shell is cosily in bed with Portland Investments with a u10m turnover thanks to publications such as 40+, Asian Babes, Hottest Asian Babes, Big and Fat, Readers Wives and our own home-grown soft porn channel, TVX.

Desmond insists he has no involvement with Portland, other than supplying it with a raft of useful skills such as editorial, publishing, reprographic and distribution. In short, most of the services you would need if you had 30 or so top-shelf magazines to turn out every month. Desmond is not listed anywhere in Portland’s company accounts, however, when the Harrow-based accountants Reed Taylor tendered their resignation for Portland’s (and Northern & Shell’s) audits, they did so to Desmond. This seems an odd thing to do considering company secretary, 30-year-old, former Touche Ross trainee Scott Smith explains: ‘The only thing we have in common with them is that we share the same building.’

Smith reckons the focus of Northern & Shell’s business is changing. A few years ago it was 50/50 consumer/ adult, now however the company divides its interests into 35% consumer, 35% adult and 30% TV. Hang on a minute, but it’s an adult channel, so your focus has shifted even more into the bedroom. ‘Umm, yes.’ He later admits that: ‘If there are opportunities in the adult sector, then we are well placed to take advantage of them.’

Northern & Shell’s flotation never went ahead. It has been implied this was due to the vulgar nature of the business being unappealing to the City. Sullivan says he can believe that. Smith though is adamant it was not the case. ‘You’ll find the perception of Richard Desmond is different from someone like Paul Raymond. He is seen as a blue suited entrepreneur, whereas Raymond is seen as more sleazy. Out of all the adult entertainment companies Desmond has the best reputation in the City.’

Desmond is not the only one eager to play down the adult connection.

Sullivan, now possibly more of a national institution than the richer Paul Raymond, has tried to throw off his associations with what are commonly termed ‘ugly’ businesses. Now he is happier to admit, ‘this business has been good to me’. He trots through the ins and outs of the industry. It is a high-profit margin business. The biggest cost is advertising (hence the smart move of buying his own newspaper – which advertises his products even more blatantly than Random House does in the New Yorker).

‘Opportunities for low-yield, long-term investments,’ he says, ‘are small, because the laws and morals are constantly changing in this country.’ He claims to have stuck to within a hair’s breadth of the law, although others would dispute that. Still, he has a point when he says those running the sex industry ‘are no different from anyone else in business – like used car dealers’.

Sullivan picked up on every development and ran away with it. From the early days of pictures and magazines, to films, high street sex shops, phone sex, and one helluva prurient newsfree paper, he has a licence for a satellite station (Babylon Blue) – but with Playboy, TVX and the Fantasy Channel already up and struggling, he says he, ‘can’t be bothered to sink u5m into the project’. He has tried to challenge the somewhat whimsical nature of the law. In the early 1980s he took Customs & Excise to the European court after they impounded some rubber dolls he was importing.

And he won (‘Although I never got my costs back’, he adds, irked, as if to say ‘bloody cheek’). Most people take these things as par for the course.

It was not actually Sullivan who mentioned his St George and the tax man episode. Alistair Bishop has worked in the sex business since Raymond’s 1960s heyday when he bought up half of Soho. He has worked for Raymond and in various other parts of the industry and is currently running a mail order and cash and carry business. Raycrest started just under a year ago and is look set to turn over u3m to u4m in its first year. Bishop remembers goods being sat on by various bodies for months – commercial death for any small trader.

There are little offshoots of the main, more umm, unimaginative heart of the sex industry, producing titillating, cultish material that is not even soft core pornography. One film company, Redemption, re-releases old sexploitation movies that in the 1970s were considered XXX rated, but nowadays can be bought in HMV as part of a collectors’ series.

The moral climate has changed, consumer sex is a very visible part of modern culture. What will the prevailing opinion be regarding titty bars, girlie mags and erections in another 20 years’ time? Eventually, we may fall into line with more liberal Europe. Faced with this, Northern & Shell, the most ‘respectable’ company in the sex market (if we forget the side portion of blue chips mentioned earlier) would have the massive competition of a far less censored brand of global porn. ‘Yes,’ Smith admits, ‘we would look at going a bit harder too’.

He gets bored of questions of image in the end. ‘OK, so there are people with a certain perception, but that’s their problem. These companies will go on regardless. It’s a fast moving business, it’s going places. And people want to go with us.’

 

Massaging the figures

When Anil Mohanlal left his job at medium-sized partnership John Ram & Co (now Tooke Cavendish) back in 1990 and set up alone he decided the way to carve himself a niche was to be relaxed and make sure his clients found him accessible.

‘Essentially here at Kumar & Co we can give the same as a big firm but with more personal involvement – more goodies as it were.’ A few of Mohanlal’s clients offer goodies, as it were, too. One of them, Delectus Books, sells antiquarian erotica. Some of the material is strong stuff but because it was published in the 19th and early 20th century by upper-class chaps it has a decidedly more collectible status than your average smut tome.

Mohanlal points to some of the Delectus publications he has on his shelves.

Alongside the usual dry accounting tomes sit Painful Pleasures and The Mistress and the Slave. ‘I do not regard what Michael (Goss, the owner) is doing as sleazy, it’s titillation. And he sells to some extremely grand people.’

Until recently he also represented a mail order company, selling the naughtier extremes of lingerie, leather and whips. He pauses after mentioning this. Although it is clear that none of his customers are actually criminal, you can see he’s wondering whether it is a good idea to be talking about the racier end of his client list. ‘You appreciate we must be a bit careful.’ Yet by definition, a healthy percentage of accountants from the promethean Price Waterhouse (which recently acquired Northern & Shell and Portland) and the medium-sized F Winter & Co on London’s Oxford Street (David Sullivan’s accountants of 21 years) down to small partnerships like Mohanlal’s will have what some might call dubious clients.

Mohanlal shrugs, ‘Providing there is nothing fundamentally wrong with the business, why should I care?’ Perhaps the most unusual of Mohanlal’s unusual clients is a male masseuse who came to him through their advertisement in the Yellow Pages. ‘I think he rang because our advert is written in a particularly unaccountant-like way. He is not trading in any illegal way but I suspect he gives more of a service than most.’

There will be many accountants up and down the country acting for people who provide more of a service than most. As Mohanlal points out, ‘Look at massage parlours, they are all legitimate businesses, someone is doing all the audits and accounts for these people.’ One hopes that the tax man is grateful. Mohanlal cannot be sure what his masseuse is really up to but he has seen the magazines he advertises in. ‘It didn’t dawn on us for a while. I do not have a view on what he does. I think of him as a business, and I treat him as a client.’

‘If anything,’ he thinks that working in the adult entertainment industry, ‘might provide hidden advantages when it comes to tax. When someone gets involved in a tax investigation the inspectors tend to ask a lot of personal questions.’ Mohanlal gives me a sardonic grin. ‘Knowing what tax inspectors are like I can’t think of many who could handle asking these guys, “Who are your clients? What do you charge? Hey, describe a typical day?”.’

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