Review of the Registered Clubs Industry in NSW - Clubs NSW

10 Helping clubs better understand the risks and benefits
of diversifying their operations
10.2.1 Diversification will not reduce clubs’ reliance on gaming machine revenue to
any great extent but may be worthwhile for other reasons
IPART found that diversification is unlikely to significantly reduce clubs’ reliance on
gaming machine revenue. This is because operating gaming machines is a relatively
low-risk business that typically generates high volumes and net contributions per
square metre of floor compared with other core club activities (such as food and
beverages). These qualities would be difficult to replicate in any other line of
business, particularly in the hospitality sector (which appears to be the area into
which clubs feel most comfortable diversifying).
For example, IPART understands that gaming operations are typically capable of
providing net cash operating profit margins of approximately 65 per cent. 186 In
comparison, Table 10.1 shows that industry profit margins for some of the typical
lines of business clubs have diversified into range between 4 and 10 per cent. In
addition, IPART’s analysis of case study clubs found that most of these clubs’
business lines (apart from gaming) were loss-making or, at best, operated at margins
consistent with those in Table 10.1.
Table 10.1 Australian industry operating profit margins
Industry Operating profit margin (%)
Cafes and restaurants 4.8
Store-based retailing 5.9
Accommodation services 9.7
Health and fitness centres and gymnasia 4.6
Note: Year sources for lines of business differ.
Source: Cafes and restaurants: ABS Cafes and Restaurants Industry 1998-99; Store based retailing: ABS Retail and
Wholesale Industries 2005-06; Accommodation Services: ABS Accommodation Services 2003-04; Health and fitness
centres and gymnasia: ABS Sports and Physical Recreation Services 2004-05.
In a survey of clubs cited by ClubsNSW 187 , adopting diversification strategies as a
response to financial challenges over the next five to 10 years ranked fourth behind
improving existing products; increasing non-gaming income 188 ; and increasing
membership. This suggests that clubs are cautious about the ability of diversification
to improve financial viability.
However, despite its limited ability to reduce clubs’ reliance on gaming machine
revenue and improve their financial viability, IPART found that diversification can
be a worthwhile strategy for other reasons. For example, stakeholders identified that
diversification can be useful for:
Attracting new customer segments. Clubs may lease part of their premises to a
third-party operator at rates that are below market in an attempt to attract a new
customer segment to the club.
186 Information provided by KPMG (IPART’s consultant).
187 ClubsNSW submission, 31 July 2007, p 103.
188 From other core activities of the club, such as food and beverage.
Review of the Registered Clubs Industry in NSW IPART 169