Review of the Registered Clubs Industry in NSW - Clubs NSW

10 Helping clubs better understand the risks and benefits
of diversifying their operations
Where a business’s core operations are in long-term decline for reasons that are
beyond its control. This may be because of changes in consumer tastes and
demand for its products or services (often seen in the case of technology and
consumer electrical manufacturers); supply constraints (oil firms); legislative
restrictions (tobacco companies); and/or changes in the competitive environment
(such as the expiry of intellectual property rights). Even in these cases,
diversification requires specific benefits that would not generally be available to
all businesses, such as offsetting risk positions that are not otherwise easily
hedged, economies of scope and scale between the activities or access to unique
skills or product relationships.
10.1.1 Why do clubs diversify?
During the consultation process, stakeholders identified that registered clubs
consider diversification as part of their overall business strategy for several reasons:
to reduce their reliance on gaming machine revenue (and thus the potential
impact of changes in the regulation of gaming machines on their operating
margins)
to respond to increasing competition from hotels and other businesses
as a means of improving their offerings to members, broadening their
membership base, and addressing community needs.
Some stakeholders noted that while clubs might embark on a diversification strategy
with a particular objective in mind, there can be unintended consequences. For
example, Wagga RSL stated it developed a motel on surplus land adjacent to the club
to reduce its reliance on gaming machine revenue. In fact, the motel generated
increased traffic in the club and consequently increased gaming. 181
Many stakeholders suggested that diversification strategies were a natural
progression for larger and/or successful clubs that had the financial and
management resources at their disposal to consider diversification options. While
smaller and/or financially distressed clubs saw merit in diversification, it was not a
realistic option for them due to their limited financial capacity and management
resources. For example, Leeton Bowls Club stated it was not in a position to
diversify because it had limited cash reserves and does not own its land so cannot
mortgage it to secure funding. 182
181 Wagga RSL Club, Wagga Wagga roundtable, 14 September 2007, p 25.
182 Leeton Bowls Club, Wagga Wagga roundtable, 14 September 2007, p 24.
166 IPART Review of the Registered Clubs Industry in NSW