Review of the Registered Clubs Industry in NSW - Clubs NSW

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7 Improving clubs’ financial reporting and performance benchmarking The Club Viability Panel should identify and approach clubs at risk of being in financial distress IPART considers that the Club Viability Panel is the appropriate body to analyse clubs’ data, and to approach those clubs whose data indicates are at risk of being in financial distress to offer them further analysis and, if necessary, assistance. In reaching this view, IPART considered ClubsNSW’s suggestion that auditors should play a greater role in identifying clubs in financial distress. 115 ClubsNSW also suggested that auditors should provide an annual sign-off and submit to government a form that allows assessment of the club’s overall financial health. However, IPART considers that: In preparing year-end annual reports, auditors already provide an annual ‘signoff’ on the club as a going concern. As part of the task, it is standard practice for auditors to note any issues regarding the club’s financial health, even if the overall assessment is that the club is a going concern. Increasing the legal scope of the auditors’ role is likely to lead to an increase in auditors’ costs and thus a greater financial burden on clubs. Asking auditors to submit a form to government on the financial viability of the club effectively shifts the responsibility of monitoring financial performance from management to the auditor. In contrast, requiring club management to calculate and provide a measure of their financial viability encourages clubs to have a greater understanding and ownership of their financial position. EBITDARD% should be used as the measure of financial viability for this purpose Stakeholder submissions and the case study clubs suggested that a measure that identifies a club’s cash earnings expressed as a percentage of its total trading revenue is a useful initial key indicator of its financial viability. This kind of measure can also be readily calculated by all clubs. Such a measure would essentially identify the net cash surplus available to the club to service its external debt (interest), pay tax, contribute to capital expenditure, and contribute to cash reserves. When expressed as a percentage, the lower the percentage the greater the likelihood the club is experiencing financial distress. 115 ClubsNSW submission, 4 April 2008, p 22. 122 IPART Review of the Registered Clubs Industry in NSW
7 Improving clubs’ financial reporting and performance benchmarking This measure can be defined in a number of different ways, including: Earnings before interest, tax, depreciation and amortisation (EBITDA). Earnings before interest, tax, depreciation, amortisation and rent (EBITDAR). This definition takes account of the fact that some clubs pay rent to a related party. For example, RSL clubs often pay rent to the RSL sub-branch, which owns the land and building, while the club operates the business. By excluding rent, EBITDAR recognises that these payments may not be made at a commercial rate and thus ensures that clubs’ operating cash surpluses are being compared on the same basis. Earnings before interest, tax, depreciation, amortisation, rent and donations (EBITDARD) (where donations refers to cash donations made outside the CDSE Scheme). The extent to which clubs make cash donations varies significantly. While some clubs consider these donations as discretionary expenditure, others consider them to be part of a club’s core business and thus an ongoing operational expense. By excluding donations, EBITARD recognises this difference in how clubs view donations and thus again ensures that clubs’ operating cash surpluses are being compared on the same basis. IPART considered these definitions to determine which is the most useful initial measure of a club’s financial viability, and the most directly comparable measure between clubs. While Panthers Entertainment Group supported the use of EBITDA, 116 ClubsNSW argued that EBITDARD is a more useful measure of the cash earnings a club’s business generates and thus the best indication of its ‘bottom line’ trading performance. ClubsNSW also argued that EBITDARD is a valid measure of a club’s profitability and efficiency, irrespective of size, purpose or location. In addition, it provided evidence from ClubData Online that EBITDARD has wider industry acceptance than other definitions. 117 Given this, IPART considers that EBITDARD, expressed as a percentage of revenue, should be used as the initial measure of a club’s financial viability. EBITDARD% of less than 15 per cent should be the indicator that a club is at risk of being in financial distress To use EBITDARD% as an initial indicator of financial distress, we need to decide the threshold at which a club should be considered at risk of being in financial distress. ClubsNSW argued that a threshold of 15 per cent is appropriate for this purpose. It provided data from Club Data Online that indicates that the average EBITDARD% among the clubs it monitors is 14 per cent (see Table 7.6). 118 This implies that a threshold of 15 per cent is likely to capture all clubs with lower than average EBITDARD%. 116 PEG submission, 26 July 2008, p 27. 117 ClubsNSW submission, 4 April 2008, p 52. 118 ClubsNSW submission, 4 April 2008, p 52. Review of the Registered Clubs Industry in NSW IPART 123
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Independent Pricing and Regulatory
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© Independent Pricing and Regulato
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Contents 6 Strengthening the financ
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Executive Summary Executive Summary
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Executive Summary estimated the val
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Executive Summary Therefore, IPART
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Executive Summary However, IPART al
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Executive Summary List of Recommend
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Executive Summary 15 Once the stand
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Executive Summary 29 That ClubsNSW
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Executive Summary 46 That ClubsNSW
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Executive Summary 60 That OLGR deve
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1 Introduction 1 Introduction Over
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1 Introduction 1.1.2 Review’s foc
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1 Introduction 1.2 Other reviews an
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1 Introduction 1.3 The structure of
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2 The registered clubs industry in
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3 Understanding the social contribu
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4 Measuring and reporting on club c
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10 Helping clubs better understand
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11 Making it easier for clubs to am
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12 Making it easier for new clubs t
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13 Removing unnecessary regulatory
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14 A framework for a management pla
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A Terms of reference A Terms of ref
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A Terms of reference The proc
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B Terms of reference checklist Term
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C List of submitters, roundtable pa
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D Gambling expenditure and problem
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E IPART’s methodology for recordi
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F ACG’s approach to measuring the
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G ClubsNSW - steps to establishing
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G ClubsNSW - steps to establishing
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Glossary and Abbreviations Glossary
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Review of the Registered Clubs Industry in NSW - Clubs NSW

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