RESPONSE TO THE INDEPENDENT PRICING AND REGULATORY

TRIBUNAL’S DRAFT REPORT - REVIEW OF THE REGISTERED CLUBS INDUSTRY

IN NSW

RESPONSE TO RECOMMENDATIONS

4 April 2008

TABLE OF CONTENTS

Introduction 1-2

2007 Socio-Economic Impact Study of Clubs in NSW – Overview 3-9

Chapter 3 - Social Contribution of the Registered Clubs Industry 10-12

Chapter 4 - Measuring and Reporting on Club Contributions 13-15

Chapter 5 - The Community Development and Support Expenditure Scheme 16-17

Chapter 6 - Financial Viability of the Registered Clubs Industry 18-20

Chapter 7 - Financial Reporting and Benchmarking 21-23

Chapter 8 - Diversification in the Registered Clubs Industry 24-26

Chapter 9 - Amalgamation 27-30

Chapter 10 - Establishment 31-33

Chapter 11 - Corporate Governance and Training 34-45

Chapter 12 - Club Viability Panel 46-49

Chapter 13 - A Framework for a Management Plan 50

Additional Matters for Comment 51-53

LIST OF FIGURES

Figure 1: Volunteers per Total Number of Employees by Club Size 12 Figure 2: Profitable VS Non-Profitable Clubs in 2007 by Club Size 19 Figure 3: Master Plan – Mixed Use Development of Revesby Workers Club Site 25 Figure 4: Sources of Revenue – Comparison 2003 to 2007 26 Figure 5: Types of Education and Training offered by ClubsNSW 35 Figure 6: Club Director Magazine Content Summary 37 Figure 7: EBITDARD Ranges 52 Figure 8: Percentage of Clubs within Prescribed EBITDARD Ranges 52

LIST OF APPENDICES

Appendix 1: Socio-Economic Impact Study of Clubs in NSW 2007 Appendix 2: CDI Promotional Material Appendix 3: Sample Board Charter Appendix 4: Club Manager’s Association Submission - Club Secretary’s Course

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Introduction

ClubsNSW’s first submission to IPART was built around three core themes:

1. The fundamentals of the Club Movement – not-for-profit, mutual, member driven and community owned - deliver significant benefits for the NSW community on many levels and should be preserved;

2. Any future policy framework for clubs should clearly differentiate them from

profit-driven, private businesses and the Government should recognise and promote these differences, particularly where they contribute to the building of member and community facilities and social capital; and

3. Government should create and maintain a stable regulatory environment that

enables clubs to prosper and operate in a way that satisfies the needs of their members, and the broader community.

ClubsNSW believes that IPART’s draft report and many of its recommendations pick up these themes and is a significant step toward creating an environment in which clubs can prosper. The recommendations are positive, by and large, and will receive the industry’s support. However, the Draft Report recommendations fall short in three key areas:

1. The need to establish a regulatory environment conducive to amalgamations and the establishment of new clubs;

2. The need to ease the compliance burden placed on clubs, especially our

smallest; and

3. The need for the NSW Government to take urgent action to address the impacts of heavier taxes and anti-smoking regulation.

In its submission ClubsNSW urges IPART to revisit these important issues. The clubs industry has experienced significant changes since the NSW Government commissioned the IPART Review in early 2007. Most dramatic among these are the negative impacts of increased gaming taxes and the future challenges arising from regulatory pressures and changes, chief among them the recent smoking ban. The financial position of many clubs has worsened dramatically. The initial effects of these changes are captured in the recently completed 2007 Socio-Economic Impact Study (SEIS) report. The SEIS report, together with the Choice Modelling Report, “Valuing the Social Contribution of Registered Clubs to the NSW Community” conducted in late 2007, also provides an accurate account of clubs’ social contribution across NSW. Such information was unavailable to IPART during the initial phase of its Review and bears careful consideration in the context of the Final Report. By and large, the financial crisis many clubs in NSW find themselves in is not of their own making. It is the result of policy changes and fiscal measures imposed by Government. ClubsNSW believes the point needs to be made more clearly in the

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IPART Final Report that, given its role in creating financial shocks for clubs, Government has a bigger part to play in helping clubs recover. ClubsNSW is concerned that the measures proposed in the draft report, such as the establishment of the Club Viability Panel and funding for remedial strategies, though positive and well-intentioned, will not arrive in time to be of use to several hundreds of distressed clubs. The situation is deteriorating rapidly for many and a greater sense of urgency is needed from policy makers. This sense of urgency needs to be conveyed in the Final Report. ClubsNSW notes that many of the recommendations have important resource implications for the industry and in particular ClubsNSW. In particular, the requirements regarding governance training, a “pool” of compliance officers, reporting and benchmarking, administration of the Club Viability Panel, and the development and provision of various information packages on topics such as amalgamation, diversification and governance. Clearly, these need to be properly costed, which will take time. In this submission we attempt some estimates but these are offered on a “without prejudice” basis. ClubsNSW submission firstly provides an overview of the findings of the recently completed Allen Consulting Group 2007 Socio-Economic Study of NSW Clubs, and then addresses each IPART recommendation and requests for further information.

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2007 Socio-Economic Impact Study of Clubs in NSW - Overview

ClubsNSW, in its main submission to IPART, advised that the 2003 Socio-Economic Impact Study of Clubs in NSW was being updated with the revised edition to be available for this phase of the Review. The Allen Consulting Group’s (ACG) 2007 Socio-Economic Impact Study of NSW Clubs has been completed and is attached to this submission at Appendix 1. It will allow IPART to update where necessary references drawn from the 2003 study. (Note: ClubsNSW assisted IPART’s valuation of clubs’ social contribution by providing a data set from the most recent survey.) The 2007 SEIS illuminates some key industry developments and trends since 2003, and the challenges faced by clubs moving forward. The picture presented in the SEIS is striking. The Study shows that the biggest impact on clubs is the dramatic rise in State Government gaming tax, amounting to an additional $200 million per year on 2004, or a total tax bill of $1 Billion per year. Large clubs, which provide the majority of jobs and tax, have become less financially stable and are cutting back on staff and monetary contributions to professional sport to meet the tax burden. This impact was predicted in 2004 by the Allen Consulting Group based on their previous SEIS which asked club managers how they might react to a significant decline in revenue. Small clubs, with gaming revenue under $200,000 per year, are generally performing better in food and beverage than in previous Study periods. However this growth could be at risk from increasing competition as small bars open under new liquor legislation. This was always going to be a difficult time for clubs, with gaming tax and indoor smoking bans hitting at the same time. The SEIS indicates clubs are planning to recover from the impact of the smoking ban over time, as clubs have suffered average drops in revenue of nearly 10 per cent. Many clubs have also spent money building purpose-designed outdoor areas to ensure that members who smoke are provided with the same benefits as members who don’t. Despite the tax burden, clubs’ have increased total contributions to social groups and projects. Many community groups have come to rely on the longstanding support of the Club Movement. Some, like professional rugby league teams, will unfortunately see reduced donations as clubs are forced to cut spending. Encouragingly, the club industry continues to grow in support from the general public with total memberships and revenues growing and significant planned investment in community and sporting infrastructure. Clearly, clubs see the provision of these facilities as central to their operation. Declining Number of clubs The club industry continues to rationalise, with the number of clubs in NSW falling. Since 2003, the number of registered clubs (who are members of ClubsNSW) has fallen from 1375 to 1359 clubs. This mirrors the general decline in the number of registered clubs since 2003 from 1560 clubs to 1535 clubs.

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Increasing Club Membership Club membership remains notable in terms of its size and diversity, both demographically and geographically. Club membership is fundamental to the mutual nature of clubs and is the foundation of the industry’s relevance and capacity to deliver services and facilities to the community. It is encouraging that club membership levels have grown strongly in the last four years. The 2007 SEIS analysed clubs in terms of membership structure and found that:

• Clubs in NSW had 5.5 million total memberships, up from 4.8 million in 2004. This equates to one club membership for every NSW adult;

• There is great diversity across NSW clubs, with the smallest club having had 24 members and the largest club having 76,597;

• 73 per cent of clubs had a total membership of less than 6000 members, highlighting the important role of smaller clubs to the people of NSW;

• Smaller clubs (by memberships) tended to be bowling clubs which made up 34 per cent of total clubs but only 13 per cent of total memberships; and

• The average club membership level was 6000, with significant variation around this mean.

Financial performance The 2007 SEIS survey estimates that total revenue earned by clubs in NSW was around $5.4 billion in 2007. Total revenue has grown by 16 per cent since 2003 when total revenue was estimated to be $4.6 billion. This equates to 4.1 per cent growth per annum, slightly lower than the 4.2 per cent growth rate reported for the period between 1999 and 2003. Gaming machine revenue accounted for a significant share of all revenue (63 per cent) in 2007. However, this share fell by more than 5 percentage points since 2003. Some of this has been replaced by an increase in bar sales and memberships which increased by 3.6 per cent. In the opinion of ClubsNSW, this reflects the efforts of clubs to diversify their income streams away from gaming. Total expenditure has increased by 4 per cent, from $4 billion in 2003 to $4.2 billion in 2007. Following the fall in the share of gaming machine revenue, the proportion of expenditure dedicated to gaming machines dropped by nearly 6 percentage points in this period. The total value of capital assets was estimated to be $6.2 billion in 2007, representing a 21 per cent increase since 2003. Nearly three-quarters of club assets were held in club buildings and facilities. Despite the decrease in total debt held by clubs (fall of 2 per cent), total interest payments increased to $75 million representing an 8 per cent increase since 2003. Taxation Between 2003 and 2007 taxation of NSW Clubs increased by 30 per cent with the largest growth (61 per cent) originating from changes in State Government gaming machine taxes.

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NSW clubs paid $1.26 billion in taxation in 2007. This was an increase from the total tax bill of $969 million in 2003; which is equivalent to an annual growth rate of around 7 per cent. All forms of tax have increased in absolute value terms (with the exception of payroll tax). The largest growth by type of tax was in State Government gaming machine duty which has increased by 61 per cent between 2003 and 2007. The 2007 SEIS reveals the negative impact the increased total tax bill has had across the industry. Profitability The 2007 SEIS profitability analysis does not take into account the impact of the smoking bans (which occurred on 2 July 2007) nor the final phase in of the increase in State Gaming Machine Tax (which commenced on 1 September 2007). Since the last SEIS analysis, the average profitability of the larger clubs (those earning more than $5 million in gaming machine revenue) has fallen markedly. The main explanation for the change is the increase in the marginal tax rate paid on gaming machine revenue. The final stage of the restructure of the marginal gaming tax rate for clubs was implemented on 1 September 2007. On a post-GST basis, the new tax rates now vary from nil on gaming revenue of less than $1 million up to 39.99 per cent on gaming machine revenue in excess of $20 million. ClubsNSW estimates that clubs will pay an extra $1.1 billion in tax over the seven years to September 2012. As the gaming tax is applied to gaming machine revenue, the increased rates will impact on the average profitability of clubs, particularly for the larger clubs that will face a sharp increase in their marginal tax rate. These findings are consistent with previous modelling undertaken by the Allen Consulting Group (2004) which showed that:

• medium to larger-sized clubs (i.e. those earning more than $5 million in gaming machine revenue) are more likely to become financially vulnerable as a result of the tax changes due to the larger increase in taxation; and

• profitability for clubs earning more than $200 000 but less than $1 million in gaming machine revenue would increase slightly under the new tax regime.1

In relation to the affect of smoking bans, ACG found that bans will impact on clubs’ revenue for some time, by discouraging smokers from attending or otherwise requiring them to smoke outdoors. These requirements make a club less attractive for smokers to attend. From July 2007 to February 2008, NSW clubs experienced a decrease in total turnover of 7.4 per cent which has been directly linked to indoor smoking bans. Smaller clubs have experienced the largest reduction in gaming machine turnover. ClubsNSW estimates that the reduction in turnover for all clubs may reduce annual gaming machine revenue (turnover less wins) by approximately 10 per cent.

1 The introduction of the new tax regime was not expected to have a significant impact on club

profitability for the smallest clubs (those earning less than $200 000 in gaming machine revenue) and was expected to decrease the profitability for clubs earning more than $1 million and less than $5 million in gaming machine revenue.

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While the average decline in turnover experienced by clubs has been around 7.4 per cent, more than three-quarters of all clubs have experienced a decline in gaming machine revenue. The experience in other jurisdictions has shown that the return to pre-ban revenue levels could take anywhere between 18 months to over five years. In Victoria’s case, the time taken to recover to pre-ban revenue levels (measured by the initial date of the smoking ban) was five years; in Queensland it took approximately 18 months (ClubsNSW based on information from Victorian Commission for Gambling Regulation and Queensland Office of Gaming Regulation). Employment and Training The Club Movement continues to be a significant employer for the NSW state economy, employing 43 300 people in 2007. It is important to note that employment has decreased by 16 per cent since 2003 and the total wages spend has increased only slightly, not keeping pace with growth in inflation and average weekly earnings between 2003 and 2007. Again, this reflects the belt tightening occurring across the industry as a result of increased tax, regulatory pressures and the implementation of the smoking bans. Overall in 2007, NSW clubs paid $1.27 billion to employees in wages and entitlements and an additional $235 million to contractors. One explanation for the decrease in employment between 2003 and 2007 may be the significant increase in gaming machine tax paid by the largest clubs. In order to meet their increased tax obligations, clubs may have sought to control employment costs, for example, by reducing the number of employees and restructuring their workforce (changing the mix between full-time, part-time and casual employees, and trainees). Wages have increased by seven per cent between 2003 and 2007. This is smaller than the growth seen in average weekly earnings (AWE), which increased by 18 per cent over this period. It is likely that the significant increase in gaming machine tax paid by the largest clubs may have restricted wages growth between 2003 and 2007. Clubs affected by the tax increases, in order to meet tax obligations, may have sought to control employment costs and total wages. In addition, around 78 per cent of all NSW clubs had a paid Chief Executive Officer, Secretary Manager or General Manager. Those clubs that did not have a paid executive were more likely to be the smallest clubs than any other club size category. This points to the need to reduce red tape and scale the compliance burden to ease the pressure on the smallest clubs. Total expenditure on training by NSW clubs totalled $24.7 million in 2007, an increase by 10 per cent since 2003. Of all training provided in 2007, 52 per cent was provided through formal training, with the remaining 48 per cent provided in informal (on the job) training. Investment Capital expenditure for clubs may include expenditure related to extending or maintaining club facilities, the purchase of capital items such as gaming machines or motor vehicles, or the purchase of additional club facilities. The vast majority of clubs (over 90 per cent) reported some capital expenditure in 2007. However, the smallest clubs had a slightly lower number of clubs that reported capital expenditure (around 80 per cent). All club size categories experienced an increase in the proportion of clubs reporting capital expenditure between 2003 and 2007.

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Investment intentions have materialised in greater capital expenditure over time. NSW clubs invested $858.2 million in capital expenditure in 2007. Capital expenditure has increased by 22 per cent from 2003. The largest clubs (49 per cent) and the smallest clubs (60 per cent) experienced the greatest increase in capital expenditure. In relation to sport, a key part of NSW Clubs social contribution is the provision of important sporting and social infrastructure, which without clubs would not exist. The 2007 SEIS report found that clubs intend to invest nearly $450 million over the next 3 years on sporting facilities. This will significantly expand the existing provision of 1547 bowling greens, 336 golf courses, 81 gyms and 163 sporting fields which are owned and maintained by NSW clubs. Social Contribution Notwithstanding the recommendations made by IPART, which are largely accepted by ClubsNSW, ACG identified multiple approaches to measuring the social contribution made by clubs in NSW. The first approach, the expenditure approach, seeks to value the individual inputs of the social contributions made by registered clubs. That is, this approach takes the aggregate dollar contribution made by clubs to several services (such as cash and in-kind support, investment in sporting facilities and other contributions). This approach seeks to understand whether clubs should or should not continue to provide social services. A meaningful and policy-relevant question is to ask ‘how much’ and ‘what type’ of services should be provided. This approach also seeks to establish how much the community is willing to pay to increase/decrease the level of various club social services. The ‘willingness to pay’ approach does not attempt to estimate the total value of the social contributions made by registered clubs. Rather, the technique estimates the values for changes in existing service levels. Using an expenditure approach, the 2007 SEIS indicates that the total dollar contribution by clubs in NSW is around $1.1 billion per year. This includes the club movement’s contribution through cash and in-kind support, volunteer opportunities and investment in sporting and non-sporting facilities. This estimate is likely to be a ‘lower bound’ as it does not take into account other services that are provided at subsidised rates (such as discounted meals relative to that offered by pubs and restaurants). This approach also does not take into account other indirect benefits from club community services, such as enhancing social capital and ‘healthy communities’ by encouraging people to participate in sport and volunteer activities. For example, the expenditure estimate does not take into account the benefit to the community associated with registered clubs providing meeting places for the elderly — both a social outlet and as a place for support. Future Investment NSW clubs plan to invest $3.3 billion over the next three years with over 85 per cent of this being invested in club facilities. NSW clubs plan to invest $2.8 billion in club facilities over the next three years. Seventy-four per cent of all clubs are likely to invest in club facilities. This investment is likely to be in new buildings and extensions (48 per cent), followed by refurbishments (14 per cent) and gaming machines (14 per cent).

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NSW clubs plan to invest $447 million over the next three years in sporting facilities. Around 35 per cent of all NSW clubs intend to invest in sporting facilities over the next three years. This investment is planned for fields and grounds (36 per cent), followed by other sporting facilities (30 per cent) and sporting infrastructure (28 per cent) Flow-on Economic Contribution In addition to club’s direct economic contributions to the NSW economy, the SEIS report examines the club industry’s numerous flow-on (or indirect) economic effects using an input-output analysis. The report concludes that for every $1 million of goods and services invested by NSW clubs, $1.04 million of flow-on output to the national economy occurs. Using capital expenditure as a proxy for club investment, it is estimated that there is an additional $888.44 million in direct and flow-on output to the national economy. In relation to employment the report asserts that for every person employed by NSW clubs, it is estimated that an additional 1.06 employees are directly and indirectly employed across the NSW economy, which is equal to 45 931 employees. Gaming Outlook Over half of all NSW clubs anticipate no change to their gaming machine holdings. However, around one third of large clubs anticipate their holdings will increase. Around 40 per cent of NSW clubs anticipate their gaming revenue may increase over the next three years. Twenty-eight per cent of clubs anticipate a decrease in gaming machine revenue over the same time period. Future Challenges There are a number of emerging issues that are likely to influence the future development of the Club Movement, which will in turn place pressure on the performance and viability of clubs in NSW. These challenges include those arising from a change in government policy (for example, smoking bans, changes to gaming tax rates and the introduction of the Liquor Act 2007). Challenges also include the structural development of the industry (for example, the amalgamation of clubs). Both supply factors (skills shortages and increasing bargaining power of key suppliers) and demand factors (such as an ageing population) are also significant developments for the industry. Response Analysis In the future, NSW clubs may be faced with changes in government policy, industry, supply factors and demand factors. To help understand how clubs may respond to these changes, the 2007 survey asked clubs to identify how they would respond to reductions in net revenue of $10 000 to $1 million. Clubs’ responses suggested that the smallest clubs would seek to compensate for the effect by increasing membership fees (23 per cent) and retail prices (17 per cent) or reduce capital expenditure (22 per cent). Similarly, the largest clubs identified increases in retail prices (around 22 per cent), reduced community support (around 21 per cent) and reduced capital expenditure (around 20 per cent) to fund a reduction in revenue of between $10 000 and $100 000. If faced with a $1 million reduction in revenue, the largest clubs identified that they would reduce capital expenditure (31 per cent) and community support (20 per cent) to fund a shortfall.

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It is worth keeping in mind that, in reality, most clubs are likely to respond with a combination of changes in their behaviour. This finding is instructive in the context of IPART’s recommendation that clubs be fully consulted by the NSW Government in advance of future changes in club related policy.

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Chapter 3 – Social Contribution of the Registered Clubs Industry

IPART Recommendation 1: That ClubsNSW maintains and seeks to increase local club employee training, along with greater promotion of these opportunities, in regional and rural locations. ClubsNSW Response ClubsNSW will continue to deliver its own training program and work with clubs, government agencies, affiliated associations and training organisations to improve access to and quality of employee training. As an example ClubsNSW, before the end of the current financial year (30 June), will offer the following employee training opportunities to clubs in regional and rural areas: 1. Workplace Safety for Robbery and Workplace Violence Prevention. Courses are being offered in 21 regional locations around the state in March and April targeting over 800 club staff; 2. Building Better Business workshops on topics including workplace relations, club diversification, the recruitment and retention of staff, food and beverage trends, club security and the Registered Clubs Act. These workshops will be held in 11 regional locations across the state throughout May and June; 3. ClubsNSW regional meetings (approximately 75 per year) are open to both

directors and managers where information about topical club issues is provided along with an opportunity to discuss issues of concern to clubs; and

4. An EcoClubs Conference - Green Clubs for Financial and Environmental

Sustainability – will cater for 130 club directors and senior managers in April. More details on ClubsNSW training in regional areas can be found in our response to Recommendation 29 and promotional material is attached in Appendix 2. ClubsNSW believes that IPART should also consider the extent to which the Club Managers Association of Australia (CMA) should enhance the education training program aimed predominantly at club managers. IPART Recommendation 2: That ClubsNSW increase the awareness of employment opportunities offered by the industry, particularly in the tertiary graduate and over age 55 segments of the labour market. This should be achieved through better targeting and improved advertising of employment opportunities in the broader labour market. ClubsNSW Response ClubsNSW agrees it has a role to promote awareness of employment opportunities the industry offers to the tertiary and over 55 years segment of the labour market, in co-operation with State and Federal governments. To this end, ClubsNSW believes there is greater scope for clubs to access support funding through programs such as the Federal Government’s Welfare to Work, a $3.6 billion Australian Government initiative, designed to support and assist, those people that can, move off welfare and into work.

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IPART Recommendation 3: That other economic opportunities afforded by the registered clubs industry, including employment, contractor payments, volunteers, training, tourism and taxation should be measured and reported by ClubsNSW. To better understand these contributions, this reporting should be provided by club size, type and location. ClubsNSW Response ClubsNSW agrees that the economic and employment contribution and opportunities provided by clubs should be measured and reported in a systematic way. Currently, ClubsNSW conducts and publishes a Socio Economic Impact Study (SEIS) report every four years which measures the economic opportunities and contributions registered clubs offer the NSW economy. This report costs approximately $300,000 and takes nine months to complete. ClubsNSW notes that IPART recommends that this data be provided according to club size, type and location. ClubsNSW sees merit in this and notes that the current and previous SEIS reports categorised economic data according to club size. However, due to the size and nature of SEIS survey, there are statistical limits on how the data can be categorised particularly in relation to club location. Volunteerism ClubsNSW believes that the promotion of volunteer opportunities is also important. There is a growing awareness that volunteerism is integral to the creation of social capital and, in the club context, delivering services that the community needs. However the complex and onerous regulatory environment in which clubs operate has made it difficult for clubs to attract and keep volunteers, especially in key roles such as directors. Of concern is the evidence in the latest SEIS report of a decline in volunteers since

2003. The number of volunteers has fallen from 53 000 in 2004 to 44 000 in 2007,

although the average number of hours per volunteer has increased from 5.6 million

hours to around 6.3 million hours. Fewer people are contributing more volunteer

time. The SEIS Report notes:

Volunteers are a highly integral part of club operations. In 2007, there were

around six volunteers for every two employees in a small club, whereas for

larger clubs there was one volunteer for every two employees.2 This

demonstrates the importance of volunteers for small club operations.

The number of volunteers per total number of employees across all club sizes is

demonstrated in the below table.

2 The results are more dispersed when FTE employees are taken into account — for every two FTE

employers, there were eleven volunteers in a small club and less than two volunteers in a large club.

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FIGURE 1: VOLUNTEERS PER TOTAL NUMBER OF EMPLOYEES BY CLUB SIZE

Club Size Volunteers per Employee Volunteers per FTE Employee

0 – 200K 2.9 5.4

>200K – 1M 1.3 2.7

>1M – 5M 1.3 0.9

>5M – 10M 0.5 0.9

>10M 0.5 0.9

Total clubs 1.0 1.3

Source: Allen Consulting Group, 2007 Survey of Clubs in NSW

ClubsNSW feels strongly that the NSW Government needs to assist organisations like ClubsNSW to promote volunteering opportunities. The NSW State Plan includes a commitment to increase the proportion of the total community involved in volunteering by 10 per cent by 2016 specifically in sports and cultural activities. Registered clubs are an excellent model for promoting and increasing volunteer participation and ClubsNSW believes IPART should recommend that the NSW Government utilise clubs in achieving the State Plan’s goals in this area. IPART Recommendation 4: That ClubsNSW improve industry awareness of programs targeting regional and state development, by providing information on their existence and assistance to clubs to gain access to these programs. ClubsNSW Response ClubsNSW will take a more active role in sourcing assistance with the NSW and Federal Governments. From the government standpoint, more effort needs to be made to make access to such programs as unencumbered by red tape as possible. ClubsNSW has done this in the past in areas such as Commonwealth water savings grants (a $200 million scheme allowing eligible organisations to apply for grants for on-ground works that increase water saving and efficiency; recycle and reuse water; and treat water to improve surface or groundwater health) and security measures for clubs.

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Chapter 4 – Measuring and Reporting on Club Contributions

IPART Recommendation 5: That IPART’s preferred approach for the measurement of club-provided social infrastructure and services be adopted. Under this approach, the social contribution of clubs is calculated via the sum of the market value of in-kind contributions, cash and volunteer hours less total revenue received for the provision of these goods and services. ClubsNSW Response ClubsNSW broadly supports IPART’s methodology and will adopt it in measuring clubs social contributions in the future. ClubsNSW notes that the methodology is unable to measure the significant intangible benefits provided by clubs and such activities like carpet bowls that do not have a proven market value. This means the $893 million is a conservative estimate of the social contribution clubs provide. While it is accepted that the analysis of intangible and non-market social contributions made by clubs needs to be qualitative, as far as possible an effort should be made to value the contribution in dollar terms, and approximate where appropriate. ClubsNSW believes the choice modelling study conducted in late 2007 provides a statistically robust quantitative measurement of the intangible benefits clubs provide. This study is discussed in detail in our response to the following recommendation. ClubsNSW believes further discussion, analysis and refinement of the IPART methodology is needed to ensure a comprehensive and accurate measurement of clubs social contribution can be achieved. IPART Recommendation 6: That ClubsNSW assume responsibility for conducting future modelling/valuation of the clubs industry’s social contribution to the NSW economy on a four-yearly basis. ClubsNSW Response ClubsNSW agrees that future modelling and or valuation of clubs social contributions should occur at the same time the SEIS is undertaken. ClubsNSW believes there is a case for IPART to undertake the valuation in future given its independent status and the fact that it developed the recommended methodology. ClubsNSW also believes that the cost of producing this valuation should be shared between ClubsNSW and the NSW Government. In this regard it would be helpful if IPART could provide a detailed costing of this piece of work. ClubsNSW commissioned the Allen Consulting Group to conduct a Choice Modelling Analysis to respond to Chapter 3 of the May 2007 IPART Issues Paper which questioned what social contributions registered clubs make and how these contributions should be measured. In the Issues Paper IPART suggested a ‘willingness to pay’ analysis as one of the possible measurement approaches but stated a preference for a qualitative measure of the intangible social contributions clubs provide. Notwithstanding our acceptance of IPART’s methodology, ClubsNSW believes a willingness to pay approach casts light on the true value of clubs to NSW residents and that a quantitative measure of the intangible benefits clubs provide is extremely

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valuable. Furthermore, Choice Modelling assesses both ‘use’ and ‘non-use’ benefits of registered clubs. That is, individuals in the community value the existence of a club although they may not access or directly benefit from the services or social contributions provided by registered clubs. Choice Modelling also highlights the services and support provided by clubs which are most valued by the NSW community and therefore provides strong policy implications for both Club Boards and the NSW Government. A summary of the choice modelling analysis is provided below. 2007 Choice Modelling Study - Overview Over 1000 members of the NSW community were surveyed in September 2007 and the survey results, outlined in the final report “Valuing the Social Contribution of Registered Clubs to the NSW Community” indicated that the NSW Club Movement is strongly valued and respected across the state by club goers and members and non club members alike. In fact, 86.4 per cent of respondents indicated that clubs play a positive role in the community, 30.6 per cent indicating that they had a strongly positive attitude towards clubs. Overall, respondents understood that the current level of community services provided by clubs does come at a price and are willing to pay to preserve certain community services. Respondents were particularly concerned with preserving the fact that clubs provide a safe environment for families and improve the quality of life for the elderly. Importantly, responses from club members or those that hold associations with clubs were not statistically different to other respondents. This suggests that people who do not visit and therefore do not directly benefit from clubs - still value the community services provided by clubs and the social benefits other members of their local communities gain. The survey found that the average member of the NSW population was willing to pay $43.10 every year to prevent a decline in the existing community services clubs provide. This figure aggregated to the NSW population indicates that the NSW community as a whole is willing to pay up to $224 million per year to see that the social contribution clubs offer their local communities continues. Furthermore, the NSW community is willing to pay even more to see an increase in the existing community services provided by clubs. Over the next ten years the NSW community is willing to pay up to $281 million to see the proportion of clubs that provide:

- services for the elderly increase by 15 per cent; - family friendly services increase by 10 per cent; - discounts on meals and entertainment increase by a further 5 per

cent; and - club organised or funded sport such that the proportion of the

community participating in these activities increases by 10 per cent. The research results strongly indicate that registered clubs not only provide community services and social benefits to their local communities but, as a whole, the NSW Club Movement is held in very high esteem by the NSW population. How to Grow the Social Contribution Made by Clubs It is important to measure the social contribution of clubs, but equally so to create the environment for that contribution to grow. In its first submission (section 2.3.2), ClubsNSW outlined a variety of regulatory changes that could further enhance the ability of clubs to deliver better social

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outcomes in their communities. These include limitations on off-premises catering, club membership size, the ability of contract caterers to serve alcohol, sign-in procedures and the five kilometre rule. The IPART Review offers an opportunity that should not be missed to address these regulatory anachronisms and ClubsNSW urges IPART to make strong recommendations in this regard. The social contribution made by clubs will also grow if they are encouraged to amalgamate and establish. In the opinion of ClubsNSW, IPART’s recommendations do not go far enough in creating the regulatory environment to permit this. This is taken up elsewhere in the submission. IPART Recommendation 7: That, if ClubsNSW chooses to use a different valuation methodology from IPART’s preferred approach, it should be transparent and open concerning the methodology and results. ClubsNSW Response ClubsNSW notes recommendation 7.

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Chapter 5 – The Community Development and Support Expenditure (CDSE) Scheme

IPART Recommendation 8: That local government and clubs enhance their promotion of the Community Development and Support (CDSE) Scheme on council and club websites, including publicising CDSE-funded projects on club websites and in annual reports. ClubsNSW Response ClubsNSW strongly supports enhancing the promotion of the CDSE scheme. Currently ClubsNSW provides detailed advice on ‘How to promote CDSE’ on its website but sees opportunities to improve the practical implementation of this advice and publicise CDSE funded projects through a variety of means. ClubsNSW is currently in discussions with the Office of Liquor, Gaming and Racing about a communication strategy to better promote CDSE, including targeting local media and publicising individual examples of contributions made through the scheme. ClubsNSW believes it is important that in the promotion process, the CDSE Scheme be branded as a club program which uses club member funds and is not the initiative of local councils. IPART Recommendation 9: That ClubsNSW encourage smaller clubs below the CDSE threshold to participate in a CDSE local committee process. ClubsNSW Response ClubsNSW believes it is beneficial for smaller clubs to more accurately value and better report their social contribution. For example, smaller clubs could be encouraged to complete a form similar to a CDSE return on an annual basis which would record their social contributions. This could then form the basis of their report to members. ClubsNSW is mindful that smaller clubs are already burdened by compliance and would not want to see any mandatory compliance obligations implemented. The key to this parallel approach is that it be voluntary and that reporting requirements be kept to the minimum necessary to ensure integrity of the scheme. Outside administrative and advisory assistance could be required to enable such a scheme to operate effectively. In relation to local committee participation, smaller clubs could enjoy the benefits of CDSE participation without incurring a greater administrative burden would be to participate through the local committees linked to larger clubs. It is ClubsNSW’s view that this should be encouraged. IPART Recommendation 10: That OLGR should provide greater support for local CDSE committees through an annual conference for committees and provision of support materials on such issues as priority-setting, decision-making and conflict resolution procedures, and information to clubs on valuing in-kind contributions. ClubsNSW Response

ClubsNSW is currently in consultation with the OLGR to provide greater support for CDSE Local Committees and strongly supports the implementation of a CDSE annual conference, regional forums and the development of a CDSE toolkit to assist

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Local Committees. ClubsNSW believes that comprehensive advice is already provided on our website in relation to priority setting, decision making and conflict resolution; however this advice could be better distributed to Local Committees.

IPART Recommendation 11:

– the CDSE Scheme guidelines should be amended to reflect that a market cost approach should be used to value the provision of in-kind CDSE

– the CDSE Scheme guidelines should include a more comprehensive explanation of in-kind valuation, including detailed working examples of commonly used in-kind CDSE valuations.

ClubsNSW Response

ClubsNSW agrees that the CDSE guidelines should be amended to reflect a market cost approach to the valuation of in-kind CDSE donations and that the guidelines should include working examples of commonly used in-kind CDSE valuations.

IPART Recommendation 12: 1. Club measurement, recording and reporting of contributions, beyond that

required and conducted through the CDSE Scheme, should remain non-mandatory;

2. The recording and reporting of individual club social contributions to members and ClubsNSW should be encouraged; and

3. ClubsNSW should expand its best practice guidelines to address and outline the benefits clubs gain through the practice of actively measuring and recording the activities and contributions they undertake.

ClubsNSW Response ClubsNSW agrees with IPART’s recommendation.

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Chapter 6 – Financial Viability of the Registered Clubs Industry

IPART Recommendation 13: That any future changes in Government policy affecting the revenue stream from gaming machines should be preceded by consultation with the clubs industry to determine the likely impact of proposed changes. ClubsNSW Response ClubsNSW strongly supports this recommendation and argues that the effect the tax increases has had on the financial performance of clubs since 2003 highlights the need for consultation with the club industry to ensure that the negative impacts of Government policy is fully analysed and understood. The recent 2007 SEIS report provides an assessment of the financial performance of the NSW Club Movement and the statistics strongly indicate the negative impact the increased total tax burden has had across the industry. IPART notes that the MOU between ClubsNSW and the NSW Government sets tax rates until 31 August 2011. However, there is evidence that even the agreed tax rates, when coupled with the downturn in gaming revenues associated with full smoking bans and the general softening of the market, are pushing many clubs to the brink. This situation is deteriorating rapidly and calls for urgent attention by Government. ClubsNSW strongly urges IPART to recommend an immediate review of the industry’s tax rates. This is both justified and essential. The evidence shows that the current levels of taxation are excessively high, and that clubs are facing financial disaster. The report found that since 2003 there has been a 30 per cent increase in total taxation. In 2003 clubs paid $969 million in total tax, in 2007 this figure reached $1259 million. The increase in tax is largely attributable to the implementation of the massive increases in gaming machine tax and has significantly affected clubs profitability averages and employment across the industry. In fact the average profitability of larger clubs, who were hardest hit by the tax increases, has decreased since 2003 and over 30 per cent of such clubs are still categorised as either non-profitable or marginally profitable. The SEIS report indicates that large clubs, those which earn over $5 million in revenue, are key to the financial performance and economic contribution of the industry as a whole. These clubs own over half of all the industry’s assets, pay over 50 percent of the wages bill, employee more than half of the industry’s employees and are responsible for approximately two thirds of all capital expenditure. Clearly, large clubs pay the biggest percentage of tax, particularly State Government gaming machine tax. ClubsNSW believes large clubs are currently in distress which based on the SEIS findings will undoubtedly and significantly impact the financial performance and economic contribution of the registered clubs industry as a whole. The below table outlines profitable verse non-profitable clubs according to Club size in 2007.

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FIGURE 2: PROFITABLE VS NON-PROFITABLE CLUBS IN 2007 BY CLUB SIZE

Club Size Non-Profitable Marginally Profitable Profitable

0 – 200K 23.8% 7.9% 68.3%

>200K – 1M 17.0% 18.2% 64.8%

>1M – 5M 18.8% 11.7% 69.5%

>5M – 10M 21.7% 19.6% 58.7%

>10M 8.3% 14.6% 77.1%

Total clubs 18.2% 13.9% 67.8%

Note: Profitability is defined as earnings before interest and tax (EBIT) divided by total revenues earned with the benchmark as follows: a ration greater than 5 per cent is profitable, a ratio of between 0.1 - 0.5 percent is marginally profitable and a ratio of less than 0.1 per cent is non-profitable. Source: Allen Consulting Group, 2007 Survey of Clubs in NSW

Employment has decreased by 16 per cent since 2003 and the total wages spend has increased only slightly. There were around 43 300 people employed in the club industry in 2007. This represents a 16 per cent fall in club employment since 2003 (when around 51 700 were employed) and the SEIS report states that this is in contrast with the 7 per cent growth in employment in NSW during this period (page 33).

The significant decrease in employment between 2003 and 2007 is directly

attributable to the increase in gaming machine tax paid by the largest clubs. In order

to meet their increased tax obligations, clubs may have sought to control

employment costs, for example, by reducing the number of employees and

restructuring their workforce (changing the mix between full-time, part-time and

casual employees, and trainees).

On page 94 of the Draft Report, IPART states that clubs are ‘sensitive’ to tax increases because of their reliance on gaming. This understates the dramatic and deleterious effect that increases in tax are having on club revenues and their bottom line. In the opinion of ClubsNSW, there needs to be a clear acknowledgement in the report that efforts to improve viability of clubs in future will be undermined by increases in tax on gaming machines. It is significant that IPART’s examination of the industry is occurring at a time when the compounding effects of increased taxes and reduced patronage due to anti-smoking legislation are showing up in the financial results of clubs. As an independent observer of what is happening, IPART is in a strong position to communicate these effects to the NSW Government through its report. With the current Annual Reporting season underway, many clubs are reporting decreases in gaming revenues of up to 25 percent with some ranging to 40 percent. The heavy reliance on these revenues to subsidise food and recreation services means that the bottom line impact of such a decline is magnified. The Malabar RSL is a typical case:

“This year has seen our club return an operating profit of $302,799.29 and a net loss after depreciation of $132,488.54.This loss is directly attributable to the introduction of the non smoking regulations introduced from the 1st July 2007 and the phasing in of the new increase in duty tax on gaming profits.

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Regardless of efforts to combat these anticipated changes, revenue from gaming operations fell by 23 per cent, or $346,627.00”.

ClubsNSW is concerned that the measures proposed in the Draft Report, such as the establishment of the Club Viability Panel and funding for remedial strategies, though well intentioned, will not arrive in time to be of help to several hundreds of distressed clubs. In general, a greater sense of urgency is needed.

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Chapter 7 – Financial Reporting and Benchmarking

IPART Recommendation 14: • A standard format or formats for financial management accounts should be

prescribed in the Registered Clubs Regulation 1996 for clubs with gaming machine revenue less than $5 million per annum, with an exemption for clubs which could show they can achieve the required outcomes with their existing format.

• The standard format may vary, with different requirements for clubs with less than $1 million gaming revenue per annum and those with gaming revenue between $1 million and $5 million per annum.

• The proposed Club Viability Panel (see recommendation 40) be asked to develop and recommend the standard format(s) to the Minister for Gaming and Racing.

• Once the standard format has been determined, clubs with gaming machine revenue of less than $5 million per annum should be required to submit their financial management accounts to the Club Viability Panel for a high-level review to see that they meet the requirements of the standard format. This would be a ‘one off’ requirement.

• Clubs with gaming machine revenue less than $1 million per annum should be given a 2-year period to adopt the standard format or acceptable alternative, with clubs with gaming machine revenue between $1 million and $5 million per annum required to comply within 18 months.

• If clubs with gaming machine revenue less than $1 million per annum consider they are not in a position to comply with the minimum standards due to resource constraints (such as accounting systems, process or staff) they may apply for funding via the Club Viability Panel to make the necessary changes.

ClubsNSW Response ClubsNSW in its first submission set out some of the difficulties associated with this kind of standardisation, especially in terms of the ability of small clubs to comply. Having said that, ClubsNSW’s agrees that a standard format or formats for financial management accounts should be introduced. This will among other things, allow the Club Viability Panel to better assess the relative financial performance of clubs across the state. However, in our view standardisation should apply to every club (not just those less than $5 million). There should be an exemption for clubs that can demonstrate that they can achieve the required outcomes with their existing format. ClubsNSW agrees that the standard format should vary according to size with different requirements for clubs with less than $1 million gaming revenue per annum and those with gaming revenue between $1 million and $5 million per annum and those above $5 million. In addition, there should be standardisation of reporting for amalgamated clubs or club groups. ClubsNSW agrees that the Club Viability Panel (CVP) should be charged with developing and recommending the standardised formats of financial reporting. As stated in our original submission, general analysis of the financial performance of the industry would be assisted by a better alignment of club accounting practices and reporting. The ClubsNSW Best Practice Guideline on Financial Reporting is a useful starting point. This guideline will be revised to provide direction in the following areas:

• What should be included and excluded in preparing accounts;

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• Limitations on the amount that can be reported as ‘sundry’ or ‘other’ expenses; and

• Amalgamated (or groups of) clubs providing consolidated accounts that clearly set out the operating result for each premises.

ClubsNSW agrees that once the standard formats have been determined, clubs should be required to submit their financial management accounts to the Club Viability Panel for a high-level review to see that they meet the requirements of the standard format. This would be a ‘one off’ requirement. ClubsNSW agrees that clubs with gaming machine revenue less than $1 million per annum should be given a 2-year period to adopt the standard format or acceptable alternative, with clubs with gaming machine revenue above $1 million per annum required to comply within 18 months. ClubsNSW agrees that clubs with gaming machine revenue less than $1 million per annum that consider they are not in a position to comply with the minimum standards due to resource constraints (such as accounting systems, process or staff) should be able to apply for funding via the Club Viability Panel to make the necessary changes. However, the under $1M cut off is arbitrary. There could be many clubs under $5M that need assistance, so they should also be able to apply. Penalties IPART proposes that clubs be subject to fines of up to $5500 for non-compliance with the proposed financial reporting and performance benchmarking regime (page 125). However, instead of penalising clubs for non compliance, a better approach would be to offer meaningful financial incentives in the form of credits against taxes on gaming revenues for participating in this scheme. This would help offset the administrative cost of additional reporting. At worst, the Government should limit any punitive action against clubs to a ticket approach similar to that used by the OLGR to breach non-compliant clubs. The Role of Auditors As set out in its first submission to IPART, ClubsNSW believes auditors should play an important role in identifying clubs in financial trouble and assisting in the preparation and submission of relevant financial information. External auditors form an opinion about whether annual club financial reports comply with the requirements of the Corporations Act 2001 and give a true and fair view of the company’s financial affairs. Because the independence of the external auditor is critical, auditors are generally approved by the board and a formal nomination goes to members to vote for their election. Auditors should play an essential role in protecting member and community assets; particularly for smaller clubs that do not have a sophisticated accounting function (some are without a paid accountant). In these clubs, where financial management expertise at board and management level can be lacking, auditors should take a more active role in identifying and reporting situations where financial viability is threatened. ClubsNSW suggested auditors annually sign off, and provide to government, a form that allows assessment of a clubs overall financial health. While this suggestion was not taken up by IPART, there is the opportunity to require auditor involvement in moving clubs toward standardised reports.

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IPART Recommendation 15: That each club monitors the suite of business efficiency performance measures outlined in Tables 7.1-7.3. These measures would be used by the clubs to understand their financial position. ClubsNSW Response ClubsNSW agrees with this recommendation but again raises the need to require auditors to assist clubs, particularly small ones with limited resources who face a relatively high compliance burden already. Further information as to how this monitoring will be enforced would be welcome. ClubsNSW has previously advised that efforts to promote a voluntary benchmarking scheme have been only moderately successful. IPART Recommendation 16: That each club monitor the following indicators of financial viability:

– EBITDARD percentage; – Working capital surplus (deficiency); – Operating cash flows/working capital deficiency; – Operating cash flows/borrowings; – Capital expenditure/operating cash flows; and – Gaming revenue/total revenue.

ClubsNSW Response ClubsNSW agrees with this recommendation with the same qualification put in response to the previous recommendation. Recognition of the difficulties of giving effect to these recommendations across the industry should be acknowledged. IPART Recommendation 17: (i) Depending on size, clubs would submit some measures annually to the Club Viability Panel to allow calculation of industry benchmarks and the assessment of individual clubs’ financial viability (see recommendation 15)

– All clubs should be required by the Registered Clubs Regulation 1996 to submit EBITDARD as a percentage proportion of revenue (or other suitable measure) on an annual basis to the Club Viability Panel. – Clubs with gaming machine revenue of $1 million to less than $5 million per annum should be required by the Registered Clubs Regulation 1996 to submit a standard suite of performance efficiency measures on an annual basis to the Club Viability Panel. The Club Viability Panel should be asked to recommend an appropriate suite of measures, using those outlined in section 7.5.1 as a starting point. – Clubs with gaming machine revenue less than $1 million should only be required to submit ‘whole of business’ measures.

(ii) With respect to the measures in (i): – They be used to support the development of industry benchmarks by the Club Viability Panel; and – Where possible, the benchmarks for the measures should be segmented by size, location and type of club to provide more meaningful comparisons by different segments within the industry.

ClubsNSW Response ClubsNSW agrees that according to size, clubs would submit measures annually to the CVP. However, this should be applied to all clubs, not those less than $5 million.

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Chapter 8 – Diversification in the Registered Clubs Industry

IPART Recommendation 18: ClubsNSW should develop and deliver material to assist clubs (particularly small to medium-sized clubs) in understanding and managing the benefits and risks associated with pursuing diversification, including:

– Providing guidance with respect to the measures usually adopted to identify and mitigate diversification risks such as due diligence and planning procedures to objectively assess the relative merits of a particular diversification strategy.

– Advising clubs on the merits (and risks) associated with joint ventures with third party business operators in order to obtain management expertise and share operational and financial risks that arise from diversification.

– Assisting clubs to recognise and leverage their collective strengths when thinking of diversification. These include the size and loyalty of membership bases, underutilised landholdings in strategic locations and extensive geographic reach of the industry.

ClubsNSW Response ClubsNSW supports IPART’s approach in relation to diversification and will develop a guideline on diversification aimed at assisting clubs to understand and manage the risks and benefits.

ClubsNSW agrees with IPART’s finding that diversification will not reduce the reliance on gaming machine revenue as the cornerstone for their long-term financial viability. There are significant financial risks for clubs, particularly those taking on large projects and relying heavily on expensive outside project management assistance to bring them to fruition.

Notwithstanding the risks, it is ClubsNSW’s view that diversification should be actively encouraged by government policy, given its capacity to grow the social contribution of clubs. To this end it would be helpful if IPART’s recommendations to government placed more emphasis on the role of diversification in positioning clubs for the future.

Clubs as Hubs of Social and Economic Activity – Revesby Workers Club Case Study

The experiences of Revesby Workers Club in pursuing a diversification strategy with the aim of becoming a community hub are illustrative of both the potential and challenges of such a strategy.

The club set itself a series of long term objectives to change the nature of the business to maintain its long-term profitability. It determined to do this by using its land assets to better service a wider range of demographic and socio-economic groups. In this way the gaming revenue reliance would be significantly diminished.

It set itself an ambitious target of reducing its reliance on gaming from a current 68 per cent of EBITDA to 30 per cent upon completion of a program that includes growing an existing Health Club business fourfold, bringing to the community an Aquatics Centre with Learn To Swim and hydrotherapy facilities, and a high quality 90 place child care facility providing special facilities for 0-2 year olds and disabled children. These lifestyle uses that otherwise would not be available to the community will represent 29 percent of the club’s forecast income. The Club recognised this would require considerable investment in optimising the use of existing Club property assets to diversify and grow its income and value. This

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investment to fulfil the diversification objectives will require years to fulfil, using appropriate resources and prudent management. The Club achieved an appropriate commercial zoning for its property to allow a mixed use development in September 2006 after four years in planning consideration. The development management process with full professional resourcing has taken a further two years. The Master Plan calls for a construction completion of all elements of the development by mid 2011. This means that, rezoning aside, the Club will have taken a total of six years to achieve the proposed diversification as a result of various constraints imposed by government policy and the practicalities of development. The Club received two Development Consents in March 2008 for increasing the size of its existing Health Club and the Long Day Care Child Care Facility after eight months in planning consideration. A fully detailed Master Plan Development Application was lodged with Bankstown City Council in February 2008 and is currently under review. The club does not expect a Consent or Rejection before the end of 2008 to enable development to proceed. The table below details the master plan for diversification at Revesby Workers Club which will create a mixed use development of 38,935m2. FIGURE 3: MASTER PLAN- MIXED USE DEVELOPMENT OF REVESBY WORKERS CLUB SITE

ITEM EXISTING MASTER PLAN

HOSPITALITY VENUE: Premises

16,105 m

2

15,910 m

2

COMMERCIAL PRECINCTS: Aquatic Centre Child Care Facilities Community Retail Centre Fitness Centre Hotel

0 0 820 m

2

0

1,660 m

2

1,425 m2

9,735 m2

4,440 m2

5,765 m2

TOTAL 16,925 m2 38,935 m

2

Car Parking 492 spaces 1,300 spaces

Source: Revesby Workers Club, April 2008.

Club Diversification and Government Policies

The Club’s diversification strategy is delivering additional and relevant products and services, which its research has identified as being required by the community. In a number of key areas these services are not being funded by private enterprise or levels of government.

Diversification through development involves a major investment and comes with considerable risk to a club. Revesby Workers Club has found that these risks are being exacerbated by conflicting government policies that are delaying the process, despite the fact the club’s diversification strategy has the potential to assist various levels of government in pursuing their own policy goals.

As IPART has pointed out, it will take considerable time to reduce clubs’ reliance on gaming. It will also involve considerably more support and assurance from government in dealing with:

• the ongoing uncertainties and ambiguities in regard to the Registered Clubs Act and the Gaming Machines Act governing the industry;

• the current state of flux in NSW planning including the implications of the Sydney Metro Strategy affecting 27 Sydney metropolitan Councils and other

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state planning policies affecting regional areas and the length of time to physically achieve approvals;

• the ongoing uncertainties and ambiguities in regard to the Non Smoking legislation governed by the NSW Department of Health;

• the period of time to physically deliver the construction of new facilities that capture the diversification income streams, assuming planning approvals are achieved; and

• once constructed those additional income streams need between one and three years to establish projected profitability.

As ClubsNSW pointed out in its first submission, club diversification can assist the government in pursuing its own policy goals, for example in the provision of aged-care facilities and attempts by the NSW Government to address the shortage of aged-care places, a problem that will escalate as the NSW population ages. Importantly, the form diversification takes should not be restricted by government at any level.

Reduced Gaming Dependency The 2007 SEIS Report indicates that clubs’ dependence on gaming revenue as an overall percentage of revenue has decreased since 2003 from 68.4 per cent to 63.2 per cent. This significant decrease in the dependence on gaming revenue indicates that diversification is occurring and that clubs are increasingly focusing more heavily on hospitality and membership as sources of revenue. The table below compares clubs sources of revenue from 2003 to 2007. FIGURE 4: SOURCES OF REVENUE - COMPARISION 2003 TO 2007

PERCENTAGE OF TOTAL REVENUE

2003 2007 CHANGE SINCE 2003

(% POINT CHANGE)

Membership 1.4% 3.2% 1.8%

Food 7.0% 7.0% No change

Bar 14.8% 16.6% 1.8%

Facilities & venue rental

0.8% 1.1% 0.3%

Gaming machines 68.4% 63.2% -5.2%

Other gaming 1.9% 2.2% 0.3%

Sports 1.3% 2.0% 0.7%

Ancillary business 1.4% 1.8% 0.4%

Other (a)

3.1% 2.9% -0.2%

Total

100.0% 100%

Note: May not add precisely to 100 per cent due to rounding.

(a) Other includes donations, cash grants, abnormal & extraordinary and other revenue.

Source: Allen Consulting Group, 2007 Survey of Clubs in NSW

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Chapter 9 Amalgamation

IPART Recommendation 19: That a comprehensive guide to amalgamation be should produced by OLGR, in consultation with the industry, the Club Viability Panel and the public. It should be a comprehensive guide written in plain English that includes (but is not restricted to):

– information on ways to approach an amalgamation; – details on the legal requirements, how they should be carried out and in what

order; and – a list of the major issues to consider when amalgamating, including financial,

due diligence, operational and strategic planning matters. ClubsNSW Response It is ClubsNSW’s view that the facilitation of amalgamations should be a major focus of IPART’s recommendations, and Government policy. This is especially so in the current financial environment and as clubs seek to ensure their long-term survival. In ClubsNSW’s view, there are also opportunities for clubs to come together in a way akin to mergers between corporations in the business sector. This would require a review of the regulatory framework with a view to enabling an efficient and effective process for this to occur. Such repositioning would enable amalgamations to be seen in a more positive light, as a strategic merger that leverages the combined resources of the entities. A merger (or dissolution of amalgamating clubs and creation of a new entity) rather than a strict amalgamation where an existing club continues on, can address issues that stand in the way of amalgamations including suspicion over the motives of a parent club or doubts over the autonomy of members of a dissolving club. Currently, some clubs see the prospect of an amalgamation as a negative reflection on their administration of the club. However amalgamation needs to be seen, not always as a bail out or rescue mission, but as an opportunity to strengthen and secure the future viability of the clubs involved. The Club Viability Panel will play an important role in identifying, not just those in need of amalgamation, but instances where amalgamation can result in a net gain for the community. There is a perception in the club industry that amalgamation means that one club identity simply disappears, but this need not be the case. There are many instances of amalgamations in which the ‘child’ club continues to operate and retain its identity, strengthened by the management resources of the parent. While the legal reality is that the separate legal entity of the child club disappears as the company is wound up and the assets and undertaking are combined into the parent club, it is often very much in the interests of the parent club for the child club to retain its unique identity in the community, and this is often what occurs in practice. Since the current Review began, ClubsNSW has issued seven expressions of interest from member clubs in finding an amalgamation partner. This lends a sense of urgency to this aspect of the Review. Urgent attention to regulatory reform in this area is needed to prevent the loss of many clubs and the community assets they sustain.

The claim on page 140 or the Draft Report that large-scale consolidation may compromise the needs of the local community is unsubstantiated and is disputed by ClubsNSW. Consolidation can bring cost savings through volume discounts on

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purchasing, access to better financial management systems and management talent, and improved career prospects for staff, to name just a few of the benefits.

Experience has shown that the most successful amalgamations have been those involving a large parent club partnering with a smaller club, and thereby bringing better management skills and resources to bear on the smaller club’s operations. Where amalgamation has been less successful is when two or more small clubs, each in financial distress, seek to amalgamate. In such cases, the underlying financial problems can be compounded.

ClubsNSW favours a state wide audit by the Club Viability Panel to identify clubs that ought to consider amalgamating, independent of any initiative in this area by clubs themselves. The audit should look at factors like proximity, financial viability and future demographic trends and make recommendations that would kick-start a process towards amalgamation in cases where the merged entity is demonstrably more viable in the long term than either or all of the individual clubs. The main impediment to amalgamation is the requirement to forfeit gaming machine entitlements in the transfer process. This is a significant consideration in virtually all amalgamations and successful management of amalgamated clubs, particularly in relation to gaming. It is a significant contributing factor to a successful long-term amalgamation whose goal is to preserve and enhance community assets which otherwise may not be available. ClubsNSW refers to the Gaming Machine Act Review Report that recommends positive changes to forfeiture requirements relating to the transfer of entitlements between related clubs. It proposes to, among other things: 1. Amend the legislation to allow the transfer of entitlements between related club

premises without forfeiture, if both premises are within the same LGA; and 2. Amend the legislation to permit related clubs to forfeit one entitlement in every six

transferred to another premises outside the LGA, if the club agrees to a decrease in the number of machines able to be held by the transferring club.

ClubsNSW welcomes the extent to which these proposals recognise the important role amalgamation will play in securing a sustainable future for clubs. However, ClubsNSW firmly believes that the transfer of entitlements between amalgamated clubs should be exempt from forfeiture requirements in all cases.

ClubsNSW encourages IPART to recommend amendments to the GMA that make possible ‘forfeiture free movement’ of entitlements between amalgamated clubs and related club premises. IPART Recommendation 20: That the OLGR develop pro-formas for documents that it requires to be lodged with the application for amalgamation, where appropriate. For example, the OLGR should develop a pro-forma MOU which includes the minimum legal requirements but provides flexibility for clubs to add their particular requirements. ClubsNSW Response ClubsNSW understands that the intent of pro-formas is to reduce costs and streamline the administrative process, which is a welcome initiative in principle. However it should be noted that this may not significantly reduce the legal costs associated with amalgamation. This is because many of these costs are incurred in seeking agreement on key elements of the agreement, which vary from club to club.

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Most of the documentation relating to amalgamations is already in basic template form as they are Licensing Court forms and precedents. Similarly, the essential matters which need to go into an MOU are set out in the Registered Clubs Regulation so the creation of a pro-forma would be unlikely to save any legal costs at all. In fact it may even increase them for the reasons set out below. The parties to a proposed amalgamation must sit down as early as possible (after the Expressions of Interest process has been completed) and work out the particular deal that is going to be acceptable to each club’s Board and members. Experience suggests the most difficult job is getting the parties to agree on all details. The dissolving club typically seeks guarantees in relation to ongoing operations, facilities, community support, as well as a voice in their ongoing affairs. These demands need to be balanced against economic realities and the fact that after the amalgamation there is one legal entity, a corporation whose directors have duties to run the club in the interests of all the members under the Corporations Act. Pro-forma documents could lead clubs to the completely incorrect assumption that, by completing a standard form, they have struck a full agreement between themselves only to find later when the deal is put to members that there are significant matters that have not been given proper consideration which relate to the particular circumstances of their club. ClubsNSW believes a well written guide to the amalgamations process is a more valuable tool for clubs. IPART Recommendation 21: That peak bodies provide more education to members and directors on amalgamation. Information to members and directors should provide a balanced view of amalgamation, covering issues such as the pros and cons of amalgamation, the process, and alternative amalgamation models. ClubsNSW Response ClubsNSW will be publicising case studies and articles supporting the proposition that clubs should look upon the prospect of amalgamation as an opportunity to secure their viability for the long term. IPART Recommendation 22: That the management and the board of a club should be required to inform its members when a formal amalgamation offer is presented to the club. Communication of such information should be accompanied by sufficient information regarding the offer so that members can develop a view on whether they want the board further consider the amalgamation offer. ClubsNSW Response ClubsNSW acknowledges IPART’s concern that in some cases, club directors and management may ignore the best, long-term interests of their members and reject offers of amalgamations out of hand. However, experience has shown that, by and large, club boards (and their professional advisers) handle amalgamation negotiations responsibly and in the vast majority of cases achieve the best possible outcome for their members. In this context IPART’s recommendation would be overly disruptive. ClubsNSW has several concerns with this recommendation. First, it would undermine the fundamental principle that a board is elected by members to direct the affairs of the club, and directors take on significant responsibility in doing that. It

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would compromise the board’s decision making power, effectively taking out of its hands the capacity to consider the broad circumstances of an offer, weigh up any competing offers, and negotiate in the club’s interest before presenting the best offer to the members. Secondly, it should be noted that members have no liability under the Corporations Act, but directors do. Directors would understandably be unwilling to be held accountable for decisions made by the membership at large. Thirdly, in disclosing the fact that an offer to amalgamate had been received before giving it due consideration could compromise negotiations with the partner club in a number of complex ways. For example, another club that felt threatened by the amalgamation could seek to undermine the deal by making its own offer to disrupt the process. Finally, the proposal would significantly increase the cost of the amalgamation process and add complication as members would spend an inordinate amount of time and resources debating the merits of the offer(s). Notwithstanding these concerns, ClubsNSW agrees there is merit in requiring boards to disclose to their members the fact that a formal amalgamation offer had been received and sufficient details about the board’s decision-making process in consideration of the offer to satisfy a reasonable person that the offer had been given proper consideration. Importantly, this disclosure should only be required to be made after the offer had been rejected (for example in the next annual report) so as not to compromise the board decision making process or any negotiations entered into. This would lend transparency to the process without compromising the ability of boards to obtain the best possible amalgamation arrangements. It would also act as a deterrent for boards that might be willing to act against the best interests of members in rejecting offers of amalgamation. IPART Recommendation 23: That the NSW Government write to the Commonwealth Government requesting an amendment to the Corporations Act 2001 to allow for a simple majority vote for liquidation in the case of a registered club that has already voted to amalgamate. ClubsNSW Response ClubsNSW agrees with this recommendation. IPART Recommendation 24: That clubs should explore the use of management agreements in their approaches to seeking amalgamation. Information relating to management agreements should be included in the guide to amalgamation (see Recommendation 19). ClubsNSW Response ClubsNSW agrees with this recommendation in as far as it represents the first step toward an amalgamation of clubs. Management agreements offer considerable flexibility particularly to smaller clubs that wish to leverage the management expertise of larger, more sophisticated clubs. However the Registered Clubs Act currently contains provisions that discourage clubs from pursuing this option. Part 4 Sec 32 of the Act requires clubs to have only one secretary. Clubs operating under a management agreement run the risk of falling foul of the Act in this area. Consideration should be given to amending the Act to clarify that the use of management agreements will not be a contravention of Sec 32 of the Act.

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Chapter 10 Establishment

IPART Recommendation 25: That ClubsNSW should produce a model club constitution template to assist and guide clubs to draft their club constitution so that it complies with both then Registered Clubs Act 1976 and the Corporations Act 2001. ClubsNSW Response ClubsNSW agrees that promulgating a model club constitution will help simplify the establishment process for new clubs while promoting uniform terms that meet the requirements of the Registered Clubs Act 1976 and the Corporations Act 2001. To that end, ClubsNSW is willing to produce a guide to help clubs create a constitution and to assist members in modernising existing constitutions. It should be noted, however, that this may not significantly reduce the legal costs associated with drafting a constitution that complies with the relevant Acts, as much of the lawyer’s time is taken up with seeking agreement on key elements of the constitution which vary from club to club. IPART Recommendation 26: That a guide be developed jointly by OLGR and peak bodies to assist groups that are looking to form a club. This guide should include the important facets of becoming a registered club, including the areas of:

– Who should become a registered club; – Preparation for the process to apply for club registration; – Time and cost involved in becoming a registered club; and – Resources and contacts for assistance and information.

ClubsNSW Response ClubsNSW supports this recommendation, subject to agreement on funding development of the guide. ClubsNSW notes that the OLGR already has information on how to form a club, which could form the basis for the guide. IPART Recommendation 27: That councils, in purchasing land for community facilities, should make allowance for the establishment of a registered club. Important aspects of this recommendation are that:

– The land is not provided on a first come first served basis. When an organisation approaches local council to establish a registered club on that particular piece of land, this should trigger a tender process where all local groups and clubs are invited to bid for the rights to establish a registered club on that land.

– The winning tender for that piece of land would need to be determined on a merits basis, including financial viability, how well services and facilities meet demands of the community, and any potential negative impacts that may result.

– The parcel of land should contain a sunset date whereby if after, say 15 years, no group has applied for the rights to develop a registered club on that piece of land, then council should be able to develop it for other purposes.

ClubsNSW Response ClubsNSW welcomes IPART’s focus on the role of local Government in the establishment of new clubs. However, in our view a much stronger recommendation on this matter relating to the role of the State Government and its planning agencies is needed.

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As ClubsNSW stated in its first submission, once land is included on the Metropolitan Development Plan or a regional development plan, the NSW Government, through the Office of Liquor Gaming and Racing, and in consultation with relevant agencies including the Department of Planning and local government, should assess the feasibility of clubs providing infrastructure including, but not limited to, sporting and recreational facilities. (As we have seen, clubs can also deliver a diverse range of facilities including child-care and aged-care.) This kind of needs assessment could detail the minimum conditions clubs must meet in seeking to establish a separate premise in the area. It is important that a suitable process be established to ensure, as far as possible, that new club premises reflect the local character and are able to respond to local community needs. ClubsNSW suggests this could be achieved in two ways: Firstly, clubs located within a certain radius of the proposed club site could be given first option to establish new premises. In the absence of a suitable club in the local area (certain criteria relating to club financial position and capacity to deliver the required services and facilities would also need to be met), clubs from further a field could be invited to take up the opportunity. Secondly, it could be a requirement that the new club premises establish, after a certain period of time, an advisory board that reports to the Board of the main club. This works successfully in amalgamated club situations and ensures that local concerns and initiatives are adequately addressed. Already, building new club premises is problematic. It is very rare for a new club to acquire or lease existing premises that are suitable and have council consent for use as a club. Generally new premises will have to be either built or old premises will have to be significantly renovated so that they will meet the requirements of the Registered Clubs Act and satisfy the local council or other consent authority. All of this generally requires substantial funds (see above in relation to the difficulty in raising funds). More specifically the premises must:

– Contain accommodation appropriate for the purposes of the club (Section 10(1)(g));

– Have a properly constructed bar room (Section 10(1)(h)) not be in the immediate vicinity of a place of public worship, a hospital or a public school (Section 25(1)(f));

– Be capable of being adequately managed by the governing body and management of the club;

– Not be situated where the activities of the club will or will be likely to disturb the quiet and good order of the neighbourhood (Section 25(1) (e)); and

– Be approved by the local council or other consent authority to be used for the purposes of a members club. This will involve a development application.

Councils and local consent authorities usually impose conditions on the granting of development consent. Some of these, such as limitations on trading hours could effect the long-term operations of the club. Without development approval the club will not have council-approved plans of its premises. These are an essential prerequisite for an application to the court under Section 7 of the Registered Clubs Act. When the above steps are completed the club will probably be in a position to make an application under Section 7 of the Registered Clubs Act for a certificate of registration. Commonly, obtaining Council approval involves not just a development

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application but first a rezoning application. By its nature, a rezoning application is a very politicised process. The ability of clubs situated on Crown Land to deliver community and sporting infrastructure would be greatly enhanced by positive action by the Department of Lands. ClubsNSW believes that the Department should look favourably at club requests to purchase the Crown Land they occupy, thereby providing the club with certainty, security and greater opportunity to develop their site moving forward. ClubsNSW believes that the relevant state government planning and development agencies, along with local governments, can play a key role in facilitating the establishment of new clubs. IPART Recommendation 28: That access to 10 free gaming machine entitlements for new registered clubs should be maintained, until suitable alternative measures are developed and in place to assist new clubs. ClubsNSW Response ClubsNSW welcomes the Draft Report theme that gaming machines are integral to the registered club model. However the recommendation that access to 10 free gaming machine entitlements for new registered clubs should be maintained, even if accepted by the State Government, will do little to promote new club establishment. In its first submission ClubsNSW explained how, given the high costs of new club establishment, even the 10 free gaming machine entitlements is inadequate. A benchmark for the development of new clubs was put forward in Blacktown Workers Sports Club, a separate premise of Blacktown Workers Club with 100 gaming machines. These machines allow the provision of a modern and functional venue featuring two soccer fields, two rugby league fields/cricket ovals, two bowling greens, five all weather tennis courts and a baseball diamond. Its sporting complex is home to affiliated sporting teams and sub-clubs, some 7000 sportsmen and women, seniors and juniors. It is the largest privately owned sporting complex in Australia. ClubsNSW strongly believes that the NSW Government should allow access to an appropriate number of free gaming machines entitlements that allows the club to provide the level of facility desired in a new community. This, along with the removal of the need to forfeit entitlements between amalgamated clubs would help pave the way for the establishment of new clubs. This, in turn, would allow the social contribution of clubs to grow and allow under serviced areas of the state access to vital community and sporting infrastructure. More broadly, in our opinion the automatic state-wide cap reduction proposed in the Gaming Machine Act Review Report will lead to difficulties in the long-term in satisfying the need for additional community owned gaming facilities as the population grows. This is particularly the case for new areas where community gaming could provide necessary sporting and social infrastructure to complement development.

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Chapter 11 Corporate Governance and Training

IPART Recommendation 29: That improvement be made to the existing club-specific training available to club directors and managers by ClubsNSW:

1. Offering AQF accredited training for directors 2. Offering more flexible delivery options for director training; and 3. With other providers of club-specific training, increasing their promotion of the

programs that they offer. ClubsNSW Response AQF accredited training ClubsNSW believes that AQF Accredited Training for Directors would be difficult to implement, as AQF accredited training does not necessarily have modules that suit a club environment, particularly in considering the education and training of older persons and the requirement to relate directly to concrete and familiar examples (i.e. club examples), the status of the director position (voluntary), and the depth and breadth of the regulatory environment of the registered club industry. Indeed, this was the reason behind the development of customised CDI training courses. Notwithstanding this concern, ClubsNSW is currently exploring ways of accrediting director involvement in training and professional development. For example, an existing non-formal course on strategy has been re-written to incorporate an optional section for participants wishing to complete BSBMGT616A Develop and Implement Strategic Plans as part of the course.3 Further, ClubsNSW is currently investigating becoming an Enterprise Registered Training Organisation (ERTO) to improve accredited and relevant delivery of training to directors. In general however, to match up with AQF accreditation, the director training courses will need to be longer and non specific, something experience has shown directors are unwilling to accept. Therefore, although ClubsNSW continues to explore accredited training options, we regard our customised non-formal training delivered through the Club Directors Institute, ClubsNSW learning opportunities including regional meetings, seminars and conferences, and other relevant training to be critically important. 2. Flexible Delivery Options ClubsNSW agrees with this recommendation and is currently developing flexible training options through CDI for club directors. This includes investigations into becoming an Enterprise Registered Training Organisation (ERTO), building relationships with online training providers and public institutions such as TAFE National Business. There are three levels of new development in online educational opportunities proposed: 1. Formal (Certified & accredited courses)

• Online training linked to specific accredited and assessed modules 2. Non-Formal (Non-certified & non-accredited courses)

• Online nomination assessments • Online induction (once voted)

3 See http://www.ntis.gov.au/Default.aspx?/trainingpackage/BSB07/unit/BSBMGT616A for a description

of the BSBMGT616A course.

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• Online training linked to non accredited modules drawn from the Pathway course

3. Informal (General information) • Podcasts and vodcasts online • Online forum with specific topics • Online surveys

It is essential that impediments to director training be eliminated and that convenience be a characteristic of training programs. ClubsNSW continues to deliver educational opportunities to regions, from Bega, Broken Hill to Ballina for very low costs to the participants. We also offer courses outside business hours reflecting the voluntary nature of the director role. The diagram below provides an overview of director training initiatives of ClubsNSW. FIGURE 5: TYPES OF EDUCATION AND TRAINING OFFERED BY CLUBSNSW

TYPES OF EDUCATION AND TRAINING

Formal (Certified & accredited

courses)

Non-Formal (Non-certified & non-accredited courses)

Informal (General information)

Nomination Pack

Current Pathway courses: Director Foundation

Finance for Club Boards Strategy

Leadership and Communication

Chairperson Foundation Leading a Club for Success

Improvements – better linkages with outcomes and bite-sized

online sessions

WorkCover Assist program EcoClubs Conference

Building Better Business

CDI Seminars Club Director magazine Building Better Business

EcoClubs

Directo

rs

CE

Os

NEW DEVELOPMENT Online training linked to specific accredited and

assessed modules

NEW DEVELOPMENT Online nomination

assessments Online induction (once voted) Online training linked to non

accredited modules drawn from the Pathway course

NEW DEVELOPMENT Podcasts and vodcasts

online Online Forum with specific

topics Online surveys

Marketing to become more web-based

Genera

l clu

b

sta

ff

NEW DEVELOPMENT Online training linked to specific accredited and

assessed modules branded through

ClubsNSW

NEW DEVELOPMENT Careers in Clubs initiatives

such as Chefs in Clubs

Mem

bers

NEW DEVELOPMENT Online training linked to

community needs such as First Aid Training

particularly to regional areas

Source: ClubsNSW

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3. Increasing Promotion ClubsNSW agrees with this recommendation but notes the significant expense attached to training promotion. For the 2007-08 financial year it cost approximately $1 million to roll out CDI and other related training/educational opportunities to its member directors, or just under $400 per director. This includes costs for the following:

• registered training organisation fees; • internal staff; • travel; • resource and magazine development, printing and distribution; • syllabus and seminar development; • consultant/facilitator/legal fees; • website development for online training; • marketing and promotion; • corporate expenses- administration, venue hire, catering; and • other miscellaneous costs.

ClubsNSW spending in developing, promoting and delivering its CDI program will escalate should IPART’s recommendations on director training be adopted. It is important that any increased activity around director training and the CDI be phased in to allow ClubsNSW to build capacity and adjust operations. Examples of CDI promotional materials are attached at Appendix 2. Additional information and promotional material can be downloaded from the web site at http://www.clubsnsw.com.au/Content/NavigationMenu/AboutUs/ClubDirectorsInstitute/default.htm ClubsNSW continues to pursue effective marketing and communication avenues designed to increase director participation. Among the marketing and communication tactics is the consideration of the positioning and brand of the Club Directors Institute as a professional development body synonymous with quality and attainment of relevant skills, individualised and innovative communication methods, and an increase of timely electronic communication. ClubsNSW advocates the sensible use of resources (including merchandise) with concern for excess paper use and piggy-backing where possible on other initiatives (for example, reducing postage costs). Some specific marketing activities have included a ‘join CDI’ panel on all booking forms, early bird registrations with price discounts, buy one educational opportunity get one for half price and improved copy writing for the explanation of course content. The director magazine, Club Director, has recently undergone an upgrading of presentation. The content has become more rigorous in its use of academic references and industry statistics, and the writing quality has improved to increase its clarity and usefulness. The subject matter has addressed timely issues which are outlined in the table below.

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FIGURE 6: CLUB DIRECTOR MAGAZINE CONTENT SUMMARY

TITLE DESCRIPTION

Young Men in Your Club Investigating the links between club strategy, relationship building and club promotions and the prevalence of young men in problem gambling statistics

The Ultimate Patron Entertainment Experience

Investigating the seamless fusion of operations, service, marketing and entertainment tools to create a superior customer experience

Successfully Negotiate and Persuade

Article that related to a touring seminar series on communication and organisational skills relating to negotiation and persuasion, particularly in dealing with the senior manager

Avoid Risky Business A study on Corporations Act (588G) and OH&S responsibilities

Be a Good Sport Good Sports program which focuses on the reduction or elimination of alcohol in community sport.

Where have all the chefs gone?

National skill shortage and its effect on a club’s recruitment strategy

Risk Aversion or risk taken Alleviating risk in considering diversification

Recruitment Strategies for attracting the best CEO

The process to undergo when considering selecting a new club CEO

Director’s roles in the employment of club staff

Addressing the confusion that directors sometimes have in their role with addressing issues relating to general club staff and investigating contract arrangements with senior managers

Source: ClubsNSW

In ClubsNSW’s view, in promoting learning opportunities there is the opportunity to cooperate with the Office of Liquor, Gaming and Racing and leverage off their substantial industry communication channels. IPART Recommendation 30: That directors of clubs with gaming machine revenue of greater than $1 million a year should be required to complete ongoing professional development training. The training should have flexible features, such as directors being able to take part in training using a number of delivery options. Exemptions could be granted on the basis of prior learning or experience. ClubsNSW Response ClubsNSW acknowledges IPART’s emphasis on professional development for directors. However, as stated elsewhere in this submission, the imposition of complex governance requirements, liabilities and up skilling is a significant burden which tends to discourage potential directors from committing their time and efforts and is something that must be addressed by IPART and the NSW Government. Participants in the recent Ucomm survey of club directors and managers were asked, ‘If NSW Government decides to make changes to the way it supports registered clubs, what would be the most beneficial change it could make?’ In response, there was near universal (99 per cent) support for ‘simplifying regulations to reduce the compliance burden’. Interestingly, respondents identified this as a higher priority than ‘reduced taxation’. Improving the design of club law must become a priority for government. In 1997 the Government’s Club Industry Working Party, in reference to structural issues, concluded that relevant corporate governance provisions of the Registered Clubs Act

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should be written in plain English together with the co-operative development of user-friendly guidelines.4 ClubsNSW embraced this challenge through the development of a Code of Practice and a series of best practice guidelines, and publication of the Club Director’s Guide, a plain English rendering of Directors’ duties. The Code and Guidelines are a significant step towards reducing complexity while promoting greater awareness and understanding of governance matters.

Having expressed frustration at the ever-growing compliance facing clubs, especially small ones, ClubsNSW supports the general thrust of IPART’s recommendations in this area. ClubsNSW supports recommendation 30, except for the $1 million threshold. ClubsNSW believes that directors of registered clubs, irrespective of revenue from gaming, should be required to participate in ongoing professional training at some level. The industry favours a flexible training model that promotes the use of skill sets but with a prescriptive foundation in corporations law and basic financial principles. Again there is a need to be mindful of the burden placed on directors, and particularly those in small clubs and toward this end IPART should consider a scaled and phased in approach. For instance, it could be a requirement that clubs below $1 million gaming revenue per annum have at least one director and its most senior staff member participating in training. In this way, relevant information is brought to the Board and the club’s corporate governance is strengthened. ClubsNSW argues that CDI’s “Director Foundation” and “Finances for Directors” courses should be the foundation programs for club directors and that they should be completed by directors identified as requiring the training, that is those without recognised prior learning, skills or experience within a period of two years. Directors would then be able to upgrade to an accredited course as part of their professional development program. The advantage of these courses is that they are club-specific, addressing key areas of corporate governance and finance using concrete examples drawn from the club environment and to which directors can easily relate. This training will build on the pre-nomination information provision required for people standing for board positions and will equip new and existing Club Directors with knowledge on their roles and responsibilities with regards to the Corporations Act 2001, Registered Clubs Amendment Act 2006 and its recent changes as well as aspects of the Occupational Health and Safety Act 2000. The Finance for Club Boards course builds confidence in directors’ ability to read ‘the figures’, for example, the course involves reviewing a recent annual report to calculate and use financial ratios, analyse a Profit and Loss statement and look at the type and value of assets a club owns. Care will need to be taken to ensure that the training is not unduly onerous or time consuming, and that it is self-paced and flexible in terms of mode of delivery (for example online delivery). Membership of CDI shows that participation in director training is fairly evenly distributed among clubs of all sizes and is representative of club size groups across

4 NSW Premiers Department, NSW Club Industry Policy Framework, 1998, p. 14,

http://www.premiers.nsw.gov.au/our_library/business/clubs.rtf, accessed July 2007.

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the industry. Small clubs make up 50 per cent of CDI members (245 clubs), medium clubs 34 per cent (170 clubs) and large clubs 16 per cent (78 clubs). The average number of CDI-member directors per club is 7.5 for all sized clubs. This suggests that if the cost barrier was removed for smaller clubs, participation in training might increase. ClubsNSW supports IPART’s recommendation that training be ongoing, however, consideration needs to be given to the frequency and relevance of mandated training, and the form (delivery method) in which it is presented. ClubsNSW believes that ongoing training should include not only structured training delivered through CDI, but also information sessions delivered by ClubsNSW through regional meetings, seminars and conferences. IPART Recommendation 31: That clubs should be encouraged to remove constitutional restrictions on board and voting eligibility by:

– The Government amending the Registered Clubs Act to include a provision defining the core features of the various types of clubs. Club members could then vote to become a club whose core features are protected by statute, rather than defined by its constitution.

– The proposed model club constitution template to be developed by ClubsNSW (see recommendation 25) would not contain any voting or board restrictions. Clubs would complete the template by inserting the core features of the club in the objects section.

ClubsNSW Response

ClubsNSW understands IPART’s concern relating to board and voting restrictions,

and sees value in allowing a broader range of candidates to be elected to club

boards. This will allow clubs to recruit a broader range of directors with valued skill

sets and also encourage healthy participation in the club democratic process.

However, an overriding concern in this process is the extent to which the objects and

purpose of a club can be preserved if the control of core members is diluted.

In ClubsNSW’s view IPART’s recommendation is problematic.

Firstly, IPART’s recommendation is unlikely to produce change in clubs, given that a

meeting of members is required to vote on the adoption of the model constitution and

the removal of voting restrictions. Effectively, core members would be voting to

reduce their own influence over the club board. Also, it is likely to be resisted by full

members who will see it as potentially putting the objects of the club at risk,

particularly leagues, bowls, golf and RSL clubs for whom control of the objects of the

club is exercised through restricted voting eligibility. (Full members, in this context,

are otherwise known as ‘core’ members and have full voting rights and entitlements

to nominate and occupy board positions.)

Secondly, setting out objects in legislation is not sufficient to protect the core purpose

of a club and ensure ongoing support for that purpose. It is essential that the raison detre of a club is imbued in those that stand for election and effectively control the

strategic direction of a club.

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By way of example, a leagues club pursues its purpose by among other things,

providing an annual cash grant to its affiliated football club. The size of this grant is

rightly a consideration and decision of the registered club board which contains a

number of representatives from the football club. However, it is possible that under

IPART’s recommended framework a registered club board might not comprise

directors with the best interests of the football club at heart and might decide to

dramatically cut the football club grant. It is essential that boards comprise directors

with an affinity for core purpose of a club.

There is an alternative approach suggested by the Co-operatives Act, 1992 (“Co-ops

Act”) which already applies to approximately 100 registered clubs who are

incorporated under that legislation.

Co-operatives are expressly prohibited from restricting the voting rights of members

by section 176(3) of the Co-ops Act. There is a limited exception to this prohibition

for clubs which in essence requires that at least 40 per cent of the total membership

of the Co-Operative club must have full voting rights including the right to stand for

election to the board.

Until recently, clubs have been subject to a requirement under the Registered Clubs Act that at least a majority of the members of the Club must be entitled to vote in the election of the Board. The Registered Clubs Act now provides that not less than 25 per cent of the members of the Club must be entitled to vote at the election of the Board of the Club.

This provision is intended to ensure some minimum level of democracy in clubs however it does not provide a minimum requirement for the percentage of members who are to have full voting rights, for example, the right to vote on resolutions such as special resolutions amending the Constitution or the minimum number of members who have the right to nominate and be elected or appointed to the Board of Directors of a club.

A possible solution to this problem would be to amend Section 30(9) of the Registered Clubs Act to provide that a deemed rule of the Club is that the members of the club entitled to full voting rights including the right to vote at the election of the board of the club, on all ordinary and special resolutions and also to be eligible to nominate and be elected or appointed to the Board comprise not less than 25 per cent of the total membership of the club. This would of course exclude Honorary or Temporary members.

This could be achieved by adding a new paragraph 30(1)(k): At all times after [grandfathering date], at least 25 per cent of the full members of the club must be Full Voting Members. A Full Voting Member is a full member who is: (i) entitled to vote at any meeting of the members of the club, including in relation to any resolution to amend the rules of the club (but this provision does not prevent a club having a provision in its rules that specifies a further requirement relating to the modification or repeal of a rule of the club) (ii) entitled to stand for election to a majority by number of the positions on the governing body of the club and to nominate candidates for and vote in the election of at least a majority of the positions on the governing body of the club (but this provision does not prevent a club having a provision in its rules

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that specifies that some number of members of the governing body less than a majority, must have some particular other qualification).

There could also need to be a mandatory rule that in clubs, each member of the governing body must have one vote and only one vote, with all voting by simple majority, except for any casting vote conferred on the chair at a meeting.

Clubs that are especially concerned about the preservation of their objects (or any other element of the constitution) could elect to entrench any relevant provisions before moving to the new regime.

There are certain circumstances where this approach could create difficulties. For instance, certain golf clubs where the differential between a playing membership and a social membership is substantial. A social member of a golf club usually only pays a nominal amount like members of other registered clubs (that is $10 or $20) whereas playing members of golf clubs can pay from $500 to $5000 per annum for their memberships as well as a significant joining fee – traditionally three times the annual fee. Playing members thus have a much greater stake in the direction the club takes and it would be manifestly unfair for them to only have the same voting privileges as social members. These situations would need special consideration.

Clubs could be given a phase in period in order to comply with the new requirements and it may be that a two or three year period would be appropriate for clubs to amend their constitutions to provide the full rights to the specified minimum numbers. If clubs did not amend their constitutions by the end of the phase in period, the provision would operate as a deemed rule and it is important to note they would be in breach of the Act if they had not made suitable arrangements.

The advantage of the approach set out above is that it is a relatively simple yet robustly answers the challenge by IPART for clubs to strengthen the democratic process in clubs.

ClubsNSW offers the above as the basis for ongoing discussion.

IPART Recommendation 32: That a club’s board should be permitted to appoint up to three directors if:

– the club has board or voting restrictions in its constitution; – the club’s members vote to not adopt the model constitution developed by

ClubsNSW or apply the “core club features” provision of the Registered Clubs Act once effective; and

– Safeguards would apply to this option, including imposing term limits and requiring member ratification at the next annual general meeting.

ClubsNSW Response ClubsNSW agrees that clubs should be permitted to appoint up to three directors with the safeguards suggested. IPART Recommendation 33: That boards of clubs with gaming machine revenue of greater than $1 million a year should be encouraged to undertake performance assessments of individual directors and the board as a whole on an annual basis. This could be brought about by ClubsNSW amending its Guideline for Board Operations to create a best practice recommendation on performance assessments. The Code would require clubs to state in their annual reports the extent to which they follow this best practice recommendation.

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ClubsNSW Response ClubsNSW agrees to amend its Guideline for Board Operations to encourage assessments of board performance and, in light of previous recommendations on director training, the extent to which these requirements are met. ClubsNSW considers the annual reporting of board performance assessments to be heavy handed and an unjustified deterrent to volunteer involvement on club boards. IPART Recommendation 34: That all clubs should be encouraged to prepare a formal succession policy dealing with board renewal. This could be brought about by ClubsNSW amending its Guideline for Board Operations to create a best practice recommendation on succession planning. The Code would require clubs to state in their annual reports the extent to which they follow this best practice recommendation. ClubsNSW Response ClubsNSW agrees to amend its Guideline for Board Operation to reflect this recommendation. To further support the IPART recommendation, ClubsNSW will develop guidelines for members on encouraging board diversity. Again, ClubsNSW believes that the annual reporting of compliance with the best practice guideline is unjustified. IPART Recommendation 35: That ClubsNSW should more extensively promote examples of effective corporate governance in clubs, for example by including articles in publications such as its ClubLife magazine about clubs that comply with its Code and Guidelines. ClubsNSW Response ClubsNSW agrees with this recommendation. IPART Recommendation 36: That clubs should be encouraged to move to three-year rolling elections. This could be brought about by ClubsNSW developing a guideline outlining best practice regarding the frequency of board elections. ClubsNSW Response ClubsNSW agrees with the rationale behind this recommendation that is, to promote stability and encourage succession planning, however believes three-year rolling elections should be mandated. While it may be possible to revise the current guideline on Conduct of Board Elections, this does not send a strong enough signal to clubs. IPART Recommendation 37: That clubs be encouraged to develop board charters. This could be brought about by ClubsNSW amending its Guideline for Board Operations to create a best practice recommendation on board charters. The Code would then require clubs to state in their annual reports the extent to which they follow this best practice recommendation. ClubsNSW Response ClubsNSW agrees with this recommendation. A pro-forma will be developed for boards to adopt and amend as relevant. This will be included in the revised guideline, as recommended by IPART. Attached to this submission is a sample board charter that could form the basis of this template (See Appendix 3). IPART Recommendation 38: That clubs be encouraged to improve the practices regarding recruitment and performance assessment of management. This could be brought about by ClubsNSW developing a guideline outlining best practice in

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recruiting management. Further, ClubsNSW could amend its Guideline for Remuneration of Club Executives to create a best practice recommendation on assessing management’s performance. The Code would require clubs to state in their annual reports the extent to which they follow this best practice recommendation. ClubsNSW Response ClubsNSW agrees in principle, but urges IPART to consider the training needs of club managers. ClubsNSW believes that many of the issues salient to director knowledge of financial management and corporate governance equally apply to club managers and that the adequacy of the training and professional development regime should be assessed. ClubsNSW would be willing to cooperate with the Club Managers Association (CMA) and the OLGR in this assessment. It needs to be considered whether or not the best practice recruitment and performance assessment of management could be incorporated into a revised and renamed Guideline for Remuneration of Club Executives, rather than creating another guideline. For example one guideline titled: Guideline for Recruitment, Performance and Remuneration of Club Executives and Management. In relation to improving the overall quality of club management, and enforcing minimum standards, ClubsNSW has attached the CMA’s submission to the NSW Government calling for the introduction of mandatory training for club secretaries and/or managers (See Appendix 4). IPART Recommendation 39: That ClubsNSW employ a pool of compliance officers to be shared by smaller clubs. The compliance officers would assist the smaller clubs to meet their compliance obligations under the Registered Clubs Act. They would be available on request to clubs with gaming machine revenue of $1 million or less a year. ClubsNSW would be able to charge clubs a fee for using this compliance service, determined on a cost recovery basis. ClubsNSW Response ClubsNSW has said elsewhere in this submission that greater emphasis needs to be placed on creating a regulatory regime that reduces the compliance burden on all clubs, in particular small clubs. In its first submission, ClubsNSW explained how the complexity of governance requirements places a significant burden on volunteer directors. To restate, club Board members are volunteers. As such, they have limited time available for club related duties. The imposition of complex governance requirements, liabilities and up skilling is a significant burden which tends to discourage potential directors from donating their time and efforts. The decline of the volunteer spirit due to increasing demands on individuals’ time is having a significant bearing on the governance of clubs. In our view, it is the job of the NSW Government, in consultation with stakeholders, to determine the extent to which regulation impinges on business and alleviate the general compliance burden. This received recent attention from the Australian Government. The Taskforce on Reducing Regulatory Burdens on Business found that regulatory burdens fall disproportionately on the economy’s many small (including ‘micro’) businesses, which lack the resources to deal with them. Tailoring regulation to limit the impact on small business and keeping regulatory costs down generally are essential if the ‘engine room’ of employment and economic growth is to prosper.

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The Taskforce’s report recommended that the Australian Government should endorse the following six principles of good regulatory process:

• Governments should not act to address ‘problems’ until a case for action has been clearly established. This should include establishing the nature of the problem and identifying why actions additional to existing measures are needed, recognising that not all ‘problems’ will justify (additional) government action.

• A range of feasible policy options — including self-regulatory and co- regulatory approaches — need to be identified and their benefits and costs, including compliance costs, assessed within an appropriate framework.

• Only the option that generates the greatest net benefit for the community, taking into account all the impacts, should be adopted.

• Effective guidance should be provided to relevant regulators and regulated parties in order to ensure that the policy intent of the regulation is clear, as well as the expected compliance requirements.

• Mechanisms are needed to ensure that regulation remains relevant and effective over time.

• There needs to be effective consultation with regulated parties at all stages of the regulatory cycle.5

ClubsNSW believes this process should be adopted in relation to the development of club regulation. In the view of ClubsNSW, the quality of the industry’s regulation needs to be addressed in the final IPART Report. Specifically in relation to IPART’s recommendation, while the concept of providing smaller clubs access to a resource of this kind has some merit, the logistics of providing it are problematic. ClubsNSW is not currently resourced to manage a team of compliance officers in the field. However, ClubsNSW is willing to consider the expansion and development of its Member Enquiry Centre to assist clubs with compliance and further develop tools that can be delivered online or through existing communication channels. Moreover, the smaller clubs in need of this service would be highly likely to also be in financial distress, meaning it would be difficult to get them to pay for the compliance officer. Funding for this role would need to come from some other source. As an indication of what it might cost to employ compliance officers on the basis proposed in the Draft Report, ClubsNSW conducted finance and operations reviews for 90 smaller clubs in 2007, using outside consultants. It was anticipated this work could be completed for about $1000 per club. In the end, with on-costs included, fees were between $1300 and $1500 per club. Moreover, the consultants involved in the program advised they would not do this work for that same cost in future, as their time had been substantial. There are currently over 800 registered clubs that earn less than $1million annually from gaming. If only half of these required assistance in line with the example cited above, and using a revised estimate of about $2000 per club, the annual cost of the compliance officer program would be in the range of $0.8 to $1 million annually. ClubsNSW emphasises that this is a very rough estimate of the cost of such a program.

5 Rethinking Regulation, Report of the Taskforce on Reducing Regulatory Burdens on Businesses,

2006, page 147.

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ClubsNSW believes that the Office of Liquor Gaming and Racing, through its compliance section, is well placed to develop tools that aid club compliance.

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Chapter 12 Club Viability Panel

IPART Recommendation 40: That a Club Viability Panel (the Panel) be established to assist clubs to transition to a standard format for management accounts, to produce and publish industry benchmarks, to alert clubs to the early warning signs of financial distress and to assist clubs to develop and implement strategies to be sustainable in the long-term. ClubsNSW Response ClubsNSW supports the concept of a Club Viability Panel. In its first submission, ClubsNSW identified the need for some external authority (an industry taskforce or Government) to intervene in extreme cases where it is evident that the club’s future is in jeopardy and there is a real risk that the community assets associated with it could be lost. While this recommendation has been rejected by IPART in its Draft Report, the problem of many clubs slipping further into financial distress remains. It is estimated that up to 300 clubs in the State are at risk of closing their doors with the next two to three years.

ClubsNSW maintains that a balance needs to be achieved between the right of elected boards to manage the affairs of clubs and the obligation to protect community assets in cases where boards, either willfully or negligently, place these assets at risk due to poor decision making and/or refusal to seek remedial assistance.

While the Clubs Viability Panel is notionally “advisory” ClubsNSW notes that clubs will be required to provide financial data to it as part of its identifying, monitoring and benchmarking roles. The authority under which this information will be collected needs to be clarified. IPART Recommendation 41: That the Panel should be advisory (not supervisory) in nature, with a club’s elected representatives maintaining control over the future of the club. ClubsNSW Response ClubsNSW agrees with this recommendation, however our comments above apply. IPART Recommendation 42: That the Panel should comprise up to seven members, drawn from Government (OLGR), ClubsNSW, other industry associations, individual club managers and boards and independent industry advisers to collectively provide a balanced mix of relevant skills and experience. ClubsNSW Response ClubsNSW agrees with this recommendation. It will be important to ensure that the Panel comprises respected and highly skilled individuals with complementary skill sets and experience. The panel should not be dominated by government or association appointees. IPART Recommendation 43: That ClubsNSW should provide secretariat support to the Panel.

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ClubsNSW Response ClubsNSW agrees with this recommendation in principle; however the funding/resourcing of the Club Viability Panel should be undertaken jointly by ClubsNSW and the NSW Government. To better understand the indicative costs of resourcing the secretariat to the Panel, ClubsNSW asked an independent firm that offers financial benchmarking and data analysis to estimate the costs associated with it on an ‘outsourced’ basis. It must be emphasised that the focus has been placed on the ‘indicative’ process and the associated costs involved in reviewing the initial performance of clubs and applying a staged delivery of benchmarking and performance reporting options to assist the individual clubs and the financial viability panel in their respective charters. Specific considerations as follows:

1. Process and cost to potentially assess the data of up to 1,400 licenced clubs. 2. Process and cost to provide quarterly assessment on licenced clubs deemed

to require further analysis – potentially up to 400 clubs. 3. Process and cost to prepare reports for the Club Viability Panel.

The information provided is based on a number of assumptions about the resourcing required which may or may not be correct. 1. Process and cost to potentially assess the data of up to 1,400 licenced clubs.

- This process would be delivered utilising remote data capture, data standardisation, mapping, data publishing and reporting. - It is assumed data will be captured from the individual clubs in an electronic format to ensure data credibility and consistency. Electronic capture of data also ensures independence of data and eliminates the need for individual clubs to compile the data. - Electronic capture of data and the mapping of each clubs financial accounts at this early stage will also form a solid foundation with which clubs can easily transition to actively participating in a regular performance reporting and benchmarking application. - The indicative cost for the initial assessment of clubs will be in the range of $500 per club per year per set of annualised data, or roughly $700,000. - The initial assessment would be based on the assessment of a set of annualised trading accounts. - The charge would be per site for multi-site club operations.

2. Process and cost to provide quarterly assessment on licenced clubs deemed to

require further analysis. - After the initial assessment of all 1400 clubs it is anticipated that at least 25 per cent of clubs or up to 400 clubs will be placed in an ‘at risk’ category reflective of their financial and operational performance level. - These clubs will be directed by the financial viability panel to undertake further assessment at a micro-level for a minimum 12 month period or until the panel is satisfied with the financial position of the club. - This process will require a performance reporting and benchmarking monitoring tool. - The costs associated with this on-going assessment and adoption of an online reporting application will be in the range of $100 to $500 per month for minimum 12 month period (24-36 month period recommended). The cost will be reflective of the size of the club and its operational dynamics. - As part of the function of the Club Viability Panel, initial assumptions suggest that the panel would wish to receive a quarterly financial performance status report on each of the “at risk” clubs.

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- Supportive commentary or individually tailored written reports on ‘high risk’ clubs that fail the litmus test will be necessary. These would be outside the scope of the current estimate for resourcing the secretariat.

3. Process and cost to prepare reports for the Club Viability Panel.

- Initial assumptions indicate that the panel would convene on a quarterly basis s part of its determined charter. - The panel would require timely and independent whole of industry (macro) and individual ‘at risk’ club (micro) financial performance data. - More information on the scope of requirements would be needed before an accurate estimate of resource requirements could be made.

It is possible that data review and analysis could be undertaken twice yearly rather than quarterly and in this way operating costs could be reduced. IPART Recommendation 44: That the Panel should be responsible for implementing Recommendation 14 for a standard format for management financial reporting and Recommendation 17 for industry benchmarking. ClubsNSW Response ClubsNSW agrees with this recommendation. IPART Recommendation 45: That any individual club that is identified by the Panel as exhibiting signs of distress should be, in the first instance, eligible for a more detailed review of its financial position. ClubsNSW Response ClubsNSW agrees with this recommendation. IPART Recommendation 46: That clubs found to be financially distressed by the detailed review should be eligible to apply for funding (administered by the Panel) to develop and implement remedial strategies to address the financial distress. ClubsNSW Response ClubsNSW agrees with this recommendation; however the source of the funding needs to be reconsidered (see response to recommendation 47 below). Given the rapid deterioration in the financial circumstances of many clubs since the IPART Review was commissioned, ClubsNSW argues that the state-wide audit of clubs should be given urgent priority by the Club Viability Panel. IPART Recommendation 47: That clubs should be eligible for a general maximum of $50,000 under the Panel’s funding scheme. ClubsNSW Response ClubsNSW agrees that clubs identified as financially distressed after the detailed review be entitled to funding to develop and implement a remedial strategy through a provider or consultant appointed by the panel. However, without significant and ongoing government funding the program will have a short life. ClubsNSW believes this next phase of work (post the detailed assessment) should among other things assess the extent of the risk to club assets in light of the market environment (for example, business fundamentals) and map out a road to recovery. If the situation is retrievable, a business improvement plan should be developed to rectify the club’s financial position.

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The business improvement plan should mandate initiatives to address identified problems. These could include (without being limited to) the following:

• Director, management and staff training and education;

• Capital works that reduce recurrent operating costs (for example, replacing a bowling green turf with a synthetic surface) or improve patronage;

• Implementation of new management practices or systems (for example, an occupational health and safety plan to reduce workers’ compensation costs or risk management plan to shrink other insurance expenses).

However in more serious circumstances, where solvency itself is threatened, the club should be forced to enter into discussions aimed at amalgamation with another club/s. As said elsewhere in this submission, ClubsNSW believes the CVP should conduct a state-wide analysis to identify areas in which market conditions (including the total number of clubs and the mix of facilities provided) jeopardise the survival of clubs. A strategy should be developed for an orderly consolidation of club facilities in those areas. ClubsNSW recognises the problematic nature of this proposal. As a general rule, we hold the view that the level of reporting and compliance should be reduced. However, the pressing need to identify potential club failures and take remedial action is of greater importance. In addition, difficulties associated with taking control away from club boards in the most extreme circumstances need to be addressed. Consideration needs to be given to the role of government in this process as well as the expenses associated with professional indemnity, should a business recovery process be undertaken. Suitable protection for other clubs that may become involved in a necessary amalgamation would also be required. There is also a need to involve the key stakeholders at a state-wide, regional and local level. Any analysis of clubs and associated community infrastructure must take into consideration the views of clubs and their members, local and state government, sporting bodies and local businesses. IPART Recommendation 48: That the Panel and its funding scheme should be funded initially by residual funds in the ClubBIZ Trust Fund, and if required by further monies from unclaimed Keno prizes. ClubsNSW Response ClubsNSW view is that IPART should recommend that given the significant social contribution made by NSW clubs, the NSW Government should allocate funds to the CVP on a recurrent basis. Currently residual funds in the ClubBIZ Trust Fund amount to less than $2 million and the pool of unclaimed Keno prizes has been depleted through support of this project and other Government initiatives. While it is the case that funds accumulate in the Keno Prize Fund at an average rate of $800,000 per annum, there are other demands on these funds from time to time and clearly the fund cannot be relied upon as a dependable source of funding. IPART Recommendation 49: That the Panel should be reviewed after three years to assess its effectiveness. ClubsNSW Response ClubsNSW agrees with this recommendation.

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Chapter 13 A Framework for a Management Plan

IPART Recommendation 50: That the Club Industry Working Group should develop a draft industry management plan by the end of 2008. The Club Industry Working Group should consult widely with stakeholders in developing the plan. ClubsNSW Response ClubsNSW agrees with this recommendation and encourages IPART to set a tight timeline to drive action. The purpose of the Management Plan should be to create sustainable clubs and enhance the contribution they make to the State of NSW, both economically and socially. It should provide the blueprint for future industry development. As stated in our first submission, ClubsNSW agrees that the Club Industry Working Group is the forum for developing the management plan. We note, however, the current group would need to be supplemented to accommodate stakeholders including local government and community organisations.

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Additional Matters for Comment

IPART also seeks comments on the following matters: 1. The suitability of EBITDARD as a percentage proportion of revenue below a threshold level as an initial indicator of financial distress. ClubsNSW Response ClubsNSW wishes to reemphasise that the financial viability and performance of clubs is strongly affected by their not-for-profit, mutual nature. Generally speaking, clubs seek to generate sufficient funds to cover all costs and provide a surplus to reinvest in club facilities and services. In this way clubs fulfil their main purpose, provide community support more generally and maintain the venue at a suitable standard in an extremely competitive market. While there is a need to optimise their financial performance by focusing on business fundamentals, this is not done with the aim of generating profit. Better financial performance assists long-term viability which in turn, allows clubs to sustain or improve benefits to members and the community in the long term. Having said that, an assessment of ‘bottom line’ trading performance via EBITDARD is important as it provides a useful measure of the cash flow the business generates and is a valid indicator of profitability and efficiency for clubs, irrespective of size, purpose or location. The retention and efficient use of revenues is one of the keys to a successful operation. To respond to this matter, ClubsNSW requested ClubData Online (CDOL) a provider of independent online performance reporting and benchmarking services to the Australian licenced club industry, to provide an assessment. CDOL currently services over 400 Licenced Clubs representing over 35,000 gaming machines within a multi-billion dollar and diverse operating environment across Queensland, New South Wales, Australian Capital Territory and the Northern Territory. EBITDARD Ranges CDOL’s benchmarking of EBITDARD% (earnings before interest, income tax, depreciation, amortisation, rent and donations as a percentage of total licenced revenue) aims at providing Clubs with a gauge by which they can compare the efficiency of their core licenced activities against other Clubs in NSW, or other Clubs with a similar location, membership size or gaming machine size.

For benchmarking purposes, it is important to create as much as a level playing field as is reasonable, and the removal of rent, donations and all non core activities provides such a playing field. CDOL recognises that this benchmark does not tell the whole story of the financial viability of a Club, however it does create a meaningful platform to measure operational efficiency.

The EBITDARD% benchmark is derived from the common cross industry measurement of EBITDA%. CDOL recognises that EBITDA% may consider all of a Club’s operations as opposed to just the core licenced activities. Further, CDOL understands the value of including all operational activities in the EBITDA% for financing and viability decisions.

Based upon a data sample collected by CDOL, average rent and donations accounts for approximately 2.5 per cent of total revenue from core licenced activities.

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Therefore a general differential of 2.5 per cent can be applied to comparing EBITDARD and EBITDA as a percentage of core licenced activities. It should be noted that individual Club circumstances may result in a differential greater/less than the 2.5 per cent collected from the data sample.

Given the basis of comparative analysis as a level playing field, and the wider industry acceptance of the EBITDARD% benchmark, CDOL considers EBITDARD as a percentage of total licenced activities as being the most appropriate benchmark for NSW Clubs.

In regards to determining an appropriate EBITDARD%, CDOL can only report on the current performance of NSW Clubs. CDOL is not in a position to propose a particular value to this benchmark, and recognises that benchmarks do change over time and with individual business models.

However, as a guide, CDOL reports EBITDARD% in three broad performance tiers. Of all the Clubs contributing to the benchmarking data the:

1. Top 25 per cent clubs have higher than average EBITADARD%

2. Mid 50 per cent clubs have average EBITDARD% 3. Low 25 per cent Clubs have lower than average EBITDARD%

As a guide to current EBITDARD% ranges, the table below provides EBITDARD% for the three performance tiers for the seven month period July 2007 to January 2008. FIGURE 7: EBITDARD RANGES

Low 25% Mid 50% Top 25% EBITDARD % 7 Month Average

1.07%

14.62%

25.14%

Source: ClubData Online

As a further guide, drawing from Clubs that contribute to CDOL, the table below describes the break up of EBITDARD% ranges and the percentage of clubs that fall into each range. FIGURE 8: PERCENTAGE OF CLUBS WITHIN PRESCRIBED EBTDARD% RANGES

EBITDARD% 3 months Sept - Dec 07

25% + 6%

15% - 25% 33%

10% - 15% 26%

5% - 10% 14%

0% - 5% 21%

Average 13.98%

Source: ClubData Online

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2. What is an appropriate threshold value of EBITDARD% as an initial indicator of financial distress (or, if an alternative measure is preferred, what would be the appropriate threshold value for the alternative measure)?

ClubsNSW Comment As a rule of thumb, the appropriate threshold is 15 per cent. However the individual circumstances of clubs need to be taken into consideration. There are instances in which it will be necessary to look at other financial indicators before arriving at a conclusion about the club’s viability. This can occur, for example, in club that has a very large food service component to its operation. There are examples of such clubs that remain viable with an EBITDARD as low as 6 per cent. EBITDARD is not an absolute measure of club performance, nor does it provide a strict point of comparison between clubs. However it can act as a useful filter for identifying clubs whose financial position is deteriorating over time and are in danger of failing financially. In the current trading environment, most clubs have suffered a significant downturn in revenue and this will be evident in their EBITDARD. It is important to take this into account when looking at a benchmark level of EBITDARD. ClubsNSW also believes it is important to analyse club EBITDARD over time so that clubs that have successfully operated over time at relatively low levels of EBITDARD are not identified necessarily as suffering financial distress. 3. Should ongoing professional development training be linked to the performance

assessment process? ClubsNSW Response ClubsNSW believes that club boards should periodically assess their performance including the degree to which professional development and training goals and requirements are met. However, ClubsNSW does not support mandatory performance assessments nor the reporting of outcomes to members. 4. Alternatively, should a director be required to take part in 5 units of ongoing

professional development training irrespective of the performance assessment process?

ClubsNSW Response ClubsNSW responded earlier that the AQF accreditation model is a poor fit for club directors but that development of an accreditation framework around director training is worth pursuing.