Review of the Registered Clubs Industry in NSW - Clubs NSW

6 Strengthening the financial viability of the registered
clubs industry
Many clubs went through a ‘Stage A’ period when gaming machine regulation
excluded hotels from operating gaming machines, thereby providing the registered
clubs industry with a competitive advantage.
Stage B
During Stage B, the club’s growth in revenues may start to slow, but its operating
expenses may continue to increase. For example, this may be a result of increasing
gaming machine tax rates, or the fact that the club has locked itself into commitments
that add to the cost of doing business – typically associated with staffing,
promotions, or pricing.
During this stage, the club’s profitability suffers (ie, the gap between its revenue and
expenses narrows). However, its revenues remain relatively strong. The club will
often curtail or delay capital expenditure and repairs and maintenance. During the
latter part of Stage B, aged creditors begin to increase and the management and
board may begin to feel the pressure.
Stage C
During Stage C, the club’s revenues begin to decline, as the lack of capital
expenditure and repairs and maintenance affects the appeal of the club and
increasing competition attracts members and guests elsewhere. Typically, there is
also a lag in management’s ability to reduce operating expenses because it initially
considered the downturn in revenue to be temporary.
In some cases, the club will increase its expenditure on promotion and lower its
prices in an effort to drive revenues up again. At the same time, capital expenditure
and repairs and maintenance are now reduced to a subsistence level and aged
creditors begin to escalate. To make matters worse, the tension between
management and the board may begin to further impact on the business and staff
morale. At this stage, a club may decide to sell assets (such as surplus land and
gaming machine entitlements) to inject cash into the business.
Stage D
At some time during Stage D, operating expenses exceed operating revenues (ie, the
club has a cash flow deficiency and thus becomes insolvent 97 ). If the club has bank
debts or a string of creditors, it often has no option but to go into
receivership/administration.
By this stage, the significant deferral of capital and maintenance expenditure means
that the club may need to receive a large cash injection in order to survive or generate
increases in revenues. This is typically where clubs may decide to sell assets.
97 Insolvency is defined as the inability to pay debts as and when they become due or payable.
Review of the Registered Clubs Industry in NSW IPART 95