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Independent Pricing and Regulatory Tribunal

Review of the Registered Clubs Industry in NSW

Other Industries — Draft ReportFebruary 2008

Review of the NSW registered clubs industry

Other Industries — Draft Report February 2008

ii IPART Review of the NSW registered clubs industry

© Independent Pricing and Regulatory Tribunal of New South Wales 2008

This work is copyright. The Copyright Act 1968 permits fair dealing for study, research, news reporting, criticism and review. Selected passages, tables or diagrams may be reproduced for such purposes provided acknowledgement of the source is included.

ISBN 978-1-921328-29-9

S9-28

The Tribunal members for this review are:

Dr Michael Keating, AC, Chairman

Mr James Cox, Full Time Member

Ms Sibylle Krieger, Part Time Member

Inquiries regarding this document should be directed to a staff member:

Jennifer Vincent (02) 9290 8418

Brett Everett (02) 9290 8423

Independent Pricing and Regulatory Tribunal of New South Wales PO Box Q290, QVB Post Office NSW 1230 Level 8, 1 Market Street, Sydney NSW 2000

T (02) 9290 8400 F (02) 9290 2061

www.ipart.nsw.gov.au

Invitation for submissions

Review of the NSW registered clubs industry IPART iii

Invitation for submissions

IPART invites written comment on this document and encourages all interested parties to provide submissions addressing the matters discussed.

Submissions are due by 4 April 2008.

We would prefer to receive them by email <[email protected]>.

You can also send comments by fax to (02) 9290 2061, or by mail to:

Review of the NSW Registered Clubs Industry Independent Pricing and Regulatory Tribunal PO Box Q290 QVB Post Office NSW 1230

Our normal practice is to make submissions publicly available on our website <www.ipart.nsw.gov.au>. If you wish to view copies of submissions but do not have access to the website, you can make alternative arrangements by telephoning one of the staff members listed on the previous page.

We may choose not to publish a submission — for example, if it contains confidential or commercially sensitive information. If your submission contains information that you do not wish to be publicly disclosed, please indicate this clearly at the time of making the submission. IPART will then make every effort to protect that information, but it could be subject to appeal under freedom of information legislation.

If you would like further information on making a submission, IPART’s submission policy is available on our website.

Contents

Review of the NSW registered clubs industry IPART v

Contents

Invitation for submissions iii

Executive Summary 1

1 Introduction 17 1.1 Key elements of the terms of reference 17 1.2 IPART’s approach to this review 19 1.3 Other reviews 20 1.4 The structure of this report 22

2 The registered clubs industry in NSW 23 2.1 Historical development of the registered clubs industry 23 2.2 The registered clubs industry and its peak bodies 25 2.3 Regulatory framework governing the industry 29 2.4 What are the main features of a registered club? 31 2.5 Clubs offer a wide range of services to members and the wider community 34 2.6 Some clubs are not registered – why not? 36

3 Social contribution of the registered clubs industry 37 3.1 Key findings on social contribution 38 3.2 Potential responses to enhance clubs’ social contribution 63

4 Measuring and reporting on club contributions 69 4.1 Measurement options discussed in the issues paper 69 4.2 Measurement issues 71 4.3 Stakeholder comment 71 4.4 IPART’s preferred approach 72 4.5 Another option: the ClubsNSW/ACG approach 78 4.6 Improving reporting of the value of clubs’ contributions 82

5 The Community Development and Support Expenditure Scheme 84 5.1 Improved promotion of the CDSE Scheme 84 5.2 Including smaller clubs in the committee process 85 5.3 More support for local committees 85 5.4 Measurement of in-kind CDSE 86 5.5 Improved reporting of club contributions 88

6 Financial viability of the registered clubs industry 91 6.1 Key findings on clubs’ financial viability 92

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vi IPART Review of the NSW registered clubs industry

6.2 Potential responses to enhance clubs’ financial viability 106

7 Financial reporting and performance benchmarking 112 7.1 Current financial reporting and performance benchmarking requirements for

registered clubs 113 7.2 The importance of consistent financial reporting and performance

benchmarking 114 7.3 IPART’s observations and considerations 115 7.4 Standard financial reporting 116 7.5 Performance benchmarking 118 7.6 An initial indicator of financial viability 123 7.7 Consequences for non-compliance 125 7.8 Categorisation of club size 126

8 Diversification in the registered clubs industry 127 8.1 How diversification can help viability – the theory 128 8.2 What have clubs diversified into? 129 8.3 IPART’s finding – diversification will not reduce the reliance on gaming

machine revenue 131 8.4 Diversification may still be a worthwhile strategy for some clubs 132 8.5 Diversification should take advantage of club strengths 133 8.6 The risks associated with diversification 133 8.7 Advice and education about when and how to diversify effectively 135

9 Amalgamations 137 9.1 Why do clubs amalgamate? 138 9.2 Current amalgamation process 139 9.3 Stakeholder comments 140 9.4 IPART’s findings 141

10 Establishment 157 10.1 Starting up a registered club in new and developing areas 157 10.2 Factors affecting club establishment 159 10.3 Stakeholder comments 161 10.4 IPART’s findings 162

11 Corporate Governance and Training 168 11.1 Corporate governance and training 169 11.2 Existing corporate governance framework 171 11.3 Stakeholder comments and case study findings 175 11.4 IPART’s findings on corporate governance and training 187 11.5 Improving director skill sets through ongoing professional development

training 193 11.6 Overcoming barriers to electing directors through encouraging

constitutional changes and board-appointed directors 199 11.7 Improving director skill sets through performance assessments 202

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Review of the NSW registered clubs industry IPART vii

11.8 Addressing problems with attracting directors through succession planning 202 11.9 Other ClubsNSW initiatives to improve corporate governance 203

12 Club Viability Panel 208 12.1 Purpose of the Club Viability Panel 208 12.2 The role of the Club Viability Panel should be advisory not supervisory 209 12.3 Distinction from existing club support schemes 210 12.4 Membership of the Club Viability Panel 210 12.5 Principal activities of the Club Viability Panel 212

13 A framework for a management plan 217 13.1 What is the management plan intended to do? 217 13.2 Who will use it? 217 13.3 Proposed content for the management plan 217 13.4 Developing the management plan 222 13.5 Monitoring the management plan 222

Appendices 223 A Terms of reference 225 B Terms of reference checklist 228 C List of submitters, roundtable participants, case study clubs 232 D Methodology for recording and valuing clubs’ social contribution 236 E ClubsNSW – steps to establishing a registered club 245

Glossary and Abbreviations 249

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viii IPART Review of the NSW registered clubs industry

Executive Summary

Review of the NSW registered clubs industry IPART 1

Executive Summary

Registered clubs1 provide lifestyle and community-focused goods and services to their members and the community at large. These are provided through a democratic, not-for-profit business model where gaming machine revenue typically cross-subsidises other club activities.

Social, demographic and commercial changes over the last ten years have affected the registered clubs industry in many ways. The varying ability of individual clubs to deal with these changes while remaining financially viable has provided the impetus for this review.

The terms of reference for the review are very supportive of the clubs industry. The opening statements outline the NSW Government’s intention to facilitate a sustainable industry and also acknowledge the valuable social and economic contribution made by registered clubs to the state’s social infrastructure and services.

IPART notes that clubs do attract some favourable treatment from the NSW Government (for example, lower rates of taxation on gaming machine profits2 compared to hotels and higher numbers of gaming machines permitted per venue). The case for government support of the clubs industry rests principally upon the social benefits they provide and the assumption that these outweigh any costs they impose on their local communities.

IPART therefore considered it necessary to consider both the benefits and the costs associated with the registered clubs industry in NSW. IPART considers government’s role in supporting the industry should be commensurate with its assessment of the extent to which society benefits from the existence of the industry.

1 A registered club is a club which has successfully applied for registration under the Registered Clubs

Act 1976. 2 The Gaming Machine Tax Act 2001 defines ‘gaming machine profits’ as the excess of revenue from

machines over outgoings from machines. It should be noted that ClubsNSW, individual clubs and standard accounting practice is to use the term ‘gaming machine revenue’ when referring to the excess of revenue from machines over outgoings from machines. For consistency, the term ‘gaming machine revenue’ is applied throughout this report, although it should be noted that IPART’s issues paper generally used ‘gaming machine profits’.

Executive Summary

2 IPART Review of the NSW registered clubs industry

IPART examined the types of social contribution that clubs make, and clubs’ contribution to employment and economic opportunities. However, it must be recognised that other businesses also provide similar services: the hospitality industry provides bar and food services, private golf clubs provide golf courses, councils provide swimming pools, sporting grounds and meeting facilities and of course other industries contribute to employment and economic opportunities. Therefore, as a means of assessing the difference that clubs make to social well-being in NSW, IPART compared the provision of sporting facilities and other community services in NSW with other states where clubs have historically been much less significant. IPART found that clubs in NSW have a small positive impact on participation rates in sports, make significant contributions to charity compared to their interstate counterparts and are utilised by many more social members than clubs in other states.

Clubs also provide considerable intangible social benefits that are impossible to quantify but should not be ignored. These include the sense of belonging that some club members feel and the greater social cohesion a community might experience as a result of having a club where people can meet and mix.

The clubs industry also imposes some costs on the community, chiefly from problem gambling. IPART reviewed studies that compared interstate gambling and problem gambling rates to help it assess what, if any, impact clubs have on gambling and problem gambling rates. Rates of problem gambling and per capita expenditure on gambling are slightly higher in NSW but comparable with other states where clubs do not operate gaming machines. IPART found that clubs do not significantly affect the total amount of gambling, but may influence the form of gambling and where it occurs.

On balance, IPART concluded that the industry’s net social contribution is positive. On this basis, it considers that it is appropriate that the NSW Government provide support to the industry, through the kinds of initiatives recommended by this review, to help ensure that it remains financially viable so that clubs can continue to contribute to positive social outcomes in the state.

Of course, the fortunes of individual clubs are likely to wax and wane over time. IPART does not consider it appropriate or realistic to expect that all existing clubs will survive and flourish over the coming 10 to 15 years. However, it has identified a range of steps that can be taken to enhance the clubs industry’s financial viability.

Clubs’ social contributions

The terms of reference asked IPART to measure the value of clubs’ contribution to social infrastructure (not to undertake a cost-benefit analysis of clubs’ social contribution). IPART considered various methodologies and decided that a calculation based on the sum of clubs’ direct cash and in-kind contributions was the most appropriate method. IPART undertook a calculation based on data from a survey conducted by The Allen Consulting Group (ACG) on behalf of ClubsNSW

Executive Summary


and estimated the value of clubs’ contribution to social infrastructure in 2007 was $893 million. This figure does not include the indirect or intangible contributions made by clubs which are difficult to quantify consistently and reliably. Nor does it take into account the costs associated with the additional problem gambling that may result from clubs.

One conduit for clubs’ social contributions is the Community Development and Support Expenditure (CDSE) Scheme. The Scheme provides a gaming machine tax rebate of up to 1.5 per cent to clubs that make eligible community contributions in accordance with the Scheme’s guidelines. In the year to August 2006 (the most recent figures available), clubs received a total rebate of $39.8 million and were recognised for making eligible contributions worth $69.7 million.

IPART reviewed the existing and proposed statutory requirements related to the CDSE Scheme and found them to be reasonable and effective. However, there is a lack of awareness in the community about registered clubs’ social contributions via the Scheme and the clarity of some parts of the Scheme guidelines could be improved.

Financial viability

IPART investigated what clubs earn and spend, and has confirmed the common perception that most clubs are highly dependent on gaming revenue. As a result they are very vulnerable to any change related to the regulation of gaming machines. This is a key finding of the review, and led to IPART’s recommendation 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.

Despite this, IPART notes that 13 per cent of clubs have no gaming machines. IPART found that these clubs operate on a quite different business model and where they are financially viable, remain so largely as a result of volunteer labour and a high level of member involvement. IPART considers that these clubs make an important social contribution by their very existence, and are often the custodians of significant community assets.

IPART found that the financial viability of individual registered clubs across NSW varies greatly. Some are financially strong while others are struggling, for a variety of reasons including a lack of understanding of their own financial position, demographic changes, the level of competition from other venues in their communities, and the financial management skills of their boards and managers.

In examining the potential for strengthening the performance of the industry, IPART recommends a coordinated response requiring action from individual clubs, government agencies such as the NSW Office of Liquor, Gaming and Racing (OLGR) and industry peak bodies such as ClubsNSW. IPART is proposing the establishment

Executive Summary


of a new body, the Club Viability Panel, to oversee, coordinate and advise on many of the financial viability recommendations.

IPART’s recommendations involve a strategy of providing clubs with the tools to identify when their financial performance is declining and offering assistance to clubs and their management to adapt and change. However, even with this assistance, IPART does recognise that there are some clubs for which no amount of improved financial management will ensure their individual survival and that these clubs may need assistance in exploring options such as amalgamation.

IPART has proposed initiatives across six areas:

improving clubs’ financial reporting and benchmarking their performance

diversifying clubs’ sources of revenue

making it easier for new clubs to be established in response to changes in demographics and interests

making it easier for clubs that are unlikely to be able to improve their financial viability to amalgamate

improving clubs’ corporate governance as well as training and development of their boards and managers

establishing a Club Viability Panel to assist clubs to identify the early signs of financial distress and to advise on potential actions to address these.

Financial reporting and performance benchmarking

Detailed financial reporting, coupled with relevant analysis in a timely and ongoing manner, will assist clubs in identifying areas for improvement, declining financial performance and ultimately, financial viability. Once a club is able to understand and interpret its financial performance, the next step is to address any issues revealed by this analysis. Clubs may also require assistance with this step.

IPART therefore recommends the adoption of a mandatory standard form of financial reporting and performance benchmarking for clubs with gaming machine revenue less than $5 million per annum (approximately 70 per cent of all clubs). This will assist clubs to:

monitor financial performance

benchmark individual performance against the wider industry.

While mandatory benchmarking would apply only to clubs with gaming revenue less than $5 million per annum, IPART recommends requiring that all clubs calculate and submit to the Club Viability Panel a single initial indicator that could be used as a trigger for an offer of further investigation into a club’s financial viability.

Executive Summary


Diversification

IPART found that diversification is unproven as a means of reducing (to any great extent) the reliance on gaming machine revenue and its contribution to clubs’ provision of facilities and services and ultimately their long term viability. The main reasons that gaming machine revenue cannot be substituted are:

While not without risk, relative to other club department operations and other business segments, gaming machine operations are a simple business with defined gross returns in percentage terms (after gaming tax and return to player).

Gaming machines can generate a much higher volume return per square metre of floor space with relatively low staffing requirements compared to other club departments or any other business segment a club might diversify into.

However, there still may be merit in adopting diversification strategies in the clubs industry. In specific circumstances, diversification can be an effective means of expanding a club’s revenue base, broadening market appeal and maintaining relevance through the provision of additional services to members and the local community. IPART recommends that industry stakeholders support the efforts of clubs considering financially sound diversification strategies and help clubs to avoid unsound, risky diversification. They should provide education about the risks associated with diversification and advice on how to make an informed judgement on the relative merits of any proposed diversification strategy.

Amalgamation

The consensus from stakeholders is that industry consolidation is inevitable. However, it is important that consolidation is underpinned by the aim of preserving community assets and maintaining services for the benefit of members and the local community. Past experience has shown that amalgamations can be an important step to ensuring that a club’s services and/or facilities remain available, especially in non-metropolitan areas.

IPART examined the current amalgamation process and found a number of barriers to effective amalgamation, including:

the complexity of the process and the involvement of various government bodies and professionals make it quite a daunting and costly project, especially for smaller clubs with fewer resources

cultural barriers to amalgamation, including club reluctance to consider amalgamation as an option until it may be too late to undertake one that effectively preserves the club’s assets and services.

IPART recommends development and dissemination of information about amalgamation to clubs, both to help clubs to navigate the complexity of the process and to overcome clubs’ reluctance to consider amalgamation.

Executive Summary


Establishment

In recent times only a handful of clubs have been registered. The reasons can be attributed to changes including:

structural changes like demographic movements and industry maturity

increased competition through greater leisure and entertainment choices

legislative developments, like regulatory requirements and alternatives to club registration.

While another boom in the number of new registered clubs, such as there was during the 1950s, is unlikely to occur, this does not mean that establishment of registered clubs is not expected at all.

IPART recommends that changes in three key areas will assist in making it easier for clubs to be set up in areas that need them:

greater guidance should be provided to groups wishing to establish a registered club

planning for new developments should include an allowance for land that is suitable for the establishment of a registered club

new clubs should continue to have access to ten free gaming machine entitlements to assist in keeping the costs of establishment to a minimum.

Corporate governance and training

Stakeholders were generally satisfied with the corporate governance provisions in the Registered Clubs Act, particularly in light of the recent amendments aimed at reducing the cost of complying with them. These provisions mainly focus on ensuring club boards and management are accountable to their members, through requiring them to disclose certain information to members.

The main area of concern related to club boards, with stakeholders indicating that corporate governance in clubs could be improved if boards operated more effectively. The key challenges to board effectiveness involved:

deficiencies in director skill sets

difficulties in attracting directors

difficulties in electing directors.

Executive Summary


IPART proposes recommendations to address these challenges:

Ongoing professional development training for directors.

Encouraging removal of constitutional restrictions on board and voting eligibility.

Boards being permitted to appoint a minority of directors, if their members do not vote to remove constitutional restrictions.

Boards being encouraged to undertake performance assessments of their directors and the board as a whole.

Boards being encouraged to have a formal succession planning policy in place.

ClubsNSW more extensively promoting examples of effective corporate governance and providing further guidance to clubs on best practice.

In addition, IPART considers that ClubsNSW could assist smaller clubs to meet their compliance obligations under the Registered Clubs Act by employing a pool of compliance officers for them to use as needed.

IPART also proposes recommendations to improve the existing club-specific training available to directors and managers.

Club Viability Panel

IPART recommends the establishment of a Club Viability Panel (the Panel), with up to seven members drawn from government, industry peak bodies, individual clubs and independent advisers, to advise the clubs industry about financial viability issues. Specifically, the Panel would:

assist in the process of moving most clubs to a standard format for financial management reporting

produce and communicate industry benchmarks to the clubs industry on an annual basis

based on examination of an initial financial viability indicator, EBITDARD as a percentage proportion of revenue, identify clubs that are showing warning signs of financial distress

advise the identified clubs exhibiting the warning sign and provide further investigation, advice and support (if requested) to assist the club to assess and if necessary improve its financial position

in situations where the long-term viability of the club is questionable and amalgamation is identified as an option, assist both clubs through the process of amalgamation.

Executive Summary


Framework for a management plan

The framework will assist stakeholders in the industry to develop a detailed industry management plan by mapping out principles, processes and issues to be considered.

The management plan will build on the existing cooperative relationship between the registered clubs industry and the Government by formalising an agreed set of principles and actions for the way forward for the clubs industry. The plan is intended to provide a blueprint for a sustainable clubs industry which continues to provide substantial and effectively targeted community support, without attempting to ensure the future of every individual club in its current form.

The plan will include a Clubs Charter, which will outline the broad obligations that apply to clubs in conducting their operations and to the Government in regulating clubs. The plan is also a means to draw together all of IPART’s recommendations for action from this review in a coordinated manner.

IPART recommends that the Club Industry Working Group be asked to prepare the management plan, in consultation with stakeholders. This body was established in 2006 to pursue a number of reform initiatives that had been under discussion between the clubs industry and the NSW Government and has representatives from both club organisations and government.

List of Recommendations

Chapter 3 Social contribution of the registered clubs industry

IPART has examined the social, employment and other economic opportunities afforded by the registered clubs industry and ways that these contributions can be enhanced. IPART recommends:

1 That ClubsNSW maintains and seeks to increase local club employee training, along with greater promotion of these opportunities, in regional and rural locations. 65

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. 65

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. 65

Executive Summary


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. 66

Chapter 4 Measuring and reporting on club contributions

IPART has considered various methodologies for measuring and reporting on the social contributions made by the industry. IPART recommends:

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. 83

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. 83

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. 83

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

IPART has examined options for improving the CDSE Scheme. IPART recommends:

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. 85

9 That ClubsNSW encourage smaller clubs below the CDSE threshold to participate in a CDSE local committee process. 85

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. 86

11 That: 88 – 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 88 – 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. 88

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Chapter 6 Financial viability of the registered clubs industry

IPART recommends:

12 That: 90 – club measurement, recording and reporting of contributions, beyond that

required and conducted through the CDSE Scheme, should remain non-mandatory 90

– the recording and reporting of individual club social contributions to members and ClubsNSW should be encouraged 90

– 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. 90

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. 94

Chapter 7 Financial reporting and benchmarking

IPART recommends the following to improve financial reporting and benchmarking in the registered clubs industry:

14 That: 117 – 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. 117

– 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. 117

– 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. 117

– 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. 117

– 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. 117

– 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

Executive Summary


resource constraints (such as accounting systems, process or staff) they may apply for funding via the Club Viability Panel to make the necessary changes. 117

15 That each club monitor the suite of business efficiency performance measures outlined in Tables 7.1-7.3. The measures would be used by the clubs to understand their financial position. 120

16 That each club monitor the following indicators of financial viability: 121 – EBITDARD % 121 – Working capital surplus/(deficiency) 121 – Operating cash flows/working capital deficiency 121 – Operating cash flows/borrowings 121 – Capital expenditure/operating cash flows 121 – Gaming revenue/total revenue. 121

17 That: 125 (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): 125

– 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. 125

– 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. 125

– Clubs with gaming machine revenue less than $1 million should only be required to submit ‘whole of business’ measures 125

(ii) With respect to the measures in (i): 125 – they be used to support the development of industry benchmarks by the Club

Viability Panel 125 – 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. 125

Chapter 8 Diversification in the registered clubs industry

IPART recommends the following to assist registered clubs to diversify effectively:

18 That 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: 136

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– 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. 136

– 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. 136

– 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. 136

Chapter 9 Amalgamations

IPART recommends the following to assist registered clubs with the complexity of the amalgamation process and to overcome clubs' reluctance to consider amalgamation:

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): 146 – information on ways to approach an amalgamation 146 – details on the legal requirements, how they should be carried out and in what

order, and 146 – a list of the major issues to consider when amalgamating, including financial, due

diligence, operational and strategic planning matters. 146

20 That 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. 147

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. 149

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. 149

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. 152

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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). 156

Chapter 10 Establishment

IPART recommends the following to make it easier for clubs to be set up in the areas that need them:

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 the Registered Clubs Act 1976 and the Corporations Act 2001. 163

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: 163 – Who should become a registered club? 163 – Preparation for the process to apply for club registration. 163 – Time and cost involved in becoming a registered club. 163 – Resources and contacts for assistance and information. 163

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: 165 – 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. 165

– 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. 165

– 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. 165

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. 167

Chapter 11 Corporate governance and training

IPART recommends the following to improve corporate governance as well as director and management skills:

29 That improvements be made to the existing club-specific training available to club directors and managers by ClubsNSW: 193

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– offering AQF accredited training for directors 193 – offering more flexible delivery options for director training; and 193 – with other providers of club-specific training, increasing their promotion of the

programs that they offer. 193

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. 199

31 That clubs should be encouraged to remove constitutional restrictions on board and voting eligibility by: 200 – 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. 200

– 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. 200

32 That a club’s board should be permitted to appoint up to three directors if: 201 – the club has board or voting restrictions in its constitution; and 201 – 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. 201

Safeguards would apply to this option, including imposing term limits and requiring member ratification at the next annual general meeting. 201

33 That boards of clubs with gaming machine revenue of greater than $1 million a years 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. 202

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. 203

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. 204

Executive Summary


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. 204

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. 205

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 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. 206

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. 207

Chapter 12 Club Viability Panel

The proposed Club Viability Panel will have a key ongoing role in strengthening the financial viability of the registered clubs industry. Specifically, IPART recommends:

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. 209

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. 210

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. 211

43 That ClubsNSW should provide secretariat support to the Panel. 212

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. 212

Executive Summary


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. 213

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. 214

47 That clubs should be eligible for a general maximum of $50,000 under the Panel’s funding scheme. 215

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. 215

49 That the Panel should be reviewed after three years to assess its effectiveness. 216

Chapter 13 A framework for a management plan

IPART recommends a framework for a management plan to support and guide a sustainable registered clubs industry for the next 10 to 15 years:

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. 222

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.

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)?

3 Should ongoing professional development training be linked to the performance assessment process?

4 Alternatively, should a director be required to take part in 5 units of ongoing professional development training irrespective of the performance assessment process?

1 Introduction


1 Introduction

Social, demographic and commercial changes over the last ten years have affected the registered clubs industry in many ways. Clubs’ varying ability to deal with these changes while remaining financially viable has provided the impetus for this review.

This chapter provides the background and context for IPART’s review of the registered clubs industry. It examines the key elements of the terms of reference for the review, describes the process IPART used for the review and notes the impact of two other reviews affecting registered clubs.

1.1 Key elements of the terms of reference

The main product of this review is a framework for a management plan that will support and guide a sustainable registered clubs industry for the next 10 to 15 years. As part of developing the framework, IPART was asked to make recommendations on many individual aspects of the industry, including social contribution and financial performance measures, corporate governance, training, amalgamations and club establishment.

IPART considers that each aspect on which it has been requested to make recommendations falls into one of two areas:

examining the role of clubs in the community and better defining and recording the value of the social contribution made by the industry

identifying threats to the financial viability of the clubs industry and developing measures to assist clubs in addressing these.

IPART also draws attention to three key elements of the terms of reference, outlined in the following sections:

the terms of reference are very supportive of the industry

the review’s focus is on the industry as a whole

the review is not revisiting government policy in certain areas.

IPART’s terms of reference for this review are provided in full in Appendix A.

1 Introduction


1.1.1 Terms of reference are very supportive of the registered clubs industry

IPART’s terms of reference are very supportive of the clubs industry. The opening statements outline the NSW Government’s intention to facilitate a sustainable industry and also acknowledge the valuable social and economic contribution registered clubs make to NSW’s social infrastructure and services.

Not all stakeholders have been as supportive of the contributions made by registered clubs in NSW. A number of submissions argued that the review needed to take into account the social harm caused by problem gambling.3

IPART also notes that clubs do attract some favourable treatment from the Government (for example, lower rates of taxation on gaming machine revenue compared with hotels and higher numbers of gaming machines permitted per venue). The case for government support of the clubs industry rests principally upon the social benefits clubs provide and the assumption that these outweigh any costs they impose on their local communities.

IPART therefore considered it necessary to examine both the benefits and the costs associated with the registered clubs industry in NSW in developing recommendations that will assist the industry to flourish. IPART considers the Government’s role in supporting the industry should be commensurate with its assessment of the extent to which the state benefits from the existence of the industry. This issue is explored in greater detail in Chapter 3.

1.1.2 Review’s focus is on the industry as a whole

The terms of reference for this review focus on the industry as a whole as opposed to individual clubs. Throughout the course of the review there has been a general acceptance by stakeholders that consolidation of the industry is inevitable. IPART also notes that all industries wax and wane to some extent in response to changes in demand, demographics and competition.

IPART therefore considers that the overall purpose of the review is not to ensure the survival of every club currently in operation but to make recommendations that will assist the industry as a whole to flourish. The issue of industry consolidation is discussed in further detail in Chapters 6 and 9.

3 The Responsible Gambling Fund Trustees submission, p 3; Wesley Community Legal Service

submission, p 1; Council of Social Service of NSW (NCOSS) submission, p 9; Gambling Impact Society (NSW) Inc (GIS) submission p 2.

1 Introduction


1.1.3 Review is not revisiting government policy on smoking bans, gaming machine tax rates or gambling harm minimisation

IPART has also made it clear that this review is not revisiting government policy on smoking bans in clubs, gaming machine tax rates or gambling harm minimisation. IPART considers these areas as part of the environment within which clubs and their competitors must operate.

1.2 IPART’s approach to this review

The terms of reference for this review ask IPART to recognise the diversity of constituents in the registered clubs industry. They also note that the ability of individual clubs to provide services that meet the needs of members and the community, while continuing to be financially viable, differs based on location, size and many other factors.

To take into account the diversity of the industry, IPART has engaged in an extensive review, including a high degree of stakeholder consultation (see Box 1.1)

As is its usual practice, IPART called for and received submissions, which it has reviewed and taken into account in making the recommendations in this report.

IPART and its Secretariat have also had many discussions with stakeholders, who have provided valuable information about the registered clubs industry and the issues it is facing. IPART is grateful for the assistance provided by all who took part in this review and contributed their ideas for encouraging a sustainable registered clubs industry.

In addition to its usual practice of releasing an issues paper for comment and conducting public roundtables, IPART undertook a series of case studies of 16 clubs of varying size, type and location. The case study clubs provided information and participated in interviews on a confidential basis to assist IPART to understand the issues faced by different clubs across the state. Where information from case study clubs has been used to illustrate issues in this draft report, the clubs’ permission has been obtained to publish that information. The case study clubs’ contribution was invaluable to this review. IPART would like to thank all of them for their important involvement.

1 Introduction


Box 1.1 IPART’s review process

IPART undertook this review in accordance with section 9(1)b of the Independent Pricing and Regulatory Tribunal Act 1992 and its terms of reference.

As part of this process, IPART:

Published an issues paper on 29 May 2007.

Advertised the review on 29 May 2007 and invited interested parties to provide submissions detailing their responses to the issues raised in the issues paper and any other mattersrelevant to the review. Forty-two responses were received, of which seven were confidential in their entirety. The non-confidential submissions were published on IPART’s website. A list of respondents is provided in Appendix C.

Held roundtable discussions with invited stakeholders in Sydney, Wagga Wagga, Armidaleand Dubbo in August, September and October 2007 to discuss the key issues of the review. Transcripts of the roundtables were published on IPART’s website. A list of participants is provided in Appendix C.

Undertook sixteen case studies of clubs of different type, size and location (see Appendix Cfor a full list of clubs). As part of this process, IPART:

– Collected information on clubs’ existing financial and management reports andinformation (for example, annual reports, club constitution, strategic plan, board reportsand board meeting minutes).

– Collected information on clubs’ demographics, management and corporate governance,social contributions and general operations.

– Interviewed management and/or boards of these clubs face-to-face.

Held face-to-face and telephone interviews with many stakeholders.

IPART then considered all comments and contributions made by stakeholders, and each matterin the terms of reference. Appendix B lists where within this report each matter is discussed.

1.3 Other reviews

IPART has been cognisant of two other reviews by OLGR that have been happening concurrently:

Five-year statutory review of the Gaming Machines Act 2001

Review of the CDSE Scheme Guidelines.

IPART advised stakeholders over the course of its review that where matters are properly dealt with through these other processes, it will try to avoid trespassing on others’ responsibilities. The following sections outline IPART’s approach to areas that could overlap with these reviews.

1 Introduction


1.3.1 Five-year statutory review of the Gaming Machines Act 2001

OLGR provided a report to the Minister for Gaming and Racing recommending various changes to the Gaming Machines Act 2001. This report was tabled in NSW Parliament on 7 December 2007. IPART’s review has generally not examined issues concerning the operation and movement of gaming machine entitlements. However, there are two areas where gaming machine entitlement issues have been raised that are relevant to the terms of reference of IPART’s review:

provisions relating to the transfer of gaming machine entitlements between premises (eg, when a club amalgamates)

provisions relating to the number of entitlements available to new clubs.

Stakeholders raised both of these issues as barriers to club amalgamation and establishment.

The report on the review of the Gaming Machines Act 2001 recommends changes to both of these provisions. These changes and their implications for club amalgamation and establishment are discussed in greater detail in Chapters 9 and 10.

1.3.2 Review of the CDSE Scheme Guidelines

In October 2007, after an extensive review and consultation process, the Minister for Gaming and Racing announced new CDSE Scheme Guidelines. The main changes made were:

A limit has been introduced on in-kind expenditure. The in-kind amounts are limited to no more than 20 per cent of the maximum rebatable amount for Category 1 and 2 combined. Clubs are able to apply for exemptions to this requirement.

OLGR now publishes an annual estimate of Category 1 CDSE funds available for each local government area in NSW where a local committee is established.

It is now mandatory for clubs participating in the CDSE Scheme to enter into formal arrangements with recipients of CDSE funding when the amount exceeds $10,0004.

Given the level of industry consultation that has occurred in developing these changes, IPART has focused its analysis on other areas of the CDSE Scheme. These considerations and IPART’s recommendations are discussed in greater detail in Chapters 3 and 5.

4 OLGR, The CDSE Scheme Guidelines, available from:

www.olgr.nsw.gov.au/reg_clubs_sect_cdse_gdlns.asp

1 Introduction


1.4 The structure of this report

This report presents and explains IPART’s draft findings and recommendations:

Chapter 2 presents some background information on the registered clubs industry

Chapter 3 discusses IPART’s key findings on clubs’ social contributions and summarises IPART’s proposals to enhance clubs’ contributions

Chapter 4 presents IPART’s methodology for estimating the size of clubs’ social contributions, and a value for that contribution

Chapter 5 describes IPART’s proposals for enhancing the CDSE Scheme

Chapter 6 discusses IPART’s key findings on the financial viability of the clubs industry and summarises its proposals to enhance clubs’ financial viability

Chapter 7 presents IPART’s proposals for improving financial reporting and performance benchmarking in the clubs industry

Chapter 8 presents IPART’s draft findings and recommendations regarding diversification in the clubs industry

Chapter 9 presents IPART’s draft findings and recommendations regarding club amalgamations

Chapter 10 presents IPART’s draft findings and recommendations regarding club establishment

Chapter 11 presents IPART’s draft findings and recommendations regarding corporate governance and training

Chapter 12 presents IPART’s proposal to establish a Club Viability Panel to assist clubs to enhance their financial viability

Chapter 13 presents IPART’s draft recommendations for a framework for a management plan for the clubs industry.

IPART invites submissions on its draft recommendations by Friday 4 April 2008. Information about how to make a submission can be found at the front of this report. IPART will consider these submissions before making its final recommendations to the Minister for Gaming and Racing.

2 The registered clubs industry in NSW



The interests covered by registered clubs are broad, and the size of individual clubs ranges from those with a handful of members to others with widely diversified operations and tens of thousands of members.

IPART has found that, despite these differences, all registered clubs provide lifestyle and community-focused goods and services to their members and the community at large. These are provided through a democratic, not-for-profit business model where gaming machine revenue typically cross-subsidises other club activities. There is, however, an important role for smaller clubs that may get little or no revenue from gaming machines. These clubs typically contribute to the community through their very existence, by providing important facilities for their members to pursue their common social purpose.

This chapter provides a profile of the registered clubs industry in NSW. The subsequent sections discuss:

the historical development of the registered clubs industry

the registered clubs industry and its peak bodies

the regulatory framework governing the industry

some key features of registered clubs (size, location and type)

the wide range of services offered by the industry

why some clubs in NSW are not registered clubs.

2.1 Historical development of the registered clubs industry

The origins of registered clubs can be traced back to 1905, when the NSW Liquor Act 1905 licensed clubs for trading. The number of registered clubs was capped at 85 and as a result these groups mainly consisted of small, exclusive sporting and business clubs.

Most of the growth in the industry occurred from 1946-1956, with legislative changes reflecting an increase in demand for clubs (see Figure 2.1). In 1946, the Liquor Act was amended to allow the creation of registered clubs above the existing cap of 85. By 1950, mainly in response to the needs of returned servicemen, the number of registered clubs increased to 350. Following the results of the Royal Commission into Liquor Law in NSW, 1951-54, the Licensing Court was given the power to grant licences to above the existing cap of 350 clubs, provided that applicants could



convince the Court of the need for the club and that appropriate amenities were available. By 1956, the number of registered clubs had increased to 932.

Figure 2.1 New and de-registered clubs 1900–2006

-200-100

0100200300400500600700800900

1900-1909

1910-1919

1920-1929

1930-1939

1940-1949

1950-1959

1960-1969

1970-1979

1980-1989

1990-1999

2000-2006

New clubs

De-registsered clubs

Data source: OLGR data and IPART’s analysis.

Before 1956, the operation of gaming machines had occurred in some premises but it was not until May of 1956 that their operation was legalised following considerable community debate. It has been argued that clubs’ not-for-profit status, membership requirements and social aims led to them being granted this privilege.5

Over the next 40 years, the industry experienced constant growth, with the number of club premises increasing consistently at approximately 2 per cent a year. During this time, various changes to regulation concerning liquor and gaming affected the industry. Stakeholders have identified the introduction of random breath testing and the introduction of gaming machines into hotels6 as two important changes during this time.

Since 2000, the clubs industry has also been affected by other regulatory changes. These include:

The introduction of new gambling harm minimisation measures, such as restrictions on gaming machine operating hours, caps on the number of gaming machines, and stricter requirements on applications for new entitlements as well as on moving existing entitlements.

5 Hing, N., 2000, Changing Fortunes: Past, Present and Future Perspectives on the Management of Problem

Gambling by New South Wales Registered Clubs. 6 Between 1984 and 1997, hotels in NSW were permitted to operate up to 10 “approved amusement

devices” that differed from gaming machines operated by clubs in their functionality and appeal. In 1997, hotels were granted access to up to 30 of the same type of gaming machines operated by clubs.



The introduction of smoking restrictions in enclosed public areas of hotels, registered clubs, nightclubs and the Star City Casino. All enclosed areas of club venues became totally smoke-free from 2 July 2007.

The phased introduction of increased rates of tax on gaming machine revenue over the last three years. A Memorandum of Understanding is currently in place between the Government and the industry that outlines the rates of tax on gaming machine revenue until 2011/12.

Social, demographic and commercial changes have affected the registered clubs industry in many ways:

While the number of club members continues to grow (at approximately 5 per cent a year between 1999 and 2003)7, growth in the number of clubs has stalled.

Since 1998, 92 clubs have amalgamated while only 24 new club premises have been established. ClubsNSW reports that 250 clubs have amalgamated or closed over the last 12 years. In 2006, there were 1,398 registered clubs operating across 1,545 premises in NSW8.

The growth in profitability of clubs appears to have not quite kept pace with growth in other sectors of the economy. In 2003, ACG estimated that approximately half of all clubs were either marginally profitable or not profitable at all9.

2.2 The registered clubs industry and its peak bodies

The registered clubs industry in NSW includes a variety of clubs that offer different services to cater to different interest groups. The most common club categories, by interest group, are:

Returned & Services League (RSL) and services clubs

bowling

golf

leagues and football

other sports and recreation

community and workers

religious and cultural

other.

7 The Allen Consulting Group, Socio-Economic Impact Study of Clubs in NSW, 2004. 8 With regard to registered clubs, a distinction needs to be made between the registered club on the

certificate of registration and the club premises. A registered club in NSW can operate from more than one club premise. This can be the result of amalgamating with other clubs, or simply through growth and expansion of the club’s facilities over time.

9 The Allen Consulting Group, Socio-Economic Impact Study of Clubs in NSW, 2004.



As outlined in Table 2.1, around half of the club premises in NSW are either bowling or RSL/services facilities (50 per cent). The next largest group of club premises is golf and other sport/recreation facilities (29 per cent). Club premises in the ’Others’ category include those catering to less common interests, such as automobile, musician, aero and country clubs (Table 2.1). RSL/services clubs have the most members (33 per cent of all club members), followed by leagues/football clubs (22 per cent), and bowling clubs (11 per cent).

Table 2.1 NSW registered clubs by type and region (2006)

Numbers of club premises Premise type

Metropolitan Regional Total

Bowling 277 193 470

RSL/services 176 124 300

Golf 114 127 241

Sports/recreation 142 62 204

Leagues 60 23 83

Community/workers 41 12 53

Religious/cultural 62 3 65

Others 68 61 129

Total (numbers) 940 605 1,545

Total (%) 61 39 100

Population sharers (%) 78 22 100

Source: ABS publications 3218.0 Regional Population Growth 2005. Information provided by the OLGR and IPART’s analysis.

2.2.1 Geographic dispersion

Registered clubs operate in all areas of NSW. However, most registered club premises (around 61 per cent) are located in metropolitan NSW (Table 2.1). About 78 per cent of the NSW population lives in the metropolitan area. The difference between these proportions may indicate that clubs play a more important role in regional NSW than in the metropolitan area. It would be interesting to compare club membership levels in the different regions, but these data were not available to IPART.

A number of registered clubs in NSW operate on or close to its borders with other states and territories (in particular Victoria, Queensland and ACT). When assessing the community development and social contributions these clubs make to NSW communities, IPART recognises that surrounding communities on both sides of the border enjoy the benefits provided by these clubs.

IPART has been conscious of the geographic dispersion of the industry: during this review it has held industry roundtables in Wagga Wagga, Armidale and Dubbo, as well as consulting with various clubs in both metropolitan and regional locations.



2.2.2 Size classification

While comparisons are useful when analysing an industry, comparing the performance of clubs can be problematic due to the wide variety of clubs and the differences in their areas of interest, location and demographics. A common method, used by OLGR and ClubsNSW, is to categorise clubs by the amount of revenue they earn from gaming machines.

Newly registered clubs may currently apply for up to 10 free gaming machine entitlements10. Each club decides the number of gaming machines they will install within this entitlement. A club may choose not to operate any gaming machines or may apply to the Liquor Administration Board to increase its entitlement up to a maximum of 450 machines at each premise.11 Most registered club premises, around 87 per cent, do operate gaming machines.

As at 31 May 2007, registered clubs in NSW operated 73,421 gaming machines.12 Table 2.2 shows the number of registered club premises in NSW in 2006 by the amount of their gaming machine revenue.

Table 2.2 NSW club premises categorised by gaming machine revenue

Gaming machine revenue No. of club premises % of club premises

Nil 199 13

0-$200,000 390 25

>$200,000 - $1 million 412 27

>$1 million - $5 million 379 25

>$5 million - $10 million 86 6

>$10 million 79 5

Total 1,545 100

Source: Information provided by OLGR and IPART’s analysis.

2.2.3 The peak bodies of the registered clubs industry

The clubs industry is represented by several peak bodies, many of which made submissions to this review. These bodies and their roles are outlined below.

10 The OLGR review of the Gaming Machines Act 2001 has proposed removing this entitlement. For

further information see Chapter 10. 11 Changes to the regulatory environment governing registered clubs are scheduled to take effect in the

second half of 2008. As part of these changes, clubs will now apply to the Casino, Liquor and Gaming Control Authority if they wish to operate gaming machines. See section 2.3 for more information.

12 Liquor Administration Board Annual Report 2006-07, p 43.



The Registered Clubs Association of NSW (ClubsNSW)

ClubsNSW is the leading peak body of the registered clubs industry in NSW. It provides a wide range of services for nearly 1,400 member clubs, including workplace relations, government relations, a member enquiry centre, Club Directors’ Institute, Clubs Consulting, ClubsNSW Financial Services, media relations, industry marketing and communications campaigns, conferences, trade exhibitions, seminars, information services and responsible gambling services through the ClubSAFE program.13

NSW RSL and Services Clubs’ Association

The RSL & Services Clubs Association of New South Wales is a not-for-profit industry association that was formed to be the leading advocate representing the interests of the estimated 315 registered RSL, Ex-Services, Memorial, Legion or like clubs in New South Wales. Among its main objectives are the protection and promotion of the ideals of the ANZAC spirit and heritage of member clubs.

Royal NSW Bowling Association Incorporated (Bowls NSW)

Bowls NSW is the peak body for 609 affiliated bowling clubs in NSW.

The Leagues Clubs’ Association of NSW (Leagues Clubs’ Association)

The Leagues Clubs’ Association is the peak body that represents, informs, supports and assist the interests of 84 registered leagues clubs in NSW.14

NSW Golf Association Limited (NSW Golf)

NSW Golf is the peak body representing 394 golf clubs in NSW.15 Its main activities concern the promotion of the efficiency, progress, general control and development of the game of golf in New South Wales.

Federation of Community, Sporting and Workers’ Clubs Limited (FCSWCL)

FCSWCL is the peak body representing 61 community, sporting and workers clubs in NSW.16

13 ClubsNSW, About Us, available from: www.clubsnsw.com.au/default.jsp?xcid=54 14 Leagues Association, About Us, available from: www.lcansw.com/default.aspx?id=2 15 NSW Golf Association Annual Report 2006, available from:

www.nswga.com.au/files/2JBRSLJ4V2/NSWGA Annual Report 2006.pdf 16 Federation of Community, Sporting and Workers’ Clubs Limited, About Us, available from:

www.fcswcfamilyholidays.com.au/affiliated_clubs.htm.



2.3 Regulatory framework governing the industry

Registered clubs operate within a regulatory framework that involves four major pieces of legislation and four main regulatory bodies. IPART notes recent changes affecting the regulatory environment governing the industry as a result of the Liquor Act 2007, Casino, Liquor and Gaming Control Authority Act 2007 and the Miscellaneous Acts (Casino, Liquor and Gaming) Amendment Act 2007, which will take effect in the second half of 2008. IPART’s review has taken place in the current regulatory environment, and this draft report reflects that. The current legislation and roles of these bodies are outlined below.

2.3.1 Applicable legislation

The main pieces of legislation that specifically address the operation of registered clubs in NSW include the:

Registered Clubs Act 1976 (Registered Clubs Act)

Registered Clubs Regulation 1996 (Registered Clubs Regulation)

Liquor Act 1982 (Liquor Act)

Gaming Machines Act 2001 (Gaming Machines Act).

The Registered Clubs Act and Registered Clubs Regulation contain most of the statutory requirements applicable during the lifespan of a registered club, from the initial process of setting one up, to its day-to-day operations within NSW and to amalgamating or winding one up.17

Registration confers various benefits on a club. First, the Liquor Act permits a registered club to sell liquor on its premises without a separate liquor licence. However, with that benefit comes responsibility: a club’s conduct with regard to the supply and consumption of liquor is regulated by the Registered Clubs Act and Registered Clubs Regulation. This legislation aims to achieve ‘minimisation of harm associated with the misuse and abuse of liquor’.

Second, a registered club is allowed to operate gaming machines within its premises. However, as with the supply of alcohol, clubs are subject to strict regulation regarding the operation of these machines. In NSW, the Gaming Machines Act regulates the keeping and operation of ‘approved gaming machines’ by registered clubs (and hotels). In addition, the Gaming Machine Tax Act 2001 regulates the tax payable on profits earned from ‘approved gaming machines’. The Gaming Machines Act’s main objectives are harm minimisation and fostering responsible conduct in relation to gambling.

17 IPART notes that a small number of amendments to the Registered Clubs Act that were made by the

Registered Clubs Amendment Act 2006 have yet to commence.



Registered clubs also operate as incorporated companies, maintain premises and trade in goods and services. Thus, in addition to the specific legislation above, they must also comply with more general areas of NSW and Commonwealth legislation and regulation that concern trading companies, in particular the Corporations Act 2001 (Corporations Act).

2.3.2 Oversight bodies

Four main bodies oversee the clubs industry, including the:

NSW Minister for Gaming and Racing (the Minister)

OLGR, within the NSW Department of the Arts, Sport and Recreation (the Department)

Licensing Court of NSW (Licensing Court)

NSW Liquor Administration Board (LAB).

The Minister and the Department are responsible for administering the specific legislation related to registered clubs. The OLGR, located within the Department, implements policy and education initiatives for liquor, gaming, charity and racing industries. It also prosecutes criminal offences under the relevant legislation.

The Licensing Court, established under the Liquor Act, has state-wide jurisdiction and deals with a multitude of different applications relating to existing licences and certificates of registration – for example the grant of new licences, transfer of licences, breaches, changes of secretary, amalgamations, changes of premises, complaints and disciplinary proceedings against licensees. Members of the court are also magistrates under the Local Courts Act 1982. The court also deals with applications for certificates of registration for registered clubs and is responsible for dealing with breaches and disciplinary proceedings arising under registered club legislation.

The LAB has many functions and powers conferred by the Liquor Act, the Registered Clubs Act, the Gaming Machines Act and the Gaming Machine Tax Act 2001, including:

a) approval of technical standards for gaming machines (to 18 November 2005 only)

b) declaration of devices as approved gaming machines or approved amusement devices

c) authorisation of gaming machines in registered clubs and hotels d) determination of Gaming Social Impact Assessments for additional gaming

machines in registered clubs and hotels e) allocation of gaming machine entitlements f) determination of Liquor Social Impact Assessments for the grant or removal of

a hotelier’s licence or off-licence (retail)



g) determination of various other applications relating to licensed premises and registered clubs

h) determination of claims under section 17 of the Gaming Machine Tax Act 2001 and the provision of advice on proposed expenditure for deductibility under the Minister’s Guidelines

i) keeping under constant review the operation of the Acts and making recommendations to the Minister as appropriate

j) conducting inquiries, when directed by the Minister, into any matter connected with the administration of the Acts

k) keeping under constant review the standard of licensed premises and registered clubs

l) receiving submissions or reports from any person in respect of the operation of the Acts

m) resolving complaints of undue disturbance of the neighbourhood of licensed premises and registered clubs

n) approval of training courses and training providers for the responsible service of alcohol

o) approval of training courses and training providers for the promotion of responsible practices in relation to approved gaming machines

p) suspension or cancellation of an authorisation to keep gaming machines for non-payment of monitoring fees or gaming machine duty.18

Once the Licensing Court approves its application for registration, a club must adhere to the provisions of the Registered Clubs Act and Registered Clubs Regulation. A registered club’s ongoing compliance is supervised by the NSW Police, OLGR, and enforced by the courts (principally the Licensing Court) and the LAB.

2.4 What are the main features of a registered club?

Registered clubs provide lifestyle and community-focused goods and services to their members and the community at large. These are provided through a democratic, not-for-profit business model where gaming machine revenue typically cross-subsidises other club activities. There is, however, an important role for smaller clubs that may have little or no revenue from gaming machines. These clubs typically contribute to the community through their very existence, providing important facilities for their members to pursue their common social purpose. The following sections explore these elements in more detail.

18 Liquor Administration Board submission, p 3.



2.4.1 Elements of club registration

There are thousands of clubs in NSW, whose members have joined to pursue a common interest, which may be sporting, political, religious, social or cultural. There is no requirement for a club to become registered, but once it is registered, a club:

can sell and supply liquor on club premises to club members and their guests

can operate gaming machines, subject to strict requirements relating to integrity and the responsible conduct of gambling

must comply with certain corporate governance, accountability, membership, mutuality and club entry requirements as outlined in the Registered Clubs Act.

These elements reflect, in part, the historical evolution of the clubs industry, as discussed in 2.1.

IPART notes that the extent to which clubs pursue these functions has contributed to a wide range of clubs operating within the industry. On one end are small, volunteer-run clubs, with little or no revenue from gaming machines. These clubs are often centred on specifically pursuing a particular social purpose, such as providing sporting facilities or a meeting place for members sharing a common cultural link. On the other end are large, commercially-run enterprises, with a large number of gaming machines, many members and a significant number of visitors, as well as diversified business segments. While these clubs still exist to pursue social outcomes, differentiation from for-profit commercial businesses is more difficult.

IPART notes the argument made by ClubsNSW that registering a club provides a means of entrenching the essential rules that underpin the democratic, not-for-profit operation of clubs and also the strict probity requirement that ensures member interests are protected. These rules are captured through the requirements in section 10 of the Registered Clubs Act and must be met before the certificate of registration is issued and also on an ongoing basis to ensure that the club is not de-registered or another penalty imposed. The following elements serve these purposes:

The club must be conducted in good faith as a club. It must demonstrate, typically through its articles of association/club constitution, that it is a body or association of persons that pursue a common purpose (social, literary, political, sporting or athletic purposes or for any other lawful purposes).

Clubs must be incorporated under the Corporations Act.

No member of the club is permitted to receive any profit, benefit or advantage from the club that is not offered fully to every other member of the club.

While the club is allowed to provide liquor to its members, this must be done in a safe, controlled environment. Additionally, no employee or director of the club is allowed to receive payment based on the amount of liquor sold or by any reference to the operation of gaming machines by the club.



The club must keep correct accounts and books in respect of the financial affairs of the club. These must be available to members such that they can monitor the performance of the club in a similar way to that of shareholder in a publicly listed company.

Senior employees and directors of clubs must comply with a strict set of accountability requirements. These requirements ensure that the club is operated with the best interests of the club members in mind.

The club must have premises of which it is the bona fide occupier for the purposes of the club and which are provided and maintained from the funds of the club.

Further information on the registration process is contained in Chapter 10.

2.4.2 Democratic entities

Another distinguishing feature of registered clubs is their democratic nature. Registered clubs are controlled by a Board of Directors that sets the strategy and direction of the club. These directors are elected from the members and have a sense of duty, diligence and skill to act in good faith. In many clubs the directors may also seek advice on matters of club operation from specific committees and sub-committees. These committees often include representatives from many sub-clubs that operate within the broader club (for example a bowls, tennis or golf sub-club within a sporting club).

2.4.3 Not-for-profit mutual entities

Registered clubs operate as not-for-profit mutual entities. Under the mutuality principle, members contribute to a common fund created and controlled by them for a common purpose. As these contributing members are essentially the same as those who participate in the fund, the member contributions and receipts from member dealings are not treated as taxable income.19 This principle effectively exempts membership subscriptions and other revenues derived from dealings with members from a club’s taxable income. In addition, some clubs are classified as exempt institutions under the Income Tax Assessment Act 1997 as their main purpose is to encourage sport, music, literature, a game (for example chess, bridge) or art.

Interestingly, while 81 per cent of people are aware that clubs contribute revenue to local community projects, 37 per cent were not aware that they operate as not-for-profit entities.20

In addition to their income tax status, registered clubs enjoy certain advantages over their competitors by virtue of statutes such as the Registered Clubs Act and the Gaming Machines Act. These include the ability to operate more gaming machines per premise and lower rates of taxation on gaming machines compared to hotels. 19 Australian Taxation Office; available from: www.law.ato.gov.au 20 ClubsNSW submission, p 25.



Other features of registered clubs that differentiate them from for-profit businesses include:

Registered clubs are not focused on maximising profit in the same way as a commercial enterprise. Club members only benefit from the profitability of the club to the extent that ongoing profitability contributes to the continuation of the club as a going concern and improvement of facilities, goods and services offered by the club to its members.

Club members have a relatively lower capital stake in their club than shareholders do in the companies in which they invest. In the case of a club being unable to meet its losses, club members are typically limited to a loss equal to the size of their membership fee, which is often only a nominal amount. While shareholders are not responsible for a company’s losses, a collapse in share value would almost always lead to a loss for a shareholder of an amount greater than the price of a club membership.

Clubs are not able to raise capital in the same way as commercial enterprises. While a public company is able to raise capital through issuing shares, clubs raise capital from membership fees (and other forms of operating revenue) and debt.

The members of a club do not have any claim to the club’s assets. In the case of a club winding up, any excess funds remaining after meeting the liabilities of the club cannot be distributed to members. Most constitutions generally describe how any excess funds will be used in the case of a club winding up and generally would be directed to an activity of a similar purpose to which the club was set up (for example a bowling club that is winding up might transfer its assets to a nearby bowling club).

2.4.4 The importance of clubs’ common purpose

All registered clubs form as a result of a group of people coming together to pursue a common purpose. This common purpose is fundamental to clubs of all sizes and types. In the case of smaller clubs with little or no revenue from gaming machines, IPART notes that the strength of the common purpose is generally the prime driver for their financial viability. These clubs also contribute to the community through their very existence, providing important facilities for their members to pursue their common purpose.

2.5 Clubs offer a wide range of services to members and the wider community

Registered clubs provide goods and services to both members and the community at large. In 2006, 69 per cent of adults in NSW were members of a registered club and 92 per cent had visited a club during the previous 12 months.21 While the reach of clubs is widespread, the extent of the uptake of club goods and services is more

21 ClubsNSW submission, p 12.



pronounced within certain sections of the community. Clubs appear to play a more important part in the lives of elderly people. On average, around half of club membership in NSW consists of people aged 55 and over. This was also observed by IPART through its case study of clubs with people aged 51 and over constituting on average between 42 and 56 per cent of the membership of case study clubs.

Many submissions detailed the nature of club contributions and activities, ranging from the standard offerings of food, bar, gaming and sporting facilities (such as bowling greens and golf courses), to fitness and leisure centres, meeting rooms and conference facilities. Social welfare services to members, such as visiting sick members and assisting them with shopping, transport and medical equipment, were also common.

Contributions to the community beyond the clubs’ own members include donations to schools, charities, sporting teams and community organisations, provision of free or subsidised club services such as meeting rooms, and involvement in community outreach programs through both cash and in-kind contributions.

There has also been a strong emphasis on clubs’ role as part of the communities in which they operate. IPART notes that many stakeholders have pointed out the significant intangible benefits associated with community members, who might otherwise be quite socially isolated, being able to attend club activities and feel like part of a community. NCOSS also referred to clubs as organisations that build social capital, especially in small rural communities.22

Other contributions outlined in IPART’s issues paper include:

The clubs industry employed approximately 52,000 people in full-time, part-time, casual, apprentice and training positions in 2003. ACG estimated that the industry made wage payments of $1.2 billion in 2003.

Registered clubs generate employment opportunities through their use of contractors. In 2003, the industry made contractor payments in excess of $265 million.

Registered clubs make an economic contribution to NSW through the involvement of club volunteers. ACG estimated that in 2003 the number of volunteers was roughly equal to the number of employees in the industry (approximately 52,000).23

Registered clubs provide training opportunities through structured courses, seminars and on-the-job training. ACG estimated that in 2003 the industry spent $22.5 million on training.

In its issues paper, IPART also pointed out that where many clubs rely heavily on volunteers or provide assets that would be uneconomic in a commercial setting (for

22 NCOSS, Sydney roundtable transcript, p 6. 23 The Allen Consulting Group, 2004, Socio-Economic Impact Study of Clubs in NSW (2004), April 2004.



example the provision of bowling greens on high value land), the production of goods or services may not be recreated viably in a private market.

A more detailed discussion of the social contributions made by registered clubs is contained in Chapter 3.

2.6 Some clubs are not registered – why not?

As mentioned in section 2.4.1, there is no requirement for a club to become registered, and many clubs in NSW remain unregistered.

IPART has found that unregistered clubs tend to be more limited in their focus and the range of facilities provided to members. They also either do not provide liquor to their members, or provide liquor to their members through an alternative licence type rather than becoming a registered club. For example, some clubs provide liquor to their members through a permanent on-licence (function), which allows the club to hold up to 26 functions a year (no more than one a week) where alcohol can be served. Clubs can also apply to increase the number of functions and frequency under this licence.24

ClubsNSW argues that in some cases amateur sporting clubs have limited ability to provide for new facilities and their use of publicly owned and club-owned facilities places additional pressure on this infrastructure.25

IPART also notes that many sporting clubs receive support from registered clubs, either through donations or provision of facilities at discounted rates.

24 The Department of Gaming and Racing, Fact Sheet 9 Permanent Function Licenses, April 1999. 25 ClubsNSW submission, p 22.

3 Social contribution of the registered clubs industry



IPART examined the types of social contribution that clubs make, and clubs’ contribution to employment and economic opportunities. However, other businesses provide similar services to clubs and of course other industries contribute to employment and economic opportunities. Therefore IPART compared the provision of sporting facilities and other community services in NSW with other states where clubs have historically been much less significant, and found that clubs in NSW have a small positive impact on participation rates in sports, make significant contributions to charity compared to their interstate counterparts and are used by many more social members than clubs in other states. Clubs also provide considerable intangible social benefits that are difficult to quantify consistently and reliably but should not be ignored.

The clubs industry also imposes some costs on the community, chiefly from problem gambling. Rates of problem gambling and per capita expenditure on gambling are slightly higher in NSW but comparable with other states where clubs do not operate gaming machines. IPART found that clubs do not affect the total amount of gambling, but may influence the form of gambling and where it occurs.

On balance, IPART concluded that the industry’s net social contribution is positive. On this basis, it considers that it is appropriate that the NSW Government provide support to the industry, to help ensure that it remains financially viable so that clubs can continue to contribute to positive social outcomes in the state. IPART has identified a range of steps that can be taken to enhance the clubs industry’s financial viability. These steps are discussed in Chapters 6 to 12.

As required by the terms of reference, IPART considered various methodologies for measuring the value of clubs’ contribution to social infrastructure and estimated the total contribution by clubs in 2007 was $893 million. This figure does not include the indirect or intangible contributions made by clubs. IPART considers that these contributions are better acknowledged qualitatively rather than quantitatively. These findings are discussed in detail in Chapter 4.

IPART also reviewed the CDSE Scheme, which provides a gaming machine tax rebate, of up to 1.5 per cent, to qualifying clubs that make eligible community contributions in accordance with the Scheme. IPART found that the existing and proposed statutory requirements related to the CDSE Scheme are reasonable and effective. However, there is a lack of awareness about registered clubs’ social contributions via this Scheme and the clarity of some parts of the Scheme guidelines



could be improved. Proposed enhancements to the Scheme are discussed in Chapter 5.

The following sections discuss in more detail:

IPART’s findings on the registered clubs industry’s social contribution, including: – why government should support clubs – the nature of clubs’ positive social contributions – clubs’ contributions to employment and other economic opportunities – an interstate comparison of the benefits of registered clubs – the nature of costs clubs impose on the community – an interstate comparison of some gambling data – on balance clubs make a positive social contribution – the effectiveness of the CDSE Scheme.

IPART’s recommendations to enhance clubs’ social contributions, including: – improved measurement and reporting of club contributions – minor changes to the CDSE Scheme – enhancement of employment and other economic opportunities – club contributions to achieving the objectives of the State Plan.

3.1 Key findings on social contribution

3.1.1 Why should government support clubs?

As outlined in Chapter 1, the terms of reference for this review are very supportive of the registered clubs industry. The most publicised area where clubs receive support from government is in relation to the lower rates of gaming machine taxation paid by clubs relative to hotels. In 2006, the Government and ClubsNSW entered into a Memorandum of Understanding (MOU) that modified the registered clubs gaming machine tax regime and provided a commitment to a consultation mechanism in relation to future changes in taxation. The MOU was signed in recognition of the valuable social and economic contribution made by the industry to the NSW community and with the aim of ensuring the ongoing viability of the industry.

IPART’s view is that the level of government support, and, if required, intervention should be commensurate with the level of contribution made by the industry to the NSW community. When assessing this contribution, IPART’s view is that both positive and negative contributions should be considered. One way of assessing the extent of the contributions, both positive and negative, made by registered clubs, is to look at what happens in other states that do not have a registered clubs industry, or where the industry is smaller than in NSW.

Sections 3.1.2–3.1.7 examine these issues in greater detail.



3.1.2 Nature of clubs’ positive social contributions

As outlined in IPART’s issues paper, the social contributions registered clubs make can be divided into three categories:

1. in-house contributions for the club’s primary purpose

2. in-house contributions for general member benefit

3. external contributions for community benefit.

Figure 3.1 illustrates the categorisation of clubs’ social contributions described above.

Figure 3.1 Registered clubs’ social contributions

In-house contributions for the club’s primary purpose

These contributions are for the exclusive benefit of club members and their guests, and relate to achieving the club’s primary purpose. Examples include a bowling club’s provision of bowling greens, and a golf club’s provision of a golf course. While members may be charged to use these facilities, it is usually at less than a commercial rate.

In-house contributions for general member benefit

These contributions are also for the exclusive benefit of club members and their guests, but they do not relate to the club’s primary purpose. Examples include restaurants, bars, gaming machines, pool tables, professional entertainment, function rooms, opportunities for social interaction, and a sense of belonging. Again, members may make a financial contribution to use these services, but generally at less than a commercial rate.

Total club social contributions

In house contributions for club primary purpose

(cash or in-kind)

In house contributions for general member

benefit (cash or in-kind)

External contributions for community benefit

(cash or in-kind)

Direct Indirect Direct Direct Indirect Indirect



External contributions for community benefit.

These contributions benefit the wider local community within which the club is located. They can include support for community groups, such as sporting teams, schools, charities and welfare groups. Table 3.1 provides a breakdown of the types of group that received cash payments from registered clubs in 2003.

Table 3.1 Cash payments from clubs (2003)

Type of payment Percentage of total club cash payments

Professional sport 36

Non-professional sport 28

Health and social services 17

Education 5

Emergency services 3

Other 12

Source: The Allen Consulting Group (April 2004), Socio-Economic Impact Study of Clubs in NSW, p 53.

Direct and indirect contributions

These three contribution categories can be broken down into further categories. First, all three categories can be either a direct contribution or an indirect contribution. Direct contributions are the result of direct club action – for example, the provision of a cash grant is a direct external contribution for community benefit; the provision of discounted meals is a direct in-house contribution for general member benefit.

Indirect contributions are not the result of a direct club action, but rather a by-product of the existence of the club, its facilities and its actions. Indirect contributions are generally intangible benefits. For example, the improved fitness members of a golf club might gain as a result of playing golf at the club is an indirect in-house contribution for club primary purposes; the sense of belonging club members might feel is an indirect in-house contribution for general member benefit; the greater social cohesion a community might feel as a result of having a club where people can meet and socialise is an indirect external contribution for community benefit. Some of these benefits (such as fitness benefits) are essentially private in that they accrue to the individual and not the broader community.

Furthermore, contributions can be either cash or in-kind. For example, clubs might provide cash grants to members or subcommittees to fund sporting activities or sub-clubs. They might also provide cash grants to local schools or sports teams. Alternatively, they can provide in-kind support, such as access to club-owned sports, meeting and function facilities, at no charge or a subsidised rate. Other examples of in-kind support include the provision of:

capital equipment (including maintenance) for sporting and other club-related activities



club employees to staff activities and functions

transport

food and beverages (where these are not associated with the promotion of trade).

IPART did not receive significant feedback on its approach to the categorisation of club social contributions (ie, in-house contributions for the club’s primary purpose; in-house contributions for general member benefit; and external contributions for community benefit). Some submissions noted support for the issues paper’s approach.26 ClubsNSW commented that IPART’s categorisation was useful for identifying the types of benefits provided by clubs for two main reasons:

First it assists with identifying appropriate valuation methods for estimating the size of social contribution made by registered clubs. Second, it helps to identify the role clubs play in complementing commercial provision of goods and services by businesses. That is, how exactly do clubs serve to ‘fill the gap’ in supply that would otherwise exist if markets were relied on to provide goods and services demanded by club members and the community…27

However, for the purpose of attempting to measure an aggregate value, it advocated a simpler classification that differentiates between:

member and non-member benefits

goods exchanged in markets (which have a market value) and those that are not (that is non-market goods which yield indirect contributions).28

IPART sees merit in ClubsNSW’s proposed classification framework. There is, however, some difference between the benefit of ClubsNSW’s classification framework to gain a conceptual understanding and its usefulness in the measurement of an aggregate value for industry contributions (see Chapter 4 for further detail).

IPART believes its categorisation framework appropriately differentiates and categorises the varieties of contributions that clubs make. The framework clearly sets out the different roles that contributions play and, conceptually, gives an understanding of the extent to which the industry contributes to local communities.

In terms of measurement, however, IPART recommends a somewhat simplified version of this framework. While some contributions can be easily identified as either for in-house primary purpose benefit, in-house general members benefit or external benefit, others fall across each of these areas. This is mainly because goods, such as say, bowling greens, cultivate both in-house (member) and external (non-member) contributions, so it becomes difficult to separate and measure these differently – particularly since such a task is made more difficult from the data and information limitations that exist within the industry. From a measurement

26 NCOSS submission p 9; Mr Wayne Sampson submission, p 12. 27 ClubsNSW submission, p 55. 28 ClubsNSW submission, p 54.



perspective, an aggregate value is most easily calculated when all club contributions are grouped and considered together.29 Further information on this is in Chapter 4.

What do registered clubs provide?

Many submissions to IPART’s issues paper detailed the in-house contributions clubs provide to their members. These range from the standard offerings of food, bar, gaming and sporting facilities, such as bowling greens and golf courses, to fitness and leisure centres, meeting rooms and conference facilities. Social welfare services to members, such as visiting sick members and assisting them with shopping, transport and medical equipment, were also common.

Submissions also detailed the external contributions clubs make to their local communities; these include donations to schools, charities, sporting teams and community organisations30, provision of free or subsidised club services such as meeting rooms, and involvement in community outreach programs through both cash and in-kind contributions. Some more unusual contributions, such as the maintenance of a historical site, were also noted.31

As an example, a typical RSL/ex-service club contribution might include:

a venue for ex-servicemen to socialise (an in-house contribution for club primary purpose)

welfare services provided by club volunteers, such as hospital visits to and transport assistance for unwell and elderly members (an in-house contribution for club primary purpose)

bowling, snooker and bingo activities (an in-house contributions for general member benefit)

a community gymnasium (an external contribution for community benefit)

CDSE funding to local counselling and child protection services (an external cash contributions for community benefit).

Almost all submissions praised the significant role clubs play in local communities. However, some submissions did argue that the more financially viable clubs with higher profits are under-contributing and should increase social contributions beyond CDSE.32

29 This also reduces the potential for double counting. 30 Campbelltown Catholic Club and RSL & Services Clubs Association submissions. 31 Goulburn Club, Sydney roundtable transcript, p 9. 32 NCOSS submission, p 12 and Wayne Sampson submission, p 12.



IPART notes several distinctive areas of the industry’s social contributions:

the community presence of clubs in regional areas

the varying level of club contributions

club partnerships with other organisations

the importance of clubs as a place to meet and socialise.

The differing community presence of clubs in regional areas

In its submission, ClubsNSW noted:

On a regional basis, 97 per cent of non-Sydney clubs provide their members with sporting facilities, as compared with 89 per cent of Sydney clubs. This difference highlights the importance of clubs in non-metropolitan regions in providing the community with sporting facilities.33

IPART’s investigations of case study clubs bore out this observation. For example, Tathra Beach Country Club demonstrates the important role regionally-based clubs play in the provision of community infrastructure. This club is located in a small community with a population (within a 5 kilometre radius) of around 2,000 people, of which over 1,000 are members of the club. The club identified the need for a second sporting oval in its town, as the existing oval could not accommodate the community’s current demand. The club funded the development as well as the ongoing maintenance of a second oval, which is now well-used by local primary and high school students.

The varying level of club contributions

IPART observed that the level of a club’s contribution to its community depends on its size, its financial capacity and its willingness to fund community activities beyond the tax offset requirements of the CDSE Scheme.34

Of the case study clubs with a CDSE liability, all but one made explicit cash contributions above their CDSE requirements. Many clubs contributed significantly more than their CDSE requirements. For example, Mounties, a larger, more commercially-run club makes total cash contributions of around 34 per cent of net profit. At the other end of the spectrum, Petersham Bowling Club, a small club, which does not qualify for CDSE participation, made no explicit cash contributions given its financial position. However, it saw itself and its services as a community

33 ClubsNSW submission, p 37. 34 Clubs with gaming machine revenue greater than $1 million per annum receive a gaming machine

tax rebate for eligible community contributions, up to 1.5 per cent of their revenue over $1 million. Although the scheme is voluntary (clubs may instead just pay the tax), the maximum rebate for which a club is eligible is called a club’s “CDSE liability”. For example, a club with gaming machine revenue of $1.5m million would have a CDSE liability of $7,500. Eligible community contributions may be cash or in-kind.



resource, offering, for example, classic film nights that might not otherwise be provided commercially and making other in-kind contributions to its community.

In addition to cash payments, many clubs make in-kind contributions through, for example, free or discounted room hire to community groups, as well as the usual in-house social contributions to members through services (some of which generate no or little direct income for the club, such as bingo, trivia nights and carpet bowls). Some of these clubs also maintain a number of sporting facilities, which are available to the community, both on a hire basis and free (to school groups for example).

Club partnerships with other organisations

In submissions to the issues paper, ClubsNSW and the Leagues Clubs’ Association highlighted the increasingly common practice of club partnership with other organisations to both fund and deliver community projects.35 An example is the youth outreach program ‘Panthers on the Prowl’, which involves staff from the Penrith Panthers club, football players from the associated NRL team, and personnel and resources from local government and community organisations in the delivery of literacy and education support services to local school children.

ClubsNSW stated local councils are commonly partners in such arrangements. A council survey commissioned by ClubsNSW found 33 per cent of councils were aware of arrangements with local clubs to develop sporting facilities within their respective communities.36

IPART also observed this practice within its case study clubs, where some of the larger metropolitan clubs37 had partnered with local councils and other groups to deliver strategic community services. A ‘breakfast club’ program, which provides breakfast (and nutrition education) one day a week for disadvantaged children at the local school, is an example of such an initiative. To deliver this program successfully, Riverstone-Schofields Memorial Club partnered with a community welfare organisation and local businesses (which provided food). In performing this role, the club solicits food donations, provides funds, and staffs the program with club volunteers.

The importance of clubs as a place to meet and socialise

A number of individual submissions highlighted the importance of clubs as a place to meet and socialise (in particular for the elderly).38 ClubsNSW asserts that:

Clubs play a particularly important part in the life of older people with more than half of those aged 60 or older visiting clubs at least once a week. For this group, a club

35 ClubsNSW submission, pp 41-42, Leagues Clubs’ Association, p 12. 36 ClubsNSW submission, p 41. 37 For example Mounties and Riverstone-Schofields Memorial Club. 38 T. Hormann and D & E McDonald submissions.



environment is safer and offers a sense of ‘community’, with recreational opportunities geared to their stage of life.39

However, in making the same point a submission stated that gaming activities were replacing the traditional social activities and identified the need for clubs to dedicate more resources to non-gaming activities.40 Another submission went further, stating that the gaming activities of clubs could be considered anti-social.41

Voicing similar concern, the Gambling Impact Society of NSW (GIS) expressed unease about the growing reliance some clubs have on gambling activities (also a key finding of this review; see Chapter 6). GIS saw how this reliance could grow where clubs face increasing financial difficulty.

3.1.3 Clubs’ contribution to employment and economic opportunities

Another aspect of registered clubs’ social contribution is the employment and other economic opportunities the industry provides in NSW. As outlined in IPART’s issues paper, registered clubs employ people in full-time, part-time, casual and apprentice and training positions. These involve a variety of roles within a range of industries, including hospitality, retail, sporting and professional services. The industry also makes contributions through the involvement of club volunteers. The following sections outline clubs’ contributions in these areas.

Size and diverse nature of clubs’ contribution to employment opportunities

In 2003, registered clubs employed a total of 51,749 people, which represented 26,874 full-time equivalent (FTE) positions.42 In 2007, the total number of people employed by clubs decreased by 16 per cent to 43,318 people, while the number of FTE positions grew by 30 per cent to 34,812.43

These are a combination of full-time, part-time, casual, apprentice and training positions. Figure 3.2 shows the composition by employment category of total employment of registered clubs in NSW in 2007. Clubs employ a high proportion of casual labour when compared with all industries across Australia (39 per cent compared with 25 per cent).44 IPART notes that this level is broadly consistent with businesses operating in similar sectors to the clubs industry. For example the arts and recreation services industry employs 49 per cent of its labour force on a casual basis, while the accommodation and food services industry employs 63 per cent of its labour forces on a casual basis.45

39 ClubsNSW submission, p 16. 40 E. Goldberg submission, p 1. 41 Wayne Sampson’s submission, p 12. 42 The Allen Consulting Group, Socio-Economic Impact Study of Clubs in NSW, April 2004. 43 Allen Consulting Group, preliminary unpublished data from 2007 Socio-Economic Impact Study of

Registered Clubs in NSW. 44 ABS Forms of Employment 6359.0 Nov 2006 (Reissue), p 28. 45 ABS Forms of Employment 6359.0 Nov 2006 (Reissue), p 28.



Figure 3.2 Total employment in registered clubs in NSW by employment category 2007

Full time, 14,550, 17%

Total, 43,318, 50%

Casual, 16,967, 20%

Trainee, 394, 0%Apprentice, 646,

1%

Part time, 10,760, 12%

Data source: Allen Consulting Group, preliminary unpublished data from 2007 Socio-Economic Impact Study of Registered Clubs in NSW.

IPART acknowledges the diverse range of roles and industries in which the clubs industry provides employment opportunities. ClubsNSW highlighted Revesby Workers Club as an example of the breadth of employment options offered in clubs, with positions in areas such finance and administration, beverage and catering, gaming, functions, operations, gym, human resources marketing, maintenance and store operations.46

Other contributions noted by ClubsNSW include:

The clubs industry is an important provider of employment opportunities for disabled people (in particular RSL and ex-services clubs).

Clubs make use of contractors in areas such as catering, maintenance, green keeping, trades and security. In 2007, clubs paid approximately $236 million to contractors, down from $265 million in 2003.

Clubs are well suited to attracting employees aged 55 years and over, especially in full-time and casual positions. Segments of the industry are already predisposed to greater use of employees aged 55 years and over, aligning their workforce with a significant proportion of their patrons.

Despite the important opportunities provided by the industry, ClubsNSW47 highlighted several challenges facing the industry, including:

46 ClubsNSW submission, p 74. 47 ClubsNSW submission pp 75-76.



Difficulty finding quality staff during skills shortages: many clubs have difficulty attracting and retaining staff in the current labour market, especially in the liquor and food industries. As highlighted by ClubsNSW, this is likely to be a result of skill shortages being experienced across the food, hospitality and tourism industry. ClubsNSW also suggests that these shortages are more difficult to solve for regional clubs, given their inability to access local training for potential employees.

While clubs play a useful role in employing tertiary students on a casual or part-time basis, they have difficulty in attracting graduates to long-term careers in the industry in areas such as financial management, business development, marketing, event management, communications and human resources.

Volunteers

Registered clubs also make an economic contribution to NSW through the involvement of club volunteers. ACG estimated that 43,957 volunteers were involved in registered clubs, contributing over 6.3 million hours in 2007.48 While the number of volunteers has declined by 17 per cent since 2003 (down from 52,682), the number of volunteer hours had increased by 13 per cent over the same time (up from 5.6 million hours).

IPART acknowledges the involvement of volunteers as a defining feature of all registered clubs. Volunteers are involved in a variety of roles, including club directors, sporting team coaches and maintenance of sporting equipment and venues. In particular, ClubsNSW notes the essential role played by volunteers in small clubs – to the extent that many small clubs would not be able to operate without the contribution of volunteers.

As noted in IPART’s issues paper, smaller clubs rely more heavily on the work of volunteers to function day-to-day. Clubs with gaming machine revenue of less than $200,000 have an average of 3.5 volunteers for every employee. Table 3.2 shows that, overall, registered clubs rely on approximately one volunteer for every staff member.

Table 3.2 Club employee to volunteer comparison

Club size (by gaming machine revenue)

Total employees Total volunteers Volunteers per employee

$0-200,000 3,517 12,323 3.50

>$200,000 - $1 million 11,006 18,943 1.72

>$1-$5 million 17,606 10,475 0.61

>$5-$10 million 7,385 3,585 0.49

>$10 million 12,235 7,082 0.58

Total 51,749 52,681 1.02

Source: The Allen Consulting Group, Socio-Economic Impact Study of Clubs in NSW, pp 34, 38.

48 Allen Consulting Group, Preliminary unpublished data from 2007 Socio-Economic Impact Study of

Registered Clubs in NSW.



The strong role of volunteers in smaller registered clubs was also confirmed through IPART’s club case studies. While volunteer labour was part of all of the case study clubs (at a minimum through the volunteer labour of directors), smaller clubs or those in regional locations made greater use of these volunteers for activities such as maintenance of club facilities and bar work.49

IPART considers it important that this contribution be recognised in its methodology for recording the value for the provision of social infrastructure and services. Further information on this is in Chapter 4.

Training opportunities afforded by the registered clubs industry

IPART also acknowledges the important training registered clubs provide to employees and volunteers. Training occurs formally, through structured courses or seminars, and informally, through on-the-job training. Table 3.3 details the training expenditure of NSW registered clubs in 2007.

Table 3.3 NSW registered clubs industry training expenditure

Clubs size (by gaming machines profit)

Formal training ($) Informal training ($) Total ($)

$0-200k 718,322 545,909 1,264,231

$200k-1m 1,214,620 1,457,207 2,671,826

$1-5m 3,054,509 2,495,904 5,550,414

$5-10m 1,930,008 1,836,156 3,766,164

$10m+ 5,962,042 5,451,360 11,413,402

Total 12,879,501 11,786,536 24,666,036

Note: Rows/columns may not add due to rounding.

Source: Allen Consulting Group, Preliminary unpublished data from 2007 Socio-Economic Impact Study of Clubs in NSW.

ClubsNSW points out that training in clubs is targeted at three levels

Directors: basic director training courses as well as courses through the Club Directors Institute (CDI).

Executive Managers (Secretary Managers): training courses provided though the Club Managers Association of Australia (CMAA) as well as Southern Cross University’s (SCU) centre for Professional Development in Club & Gaming Management.

General staff: mainly hospitality industry training.50

Training opportunities for directors and managers are considered in more detail in Chapter 11.

49 For example, Tathra Beach Country Club, Bingara Sporting Club and Hamrun Association (NSW)

Incorporated. 50 ClubsNSW submission, pp 79-81.



Other economic opportunities

IPART has found that registered clubs are important contributors to the generation of other economic opportunities, particularly in regional or non-metropolitan areas. For example, in regional areas particularly, clubs and club facilities are a focus for tourism, which generates further economic activity and opportunities.

Two examples referred to by ClubsNSW include Twin Town Services Club and Dubbo RSL51. Twin Town Services Club provides conferencing and entertainment facilities for its region as well as resort facilities including pools, spa and gymnasium. Dubbo RSL operates a health and aquatic centre, as well as conference centre facilities and a motel. The ability of clubs such as these to attract conferences and other events provide an important flow-on effect for economic activity in these regions.

Other economic opportunities described by ClubsNSW include:

Revenue generated by clubs. In 2003, clubs earned around $4.6 billion in total revenue from gaming, bar and food services, membership fees and ancillary business activities.

Taxation paid by clubs. In 2003, clubs paid approximately $969 million in Commonwealth, state and local government taxes.

Capital expenditure on renovating or maintaining club facilities, purchasing capital items and additional businesses or facilities. In 2003, this amounted to $705 million.52

IPART acknowledges these contributions, but notes that other businesses, such as hotels, restaurants and other private entities, also generate similar economic opportunities. Registered clubs also enjoy advantages in relation to their rates of gaming machine taxation compared with hotels, and many are exempted from corporate income tax.

ClubsNSW suggested that further opportunities could be provided for registered clubs to enhance their economic opportunities in regional areas by improving access to existing NSW Government development programs such as:

The Payroll Tax Incentive Scheme

Regional Business Development Scheme

Regional Economic Transition Scheme

New Market Expansion Program for Regional Enterprise

Developing Regional Resources Program

Main Street/Small Towns Program.53

51 ClubsNSW submission, pp 86-87. 52 ClubsNSW submission, pp 84-86. 53 ClubsNSW submission, pp 88-89.



3.1.4 An interstate comparison of the benefits of registered clubs

While the registered clubs industry makes an important contribution to NSW communities, other businesses provide some of the services offered by clubs: the hospitality industry provides bar and food services, private golf clubs provide golf courses, councils provide swimming pools, and of course other industries contribute to employment and economic opportunities. Therefore, as a means of assessing the difference that clubs make to social capital in NSW, IPART compared the provision of sporting facilities and other community services in NSW with other states where clubs have historically been much less significant, and found that clubs in NSW have a small positive impact on participation rates in sports, make significant contributions to charity compared to their interstate counterparts and are used by many more social members than clubs in other states.

Anecdotal evidence from IPART’s roundtables also indicates that the registered clubs industry in NSW makes a significant contribution to the provision of sporting facilities that is not provided by clubs in other states. Specifically, one participant54 commented that clubs in Victoria focus on providing assistance to their core purpose (for example football) and do not assist with the provision of further sporting infrastructure, such as bowling greens and golf courses.

Sporting infrastructure in Australia is typically provided through a combination of funding sources:

government funding at a federal, state and local government level

private enterprise (for example, commercially operated fitness centres and golf courses)

amateur sporting clubs and, in the case of NSW, registered clubs.

Ideally, an examination of the sources of funding by state would provide an indication of the relative contribution made by the clubs industry in NSW; however, data with this level of disaggregation is not currently available from the ABS. IPART has had discussions with national and state peak bodies and obtained data on participation rates, incidence of sporting facilities and other essential features of the clubs industry in NSW.

An interstate comparison of the incidence of clubs

Registered clubs in NSW provide a wide variety of sporting-related infrastructure and services. They provide physical infrastructure such as golf courses, bowling greens and tennis courts, as well as organising various sporting and recreation clubs, such as fishing. IPART has examined the golf, bowling and RSL club segments across the country. A national approach to assessing each of these industries is relatively new and as a result data sources comparing the industries across states are

54 Moama Bowling Club, Wagga Wagga roundtable, p 7.



limited. Differences between states may also be due to other non-club factors such as population distributions or climate.

The incidence of bowling greens and golf courses does not appear to be greater in NSW than in other states (see Figure 3.3). While NSW has the second-highest incidence of bowling clubs, all states except WA have more metropolitan golf courses per capita; and WA, SA and Victoria have more country golf courses per capita. Additionally, there does not appear to be a higher level of RSL sub-branch membership in NSW, with membership distribution by state roughly replicating the population distributions by state (Table 3.4).

Figure 3.3 Incidence of bowling and golf clubs by state

05

101520

253035

4045

ACT Qld SA Tas WA NSW NT Vic

State

Club

s pe

r 100

,000

peo

ple

Bowling clubs per capita Golf clubs per capita (metro) Golf clubs per capita (country)

Note: Year sources for clubs differ.

Data source: Australian Golf Industry Report 2002 and Bowls Australia Annual Report 2006.

Table 3.4 RSL Sub-branch membership by state 2006

State % National Population

Total Membership Affiliates

% of RSL for 2006

NSW 33.7 60,567 31.2

Vic 24.9 60,173 31.0

Qld 18.7 40,379 20.7

SA/NT 8.8 14,280 7.3

WA 9.9 12,343 6.3

Tas 2.4 5,036 2.6

ACT 1.6 1,647 0.9

Total 100.0 194,425 100.0

Source: RSL Association Annual Report 2006.



An interstate comparison of participation rates

Participation rates on both a total level and with respect to sport and recreation clubs do not differ markedly in NSW compared to other states (Figure 3.4). However, NSW has the highest levels of participation in golf and lawn bowls, two sports to which the registered clubs industry makes a significant contribution.

Figure 3.4 Total participation rates by state 2006

14.4% 13.8%17.1%

10.1%13.1%

15.4% 17.0%13.7%

29.2% 28.2% 27.6%25.1% 26.4% 24.7%

27.1% 28.4%

0%

5%

10%

15%

20%

25%

30%

35%

ACT NSW NT Qld SA Tas Vic WA

Total participation in sports or indoor facilities

Participation in sport or physical activities in sport or recreation club or association

Data source: Australian Sports Commission Participation in Exercise Sport and Recreation Annual Report 2006.

Figure 3.5 Participation rates for golf and lawn bowls by state 2006

6.4%

7.5%

5.7% 5.8%6.2%

5.8%

6.9% 7.0%

2.3%

1.1% 1.2%

2.1% 2.1% 2.1% 1.9% 2.1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

ACT NSW NT Qld SA Tas Vic WA

Golf Lawn bowls

Data source: Australian Sports Commission Participation in Exercise Sport and Recreation Annual Report 2006.

There does appear to be some differentiation in the services provided by golf clubs in NSW. In 2002, an Ernst & Young report into the golf industry in Australia found that NSW has a significantly larger proportion of non-golf members than other states, this



being a reflection of the wider range of activities available at many metropolitan golf clubs.55

This same report also found that NSW golf clubs make a significant contribution to charity revenues generated by the industry (see Table 3.5). NSW has the second-highest level of average funds raised by club and contributed over half of the total annual revenues raised.

Table 3.5 Charity revenues raised by golf clubs by state 2002

State Average funds raised per club

No. of course-based clubs

Estimated revenue raised

Victoria 7,100 364 2,584,400

NSW 17,100 398 6,805,800

Queensland 8,500 254 2,159,000

South Australia 4,000 167 668,000

Western Australia 2,200 211 464,200

Tasmania 4,600 65 299,000

ACT 26,000 10 260,000

NT 5,600 11 61,600

Total 9,000 1480 13,302,000

Source: Australian Golf Industry Report 2002.

Other differences between clubs across Australia

IPART has also consulted with the peak bodies across the country for lawn bowls and the RSL. Noteworthy points include:

NSW and Queensland have more large bowling clubs that offer a broader range of facilities beyond bowling (although it is estimated that these represent only about 10 per cent of clubs in each state).

States that do not have a registered clubs industry (or equivalent) see a greater degree of funds being directed from the community (through volunteering or government grants) into the clubs to maintain their operations. In NSW, clubs are more autonomous and may direct funds into the wider community.

NSW clubs tend to have higher levels of social membership due to the broader range of products offered.

It is difficult to say whether NSW clubs provide higher levels of community support. Clubs across the country tend to exist as a hub within their communities, especially in regional areas.

55 Ernst & Young, Australia Golf Industry Report 2002



3.1.5 The nature of the costs clubs impose on communities

As mentioned in its issues paper, IPART acknowledges that when considering the registered clubs industry’s social contribution, both positive and negative contributions need to be taken into account. While revenue from gaming machines assists clubs to remain viable and make a variety of social contributions, it also brings with it the harm associated with problem gambling.56

The clubs industry in NSW has had a strong association with gambling facilities over the last 50 years. Clubs’ not-for-profit status, membership requirements and social benefit objectives were critical for gaining monopoly rights to gaming machines in NSW57. This exclusive privilege was granted in 1955-56, and maintained until the mid-1990s when the Star City Casino opened (1995) and gaming machines were introduced into hotels (1997)58.

Submissions to the review have provided some information on the costs associated with the operation of gaming machines by clubs. The Responsible Gambling Fund Trustees argued that, given 87 per cent of registered clubs in NSW operate gaming machines, the industry needs to give greater priority to harm minimisation measures targeting problem gambling.59 It also noted that 95 per cent of problem gamblers and 87 per cent of moderate risk gamblers indicate that gaming machines are their preferred form of gambling. 60 It also argued that in assessing the economic flow-on effects of the industry, attention must be given to negative economic flow-on effects from excessive or problem gambling. 61

The Wesley Community Legal Service commented that some clubs appear to be “mini-casinos” with a large central and prominent gaming area surrounded by a ring of satellite activities, such as bars, restaurants and TAB, and that gaming machines facilitate the transfer of money from gaming machine players to gaming machine venues. 62 It also argues that many economic studies have tended to underestimate the costs to the community of problem gambling and overstate the benefits (for example the Productivity Commission’s 1999 estimates).

56 Gaming machines are one form of gambling available in NSW. Gambling involves staking money on

uncertain events driven by chance. The two broad categories of gambling are: gaming, which involves playing games of chance for money and broadly includes all non-wagering gambling; and wagering, which involves placing a bet on the outcome of a racing or other event (usually a sporting event). The main forms of gambling available in NSW are gaming machines (available in registered clubs, hotels and the Star City Casino), lottery products, casino gaming and wagering.

57 Hing, N., 2000, Changing Fortunes: Past, Present and Future Perspectives on the Management of Problem Gambling by New South Wales Registered Clubs.

58 As noted earlier in this report, between 1984 and 1997 hotels in NSW were permitted to operate up to 10 “approved amusement devices” that differed from gaming machines operated by clubs in their functionality and appeal.

59 Responsible Gambling Fund submission, p 3. 60 Responsible Gambling Fund submission, p 2. 61 Responsible Gambling Fund submission, p 3. 62 Wesley Community Legal Service submission, p 1.



NCOSS argued that any management plan for the clubs industry must incorporate a stronger, more strategic focus on harm minimisation and effective regulation that protects communities and is proportionate to the significant profits that the clubs industry reaps from gaming. 63

GIS argued that while IPART will review the social and employment contributions of clubs, there is a significant absence in this review of the social costs of clubs due to the negative effects of problem gambling. 64

In assessing the impacts of gambling in clubs, several questions need to be answered:

What are the net benefits and costs of gambling?

Does gambling in clubs lead to a net increase in gambling in society?

Is gambling in clubs any more or less likely to lead to problem gambling in society than gambling elsewhere?

As set out below, the evidence on the net benefits of gambling is inconclusive. However, IPART notes that the Government’s policy approach has been to seek a balance between the majority of those in the community who participate in gambling as an enjoyable and harmless pastime, and those for whom gambling causes significant problems. IPART’s own 2004 report Gambling: Promoting a Culture of Responsibility took a similar view.

Secondly, IPART found no firm evidence that gaming in clubs has led to a higher overall level of gambling in NSW than in other states.

Finally, while claims have been made that clubs provide a safer environment for gaming (in the sense that gaming in clubs is less likely to lead to problem gambling than gaming in other venues)65, IPART has found no evidence to support this claim. Equally, there is no evidence to show that clubs are a less safe environment.

Benefits and costs of gaming

As outlined by IPART in its 2004 report Gambling: Promoting a Culture of Responsibility, many people in NSW regard gambling as an enjoyable activity. For example, they may see it as:

a way to pass the time in a pleasant social environment

a form of entertainment or an escape from reality

a means of achieving excitement, a thrill or an adrenalin rush

a hobby or way to relax

a chance of achieving the dream of financial security 63 NCOSS submission, pp 7-9. 64 GIS submission, p 2. 65 For example, ClubsNSW in its submission to the Statutory Review of the Gaming Machines Act 2001, p

10.



a medium to help them meet other people.

The gambling industry in NSW also employs a sizeable number of people, makes a significant contribution to NSW Government revenue, and provides social and recreational opportunities for the many people who participate in its various forms. However, when participants spend more time and money on gambling than they can afford, it can also result in harm to them, their families and the wider community. This is particularly the case for problem gamblers. All Australian jurisdictions have adopted the following definition of problem gambling:

Problem gambling is characterised by difficulties in limiting money and/or time spent on gambling which leads to adverse consequences for the gambler, others, or for the community. 66

Problem gambling also imposes a burden on a state’s health and community services and in many cases on the criminal justice system.

OLGR recently completed its five-year statutory review of the Gaming Machines Act. The review has reinforced the Government’s commitment to ensuring that members of the community who are more vulnerable to harm or distress are suitably supported. It recognised that some people are harmed by excessive gambling on gaming machines and found that the provisions of the Gaming Machines Act provide protection for those members of the community. 67

The review found that the twin objectives of reducing the harm that can be associated with gambling on gaming machines and the enforcement of the responsible conduct of gambling across the industry remain appropriate objectives of the Gaming Machines Act. IPART notes the following measures that address these objectives:

The Gaming Machines Act places limits on the number of gaming machines in NSW. It caps the number of approved gaming machines in hotels and clubs at 104,000 (25,980 of which can be in hotels and 78,020 in registered clubs). It also sets venue-level caps on gaming machine numbers (30 for hotels and 450 for most registered clubs). The review recommends that given the reduction over time in the overall number of gaming machines in NSW68, the state-wide cap should be reduced to the current level of entitlements and that the legislation be amended to allow for a mechanism for the automatic reduction of the cap over time.

66 Gambling Research Australia, Problem Gambling and Harm: Towards a National Definition, 2005. 67 OLGR, Report on the Five-Year Statutory Review of the Gaming Machines Act 2001, December 2007, p 9. 68 A total of 3,860 entitlements have been forfeited since the commencement of the Gaming Machines

Act in April 2002, p 16.



Hotels and registered clubs seeking additional gaming machines, or seeking to install gaming machines in a new hotel or new club, must submit a local impact assessment (LIA). These assessments are necessary to assess the impact of additional gaming machines on communities. Some venues seeking to increase their gaming machine numbers significantly may also be required to enter into a community contract to provide for amenities required by the local community, such as sporting, educational or cultural facilities.

Through the Responsible Gambling Fund, the Government is providing $31 million over the next four years for a state-wide network of 50-plus counselling and support services. 69

Given the operation of these measures, IPART notes that supporting the status quo for the clubs industry, and encouraging the development of new clubs, does not equate to increasing community access to gaming. Although there are costs associated with the operation of gaming machines, the Government’s integrated policy framework seeks to ensure that these costs do not exceed the benefits provided by the industry.

However, given IPART’s finding on the reliance of clubs on gaming machine revenue, IPART considers it important to consider the costs associated with this form of revenue.

3.1.6 An interstate comparison of some gambling data

NSW Government policy over the last 10 years has focused on achieving a balance between the vast majority of those in the community who participate in gambling as an enjoyable and harmless pastime, and those for whom gambling causes significant problems70. In its 2004 report Gambling: Promoting a Culture of Responsibility, IPART also noted both the benefits and harms associated with gambling and recommended an integrated policy framework to promote a culture of responsibility within the gambling industries.

Given this context, the IPART has identified that the central issue is whether clubs increase the amount of gambling (and therefore potentially increase the prevalence of problem gambling) or just affect the venue where it takes place.

The clubs industry in NSW is a crucial supplier of gaming machines to the gambling market (see Table 3.6). Clubs in NSW provide around three-quarters of the state’s gaming machines and 37 per cent of the country’s.

69 OLGR, Report on the Five-Year Statutory Review of the Gaming Machines Act 2001, December 2007, p 26. 70 Gambling Legislation Amendment (Responsible Gambling) Bill 1999 – second reading speech.



Table 3.6 Number of gaming machines by state 2005/06

Venue NSW Vic Qld SA WA Tas ACT NT AUS

Casino 1,500 2,500 3,876 983 1,500 1,280 - 812 12,451

Clubs 74,280 13,490 22,024 1,595 - 183 5,066 706 117,344

Hotels 24,254 13,657 19,496 11,003 - 2,217 84 344 71,055

Total 100,034 29,647 45,396 13,581 1,500 3,680 5,150 1,862 200,850

Note: While more recent figures are available on the number of gaming machines by state, 2005/06 figures are used for comparison with per capita gambling expenditure in Table 3.7 and Figure 3.6, 3.7 and 3.8.

Source: Australian Gambling Statistics 24th edition 2007.

However, there are many other gambling products available across the country. The per capita gambling expenditures by state for various forms of gambling are shown in Table 3.7.

Table 3.7 Per capita gambling expenditure on different forms of gambling 2005/06 ($)

NSW Vic Qld SA WA Tas ACT NT AUS

Racing 144 157 102 88 153 75 107 629 138

Lottery 10 2 0 - - 2 4 - 4

Lotto 78 92 90 72 135 67 59 99 88

Instant lottery 13 6 29 10 22 9 8 11 15

Pools 1 0 1 0 0 0 0 0 0

Casino 122 264 191 104 223 270 75 678 187

Minor gaming - - - 9 14 - - - 2

Keno 16 2 28 11 - 55 3 - 13

Gaming machines

964 635 585 624 - 295 764 391 663

Interactive gaming

- - - - - - - 101 1

Total Gaming 1,204 1,000 924 831 393 699 914 1,281 974

Sports Betting 10 14 3 2 5 2 - 287 11

Total All Gambling

1,357 1,170 1,029 922 552 776 1,022 2,197 1,123

Note: Rows/columns may not add due to rounding.

Source: Australian Gambling Statistics 24th edition 2007.

The following points are noteworthy:

NSW has the second-highest total gambling expenditure per capita ($1,357); the NT has the highest ($2,197).71

71 Although it should be noted that a significant portion of NT’s expenditure can be attributed to people

outside NT betting with bookmakers located within NT.



NSW has the highest per capita gaming expenditure at $1,204, compared with an Australia-wide level of $974. This is largely attributable to the contribution of gaming machines operated in hotels and clubs (80 per cent of per capita gaming expenditure in NSW is on gaming machines).

With the exception of NT and WA, gaming machines have the greatest contribution to per capita gambling expenditure. This may be a function of the location of gaming machines in these two states. In WA, gaming machines are only operated within the casino (see Table 3.6), while in NT around 44 per cent of the state’s gaming machines are operated within the casino.

Despite the strong contribution by gaming machines to gambling expenditure, there does not appear to be a direct correlation between the access to gaming machines and per capita gaming machine expenditure. Figure 3.6 shows the gaming machine expenditure per capita by the number of people per gaming machine. While NSW leads the country in both the incidence of gaming machines and gaming machine expenditure per capita, a higher incidence of gaming machines does not necessarily result in a significantly higher level of per capita expenditure. Queensland operates with around double the number of machines per 1000 people than Victoria (10 compared to six), yet has a lower level of per capita gaming machine expenditure ($585 compared with $635).

Figure 3.6 Incidence of gaming machines and per capita gaming machine expenditure by state 2005/06

NSW

VicQldSA

Tas

ACT

NT

0

200

400

600

800

1000

1200

0 5 10 15 20 25 30

Incidence of gaming machines (number of gaming machines per 1000 people)

Gam

ing

mac

hine

exp

endi

ture

per

ca

pita

($)

Data source: Australian Gambling Statistics 24th edition 2007 and IPART analysis.

In 1999, the Productivity Commission found that, overall, the evidence appeared to suggest there was a significant connection between greater accessibility to gaming machines and the greater prevalence of problem gambling. Based on more recent studies it appears that greater access to gaming machines does not necessarily translate into a higher incidence of problem gambling measured via the Canadian Problem Gambling Index (CPGI).



The CPGI is the preferred measurement tool for population-level research, and is now used by all Australian governments. Using this index, the adult population can be classified as either problem gamblers, moderate risk gamblers or low risk gamblers. In its 2007 report into Prevalence of Gambling and Problem Gambling in NSW, OLGR combined the problem gambling and moderate risk gambling groups to form an ‘at risk’ gambling group. Figure 3.7 shows the incidence of at risk (problem and moderate risk gamblers) from recent studies into problem gambling in other states. While NSW leads the country in access to gaming machines, its incidence of problem gambling is comparable to Queensland, which has a lower incidence of machines than NSW, and not much higher than in the other states.

Figure 3.7 Incidence of gaming machines and incidence of at risk gamblers

NSW (2006)QLD (2004)

SA (2005)TAS (2005)

Vic (2003)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0 2 4 6 8 10 12 14 16 18 20

Incidence of gaming machines( number gaming machines per 1000 people)

Inci

denc

e of

pro

blem

gam

blin

g (C

PGI)

- mod

erat

e an

d hi

gh ri

sk

Data source: NSW: ACNielson Prevalence of Gambling and Problem Gambling in NSW – A Community Survey 2006; Victoria & Tasmania: Tasmanian Gambling Prevalence Study 2005; Queensland: Queensland Household Gambling Survey 2003-04 Factsheet; SA: Gambling Prevalence in South Australia Factsheet 2005.

When considering only the problem gambling group (Figure 3.8), NSW has a similar incidence to Victoria and Tasmania, which both operate with less than half the incidence of gaming machines than NSW.



Figure 3.8 Incidence of gaming machines and incidence of problem gamblers

NSW (2006)

Vic (2003)

QLD (2004)

SA (2005)

TAS (2005)

0.00.10.2

0.30.4

0.50.60.7

0.80.91.0

0 2 4 6 8 10 12 14 16 18 20

Incidence of gaming machines( number gaming machines per 1000 people)

Inci

denc

e of

pro

blem

gam

blin

g (C

PGI)

-hi

gh ri

sk

Data source: NSW: ACNielson Prevalence of Gambling and Problem Gambling in NSW – A Community Survey 2006; Victoria & Tasmania: Tasmanian Gambling Prevalence Study 2005; Queensland: Queensland Household Gambling Survey 2003-04 Factsheet; SA: Gambling Prevalence in South Australia Factsheet 2005.

IPART also notes that it is possible that clubs may provide a safer gambling environment because their mutual status encourages a stronger sense of care towards their members. However, IPART has been unable to locate any specific research into the impact of particular types of venues on problem gambling.72

3.1.7 IPART’s finding: on balance clubs make a positive contribution to the community sufficient to justify government support

As outlined above, the NSW clubs industry appears to play a role in contributing to higher levels of participation in the two main sports (golf and lawn bowls) in which it operates, as well as providing a broader range of facilities when compared with other states. Registered clubs provide some services that might otherwise be provided by government or by the private sector. While the clubs industry is a significant contributor to the operation of gaming machines in NSW, the evidence does not show a direct correlation between access to gaming machines and the incidence of problem gambling. IPART is also aware that the positive and negative contributions of clubs are exaggerated by partisans in support and opposition to the industry. IPART’s view is that, on balance, clubs make a positive contribution to the community. This contribution is sufficient to justify the level of support the industry receives from government.

72 Gambling Research Australia has recently commissioned a study on the influence of venue

characteristics to determine whether certain features of different types of premises are more or less likely to attract and/or maintain problem gamblers.



3.1.8 The CDSE Scheme

The CDSE Scheme is a state-wide initiative that provides a dollar-for-dollar tax offset to registered clubs that are liable to pay gaming revenue tax (that is where gaming machine revenue exceeds $1 million a year), against their social contributions (cash or in-kind) in line with the Scheme’s requirements.

The NSW Government established the Scheme in 1998 to encourage registered clubs earning large profits from gaming machines to be involved with and provide financial support for locally-based community programs and services. It does this by providing a gaming machine revenue tax offset of up to 1.5 per cent to clubs that make financial contributions to eligible recipients. This is known as a ‘CDSE liability’. 73

More than one-third of all registered clubs in NSW participate in the CDSE Scheme. In 2005/06, clubs reported CDSE contributions worth $69.7 million against a CDSE liability of $39.8 million. It is the only statutory scheme that requires clubs to record and report on the social contributions they make.

IPART has found that the Scheme is generally an effective means for clubs to support the NSW community.

Stakeholder comment

The consistent message from issues paper submissions and the roundtable process was that the CDSE Scheme worked well. In general, submissions viewed the Scheme as an efficient and effective way of channelling funds to worthy local community causes. Clubs, community groups such as NCOSS, Government (OLGR) and industry peak bodies (such as ClubsNSW) all gave support to the Scheme.

Case study clubs also appeared to have a reasonable level of satisfaction with the Scheme and its operation. Some case study clubs would prefer to include more sporting contributions and many argue that contributions to hospitals, currently excluded, should be included in the Scheme. On the other hand, NCOSS and the NSW Gambling Impact Society want to see less sporting contributions.74 Both NCOSS and ClubsNSW believe a more detailed level of reporting could be of benefit and one submission called for the Scheme’s extension.75

Many of the case study clubs expressed a strong desire to allocate CDSE only to recipients in their immediate local area.76 This was a particular concern for some

73 While the term ‘CDSE liability’ is used in the guidelines for the scheme, IPART notes that the scheme

is not compulsory for clubs. Clubs with gaming machine revenue greater than $1 million per annum that do not participate in the scheme simply do not receive the tax offset.

74 NCOSS submission p 6, GIS submission p 4. 75 CDSE should be extended beyond the 1.5 per cent tax offset, Wests Ashfield Leagues Club

submission. 76 For example, Tathra Country Club, Riverstone-Schofields Memorial Club, Clubmulwala and Club

Old Bar.



clubs that participated in CDSE local committees where the area the committee covered was substantially larger than the individual club’s local community. Clubs also noted that some groups that needed assistance did not always know about the Scheme or how to apply for it.77

Some clubs did see benefits in CDSE Scheme expansion. 78 However, on the issue of whether the CDSE Scheme could be expanded to beyond the current 1.5 per cent of prescribed profits, there seemed to be a common misunderstanding that CDSE is compulsory and that extending it would create a larger cost burden for clubs (when in fact it operates as a revenue-neutral tax offset).

As discussed in Chapter 1, OLGR recently completed a review of the guidelines that detail the operation of the CDSE Scheme and released new guidelines in October 2007. As the review process has just concluded, IPART has attempted to avoid any duplication of this work. Where possible, IPART has not commented on the inner mechanics of CDSE Scheme operation. It has chosen to only address high level issues or those where it felt significant attention was warranted.

3.2 Potential responses to enhance clubs’ social contribution

While IPART has found that clubs on balance make a positive social contribution to NSW communities, there are four areas where it is recommending responses to enhance this contribution:

Improving measurement and reporting of club contributions.

Making minor changes to the CDSE Scheme.

Increasing employment and other economic opportunities.

Aligning key contributions of clubs with the NSW State Plan.

The following sections provide a summary of IPART’s proposals in these areas.

3.2.1 Improved measurement and reporting of club contributions

While IPART received extensive submissions on what clubs do in their local communities, few clubs measured and recorded these contributions in any systematic way.

IPART recommends that clubs seek to improve this through adopting a common approach across the industry to measure and report club contributions. As part of this, IPART is recommending a combination of qualitative and quantitative measurement and reporting mechanisms that capture the contributions made by clubs in NSW.

77 For example, Cronulla-Sutherland Leagues Club Limited and Clubmulwala. 78 For example Asquith Bowling and Recreation Club.



IPART recommends that the direct contributions made by clubs, both cash and in-kind, be measured and recorded by the industry. While cash contributions are easily identified and aggregated, in-kind contributions, such as the provision of sporting and community infrastructure, are more difficult to measure. IPART is therefore proposing a market-value approach, as outlined in its issues paper, to value the in-kind provision of this infrastructure. These contributions should be measured and recorded by ClubsNSW every three to four years as part of its regular survey of the industry. IPART estimates that these direct quantifiable elements of clubs’ social contribution amounted to a total of $893 million in 2007.

IPART recommends qualitatively measuring the indirect contributions made by clubs. Clubs should be encouraged to identify and list these contributions as part of their annual reporting to members.

Further information on these recommendations is contained in Chapter 4.

3.2.2 Minor changes to the CDSE Scheme

IPART recommends minor changes to the CDSE Scheme. While consultation clearly identified the CDSE Scheme as an efficient and effective way of channelling funds to worthy local community causes, it also revealed some areas where minor changes will help enhance the Scheme’s operation. IPART has also found that some needy groups were not aware of the Scheme or were unsure how to apply. IPART believes greater awareness of the program and an understanding of how to apply could be improved through the prominent promotion of CDSE Scheme details on council and club websites.

Further information about these recommendations is in Chapter 5.

3.2.3 Enhancement of employment and economic opportunities

While clubs create important employment opportunities in their local communities, IPART has found that these can be further enhanced by implementing measures that deal with the issues. While labour shortages are being experienced in many industries across the country, the clubs industry should use the advantage of its strong community presence to expand the employment opportunities it provides. IPART recommends the industry achieve this through a combination of providing greater access to training and increasing awareness of the opportunities that it provides.

Clubs are well placed to provide local employee training, particularly in regional locations. They have the necessary facilities and community presence and should encourage their employees to pursue ongoing training in their industries (for example hospitality and tourism). Clubs should also try to give greater exposure to the opportunities they present to the over age 55 and tertiary graduate labour markets.



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.

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.

Given the important role played by volunteers in the clubs industry, IPART considers it essential that clubs continue to involve and retain volunteers. ClubsNSW argues that barriers to involving volunteers in the clubs industry are consistent with many organisations that use volunteer labour in Australia. As highlighted by ClubsNSW, a recent survey by Volunteers Australia found that 51 per cent of organisations experience barriers to involving volunteers.79 These include attracting and retaining suitable volunteers, skills and training, and costs and administration associated with complying with legislative and procedural requirements.

IPART has observed that this area is of particular importance in relation to club directors. All club directors are volunteers and play an important role in maintaining the financial viability of registered clubs. There is further information about this is in Chapters 6 and 11.

IPART acknowledges the employment and other economic opportunities provided by clubs, such as contractor payments, volunteers, training, tourism and taxation. Although these opportunities are also provided by other industries, IPART recommends that the industry should continue to measure and report these, for example through the regular industry survey conducted by ClubsNSW.

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.

As outlined in section 3.1.3, ClubsNSW suggested that further opportunities could be provided for registered clubs to enhance their economic opportunities in regional areas through existing NSW Government business development programs.

IPART acknowledges this suggestion and notes that while there are many assistance schemes available, many clubs are unaware that they could be eligible. IPART therefore recommends that ClubsNSW improve industry awareness of these programs by providing regular updates to the industry on existing and any new programs as they become available.

79 Volunteering Australia, National Survey of Volunteering Issues, 2007.



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.

3.2.4 Clubs’ contribution to achieving the objectives of the State Plan

The State Plan – a new direction for NSW was released in November 2006. It focuses on five areas of activity of the NSW Government:

Rights, Respect and Responsibility – the justice system and services that promote community involvement and citizenship.

Delivering Better Services – key services to the whole population including health, education and transport.

Fairness and Opportunity – services that promote social justice and reduce disadvantage.

Growing Prosperity Across NSW – activities that promote productivity and economic growth, particularly in rural and regional NSW.

Environment for Living – planning for housing and jobs, environmental protection, arts and recreation.

The State Plan sets out the goals the community wants the NSW Government to work towards. It identifies priorities for government action that will help achieve each of these goals over the next 10 years.

IPART has examined options for the roles registered clubs might play in advancing the NSW Government’s priorities as set out in the State Plan.

What clubs are already doing about priorities in the State Plan

The State Plan is essentially about the Government’s actions, rather than other parties such as clubs. Nevertheless, ClubsNSW’s submission to the issues paper listed a number of ways in which clubs already assist in advancing the Government’s priorities, through their measures to control risk drinking, combat under-age drinking and drink-driving (many clubs provide courtesy buses or subsidised taxi services), and to promote environmental sustainability. The evidence here suggests that effective partnerships have already been developed between the clubs industry and government agencies.

Clubs, in particular smaller clubs, with their reliance on volunteer contributions from their members, are also a potential mechanism for increasing the proportion of the community involved in volunteering or group sporting or recreational opportunities, another of the State Plan’s targets.



The CDSE Scheme model of local committees consisting of club, local and state government representatives is also an effective way of directing club activities towards community priorities that could also respond to priorities in the State Plan. Participants at the Wagga Wagga roundtable (Wagga Wagga City Council and the Leagues Clubs’ Association) noted that CDSE committees represent a powerful partnership between clubs and government and that State Plan priorities can be fed into that process by the State Government representatives.

However, whether or not CDSE committees actually do factor in State Plan priorities is an open question. For example, Penrith City Council’s submission to the issues paper suggests that its CDSE committee does not consider State Plan priorities and would require additional funding to do so. (This suggests a misunderstanding of the nature of the State Plan, which is about setting priorities for existing funding.)

Some larger clubs, such as the Panthers Entertainment Group (PEG) and Mounties, are already working directly in partnership with local and/or the NSW government outside the CDSE framework and are aware of the State Plan priorities in that way. For example, the Panthers Entertainment Group representative at the Sydney roundtable spoke of his club’s ’Panthers on the Prowl’ community youth outreach program as a direct partnership with three levels of government that responds to State Plan priorities.

What clubs might do in future about priorities in the State Plan

Clubs are referred to explicitly only once in the State Plan, under Priority E8, in an initiative described as “working with hotels and clubs to more effectively support arts, cultural and sporting activities, especially in rural and regional areas”. A working group has been established to develop two pilot “sport accords” involving clubs, schools and the local council in two local government areas. The process of developing an accord involves firstly liaising with the community to identify the most pressing issues affecting sport participation. Once the key issues are identified, the accord becomes the community's plan on how to address these.

An example could be that a key limiting factor to sport participation is a lack of facilities. Through an accord process, a registered club might undertake to upgrade and maintain a school’s oval in return for the school making the oval available to the wider community on weekends. This is consistent with what has already happened with some clubs and local councils – for example, Mounties maintains council sporting grounds in Liverpool as a community contribution.

IPART considers that the accords’ activities could be extended to take a similar approach to auditing and then planning for more effective use of other community recreational and cultural facilities, for example meeting rooms and exhibition spaces.

Given the conflicting evidence about whether or not CDSE committees are considering State Plan priorities, there is scope to give additional advice to the committees that they should be doing so.

4 Measuring and reporting on club contributions



IPART estimates that the value of clubs’ direct social contributions was $893 million in 2007. This includes cash donations, volunteer hours and in-kind sporting and community facilities. It does not include the indirect contributions made by clubs (such as the sense of community well-being generated by their existence), which IPART recommends should be acknowledged qualitatively rather than quantitatively.

IPART also notes a recent study by ACG that estimates that the NSW community is willing to pay between $59 million and $224 million a year to prevent a decline in club-provided community services. The ACG study used a choice modelling technique to estimate the levels of satisfied demand that exceed the prices at which club social infrastructure and services are provided. The ACG estimate used a very different approach to that of IPART and, as a consequence, should be interpreted differently. Further discussion on the ACG study is presented in section 4.5.

This chapter discusses IPART’s findings and recommendations on improving the measurement and reporting of the clubs industry’s provision of social infrastructure and services. The following sections discuss:

measurement options presented in IPART’s issues paper

issues that affect all measurement options

stakeholder comments

IPART’s preferred approach

another option: the ClubsNSW/ACG approach

improving reporting of club social contributions.

4.1 Measurement options discussed in the issues paper

As discussed in Chapter 3, registered clubs’ social contributions can be categorised as either direct or indirect and are made either on a cash or in-kind basis. In describing who benefits from these contributions, IPART also notes the contributions can be divided into three groups:

1. in-house contributions for club primary purpose

2. in-house contributions for general member benefit

3. external contributions for community benefit.



While these categories are important for describing the types of contributions made by clubs, IPART recommends a somewhat simplified version of this framework for measurement. While some contributions can be easily identified as either for in-house primary purpose benefit, in-house general members’ benefit or external benefit, others straddle all of these areas. This is mainly because goods, such as say, bowling greens, cultivate both in-house (member) and external (non-member) contributions, so it becomes difficult to separate and measure these differently – particularly since such a task is made more difficult from the data and information limitations that exist within the industry. IPART has therefore decided the types of contributions made by clubs fall into two categories: direct and indirect. The following sections describe measurement options for each of the categories.

4.1.1 Measuring the value of direct social contributions

Direct social contributions are a result of purposeful, specific action from a club and always involve club inputs, either cash or in-kind support. As outlined in IPART’s issues paper, measuring the value of direct cash payments is simple. However, measuring the value of direct in-kind contributions can be done in a variety of ways, including:

1. surplus revenue funding

2. willingness to pay

3. avoidable cost

4. market value.

Option 1, surplus revenue funding, measures the level of direct social contribution by quantifying the revenue transferred from profitable to non-profitable club activities. Options 2, 3 and 4 assign an economic value to a club-provided product and compare the assigned economic value to the observable sale price charged by the club.

4.1.2 Measuring the value of indirect social contributions

Indirect social contributions are much harder to identify and measure quantitatively because they are not purposely targeted by a specific club action, but are rather an indirect outcome (a by-product) from the existence, operation and activities of a club. In addition, the benefits they create are likely to be both intangible and valued differently by different members of the community, which means they are also hard to quantify with any accuracy.

Because of these difficulties, IPART’s issues paper noted that a qualitative statement that describes the nature of the indirect social contribution a registered club makes, and the benefits the club believes local communities derive, is likely to be the best way to assess these contributions. Such qualitative statements should also be relatively straightforward to produce.



4.2 Measurement issues

Certain measurement issues exist no matter what valuation methodology is used to measure clubs’ provision of social infrastructure and services. These are caused by the industry’s information and data limitations, and provide several challenges.

As not-for-profit, mutual entities, clubs have little incentive to record, measure or report their social contributions, except where they are required to by the CDSE Scheme. Where known quantities of identified goods exist, it is relatively straightforward to calculate such a value, and a simple process to identify and quantify the provision of social infrastructure and services. For some parts of the industry this is the case; however, for the majority, the exercise is more difficult.

Complexities arise because a comprehensive and complete list of club goods is hard to ascertain, as is the identification of the quantities consumed. Furthermore, the diversity of clubs in varying geographical locations means the goods and services provided throughout the industry are extremely heterogeneous, and as such will obtain different values.

4.3 Stakeholder comment

IPART’s stakeholder consultation attracted little comment in relation to the requirement to develop a methodology to identify and record a value for the clubs industry’s provision of social infrastructure and services. This is most likely to be due to the complexity and difficulty most industry participants have with this subject.

Some submissions to the issues paper detailed the need to assess the contribution in terms of ‘net contribution’, in recognition of the fact that clubs do impose costs on communities as well as benefits.80 However, IPART has been asked to identify and record a value for the provision of social infrastructure and services, which requires a valuation exercise rather than a net contribution assessment (ie, cost benefit analysis). IPART has not ignored these costs and, as discussed in Chapter 3, examined these as part of its assessment of whether the relative benefits and costs of the industry justify support from government.

Comments on the measurement of indirect contributions were provided by ClubsNSW, Catalina Country Club and an individual (Mr Wayne Sampson).

ClubsNSW argued that option 2, ‘willingness to pay’ (or consumer surplus), is the best suited to the valuation of the clubs industry’s provision of social infrastructure and services. Such an approach estimates the consumer surplus individuals extract through consumption of club-provided goods and services.

80 Wayne Sampson submission, p 5; Responsible Gaming Fund Trustees submission, p 3.



In support of this approach, with reference to the measurement of club cash contributions and the valuation of in-kind contributions through a market equivalent cost, ClubsNSW states:

While it is useful to quantify the size of these contributions, this in itself is not a measure of benefit to society. The size of welfare benefit arising from these expenditures depends on how the contributions are spent and how they are targeted. While all cash contributions likely result in a positive impact to community wellbeing, some types of activities may have higher payoffs than others… Similarly, the value of in-kind contributions, such as volunteer time, should not be measured in terms of the market equivalent cost of acquiring this service. This presumes that the service would have been purchased by the consumer if it were not for clubs providing it. This may not always be the case.

Mr Sampson preferred option 4, market value, on the basis that it is a comparatively more reliably quantified measure (as market values and club sale prices are easily observed) that eliminates any difficulty associated with quantifying what proportion of club pricing surplus can be considered a social contribution. The Catalina Country Club also preferred option 4 due to the ease it offers in identifying the necessary components for calculation.

4.4 IPART’s preferred approach

IPART recommends that the total value of this provision is calculated as the sum of the following components:

Direct, cash contributions made to charities, community and sporting related activities.

Direct, in-kind provision and maintenance of community and sporting facilities and infrastructure (eg, bowling greens, gyms, tennis courts, as well as meeting rooms and other venues).

Contributions from club volunteers.

As outlined above, indirect (cash and in-kind) social contributions are much harder to identify and measure quantitatively. As a result of these characteristics, IPART recommends a qualitative approach for recognising the indirect social contributions made by the registered clubs industry.

While measuring the value of direct cash payments to charities and eligible spending in-line with the CDSE Scheme is relatively simple, the in-kind provision of community and sporting facilities, meeting rooms and other venues is more complex.



After considering each of the options presented in its issues paper and the stakeholders’ responses, IPART has found that market value is the most appropriate because:

it is a comparatively more reliably quantified measure (as market values and club sale prices are more easily observed)

it does not attempt to estimate the consumer surplus and so does not require estimates or assumptions about the price elasticity for these products

such an approach can identify and record a value for either an individual club or the aggregate provision of club goods and services by the industry.

4.4.1 Value versus benefit

IPART sees merit in the ‘willingness to pay’ approach’s ability to capture the full extent to which communities value club-provided goods. However, deriving such values is complicated and expensive, as it involves estimating the level of satisfied demand that exists above the market clearing price (and therefore requires a complicated modelling technique such as choice modelling). IPART also notes the following points:

The calculation of value differs from the exercise required to measure benefit. In economics, the calculation of benefit involves an estimation of the consumer and producer surplus for a good or service. On the other hand, to identify and record a value requires a valuation, which is usually not measured by benefit, but rather by some form of market- or cost-based approach. For this review, the terms of reference require IPART to record the value of the club provision of social infrastructure and services.

Nevertheless, a consumer surplus measure gives a useful estimation of the economic benefit that communities derive from club-provided community services. It supplies information about the size and nature of clubs’ provision of social infrastructure and services and identifies communities’ willingness to pay to maintain or increase community services.

4.4.2 An overview of the preferred methodology

ClubsNSW publishes the results of a four yearly socio-economic impact study (SEIS) by ACG. The SEIS collects information from registered clubs through a comprehensive industry survey. ACG uses this information for various analyses, including an assessment of industry contribution. ClubsNSW has provided IPART with data from the ACG survey to calculate an estimate of the clubs industry’s contribution to the provision of social infrastructure and services.



Under IPART’s recommended methodology, the clubs industry’s social contribution has been calculated using data from the ACG survey according to the following expression:

Total social contribution = Total direct cash contributions

plus

Total direct in-kind contributions through provision of club facilities

plus

Total contributions from volunteers Note: As discussed above, indirect contributions are to be acknowledged qualitatively rather than quantitatively.

As outlined above, IPART favours a market value-based approach to determine the value of direct in-kind club-provided social infrastructure and services. This approach focuses on the opportunity cost in revenue a club foregoes through its provision of the contribution. It calculates the difference between the commercial or market value of the product, less the price charged by the club, to determine the club’s direct social contribution. Where a club provides the product at no charge, the commercial or market value represents the total direct social contribution.

Equation 1 below illustrates how market value is applied:

(1) MVX – SPX = SCX

where: MVX represents the market value of product X ; SPX is the club sale price for product X; SCX represents the measure of social contribution for the provision of product X.

IPART’s methodology uses available commercial prices for comparable goods and services and deducts the payment made by members and non-members for use of these facilities. It does not include the consumer surplus that individual members and other users may enjoy or the community-wide (or public) benefits generated on top of the value of CDSE and other similar contributions.

4.4.3 Measurement of ‘representative club type’ contribution

Under IPART’s approach, the aggregate industry contribution is calculated based on an estimation of the contribution of 40 representative club types (which reflect the size and location of clubs in the industry). With an identification of the goods provided and a value assigned for each, a ‘value multiplied by quantity’ calculation determines the total contribution of each representative club type. The industry’s 1400 clubs are then categorised and assigned to one of the 40 representative club types (representing the individual club’s size and location, eg, a regional club which generates $1-5 million in gaming machine revenue). The representative club



contributions, assigned to each of the industry’s clubs, are summed to calculate an aggregate valuation of the provision of social infrastructure and services.

IPART’s valuation has used data from ACG’s survey of clubs to aggregate representative club contributions. This involved the following steps:

1. Developing representative club types (RCTs). IPART has used 40 RCTs to represent the variations of 4 club types (bowling, golf, RSL and other), five commonly used size categories (which use gaming machine revenue (GMR) as a measure of club size) and either a country or metropolitan location. For example, RCTs were developed for country-based bowling clubs that generate $200,000-$1 million GMR and metropolitan-based RSL clubs that generate between $5-10 million GMR. The number of RCTs was selected by balancing whether there were enough clubs sampled within a category and also whether combining categories would aggregate the contributions to a level where the number/type of facilities were not consistent with IPART’s observations.

2. Calculating the value of direct cash contributions made by each RCT. IPART divided the total cash contributions made by the number of clubs surveyed in each RCT.

3. Calculate the value of the direct in-kind social contribution made by each RCT for the provisions of community infrastructure and facilities. IPART undertook the following four steps: a) identify market prices for each of the facilities provided by clubs b) identify the sale prices for each of the facilities provided by clubs c) identify the number of community facilities, such as bowling greens, meeting

rooms, billiard tables, etc, provided by each RCT category d) applying equation 1 and taking club numbers in each RCT sample, one could

then estimate each RCT’s ‘typical’ per club provision of community facilities.

4. Sum the value of direct cash contributions and direct in-kind contributions for each RCT to obtain an estimate of the total value of club contributions for each RCT.

5. Scale up the result of the total social contribution for each RCT based on appropriate statistical weightings to obtain a value for the total industry social contribution.



IPART encountered the following issues in applying this method to the data made available by ACG:

Market values cannot be estimated for all club-provided facilities. IPART has attempted to value the majority of club-provided facilities. For those products where no market value can be estimated (mainly due to the absence of an active market in these products or significant heterogeneity in the types of facilities provided), IPART recommends that the contributions associated with them be acknowledged qualitatively (as with indirect contributions). These include memorials, playgrounds, library, carpet bowls, boat/ski facilities and other (sporting and non-sporting) facilities.

Market values for products differ based on factors such as location, type and quality. IPART has therefore adopted a range of market values where appropriate for metropolitan and country/regional facilities. These ranges reflect IPART’s assessment of the market values of typical low and high value facilities.

Club sale prices and annual sale quantities have not been collected by ACG as part of its survey. IPART has therefore adopted an alternative calculation of the market value of direct in-kind social contributions.

Table 4.1 summarises IPART’s approach for estimating market values for club-provided facilities.

Table 4.1 Market valuation approach for club provided facilities

Club-provided facility Market value approach

Bowling greens, golf courses, tennis courts, squash courts and swimming pools

Market values were estimated using the ABS NSW sport participation and frequency rate, the market value for annual participation and the number of facilities in NSW. The estimated market value represents the annual sum of revenue generated using market values for participation.

Gymnasiums A market value was estimated by multiplying the average gym membership with the market value for annual participation. The estimated market value represents the annual sum of revenue generated per gymnasium.

Billiard tables A market value was estimated based on a usage assumption multiplied by an hourly market rate. The estimated market value is equivalent to the annual sum of revenue generated.

Meeting rooms/entertainment halls and accommodation

Market values were estimated by multiplying the ABS room occupancy rate by an estimate of the room rate market value.

Memorials, carpet bowls, boat/ski facilities, playgrounds and libraries

Acknowledged as part indirect contributions and recorded by clubs through a qualitative approach.

More detail on the application of this approach is in Appendix D.



4.4.4 IPART’s estimate of the clubs industry’s social contribution

IPART estimates a total social contribution of approximately $893 million. This estimate is based on the mid-point of the valuation ranges applied and is comprised of a market value of in-kind contributions, cash and volunteer hours of $1,460 million less revenue received for provision of facilities of $568 million.81 Table 4.2 shows the breakdown of the elements of this contribution.

Table 4.2 Clubs industry’s cash and in-kind social contributions

Industry values $ million

Direct cash contributions 91

Direct in-kind contributions

Market value of facilities 1,244

Less revenue received by clubs for their facilities

568

Volunteer hours 126

Total value of social contribution 893

Note: Rows may not add due to rounding.

IPART notes that this result should be considered in the context of the following:

1. Gaming machine income of $2.8 billion for the 2006 gaming machine tax year. 82 As outlined in Chapter 6, gaming machine revenue typically subsidises club activities such as bar and restaurant operations, as well as the provision of community facilities (including sporting fields, bowling greens, golf courses and meeting rooms).

2. Club gaming machine revenue tax rates are around half of those of NSW hotels. This in effect provides a tax concession of approximately $484 million for 2007/08.

IPART notes that, in 2007, the clubs industry received total gross revenue of $5.4 billion and incurred gross expenditure of $4.2 billion, the difference between total revenue and expenditure being $1.2 billion.83 As not-for-profit entities, the difference between clubs’ revenue and their expenditure clearly has a relationship to their social contribution. When compared to IPART’s $893 million estimate of the clubs industry’s social contribution, the difference between total revenue and expenditure lends some support to the order of magnitude of IPART’s estimation.

81 Excludes revenue from gaming machines. 82 Calculated as gaming machine revenue (excess of revenue from machines over outgoings from

machines) less gaming machine tax/duty. 83 Allen Consulting Group, Preliminary unpublished data from Socio-Economic Impact Study of Clubs

in NSW (2007).



4.5 Another option: the ClubsNSW/ACG approach

As discussed in section 4.3, ClubsNSW supported using ‘willingness to pay’ to obtain an estimate of consumer surplus, to measure the benefit communities derive from the community services that clubs deliver.

Essentially, such a measure estimates the aggregation of satisfied demand above the levels (prices) at which club goods are bought (ie, where consumers’ willingness to pay for club goods exceeds the prices at which these goods are traded in the market). ClubsNSW engaged ACG to estimate this value. ACG used choice modelling to do this and estimated the NSW community is willing to pay between $59 million a year and $224 million a year (through a direct household contribution) to prevent a decline in club-provided community services. The following sections provide more details of this methodology.

4.5.1 ACG Choice Modelling

Choice modelling is a stated preference technique that involves eliciting people’s preference or choices for different options in a representative setting to ascertain how much they are willing to pay for those options.84 ACG notes that choice modelling does not attempt to estimate the total value of the social contribution made by registered clubs. Instead, the technique measures community members’ willingness to pay to maintain or increase certain community services that clubs deliver.

ACG surveyed over 1000 adults (of 18 years or older) in September 2007 to achieve three outcomes:

identify respondents’ perspectives and attitudes towards registered clubs

understand respondents’ preferences to changes in existing social services provided by clubs

estimate the amount people are willing to pay to increase the level of various social services provided by clubs.85

Before conducting the survey, ACG ran focus groups (of general community members) to identify and select the non-monetary attributes that guide consumers’ preferences for club provision of goods. Usually between three and five non-monetary attributes are chosen for such an exercise. ACG selected five, as well as a monetary attribute that ACG defined as an annual tax payment or local government levy to fund or increase club contributions to the community.86 The five non-monetary attributes used in the choice modelling exercise are outlined in Table 4.3.

84 Allen Consulting Group 2007, Valuing the Social Contribution of Registered Clubs to the NSW Community,

Final Report to ClubsNSW, Sydney, p viii. 85 Allen Consulting Group 2007, Valuing the Social Contribution of Registered Clubs to the NSW Community,

Final Report to ClubsNSW, Sydney, p ix. 86 Allen Consulting Group 2007, Valuing the Social Contribution of Registered Clubs to the NSW Community,

Final Report to ClubsNSW, Sydney, p 14.



Table 4.3 Non-monetary attributes used in ACG’s choice modelling exercise

Attribute Description

Quality of life for the elderly Registered clubs provide a meeting place for the elderly – both a social outlet and a place for friendship support. Some clubs also employ welfare officers who provide specific help to those in need, such as meals on wheels.

Safe environment for families Many clubs aim to cater for families and provide a safe environment for young and old. Children are cared for in a number of ways, including crèches, safe outdoor play areas and special activities. Some clubs provide low-cost child care for members.

Volunteer opportunities Clubs provide a supportive environment for people to get involved in volunteer activities – eg running sporting activities – helping build better communities. Volunteers can benefit from the self-esteem and leadership values gained through volunteering.

Affordable meals and entertainment Clubs enable people to have an enjoyable night out at an affordable price – offering in particular affordable meals and entertainment. This is particularly beneficial for people on low incomes..

Sport, health and mental well-being Sport improves people’s health, fitness and mental state. Almost all registered clubs provide some form of sporting facilities – eg gyms and bowling greens. In many towns, recreational facilities are maintained by clubs and are available to the public.

Source: Allen Consulting Group 2007, Valuing the Social Contribution of Registered Clubs to the NSW Community, Final Report to ClubsNSW, Sydney, p 15.

The focus groups were used to develop and refine the survey’s questionnaire format that was sent to over 1000 community members. The survey elicited respondents’ preferences through a series of questions (called choice sets), which were used to rank the attributes in accordance with their preferences. Describing their preferences in terms of the defined set of attributes, respondents differentiated the alternative attributes from each other, demonstrating their willingness to trade one for another. Using the monetary attribute (ie, the local government levy or state tax payment), ACG made dollar estimates for changes in attribute levels and calculated consumers’ willingness to pay to maintain or secure additional units of the attributes.



From its results, ACG noted that people with the following characteristics were more likely to support the maintenance of and/or improvement to community services provided by clubs:

females

respondents in older age groups

respondents with lower education levels

frequent visitors to clubs

respondents with higher levels of income. 87

Table 4.4 shows ACG’s estimates of community members’ willingness to pay to prevent a decline in current services levels.

Table 4.4 Willingness to pay (WTP) to prevent a decline in existing service levels

Attribute Current Level Hypothetical decline in services by 2017

Value of a one unit change ($/person)

Annual WTP to prevent the decline ($/person)

Quality of life for the elderly

25 per cent of clubs provide services for the elderly

Reduce to 20 per cent of clubs

$0.96 per cent change

$4.80

Safe environment for families

20 per cent of clubs provide family friendly facilities

Reduce to 15 per cent of clubs


$6.30

Affordable meals and entertainment

Meals and entertainment are approximately 20 per cent cheaper in clubs than pubs and restaurants

Reduce size of discount to 10 per cent


$19.40

Sport, health and mental well-being

30 per cent of the NSW population participates in club-organised or funded sport

Reduce level of participation to 20 per cent


$12.60

Total $43.10


Table 4.5 shows ACG’s estimates of community members’ willingness to pay to increase current service levels.


Final Report to ClubsNSW, Sydney, pp 22-23.



Table 4.5 Willingness to pay (WTP) to increase existing service levels

Attribute Current Level Hypothetical increase in services by 2017

Value of a one unit change ($/person)

Annual WTP for total increase ($/person)

Quality of life for the elderly

25 per cent of clubs provide services for the elderly

Increase to 45 per cent of clubs


$19.20

Safe environment for families

20 per cent of clubs provide family friendly facilities

Increase to 30 per cent of clubs


$12.60

Affordable meals and entertainment

Meals and entertainment are approximately 20 per cent cheaper in clubs than pubs and restaurants

Increase average discount to 25 per cent


$9.70

Sport, health and mental well-being

30 per cent of the NSW population participates in club-organised or funded sport

Increase participation to 40 per cent


$12.60

Total $54.10


Extrapolating these findings to estimate the NSW population’s aggregate willingness to pay, ACG estimated that the NSW community is willing to pay between $59 million per year and $224 million per year (through a direct household contribution) to prevent a decline in club-provided community services.88 To improve club-provided community services (in line with Table 4.4), ACG estimated that the NSW community is willing to pay between $73.4 million per year and $281 million per year.89

4.5.2 Why is ClubsNSW’s figure different from IPART’s?

ClubsNSW’s figure differs from that calculated by IPART because of the fundamental difference in what the two methodologies are measuring. As discussed in section 4.4.1, choice modelling captures the benefit communities derive from the consumption of club-provided goods. On the other hand, the calculation of value requires a valuation, which is usually not measured by benefit, but rather by some form of market or cost-based approach. For this review, the terms of reference


Final Report to ClubsNSW, Sydney, p 26. 89 Allen Consulting Group 2007, Valuing the Social Contribution of Registered Clubs to the NSW Community,

Final Report to ClubsNSW, Sydney, p 24.



require IPART to record the value of the club provision of social infrastructure and services.

The ACG value estimates the benefit to the community of maintaining the services provided by clubs. By contrast, IPART measures the total social contribution made by clubs.

4.6 Improving reporting of the value of clubs’ contributions

IPART recommends that its preferred approach, based on the aggregation of the estimated provision of representative club types, be adopted as the standard measurement of club-provided social infrastructure and service because:

it is a reliably quantified measure (as market values and club sale prices are easily observed)

it does not attempt to estimate a consumer surplus and therefore does not require estimates or assumptions on the price elasticity for these products.

However, since such an exercise carries significant cost and requires substantial resources, IPART recommends it occur on a four-yearly basis.

As the leading industry peak body, ClubsNSW is the logical choice to make future valuations (which is not dissimilar to the task performed by peak bodies in other industries). ClubsNSW currently conducts its own socio-economic impact study of clubs in NSW on a four-yearly basis.

IPART also notes that an individual club could produce an estimate of its own individual contribution by applying IPART’s estimated market values to the number of facilities it provides.

IPART also gives support to the continuation of other valuation exercises, such as ClubsNSW’s choice modelling exercise. Valuation exercises such as this offer additional insight into the contribution clubs make to communities.

IPART further recommends transparency and openness in the production of all valuation results. To produce a credible valuation, all results need to be completely transparent and accompanied with detailed explanations of the assumptions and estimation procedures used. Where this does not occur, such results lack credibility. Allowing transparency and scrutiny gains the confidence of external stakeholders and government, which increases the likelihood that the results of the valuation will be accepted.



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.

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.

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.

5 The Community Development and Support Expenditure Scheme



As outlined in section 3.1.8, the CDSE Scheme is a state-wide initiative that provides a dollar-for-dollar tax offset to registered clubs that are liable to pay gaming revenue tax (ie, where gaming machine revenue exceeds $1 million per annum), against their social contributions (cash or in-kind) in line with the Scheme’s requirements.

The OLGR administers guidelines that detail the operation of the CDSE Scheme. After consultation with stakeholders during a review of the CDSE Scheme, the OLGR published revised guidelines in October 2007.

As the review has just concluded, IPART has attempted to avoid any duplication of this work. Where possible, IPART has not commented on the inner mechanics of the CDSE, and has chosen to only address high level issues or those where it felt significant attention was warranted.

These areas include:

improved promotion of the Scheme

encouragement for clubs without a CDSE liability to channel their community contributions through a CDSE local committee

additional support for the Scheme’s local committees by OLGR

improved guidance on the measurement of in-kind CDSE contributions

improved reporting of club contributions.

5.1 Improved promotion of the CDSE Scheme

Consultation clearly identified the CDSE Scheme as an efficient and effective way of channelling funds to worthy local community causes.90 However, case study clubs also indicated that some needy groups were not aware of the CDSE Scheme or were unsure how to apply.91

90 Clubs, community groups such as NCOSS, Government (OLGR) and peak industry bodies (such as

ClubsNSW) all gave support to the Scheme. 91 For example, Clubmulwala and Cronulla-Sutherland Leagues Club Ltd.



IPART believes greater awareness and understanding of the program and how to apply for it could be improved through the prominent promotion of CDSE Scheme details on council and club websites. This would include information about who is eligible for CDSE funding and how applicants can apply.

Clubs should also be encouraged to advertise and publicise the contributions made through the CDSE Scheme. IPART believes a combination of both actions would develop a stronger community awareness of CDSE opportunities to improve the likelihood that the most worthy applicants would apply.

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.

5.2 Including smaller clubs in the committee process

Smaller clubs, below the CDSE threshold, should be encouraged to participate in a CDSE local committee process. Participation in CDSE local committee processes will give smaller clubs access to the community and social planning expertise that NCOSS, DOCS and councils provide local committees. IPART believes small club participation in the local committee process will improve the effectiveness of small club contributions, and will enable greater co-ordination between individual clubs and the contributions they make as a group.

Recommendation

9 That ClubsNSW encourage smaller clubs below the CDSE threshold to participate in a CDSE local committee process.

5.3 More support for local committees

In the roundtable consultation, the OLGR discussed providing greater support to CDSE local committees through, for example, an annual conference for committee members and the provision of more guidance on process and conflict resolution issues. While clubs and industry stakeholders were generally happy with the CDSE local committee process, IPART believes the OLGR proposal would further strengthen committee processes by offering greater support and disseminating best practice to participants and convenors. OLGR’s proposal is supported by the IPART as a means of improving the effectiveness of the Scheme.



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.

5.4 Measurement of in-kind CDSE

After considering comments received on in-kind measurement options, IPART believes market value is best suited to measuring clubs’ in-kind provision of goods and services. It assigns a commercial or market value to the good provided in-kind. The value of the club’s direct social contribution is then found by subtracting any price or fee charged by the club from the commercial or market value assigned to the good.

5.4.1 The need for clearer direction

While clubs do not appear to have any problems describing the in-kind contributions they make, IPART’s roundtable and case study club consultation revealed the difficulty they experience when trying to quantify them. This difficulty was further demonstrated by the limited comment IPART received about the options outlined in the issues paper for club in-kind contribution measurement.

Clubs have expressed a view that it is unclear how the in-kind provision of goods and services should be calculated. Some confusion on their part is understandable, because both the March 2004 and the revised October 2007 CDSE guidelines92 say that ‘actual cost’ rather than market price should be claimed, but the guidelines do not define or give examples of actual cost. Actual costs could be interpreted in a number of ways, for example: as opportunity cost, marginal cost, avoided cost or average cost – all of which would produce different values.

Even ClubsNSW’s best practice guidelines for clubs give an incorrect example of actual cost, saying that clubs should claim the usual price that they would charge a community group. The guidelines state that valuation should reflect the actual cost to the club, and not the market rate, but then explain that meeting room facilities should be valued at the standard room hire fee ordinarily applied (ie, the market rate). ClubsNSW’s misinterpretation of the valuation requirements is a clear sign that the industry struggles to deal with the valuation of in-kind. IPART believes this is mainly because the guidelines are difficult to understand and apply correctly.

92 CDSE Scheme Guidelines, March 2004, p 7; October 2007, p 6.



5.4.2 IPART’s options for in-kind measurement

IPART’s issues paper identified the need for a clearer approach to measure clubs’ in-kind contributions. The issues paper outlined four possible options:

1. surplus revenue funding

2. willingness to pay

3. avoidable cost

4. market value.

Chapter 4 has discussed these options in relation to direct and indirect social contributions.

5.4.3 Stakeholder comment

Only a small number of submissions provided comments on IPART’s in-kind measurement options; most of which supported a market value approach.93,94 95

ClubsNSW supported option 2, willingness to pay, stating:

…the methodology employed must be capable of holistically capturing the value communities place on having clubs… the willingness-to-pay method is consistent with an economic definition of value… a choice modelling technique [is] capable of estimating quantitative, dollar measures for these values.96

ClubsNSW believes willingness to pay provides a suitable measure to value clubs’ in-kind contributions. ClubsNSW recommends the use of choice modelling, a stated preference technique,97 to value consumers’ willingness to pay.

93 A submission from Wayne Sampson (pp 11-12) provided comment on all measurement options. Mr

Sampson identified option 4, market value, as his preferred option on the basis that it is comparatively more reliably quantified (as market values and club sale prices are easily observed), which eliminates any difficulty associated with quantifying what proportion of club pricing surplus can be considered a social contribution. His views on the other three options are:

surplus revenue funding ignores the fact that surpluses between the production costs and the club sale prices are quite often accumulated in financial reserves, rather than returned to members in the form of further benefits.

willingness to pay is limited by the difficulty involved in deriving an accurate estimate of willingness to pay, given the wide ranging socioeconomic heterogeneity that is typical of many communities.

avoidable costs does not take account of sunk, fixed costs, which, if the service was withdrawn, would disadvantage members who would bear the costs of the stranded asset.

94 The Catalina Country Club (submission, p 1) also preferred option 4 due to the ease it offers in identifying the necessary components for calculation.

95 Many case study clubs used a market price measure to quantify in-kind contributions (eg, to value the provision of meeting rooms to charity groups). In their opinion, a market price approach represented their opportunity cost and, without any clear direction for valuation, was the only logical way to assign value (for example Bowlers’ Club of NSW and Clubmulwala).

96 ClubsNSW submission, pp 56-57. 97 Choice modelling analysis starts with a survey where participants answer a series of questions

regarding preferences for alternative goods. Using a defined set of attributes, participants demonstrate their willingness to trade off one alternative for another. Through the use of a monetary attribute, this technique is able to assign value to non-market goods.



5.4.4 IPART’s preferred approach

IPART recommends market value be used to measure clubs’ in-kind provision of goods and services.

Of the case study clubs, Clubmulwala was the only club to quantify its in-kind contributions (predominantly room hire) through a method that accounted for all associated marginal costs (eg, servicing and cleaning the room). However, the in-kind value for, say, room hire for a short meeting to a small church group, would be negligible (assuming the servicing and cleaning costs would be close to zero). IPART does not consider a value of close to zero, particularly for meeting rooms, to be a fair outcome, as it does not recognise the fact that clubs built these facilities largely for the purposes of meeting the needs of community groups and organisations.

IPART believes a market value measure can avoid the current confusion experienced by the industry. It will establish a clear, consistent and objective approach through its simple, straightforward application of easily understood and observed values. Surplus revenue funding and avoided cost are more complicated and require a subjective assessment of cash flows and the costs clubs incur.

IPART’s view is that the CDSE Scheme guidelines should be amended to replace the reference to actual cost with market value. Additionally, the guidelines should be enhanced to include a more comprehensive explanation of the in-kind valuation process. To assist clubs with their application of the valuation technique, the comprehensive explanation should include detailed working examples of commonly used in-kind CDSE valuations.

Recommendation

11 That:

– 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.

5.5 Improved reporting of club contributions

Measurement and documentation of club social contributions would make the task of identifying and measuring the value of the contributions that clubs make to communities easier.98 However, such an obligation would impose a significant additional burden on the industry (in particular for smaller clubs). Some case study

98 Outside CDSE requirements, clubs traditionally do not measure in-kind contributions. However,

some clubs have begun to record and value them.



clubs99 noted the administrative burden measuring and recording involves and/or the difficulties associated with the valuation of in-kind contributions.

A mandatory reporting framework would require all clubs to record, report and potentially measure the social contributions they make in communities. As the recording and reporting of social contributions on an industry-wide level would be useful and informative when defining and measuring the role of the clubs industry in NSW communities, the benefit this provides needs to be balanced against the administrative and procedural burden it would create for clubs.

While a mandatory reporting framework would conceivably be acceptable for the largest, strongly managed clubs with multiple layers of management, smaller clubs may not have the necessary resources to perform this task.

In light of the administrative burden measurement can impose, it is recommended that individual club measurement, recording and reporting of contributions, beyond that required and conducted through the CDSE Scheme, remain non-mandatory. This decision would reflect the fact that:

mandatory reporting would create a large administrative burden (particularly on smaller clubs), and

there would be little direct benefit for individual clubs from such information.

Nevertheless, clubs that actively record and measure their activities and contributions gain useful commercial information and receive benefits through a better understanding of their core business. Recognising these benefits, the ‘For Community Support’ section of ClubsNSW’s Best Practice Guidelines recommends clubs annually assess their community support activities. It recommends these activities be reported separately or in the annual report to club members.100

IPART recommends that recording and reporting of individual club social contributions to members and, where possible, to ClubsNSW, should be encouraged. The benefits of actively measuring and recording club activities and contributions should be communicated to industry through a more detailed discussion within ClubsNSW’s Best Practice Guidelines.101

99 For example Asquith Bowling and Recreation Club, Club Old Bar and Riverstone-Schofields

Memorial Club. 100 ClubsNSW, Best Practice Guidelines, July 2005, p 37. 101 Feedback from the case study process identified that most clubs looked to ClubsNSW best practice

guidelines for guidance and found them to be very useful.



Recommendation

12 That:

– club measurement, recording and reporting of contributions, beyond that required and conducted through the CDSE Scheme, should remain non-mandatory

– the recording and reporting of individual club social contributions to members and ClubsNSW should be encouraged

– 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.

6 Financial viability of the registered clubs industry



As noted in the terms of reference, the financial viability of the NSW registered clubs industry has been under increasing pressure as a result of a number of factors. These include demographic change, as well as recent changes to the regulatory framework governing club operations, in particular gaming machine tax rates and non-smoking legislation. Registered clubs also continue to face increasing competition from the hotel sector.

IPART investigated what clubs earn and spend, and has confirmed the common perception that most clubs are highly dependent on gaming revenue. As a result they are very vulnerable to any change related to the regulation of gaming machines.

Despite this, IPART notes that 13 per cent of clubs have no gaming machines. IPART found that these clubs operate on a quite different business model and, where they are financially viable, remain so largely as a result of volunteer labour and a high level of member involvement. IPART considers that these clubs make an important social contribution by their very existence, and are often the custodians of significant community assets.

IPART found that the financial viability of registered clubs across NSW varies greatly. Some are financially strong while others are struggling, for a variety of reasons including a lack of understanding of their own financial position, the level of competition from other venues in their communities, and the financial management skills of their boards and managers.

In examining what could be done to strengthen the industry’s performance, IPART recommends a co-ordinated response requiring action from individual clubs, government agencies, such as OLGR, and peak bodies, such as ClubsNSW.

IPART’s recommendations involve assisting clubs to identify when their financial performance is declining, and helping clubs and their management to adapt and change. However, IPART also recognises there are some clubs for which no amount of improved financial management will ensure their individual survival and that these clubs may need assistance in exploring options such as amalgamation.








improving clubs’ corporate governance as well as training and development of their boards and managers

establishing a Club Viability Panel to assist clubs in identifying the early signs of financial distress and to advise on potential actions to address these.

The following two sections discuss these findings and potential responses to enhance clubs’ financial viability in more detail. The first presents IPART’s key findings on the industry’s financial viability, the second introduces the potential responses IPART has considered to strengthen the clubs industry’s performance.

6.1 Key findings on clubs’ financial viability

6.1.1 What do clubs earn and spend?

A typical club generates most of its income by offering food and beverages, gaming machines and other sporting and entertainment activities to club members and guests.

ClubsNSW102 identified gaming machines as the predominant source of revenue for clubs, on average accounting for 68.4 per cent of their total revenue, followed by bar and food revenue at 14.8 per cent and 7 per cent respectively. 103 Table 6.1 outlines sources of revenue and profit for registered clubs.

Gaming machine revenue is relatively more important for larger clubs. Larger clubs with gaming machine revenue greater than $10 million rely on it for 75.6 per cent of their total revenues compared with smaller clubs that earn $0-200,000, where gaming machine revenue accounts for 16.2 per cent of total revenue.

Once the costs of providing the above services are met (eg, costs of goods sold, wages and other employee expenses and taxation), the net profits generated from the activities contribute to providing affordable and accessible services to club members (ie, free and discounted activities); enhancing or expanding the club’s facilities;

102 Based on a 2003 study by Allens Consulting Group, Socio-economic impact study of clubs in NSW on

behalf of ClubsNSW. 103 ClubsNSW submission, p 98.



sponsorships and donations to related sub-clubs (eg, junior sporting clubs, RSL activities); and providing community facilities and support.

In terms of profit, ClubsNSW also highlighted that, on average, gaming machine profit accounted for 174.6 per cent of a club’s profit. That is, for every dollar of profit generated by the club, gaming machines contribute $1.74 and the remaining activities make a negative contribution of $0.74, demonstrating the extent to which gaming machines subsidise other club activities.104 These figures were borne out by IPART’s analysis of case study club accounts.

Table 6.1 Sources of revenues for registered clubs

Source Revenue % of total revenue Profit % of total profit

Gaming machine 68.4 174.6

Bar 14.8 17.0

Food 7.0 (1.7)

Membership 1.4 2.0

Facilities and venue rental 0.8 0.4

Other gaming 1.9 0.0

Sports 1.3 (6.3)

Ancillary business 1.4

Othera 3.1(85.8)

a ’Other’ includes ancillary businesses, donations, cash grants, abnormal and extraordinary items.

Source: ClubsNSW submission pp 98-99.

6.1.2 Most clubs are dependent on gaming revenue

As noted in section 6.1.1, those clubs in the industry that operate gaming machines are reliant on the net profits generated from machines to collectively support other lower margin or loss-making departments (eg, catering) and the provision of services and activities to members at a concession.

ClubsNSW also submitted that while diversification is to be encouraged, the long-term viability of clubs will remain closely linked to gaming machine access and operation.105

104 ClubsNSW submission, pp 98-99. 105 ClubsNSW submission, p 100.



IPART concurs with ClubsNSW’s assessment that there are essentially no realistic options for replacing a club’s reliance on gaming machine revenue. Diversification and its impact on a club’s business model are discussed in greater detail in Chapter 8, but the main reasons that gaming machine revenue cannot be substituted are as follows:

While not without risk (ie, competition between gaming venues, consumer appeal/expectations of type of and age of machines), relative to other club department operations and other business segments, gaming machine operations are a simple business with defined gross returns in percentage terms (after gaming tax and return to player).

Gaming machines can generate a much higher volume return per square metre of floor space with relatively low staffing requirements compared with other club trading activities, or any other business a club might diversify into. For example, food operations are far more labour-intensive and influenced by a greater range of external inputs and factors, such as cost of goods, food and service quality and greater competition.

Given this reliance on the contribution from gaming machines, clubs are vulnerable to changes in government policy that directly influence this revenue stream, such as changes to gaming machine tax rates.

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.

IPART notes the NSW Government and ClubsNSW entered into an MOU concerning gaming machine taxation rates in March 2006. This MOU sets the gaming machine tax rates that will apply to registered clubs until 2011/12 and commits the two parties to a consultation mechanism in relation to future changes to taxation arrangements. IPART’s view is that a similar level of consultation should take place concerning future changes in policy (in addition to tax rates) that affect this revenue stream.

However, as discussed in more detail in section 6.1.7 below, some clubs are able to operate successfully with no or low gaming machine revenue.

6.1.3 What constitutes financial viability in the registered clubs industry?

Generally, a business is considered a ‘going concern’ if it can demonstrate that it has the capacity to meet all its financial commitments when they fall due. Put another way, the business has the ability in the future to operate without the need to liquidate assets.



In the clubs industry, this fundamental still applies. Rephrasing it specifically for registered clubs, the question becomes, “can the club generate sufficient funds from its trading activities to enable it to cover its costs and provide services to its members and the community; meet all its external financial obligations; and over the medium to longer term, provide the financial capacity to continually re-invest in the club to remain relevant and competitive?”

However, as a not-for-profit entity, a club is not motivated by maximising profits to provide a financial return to investors, as is the case in the private sector. In principle, a club’s motive is to maximise the level of services and facilities to members. Any profits are generally used to subsidise services or reinvested to provide improved member facilities. In many cases clubs generate gaming profits106 that allow them to operate other departments and activities at less than commercial profits (whether it is slightly lower than market profit, at break-even point, or incurring a loss). For example, on average clubs incurred losses on food and sporting activities (see Table 6.1). For these reasons, benchmarking financial performance against privately owned, for-profit entities is not useful. Therefore, IPART has developed club-specific indicators of financial viability, as discussed below.

6.1.4 Some quantitative indicators of club financial viability

Table 6.2 shows a number of financial measures generally used within the industry to assess the financial viability of clubs. IPART recognises that, in isolation, no one measure will provide a definitive answer on a club’s financial viability – they need to be taken together to provide a complete picture.

106 The terms profit and contribution are used interchangeably.



Table 6.2 Measures of financial viability for registered clubs

Measure Purpose

Earnings before interest, income tax, depreciation, amortisation, rent and donations as a proportion of revenue (EBITDARD%)a

Provides a consistent and comparable measure of the recurring cash trading surpluses before non-cash items and financial commitments.

Working capital surplus (or deficiency) Measures the excess or deficiency of current assets over current liabilities. Provides an indication of the club’s solvency and short–term viability.

Operating cash flows/working capital deficiency Measures the club’s prima facie ability to fund any working capital deficiency through operating cash flows.

Operating cash flows/borrowings Measures the prima facie time period that it would take the club to repay total borrowings through operating cash flows.

Capital expenditure/operating cash flows Measures the club’s level of capital expenditure as a proportion of operating cash flows.

a The standard accounting EBITDA measure is extended to exclude rent and donations paid by clubs to provide a more accurate comparison of financial performance between clubs. Rent is excluded to remove the impact of decisions to lease/rent assets as opposed to purchasing and depreciating assets. Donations are excluded to remove the differences between those clubs not within the CDSE Scheme, those paying the minimum under the CDSE Scheme and those paying amounts over and above their CDSE obligations.

The following indicators (based on the above measures), provide an insight into the financial strength and long-term viability of a club (Table 6.3). For example, growing membership numbers would be likely to be reflected in higher levels of revenue and increasing EBITDARD as a percentage proportion of revenue. Similarly, an increase in trade creditor days would be reflected in a higher working capital surplus.



Table 6.3 Indicators of financial viability for registered clubs

Positive indicators Negative indicators

Stable or increasing positive EBITDARD% (>10%) Declining EBITDARD%

Cash flows from operations greater than any working capital deficiency

Increasing working capital deficiency

Sufficient cash flows from operations that allow regular debt repayments and ongoing capital expenditure from trading cash flow

Declining cash flows from operations or negative cash flows from operations

No reliance on interest bearing debt High levels of interest bearing debt

Ongoing repayment of interest interest-bearing debt

Inability to repay long-term debt

Ongoing capital expenditure and maintenance program

Low or declining capital expenditure and maintenance expenditure

Stable or growing membership Declining membership

Strategic sales of assets made and ongoing sales of plant and equipment with short lifespan (eg gaming machines, audio visual equipment)

Sales of non-current assets (eg land, gaming machine entitlements) to fund working capital deficiencies

Stable or declining trade creditor days Increasing trade creditor days

As noted above, it is essential that such indicators are not viewed in isolation to assess the financial viability of a club operation. For example, a club may have a large working capital deficiency and not be making ongoing principal debt repayments on long-term loans. However, at the same time it may have a strong EBITDARD as a percentage proportion of revenue, generate strong cash flows from its trading activities greater than its working capital deficiency and be undertaking a large capital expenditure program. In this instance it would be wrong to consider the club as having viability issues by the mere fact of it have a working capital deficiency and not making ongoing principal debt repayments on long-term loans. All indicators must be considered as a whole.

Given the complexities of assessing financial health and viability, coupled with some clubs lacking adequate financial reporting and analysis and full-time management (see section 6.1.7), it is not always possible for a club to identify the financial and operational issues it or other clubs are facing. These issues and potential responses are considered further in Chapter 7 (financial reporting and performance benchmarking), Chapter 9 (corporate governance and training and development) and Chapter 12 (Club Viability Panel).

6.1.5 The club financial distress timeline

Clubs that go into administration or receivership tend to exhibit similar patterns and symptoms leading up to this severe financial stress. Figure 6.1 (the club financial distress timeline) graphically depicts the sequence of events typically exhibited by financially distressed clubs.



Figure 6.1 The club financial distress timeline

BA C D

Expenses

Revenue

CAPEX/R&M

Time

$

Aged creditors

The club financial distress timeline

Figure 6.1 maps trading revenues, operating expenses, capital expenditure and total aged creditor liability over time for a typical club in financial distress. The figure above may extend anywhere from two to 10 years.

Early identification and support of club that is experiencing financial distress is of vital importance. The further a club progresses along the time axis the more difficult it is to turn a club’s trading performance around. As the club progresses through stage C the viability of the club becomes more marginal. It may be able to be salvaged provided that appropriate management strategies are implemented quickly or an appropriate amalgamation partner is found. Unfortunately, the club is almost impossible to rescue from D (outside a major asset sale if possible).

The typical sequence of events falls into four stages.



Stage A

In stage A, the example club is enjoying increasing revenues and increasing margins between revenues and operating expenses (ie, increasing EBITDARD%). During this financially strong (or buoyant) period a club may scale up operations to accommodate for the increases in revenues. For example, the club may respond by increasing the management team and spending money on non-value added activities (eg unnecessary renovations and equipment purchases). But despite this fact, profits remain strong, mainly driven by strong revenue growth.

Stage A was typically seen in the period where gaming machine regulation excluded hotels from operating gaming machines, thereby providing a competitive advantage to the club sector.

Stage B

During stage B, growth in revenues may start to slow; however, operating expenses may continue to increase. This may be, for example, as a result of increasing gaming machine tax rates, or the fact the club may lock into commitments that add to the cost of doing business – typically associated with staffing, promotions, or pricing.

During this stage, profitability suffers (ie, the gap between revenue and expenses narrows); however, revenues remain relatively strong. Capital expenditure and repairs and maintenance are often curtailed or delayed. During the latter part of phase B, aged creditors begin to increase and management and board pressure may begin.

Stage C

During stage C, revenues begin to decline, as the lack of capital expenditure and repairs and maintenance affects the appeal of the club and increasing competition attracts members and guests elsewhere. There is also typically a lag in management’s ability to reduce operating expenses because it often views downturns in revenue as temporary.

In some cases, promotional expenditure is increased or prices lowered in an effort to drive revenues up again. At the same time, capital expenditure and repairs and maintenance are now reduced to a subsistence level and aged creditors begin to escalate. To make matters worse, the tension between management and the board may begin to further impact on the business and staff morale. At this stage, a club may decide to sell assets (such as surplus land and gaming machine entitlements) to inject cash into the business.



Stage D

At some time during stage D, operating expenses exceed operating revenues (ie, a cash flow deficiency – insolvency107). If the club has bank debt or a string of creditors, receivership/administration is often the only course.

By this stage, the significant deferral of capital and maintenance expenditure means that the club may need to receive a significant cash injection in order to survive or generate increases in revenues. This is typically where clubs may decide to sell assets.

6.1.6 IPART found that levels of club financial viability varied widely

Evidence presented in submissions and roundtables and borne out by IPART’s investigations of case study clubs indicated that the financial health of individual registered clubs varies significantly from those that are very profitable to those that face serious viability issues in both the short and long term.

In its submission, ClubsNSW identified the proportion of the industry based on size (in terms of gaming revenue108) that was profitable versus non-profitable (see Table 6.4). 109 Approximately 25 per cent of the clubs were considered non-profitable, with a further 24 per cent marginally profitable.

Table 6.4 Proportion of profitable and non-profitable clubs by size ($ gaming machine revenue) 2003

Club size Number clubs Non-profitable (%)

Marginally profitable (%)

Profitable (%)

0-200K 420 37.1 11.3 51.6

>200K – 1m 432 17.6 35.3 47.1

>1m – 5m 369 29.4 26.9 43.7

>5m – 10m 80 15.7 35.3 49.0

> 10m 86 13.0 19.6 67.4

Total clubs 1367 25.6 24.4 50.2

Source: Allen Consulting Group, Socio-Economic Impact Study of Clubs in NSW, 2004, p12.

107 Insolvency is defined as the inability to pay debts as and when they become due or payable. 108 The clubs industry generally assesses club size based on gaming machine revenue. Gaming machines

are a substantial attraction of many clubs; therefore there is a correlation between gaming machine revenue and volume of people frequenting a club.

109 ClubsNSW submission, p 109.



ClubsNSW also highlighted that clubs with gaming machine revenue of less than $200,000 per annum represented 70 per cent of clubs that are marginally profitable or non-profitable in NSW, with many of them bowls and golf clubs responsible for a large proportion of recreational facilities. As shown in Table 6.4, 48.4 per cent of clubs with gaming machine revenue of less than $200,000 a year were considered to be non-profitable or marginally profitable.

However, the ClubsNSW/ACG study used Earnings Before Interest and Tax (EBIT) as the sole measure of profitability. Any club with a ratio of EBIT to total revenue of less than 0.1 per cent was deemed not profitable; between 0.1 per cent and 5 per cent as marginally profitable; and greater than 5 per cent as profitable. As noted in section 6.1.4, IPART considers that any one measure taken in isolation is not necessarily a good indicator of financial viability. Nevertheless, ClubsNSW’s analysis provides a rough guide to the potential level of financial vulnerability in the industry.

6.1.7 Where and why are clubs prospering or declining?

IPART has identified a range of factors affecting clubs’ financial viability. These are outlined in the following sections.

Reliance on gaming and vulnerability to regulatory change

As discussed in section 6.1.2, IPART has found that most clubs are reliant on gaming machine revenue. For this reason, clubs are particularly vulnerable to regulatory change that directly affects gaming machine operations, specifically increases in gaming machine tax rates and the introduction of non-smoking legislation.

But clubs with no or low gaming revenue can still be financially viable

While gaming machine revenue is the major contributor to the viability of many clubs, IPART identified that gaming machines were not necessarily a prerequisite for viability, and that a number of registered clubs successfully operate and provide for members with a relatively small number of machines or no machines.

Although the ClubsNSW submission identified 48.4 per cent of clubs generating less than $200,000 in gaming revenue as non-profitable or likely to be non-profitable, this still means that a (slender) majority of such small clubs could be considered as profitable. IPART visited a case study club that operated 11 gaming machines and remained viable largely as a result of volunteer support.110

110 Bingara Sporting Club.



IPART identified that clubs that operate without significant gaming machine revenue tend to exhibit one of two characteristics:

1. A club with significant contributions from an active member base who volunteer their time to operate the club and co-ordinate member activities. For example, staffing the bar, maintaining the bowling greens or running the junior sporting competition.

2. A niche club offering valuable services or benefits to a specific target membership group, and thereby in a position to demand significant membership fees. For example, exclusive golf clubs or business clubs.

In Western Australia clubs operate without the support of gaming machines, largely on a volunteer basis, and provide a similar range of sport-related activities as NSW registered clubs. In Victoria, clubs previously operated without gaming machines until 1992.

IPART notes that a role exists for non-gaming machine clubs in the community and any recommendations to support the long-term viability of clubs should not overlook this category of club.

Composition and effectiveness of boards and management

IPART has found that the quality of management and board skills have an important bearing on a club’s financial viability. While submissions generally noted that corporate governance had improved since the major reforms in 2003, they argued that the next major corporate governance goal should be to improve the quality of club boards.111 At the Sydney roundtable, Bowls NSW cited the quality of elected boards as the greatest issue facing clubs.112 It was felt that there were far too many people who, while well-intentioned and passionate about the club, didn’t have the necessary skills to effectively direct a business, which in many instances had a turnover in the millions of dollars. ClubsNSW also argued that there is a greater need for directors to have capabilities in areas in which they are currently lacking, such as strategic planning, risk assessment and monitoring financial performance. 113

Similarly, many of IPART’s case study clubs identified the board’s financial skills as imperative to the club’s financial viability. However, IPART found that it was often difficult to judge the level of expertise a board had by indicators such as occupations or qualifications.

Clubs without full-time managers were also pinpointed as especially vulnerable financially.114

111 Campbelltown Catholic Club submission, p 11. 112 Bowls NSW, Sydney roundtable transcript, p 25. 113 ClubsNSW submission, p 158. 114 ClubsNSW, Sydney roundtable, p 30; Leagues Clubs Association, Wagga Wagga roundtable, p 30.



Given this, IPART notes the importance of both the board and management in ensuring the financial viability of clubs.

Some clubs don’t understand their own financial position

ClubsNSW acknowledged that many clubs were multi-million dollar businesses and the level of business practices in clubs needed to reflect this. 115 Central to this is the need for robust and consistent financial reporting and benchmarking to support management’s decision making in clubs and, ultimately, long-term viability.

IPART’s review of case study clubs confirmed that the quality and degree of consistency in financial reporting and analysis varies significantly in the industry. While there are clubs that regularly produce detailed financial performance reporting and analysis there are also clubs (often smaller ones) that produce little more than that required by their statutory obligations. Management reporting frameworks in case study clubs were largely dependent on individual club managers and their own expertise in previous positions, as well as the demands of the board. Formalised budgeting processes, completion of ongoing strategic plans and the use of benchmarking information over key performance measures varied greatly.

Inadequate financial information and benchmarking performance means a club is ‘flying blind’ in terms of understanding its financial performance and ongoing viability. Detailed financial reporting and benchmarking allow a club to monitor performance and identify any warning signs of declining financial performance. If identified early in the financial distress timeline a club can bring in measures to improve financial performance and maintain financial viability.

IPART does note, however, that the framework for providing this information needs to allow for both the size and scope of clubs. For example, the requirements for a large club such as PEG differ from a small club such as Cowra Bowling Club.

Lack of consideration of long-term sustainability and/or retention of community assets

Financially distressed clubs often sell assets to provide a short-term cash injection so they are in a position to pay debts when they fall due. However, this is unlikely to provide any long-term solution to a club’s viability.

A club’s ability to sell assets in lieu of tackling inherent problems with financial viability is a significant issue within the industry. By selling assets, clubs under financial pressure can effectively defer necessary reforms and, in doing so, could impair any opportunity to rectify the problems and thus place community assets and services at risk. For example, some clubs sell their gaming machines and gaming machine entitlements to provide a short-term cash injection. However, in selling these income-generating assets, clubs are limiting their ability to provide a long-term solution to their viability.

115 ClubsNSW, Sydney roundtable, p 25.



IPART identified a number of case study clubs that were experiencing financial stress, had sold or were considering selling assets (mainly gaming machine entitlements) rather than significantly changing their business model.

While IPART does not recommend that further restrictions be placed on clubs in relation to the sale of assets, it does feel that clubs need to be provided with greater assistance to ensure that any sale would be the best option from those available to the club.

Increased competition

There was general consensus amongst case study clubs, public roundtables and many of the submissions that increasing competition from other providers of hospitality and recreation services and products was a major issue affecting the financial viability of clubs.

In particular, stakeholders referred to hotels, which are in direct competition with clubs because they offer similar package of food, beverage and gaming machine options. To a lesser extent, clubs also compete with other recreational and entertainment options, such as cafes, gyms and cinema, for the consumer’s discretionary income or ‘entertainment dollar’.

At the Sydney roundtable, ClubsNSW noted that since the introduction of gaming machines to hotels in 1996/97 there had been 250 closures or amalgamations of clubs. While ClubsNSW did not attribute all those closures or amalgamations to the introduction of gaming machines in hotels, it was suggested as a major contributing factor.

PEG identified that, in more recent times, consolidation within the hotel sector116 (ie, the move away from individual ownership to publicly-listed hotel groups and private equity firms) made them formidable competitors for clubs, which are community-owned and do not have the same capacity for developing group holdings.

IPART notes that while clubs are experiencing increasing competitive pressure, clubs do in fact enjoy some benefits over competitors such as hotels, for example gaming tax concessions, and have previously enjoyed access to land at peppercorn rental rates.

116 PEG submission, p 25.



Demographic change has had an impact on the demand for some clubs

Local demographic and socio-economic changes can influence a club’s core market (members and guests) and thereby influence the profitability and financial viability of a club. These factors may include:

Location of the club in a population growth area leading to an increase in the local membership and guest base.

Conversely, population decline in the club’s catchment coupled with a number of hospitality venues (ie, hotels and other clubs) vying for the same static or declining market.

Changes in the socio-economic or demographic profile of the club catchment area, such as the age profile or entertainment and recreation preferences (for example lawn bowling no longer as popular as in years past).

Case study clubs confirmed the significance of demographic change on club profitability. One case study club identified that its location in a population growth area was beneficial117; another noted the effect a declining population was having on its profitability118. The public roundtables, in particular regional roundtable hearings, also noted the impact of declining populations on club operations.

While a stable or increasing population base is a favourable condition for a club, it provides no certainty of improved financial performance or long-term viability. The club also needs to consider the changing preferences and expectations of members and guests (ie, the market) and respond by providing facilities and services to meet these preferences and expectations (ie, maintaining relevance and market appeal).

Few new clubs are being established

As outlined in IPART’s issues paper, few new registered clubs have been established in recent years. Only 24 new clubs have obtained certificates of registration since 1998, and only three have obtained such certificates in the last three years (2004-2006). ClubsNSW attributes this trend to the impacts of government policy, which it argues has not encouraged the establishment of clubs.

While IPART notes that demographic changes and increases in the level of competition are making it more difficult for the industry, it does not see a role for government in protecting the industry from all changes of this nature. IPART does, however, see a role in ensuring there are no undue barriers to prevent clubs from being set up in the areas that most need them.

117 Bowlers Club of NSW. 118 Clubmulwala.



6.2 Potential responses to enhance clubs’ financial viability

As a result of increasing pressures on operational viability, clubs have been forced to consider ways to become or remain profitable while continuing to provide a level of member and community benefits. Such pressures have led to positive responses, such as clubs diversifying their income streams, and improved management practices. They also have negative consequences, such as clubs selling assets or entering into long-term debt arrangements with little chance of settlement of the debt other than from asset sales.

IPART’s recommendations for initiatives to enhance the clubs industry’s financial viability take into account the fact some clubs in a weak financial position may be there because of reasons that can be dealt with (eg, poor financial management). Other clubs, however, may be in a weak financial position due to external pressures (eg, demographic change), where it is unlikely that improvements to financial or operational management practices will help turn the club around. Therefore, IPART’s recommendations recognise that the industry’s financial position would be improved by consolidating the number of individual clubs.

Given the broad range of clubs, and the various causes of clubs’ financial distress, IPART recommends a co-ordinated response requiring action from individual clubs, government agencies, such as OLGR, and peak bodies, such as ClubsNSW.

IPART’s recommendations involve a strategy of assisting clubs to identify when their financial performance is declining and providing assistance to clubs and their management to adapt and change. However, even with assistance, IPART does recognise that there are some clubs for which no amount of improved financial management will ensure their individual survival and that these clubs may need assistance in exploring options such as amalgamation.






improving clubs’ corporate governance, as well as training and development of their boards and managers

establishing a Club Viability Panel to assist clubs in identifying the early signs of financial distress and to advise on potential actions to address these.

The following sections provide an overview of potential responses. These responses are discussed in detail in Chapters 7 to 12.



6.2.1 Improving clubs’ financial reporting and performance benchmarking

IPART has found that clubs need to improve the quality of their financial reporting and performance benchmarking. As outlined in section 6.1.7, there is a lack of consistent financial reporting and performance benchmarking in the industry. This inconsistency makes it difficult for clubs to monitor their own performance, as well as compare their performance with other clubs.

IPART recommends that as a first step in improving clubs’ performance, a greater emphasis needs to be placed on clubs monitoring and benchmarking their own performance. To achieve this, IPART recommends that clubs with gaming revenue less than $5 million per annum be required to produce their financial statements in a specific, standardised format as well as to report on various financial and operational efficiency measures to the Club Viability Panel as outlined in section 6.2.6.

These recommendations and IPART’s considerations are discussed in detail in Chapter 7.

6.2.2 Diversifying clubs’ sources of revenue

IPART recommends that clubs consider diversifying their sources of revenue, not as a means of reducing their reliance on gaming machine revenue but as a means of expanding their revenue base and maintaining relevance in their communities. As outlined in section 6.1.2, most clubs rely on gaming machine revenue to remain financially viable. This, coupled with the impact of increasing competition and concern about how regulatory change could affect gaming margins, has meant that diversification is becoming a common element of clubs’ business strategies.

However, IPART found that, despite the common belief that diversification is an effective means of reducing reliance on gaming revenue, there is no other business line that can be expected to displace gaming in a club’s business model due to gaming operations’ inherently high margins. Additionally, the ability of clubs to diversify may be limited by club managements’ capacity to handle diversified businesses. Despite these issues, IPART found that diversification can be an effective means of expanding a club’s revenue base, broadening market appeal and maintaining relevance through additional services to members and the local community.


6.2.3 Making it easier for clubs to amalgamate

There are some clubs for which no amount of improved financial management will ensure their individual survival. In some cases, the impact of demographic changes has reduced the demand for goods and services provided by clubs to the point where



the number of clubs servicing a particular community may not be sustainable. Additionally, some clubs may be in a limited position to deal with increased levels of competition from other providers of hospitality and recreation services and consolidating the number of clubs in the area will improve their financial viability.

IPART believes that amalgamations can assist clubs in areas where there may be an excess number of clubs and in areas where clubs may be struggling to achieve financial viability. For example, some areas may be serviced by three or more clubs that may all be experiencing financial difficulty and may face considerable challenges to become financially viable. In this case, IPART’s view is that the needs of this community would be better served through the existence of one strong club, that consolidates the activities and membership of each club, leverages the assets of all clubs and achieves cost efficiencies through the pooling of resources and greater purchasing power with suppliers.

IPART has therefore examined the amalgamation process, noting its importance to consolidation and ensuring a sustainable industry. It has noted concerns from stakeholders regarding the complexity and cost of the process and is recommending measures that aim to provide a greater level of information to individual clubs about the requirements of the process. Improving clubs’ financial reporting and performance benchmarking (as discussed in Chapter 7) will also better equip clubs to identify the optimum time to amalgamate.


6.2.4 Making it easier for clubs to be established

As outlined in 6.1.7, it is important to ensure that there are not any undue barriers that prevent clubs from being set up in areas that most need them. IPART has therefore examined how clubs are established in an attempt to identify any undue barriers in this process and how these could be reduced.

IPART has found that the changing operating environment and maturity of the industry make it unlikely that there will be another 1950’s style boom in the number of registered clubs. However it does believe that changes in three key areas will assist in making it easier for clubs to be set up in areas that need them:

Greater guidance should be provided to groups wishing to establish a registered club. IPART recommends that the OLGR and peak bodies produce both a guide to registration as well as a pro-forma club constitution to assist in this area.

Planning for new developments should include an allowance for land that is suitable for the establishment of a registered club.

New clubs should continue to have access to 10 free gaming machine entitlements until alternative measures to help new clubs are in place.




6.2.5 Improving corporate governance, training and development

As outlined in section 6.1.7, the composition and effectiveness of club boards and the quality of management have a strong influence on a club’s financial viability. Clubs that perform well tend to have either a strong, competent board or manager and ideally a club should strive to have both.

An effective board and management team assists a club, as they can:

use appropriate financial planning and assess their club’s financial position

implement measures such as performance benchmarking and diversification

identify when it may be an appropriate time to consider amalgamation and ensure the continued community ownership of club assets.

Stakeholders did not raise significant concerns with the effectiveness of club management. However, this was not the case with club boards, where stakeholders nominated three principal challenges to board effectiveness:

1. deficiencies in director skill sets

2. difficulties in attracting directors

3. difficulties in electing directors.

Some directors do not have a strong grasp of risk management techniques, financial concepts or the responsibilities attaching to their position. Many clubs are also finding it difficult to attract qualified, adequately experienced people to stand for their boards. And some clubs are limited by constitutional restrictions as to who can stand for election or would have difficulty being elected by the membership.

IPART proposes a suite of recommendations to deal with each of these challenges, including:

Directors of clubs with gaming machine revenue greater than $1 million a year being required to complete ongoing professional development training. IPART has minimised the burden this training could place on clubs by recommending a flexible model that recognises prior learning and allows directors to meet ongoing learning requirements through various options.

Clubs being encouraged to remove any board or voting restrictions from their constitutions. Where limitations remain, IPART recommends that board-appointed directors should be allowed.

Clubs being encouraged to conduct performance assessments and have a formal succession planning policy in place.



ClubsNSW more extensively promoting examples of effective corporate governance and providing further guidance to clubs on best practice.

While not identified by stakeholders as an area of concern, IPART considers that management effectiveness will also improve as a result of these initiatives. For example, if boards become more effective at performing their functions, it will assist them to better oversee and assess management’s performance. IPART’s recommendations will also assist club managers to introduce standard financial reporting and performance benchmarking (see section 6.2.1).

In relation to training, IPART considers that there is a wide array of training options for directors and managers of clubs. However, stakeholders thought factors such as time, cost and negative attitudes to formal education were acting as barriers to directors and managers taking up these training options. As such, IPART has proposed recommendations to improve the existing training situation.

IPART’s considerations and recommendations on the above issues are discussed in detail in Chapter 11.

6.2.6 Establishing a Club Viability Panel

While the measures outlined in 6.2.1-6.2.5 are directed at assisting clubs to monitor and assess their own financial viability and take appropriate actions to correct any decline, IPART believes that there is a role for an independent body to advise clubs on particular matters that affect their performance. IPART recommends that an independent body, known as the Club Viability Panel, be established with members drawn from industry, government and one or more independent members with financial or legal expertise, to implement standardised financial reporting, conduct industry benchmarking, and offer advice on financial viability and amalgamation.

Over the course of its review, IPART has noted that many of the peak bodies (such as ClubsNSW, RSL & Services Clubs Association, Bowls NSW) have been able to identify solutions to many of the issues faced by the industry. However, clubs themselves may either be unaware that there is a problem or in some cases, may be reluctant to adopt the required solution. Of course, control over clubs’ future direction lies with their members through the current democratic system of electing a board to govern these entities. However, it is expected that the Club Viability Panel will be able to play a leadership role in encouraging the industry and individual clubs to implement some of the solutions.

The Club Viability Panel would be advisory rather than supervisory in nature and would direct its attention to four primary areas.

1. Considering financial reporting and benchmarking information provided by clubs.

2. Identifying clubs that are potentially at risk or in serious financial difficulty.



3. Advising these clubs that they have been identified.

4. Advising clubs of options for improving their financial position including accessing industry support schemes, options for diversification and amalgamation.


7 Financial reporting and performance benchmarking



Detailed financial reporting, coupled with relevant analysis in a timely and ongoing manner, will assist clubs in identifying areas for improvement, declining financial performance and ultimately, financial viability. Once a club is able to understand and interpret its financial performance, the next step is to tackle any issues revealed by the analysis. Clubs may also require assistance with this step.

IPART therefore recommends the adoption of a system of mandatory financial reporting.

Clubs with gaming machine revenue less than $5 million per annum would be required to adhere to a standard format for management accounts. They would also submit a suite of financial indicators annually to the proposed Club Viability Panel to be used to develop industry-wide benchmarks. This will help clubs most likely to be in need of assistance119 to:

monitor their financial performance

benchmark their individual performance against the wider industry.

IPART recognises that, even with mandatory benchmarking, some clubs at risk of financial distress may continue to be unaware of their financial status. This includes some clubs with gaming machine revenue greater than $5 million per annum. IPART therefore recommends that all clubs should be required to submit a single financial measure (EBITDARD as a percentage proportion of revenue) annually to the proposed Club Viability Panel, to be assessed as an initial indicator of potential financial distress. Clubs with EBITDARD as a percentage proportion of revenue below a specified threshold would be eligible for further assessment and assistance from the Club Viability Panel.

This chapter deals with:

current financial reporting and performance benchmarking requirements for registered clubs

the importance of consistent financial reporting and performance benchmarking

IPART’s observations and considerations

IPART’s recommendations for 119 Based on ACG’s assessment of the percentage of unprofitable clubs in each size category (see Table

6.4).



– standard financial reporting – performance benchmarking – assessment of an initial indicator of potential financial distress – the consequences of non-compliance with the mandatory – categorisation of club size.

Chapter 12 explains how the Club Viability Panel will help to produce and use this information to assist clubs to attain long-term financial viability.

7.1 Current financial reporting and performance benchmarking requirements for registered clubs

As incorporated entities under the Corporations Act, clubs are required to lodge audited financial reports that meet Australian accounting standards with the Australian Securities and Investments Commission (ASIC).

As discussed in Chapter 6, IPART observed that the level of detail contained within this statutory reporting varied significantly. Some clubs provide additional information to users about departmental trading performance, yet many choose not to provide this level of detail. Others use different formats for disclosure within the income statement, or different interpretations of accounting standards when deciding how to measure or disclose financial information. While these formats meet ASIC requirements, the greater the consolidation of the accounts, the more difficult it becomes to understand the financial performance of the club.

Until recently, the Registered Clubs Act required clubs to lodge their balance sheets, profit and loss accounts (or income and expenditure statements) with the Liquor Administration Board (LAB) within one month of the club’s annual general meeting. IPART understands that this usually took the same form as the reports submitted to ASIC under the Corporations Act.

The Registered Clubs Amendment Act 2006 removed the provision for clubs to supply annual financial statements to the LAB. IPART understands the reason for this was to relieve an administrative burden on clubs and OLGR. Replacing this requirement, a provision was included in the Registered Clubs Act to allow for regulations to require financial statements in some form.

The Registered Clubs Amendment Regulation 2007 requires that a registered club must:

prepare, on a quarterly basis, financial statements that incorporate: – the club’s profit and loss accounts and trading accounts for the quarter, and – a balance sheet as at the end of the quarter, and

provide the financial statements to the governing body of the club, and

make the financial statements available to the members of the club within 48 hours of the governing body adopting the statements, and



indicate by displaying a notice in the form approved by the Director on the club’s premises, and on the club’s website (if any), how the club’s members can access the financial statements, and

provide a copy of the financial statements to any member of the club or the Director on the request (in writing) of the member or the Director.

IPART understands that the rationale for these provisions is to ensure regular (ie, quarterly) disclosure of the club’s financial position to the members. However IPART notes that the regulation does not prescribe any standard format for the financial accounts. In particular, it does not require clubs to separately report trading performance for key operational departments (eg, bar, gaming, catering).

7.2 The importance of consistent financial reporting and performance benchmarking

The submissions, roundtables and club case studies widely recognised that detailed financial reporting, financial analysis and benchmarking were critical for evaluating the operational and financial performance of the club so as to identify opportunities and areas for improvement.

It was not surprising to observe that, in general, those clubs that were financially strong or had professional management prepared detailed departmental management accounts on a periodic and timely basis, with a level of supporting analysis of the results. Further, the board and management of these clubs recognised benchmarking as an important tool to compare the performance of the club against ‘like clubs’ (in terms of size, location or type) and the wider industry.

IPART notes that detailed and departmentalised financial management accounts are the building blocks for robust financial analysis and benchmarking. Hence it is considered important that clubs adopt departmental standardised reporting, with this view shared by many of those consulted. It was observed during the club case studies process that many small to medium-sized and struggling clubs did not produce or report on financial performance at a departmental level. For example, some clubs reported total wages expenses (a significant expense for all clubs) as one line item. This level of information is unlikely to provide management with any insight as to which department was the most labour-intensive or be an indicator of staffing inefficiencies (when compared to past performance or industry averages).

ClubsNSW has developed best practice guidelines for benchmarking club performance, which IPART considers provide a good description of the process and importance of benchmarking. The benchmarking process helps clubs, among other things:

improve overall profitability and efficiency

improve staff productivity

control costs



use equipment and other assets more effectively

meet their community obligations.

Benchmarking also plays a vital role in promoting efficiency by ensuring that clubs have access to data that:

identifies performance gaps within club operations

highlights strengths and weaknesses within club operations

assists in developing business improvement strategies

provides a platform for decision-making and performance improvement

encourages best practice.

7.3 IPART’s observations and considerations

IPART made the following observations during the course of its investigations:

The larger and/or more successful clubs generally already have detailed financial management reporting and benchmark their performance against other clubs. Given this, the focus for improvement should be at smaller to medium-sized, or struggling clubs. Section 7.8 discusses appropriate size thresholds for these recommendations.

A club’s management accounts provide the basis for audited financial statements; therefore any recommendation for standard financial reporting should be at the management reporting level. This would also align with the Registered Clubs Amendment Regulation 2007 requirement for clubs to regularly make financial data available to members. Under this arrangement clubs could continue with their current formats for audited financial statements.

ClubsNSW has developed best practice guidelines on financial reporting, including a model annual financial report to promote consistency in terms of presentation and accounting treatments. These guidelines would provide a good starting point for the development of prescribed standard management accounts.

It would appear onerous and unnecessary for those clubs that already have detailed/departmental financial management accounts to change to a standard industry format. As long as a club could demonstrate the format of its management accounts can readily provide the financial data for business efficiency performance measures and financial viability indicators in line with other clubs of a similar size, it should be permitted to retain its existing format.



A consistent theme throughout consultation was the need to relieve the administrative and compliance burden on clubs, particularly small to medium-sized clubs that have limited resources. IPART acknowledges this and is reluctant to recommend mandatory requirements. However, in this instance it would appear that previous voluntary industry initiatives to improve the standard of financial reporting and benchmarks have not received industry acceptance. Therefore, any recommendations in this review supported only by voluntary compliance are unlikely to achieve the desired outcome of improved financial reporting and benchmarking in the industry.

The above observations and considerations influenced the proposed standard financial reporting and benchmarking measures in the following sections.

7.4 Standard financial reporting

It is widely recognised that small to medium-sized clubs would most benefit from financial performance benchmarking (where they are not already doing so). To promote a culture of better financial analysis and performance benchmarking for this segment of clubs, IPART recommends that clubs with less than $5 million gaming revenue per annum be required to adhere to a standard format for management accounts, except where they can show that the existing format for their management accounts can readily provide the financial data for business efficiency performance measures and financial viability indicators. The desired outcome from standardisation is for clubs to better understand their financial position and to generate relevant data for industry benchmarking, while not unduly increasing their administrative burden.

The following points detail how to achieve this outcome.

IPART proposes that the standard format would be prescribed through changes to the requirements in the Registered Clubs Regulation, with an exemption for clubs that could show they can achieve the required outcomes with their existing format.

The standard format may vary, based on size. For example, clubs with gaming machine revenue between $1 million per annum and $5 million per annum may be required to provide a greater level of detail in their management accounts compared with clubs with gaming machine revenue less than $1 million. For example, a larger club with a gym would be expected to departmentalise the gym’s trading accounts to provide the board, management and members with an understanding of the profits (or losses) from this particular activity.120

The Club Viability Panel (see Chapter 12 on the purpose and role of this body) would be asked to develop and recommend the standard format(s) to the Minister for Gaming and Racing.

120 In keeping with current industry convention, the size category is based on gaming machine revenue.

See section 7.8 for a discussion of how the size thresholds were determined.



Once the standard format had been decided, clubs would be required to submit a set of financial management accounts to the Club Viability Panel to find out whether the accounts comply with the standard format, or alternatively, if the club can be exempted from the requirement to use the standard format because its existing format meets the minimum standards for producing business efficiency measures. This would be a ‘one-off’ requirement.

Clubs that do not meet the minimum standards should be allowed a transition period to comply. Clubs with gaming machine revenue less than $1 million should be provided with a longer phasing-in period in recognition of their more limited resources. They should also be eligible to apply for financial assistance from the Club Viability Panel. For example, a club of this size may have to buy and install new accounting software to meet the minimum standards.

Recommendation

14 That:

– 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.



7.5 Performance benchmarking

All clubs should be encouraged to monitor a range of business efficiency performance measures and financial viability measures and compare them to industry benchmarks in order to understand their own financial position. The suite of measures recommended by IPART is discussed in sections 7.5.1 and 7.5.2.

IPART further recommends that clubs with gaming machine revenue less than $5 million per annum be required to submit annual financial data to the Club Viability Panel as a basis for industry benchmarking. The proposed implementation of a benchmarking program by the Club Viability Panel is described in section 7.5.3.

7.5.1 Business efficiency performance measures

IPART has identified a suite of measures that would assist clubs assess operating efficiency and profitability in various operating departments, as well as the business as a whole. These measures are proposed based on industry submissions, consultation with case study clubs and IPART‘s review of existing benchmarking material available to the industry121. Tables 7.1-7.3 describe these measures.

121 ClubsNSW Best Practice Guidelines on Financial Reporting and Operational Benchmarking and ClubData

On-line benchmarking service (www.clubdataonline.com).



Table 7.1 Industry measures122 – gaming machine department

Measure Description

Gaming revenue as a percentage of total club trading revenuea

Provides an indication of the relative contribution of gaming as a percentage of total revenues.

Wages as a percentage of total gaming revenue

Provides a relative measure of labour costs as a percentage (proportion) of gaming revenue. Can indicate inefficiencies with staffing levels and rostering.

Net contributionb as a percentage of total gaming revenue

Measures the net margin as a percentage of gaming revenues. Expressed another way, the percentage of every dollar earned which flows to meeting overhead costs.

Revenuec per machine Measures the revenue per machine operated during the period. May indicate an underperforming gaming machine installation when compared to industry benchmarks.

a Total trading revenue excludes abnormal items not considered to be in the normal course of trading. For example, proceeds from the one-off sale of assets.

b Excludes non-cash items such as depreciation and amortisation. c Gaming machine revenue – gaming machine turnover less return to player but before gaming machine tax.

122 The measures exclude non-cash items, such as depreciation and amortisation and before financing

costs, to allow for direct comparison of different clubs’ operations. For example, a club that might fund gaming machine purchases from cash reserves can be compared with one that funds purchases from debt. A high (or increasing) cost percentage (relative to a club’s historical performance or industry averages) suggests operating inefficiencies. A high or increasing gross profit or net contribution relative to historical performance and industry benchmarks suggests efficient operations.



Table 7.2 Industry measures – bar, catering and other123 departments

Measure Description

Revenue as a percentage of total trading revenue

Provides an indication of the relative contribution of departments to total trading revenues.

Gross profit as a percentage of departmental revenue

Represents the gross margins achieved (sales price less the cost of the beverage/catering item) as a percentage of total beverage, catering or other income respectively. Can indicate inappropriate pricing policies, high costs of supply arrangements or abnormal wastage levels of stock..

Wages as a percentage of departmental revenue Provides a relative measure of labour costs as a percentage of bar, catering or other revenues derived by that labour. Can indicate inefficiencies with staffing levels and rostering.

Net contribution as a percentage of total departmental revenue

Measures the net margin achieved as a percentage of bar, catering or other revenues.

Table 7.3 Industry measures – whole of business

Measure Description

Earnings before interest, income tax, depreciation, amortisation, rent and donations as a percentage proportion of total club trading revenue (EBITDARD %)

Provides a consistent and comparable measure of efficiency and profitability of club trading activities.

Total club wages as a percentage of total trading revenue

Provides a relative measure of total labour costs (including management and administration) as a percentage of total trading revenue. Can indicate inefficiencies with staffing levels and related costs.

The above measures have been selected based on them being common and relevant to all clubs (ie, linked to core business activities). IPART recognises that there are other measures that could be included, for example, total promotional and entertainment expense as a percentage of total trading revenue. IPART suggests over time the scope of measures may be expanded to include those that are of interest to particular club segments (eg, golf membership fees for golf clubs).

Recommendation

15 That each club monitor the suite of business efficiency performance measures outlined in Tables 7.1-7.3. The measures would be used by the clubs to understand their financial position.

123 For example bowls, golf and accommodation.



7.5.2 Financial viability measures

IPART has identified a number of measures that may be used as indicators of financial viability:

EBITDARD%

Working capital surplus/(deficiency)

Operating cash flows/working capital deficiency

Operating cash flows/borrowings

Capital expenditure/operating cash flows

Gaming revenue/total revenue.

As recognised in section 6.1.4, these measures need to be considered collectively to present a clear indication of financial viability status. As most clubs have varied business strategies regarding the application of surplus cash, capital purchases and debt funding, developing industry benchmarks for these indicators would be problematic. However, clubs should be encouraged to monitor these measures as a means of understanding their own financial position.

Recommendation

16 That each club monitor the following indicators of financial viability:

– EBITDARD %

– Working capital surplus/(deficiency)

– Operating cash flows/working capital deficiency

– Operating cash flows/borrowings

– Capital expenditure/operating cash flows

– Gaming revenue/total revenue.

7.5.3 Club Viability Panel to calculate industry benchmarks for clubs with gaming revenue below $5 million per annum

A private company, Club Data Online, currently provides industry benchmarking services to clubs on a commercial subscription basis. Metropolitan and larger clubs make up the majority of the subscription base of approximately 200 clubs. ClubsNSW previously provided industry benchmarking, whereby clubs voluntarily provided financial information to create a sample of data with which to calculate relevant industry benchmarks. However, while well-regarded by the industry, over time clubs became apathetic about providing the required financial information. As a consequence, the sample size became too small to be statistically valid and ClubsNSW discontinued the service.124

124 Information provided by KPMG, IPART’s consultant.



As noted in section 7.3, IPART is reluctant to introduce mandatory requirements where resources already exist to help clubs. However, it would appear that cost and perceived irrelevance are operating as barriers to small to medium-sized clubs using commercial benchmarking services and the only way to overcome those barriers is to compel participation in a benchmarking scheme for clubs with gaming revenue less than $5 million per annum. IPART therefore recommends that the Club Viability Panel oversee industry benchmarking for this group of clubs.

Benchmarking requires relevant financial data to be gathered and analysed, then compared to industry-wide results. The question of who should gather and analyse the data needs to consider the administrative requirements of the task, the financial management skills of those doing it, and the importance of accuracy and reliability. The two options for data collection and analysis are:

Clubs calculate financial indicators and submit to the Club Viability Panel for it to develop industry benchmarks only.

Clubs provide financial accounts to the Club Viability Panel, which would extract the relevant financial data, analyse it and produce the indicators for individual clubs as well as the industry benchmarks.

IPART considered the pros and cons of the alternative methods of data collection to produce the benchmarks in Table 7.5.

Table 7.4 Pros and cons of alternative methods of data collection

Pros Cons

Club provides financial data to Club Viability Panel (option A)

Promotes better understanding of financials and ratio analysis.

Potential for data error or inconsistency in data interpretation.

More resource-intensive for clubs.

Club Viability Panel collects financial accounts from club and extracts financial data (option B)

Consistency in data interpretation.

Less work for clubs.

Resource-intensive for Panel.

On balance, IPART favours option A as it places greater responsibility on the club to ensure it adopts an improved level of financial reporting to be readily in a position to provide the financial data. The process would also educate clubs about what financial data is required to produce the benchmarks. A well-designed template with instructions for what financial data is required (format and definitions) would largely overcome any concerns on the accuracy of data.

With the Registered Clubs Amendment Regulation 2007 requiring clubs to keep an electronic copy of their financial accounts, it would be reasonable to expect clubs to submit the financial data in electronic template.



IPART also recommends that the template for clubs with gaming machine revenue less than $1 million a year be limited to the whole of business measures previously described, including EBITDARD as a percentage proportion of revenue, as the data for these measures is not reliant on segmenting departmental performance. Over time, as clubs make the transition to a standard financial management reporting format, even those with gaming machine revenue less than $1 million per year should be in a position to provide a greater range of the departmental efficiency measures.

IPART recommends clubs provide annual financial data, as quarterly data has seasonality factors and is not representative of a ‘typical’ operating period. This does not suggest that a club should only analyse its performance on an annual basis. Best practice suggests reviewing financial performance on a monthly basis.

IPART recommends that, where possible, the Club Viability Panel should segment the efficiency and profitability benchmarks into appropriate classifications, such as size, location and type of club. Smaller and regional case study clubs stressed the importance of meaningful and comparable benchmarks with ‘like clubs’.

7.6 An initial indicator of financial viability

Although, as outlined in section 6.1.4, a true picture of a club’s financial status can only be developed by considering a range of indicators in conjunction, IPART considers it would be useful for all clubs to calculate a single initial indicator that could be used as a trigger for further investigations into a club’s financial viability.

The submissions and case study clubs considered cash earnings expressed as a percentage of total club trading revenue as a useful initial key indicator in identifying financial viability. This indicator can also be readily benchmarked by all clubs and across the industry.

The premise of this analysis is to identify the net cash surplus available after the exclusion of non-cash items (depreciation and amortisation) and abnormal items (one-off expenses or income such as insurance recovery) to: service external debt (interest); tax; contribute to capital expenditure; and contribute to cash reserves. When expressed as a percentage, the lower the percentage the greater the likelihood the club is experiencing financial distress.

The definition of this measure can vary across the clubs industry:

Earnings before interest, tax, depreciation, amortisation (EBITDA).

EBITDA and rent (EBITDAR) – adding back rent. This applies to those clubs that pay rent to a related party (ie, not a commercial transaction). The most common occurrence is in RSL clubs where the RSL sub-branch owns the land and building and the club operates the business.



EBITDAR and donations (EBITDARD) – adding back cash donations outside of the CDSE Scheme. Some clubs consider donations as discretionary expenditure, with some clubs contributing more than others. Some clubs would argue that to more accurately compare the core operations of two clubs, this expenditure should be excluded. However other clubs may argue that, by the very nature of clubs, donations are a ‘core business’ and should be incorporated as an ongoing operational expense.

IPART has reviewed these definitions and considers that EBITDARD as a percentage proportion of revenue is the most directly comparable measure between clubs. However, IPART is interested in stakeholder views on the suitability of this definition.

IPART seeks comments on the following:

1 The suitability of EBITDARD as a percentage proportion of revenue below a threshold level as an initial indicator of financial distress.

A possible threshold value for EBITDARD %

Panthers Entertainment Group (PEG) suggested EBITDA as a percentage proportion of revenue (EBITDA%) as an indicator of financial distress125. The PEG submission presented EBITDA% ranges and a general description of a club’s financial condition in each range (see Table 7.4). Clubs achieving an EBITDA% of less than 10 per cent were considered ‘at risk’ of financial distress. IPART has reviewed and agrees that the proposed EBITDA% ranges and corresponding financial conditions are consistent with its analysis of case study clubs.

Table 7.5 EBITDA% as an indicator of financial distress

EBITDA% range Financial condition

> 25% Business flourishing – ability to reinvest and reinvent as required.

15%–25% Solid financial position – needs to critically evaluate capital purchases.

10%–15% Stable financial position – sufficient cash flow to maintain current business operations. May find it difficult to reinvest and reinvent as required.

5%–10% Financial distress – changes required to ensure viability.

0%–5% Serious financial distress – serious questions as to whether the club can operate as a going concern.

Source: Adapted from PEG submission, p 27.

125 PEG submission, p 27.



However, as the PEG submission used EBITDA% as its measure, the threshold figure would have to be adjusted for the use of EBITDARD%. IPART seeks feedback on an appropriate threshold value for EBITDARD%.


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)?

The nature of the further assessment and assistance available to clubs if their EBITDARD% is below the threshold value is discussed in Chapter 12.

Recommendation

17 That:

(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

– 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.

7.7 Consequences for non-compliance

If a club does not comply with the financial reporting and benchmarking requirements, IPART considers that the consequences should be in line with those for non-compliance with the provisions of section 47H of the Registered Clubs Regulation, which covers reporting requirements for clubs – financial statements. The maximum penalty is 50 penalty units (currently $5500).



7.8 Categorisation of club size

As discussed in Chapter 2, annual gaming machine revenue is a common measure of size of a club. Generally, the greater the number of gaming machines, the greater the physical size of the club and the numbers of members and guests. Table 7.6 shows the categories of ClubsNSW membership by annual gaming machine revenue.

Table 7.6 ClubsNSW categorisation of membership by gaming machine revenue

Annual gaming machine revenue ($)

Number of clubs Percentage of clubs Percentage of total gaming revenue

0 – 200K 390 29.4 0.9

200K – 1 million 405 30.5 5.8

1 million – 5 million 367 27.6 25.5



20 million + 33 2.5 33.3

Total 1,328 100.0 100.0

Note: K = (‘000).

Source: ClubsNSW – for the quarter ending August 2007.

IPART has recommended that the compulsory benchmarking process apply only to clubs with gaming machine revenue less than $5 million per annum. To determine a suitable threshold size, IPART used figures provided by ClubsNSW on non-profitability in clubs (see Table 6.4). One possible threshold is clubs with less than $1 million per annum in gaming revenue, of which 27 per cent are considered non-profitable; however, 29.4 per cent of clubs between $1 million and $5 million gaming machine revenue per annum are also considered non-profitable, so these should be included as well. Non-profitability rates drop to 15.7 per cent for clubs between $5 million and $10 million gaming machine revenue per annum. A threshold of $5 million gaming revenue per annum would capture 71 per cent of clubs.

IPART also recommends further differentiating between clubs with gaming machine revenue less than $1 million per annum and those with gaming machine revenue between $1 million and $5 million per annum. Clubs with gaming machine revenue less than $1 million per annum do not pay gaming machine tax and are less likely to already keep departmentalised financial management accounts. The administrative burden of additional reporting requirements would therefore fall more heavily on them.

8 Diversification in the registered clubs industry



In the corporate world, diversification can be an effective and legitimate strategy for some businesses seeking to reduce risk and improve shareholder returns (or financial viability). However, it is not a universal strategy. Some businesses choose not to diversify while others have pursued and then reversed diversification strategies.

IPART has found that diversification has, at best, a mixed record in the registered clubs industry. Specifically, diversification is unproven as a means of reducing (to any great extent) the reliance on gaming machine revenue and net contribution to support club provision of facilities and services and ultimately long term viability.

However, there still may be merit in adopting diversification strategies in the clubs industry. In specific circumstances, diversification can be an effective means of expanding a club’s revenue base, broadening market appeal and maintaining relevance through additional services to members and the local community.

This chapter presents IPART’s considerations and recommendations concerning diversification in the registered clubs industry. In particular, it:

outlines the theory of diversification including examining why clubs say they have diversified

looks at what clubs have diversified into and any constraints they may have encountered

presents IPART’s findings that diversification cannot reduce reliance on gaming revenue to any great extent

shows that diversification can still be an effective strategy for clubs for other reasons

looks at the opportunities for clubs to take advantage of their strengths in diversifying

looks at the risks involved in diversification

presents IPART’s recommendations on diversification in the registered clubs industry.



8.1 How diversification can help viability – the theory

Diversification is a common and legitimate strategy used by a variety of businesses for a range of reasons, including (but not limited to):

Where a business sees an opportunity to increase shareholder returns or reduce risk or exposure to a market or product. This may be by entering into a new business with high margins or with unmet consumer needs, or by spreading operational risks across various lines of business and thus reducing variability in profits.

In circumstances where a business’s core operations are in long-term decline for reasons that are beyond its control. This may be because of changes in consumer tastes and demand for its products or services (often seen in the case of technology and consumer electrical manufacturers); supply constraints (oil firms); legislative restrictions (tobacco companies); and/or changes in the competitive environment (such as the expiry of intellectual property rights). Even in these cases, diversification requires specific benefits that would not generally be available to all businesses, such as offsetting risk positions that are not otherwise easily hedged, economies of scope and scale between the activities or access to unique skills or product relationships.

8.1.1 Why do clubs diversify?

In the case of registered clubs, reliance on gaming and the potential impact that regulatory change may have on operating margins, combined with increasing competition, has meant that diversification has become a consideration in clubs’ overall business strategy.

During the consultation process, clubs talked about diversification as a means of reducing their reliance on gaming machine revenue, improving their offerings to members, broadening their membership base or addressing community needs, or sometimes a combination of these reasons.

Some clubs noted that diversification might be embarked upon with a particular objective in mind, but there might be unintended consequences. For example, at the Wagga RSL stated it had developed a motel on surplus land adjacent to the club to reduce reliance on gaming machine revenue. In fact, the motel generated increased traffic in the club and consequently increased gaming.126

Many of those consulted suggested that diversification strategies were a natural progression for larger and/or successful clubs that had the financial and management resources at their disposal to consider diversification options. Smaller and/or financially distressed clubs did see merit in diversification; however, it was not a realistic option due to limited financial capacity and management resources.

126 Wagga RSL Club, Wagga Wagga roundtable, p 25.



For example, Leeton Bowls Club stated it was not in a position to diversify as it did not own its land to mortgage and secure funding and had limited cash reserves.127

8.2 What have clubs diversified into?

IPART’s consultations identified a range of diversification initiatives in which clubs have engaged. These include (but are not limited to):

health and fitness centres

accommodation

training and education

bottle shops

retail

child care

aged care

travel services.

In some instances the individual club operates the diversified business or businesses themselves, generally where it can work with existing club operations (eg, new upmarket dining options). Where the diversified business is somewhat removed from the hospitality sector, the club may engage a third party to own and operate the business with the club acting as landlord.

ClubsNSW cites Dee Why RSL as an example of a club that has used numerous diversification strategies to reduce its reliance on gaming machine income. 128 It established a car wash, which it operates, and has leased space to a child-care operator and a ten pin bowling centre. Dee Why RSL has also entered into a joint venture arrangement with a property developer to establish a retirement village adjacent to the club. This development is expected to generate a significant cash injection and income from an ongoing management fee for the club.

However, ClubsNSW129 also acknowledged that, even with diversification, the long-term financial viability of clubs would remain closely linked to gaming machine access and operation.

8.2.1 Are there any constraints on diversifying?

The Registered Clubs Act places no specific restrictions on what business/sectors clubs can diversify into. However, section 41J(3) of the Registered Clubs Act places

127 Leeton Bowls Club, Wagga Wagga roundtable, p 24. 128 ClubsNSW submission, p 105. 129 ClubsNSW submission, p 100.



conditions on the disposal of land by a registered club. In essence, under this Section clubs cannot dispose of land (or grant options to buy) unless:

1. the disposal is approved by a majority of club members

2. the disposal of public auction or open tender, and

3. the club first obtains a valuation of the land from an independent valuer.

The above points also apply to the granting of a lease over land; however, it excludes leases where the purpose is to provide goods and services to club members and guests. It also excludes providing goods and services to the general public subject to approval by members.

This section of the Registered Clubs Act, particularly points two and three, indirectly places limitations on some diversification strategies, namely those involving divestment of land and property development. The RSL and Services Club Association raised this issue at the Sydney roundtable130, and it had been of general concern across the industry, as indicated by the Registered Clubs Amendment Act 2006. This provides greater flexibility to clubs to get the best return on, and use from, land while protecting and preserving the core club assets for members. The amended provisions:

Create a distinction between core property (club premises) and non-core property (other property such as investment property).

Allow clubs to deal with non-core property without the need for approval from members, independent valuation or public auction.

Still require approval from members, independent valuation or public auction for disposal of core property.

IPART considers that these amendments should address concerns about legislative constraints on diversification.

8.2.2 Should there be constraints on the areas that clubs can diversify into?

Submissions and roundtable participants also raised the issue of non-legislative barriers to diversification. ClubsNSW noted that the Productivity Commission and others had raised concerns that some activities of clubs may be crowding out other possible providers. 131 At the Sydney roundtable, NCOSS commented on the tension between clubs as not-for-profit community organisations and clubs as commercial operators132. NCOSS and ClubsNSW also referred to community concerns about clubs operating shopping centres133.

130 RSL & Services Club Association, Sydney roundtable, p 25. 131 ClubsNSW submission, pp 106-107. 132 NCOSS, Sydney roundtable, p 28. 133 NCOSS, Sydney roundtable, p 28; ClubsNSW, Sydney roundtable, p 31.



Unsurprisingly, there was consensus amongst the industry that it should be left to individual clubs to make their own choices in terms of diversification. The view was expressed that placing boundaries on what clubs could diversify into may lead to clubs not being in a position to capitalise on potential opportunities to meet the needs of members and/or the local community.

IPART considers that it would not be appropriate to place constraints on what clubs can diversify into, beyond the requirements for member approval noted in section 8.2.1.

8.3 IPART’s finding – diversification will not reduce the reliance on gaming machine revenue

IPART found that diversification is unlikely to reduce clubs’ reliance on gaming machine revenue as the cornerstone for their long-term financial viability.

Operating gaming machines is a relatively low-risk business which typically generates high volumes and net contributions per square metre of floor compared with other core club activities (food and beverage). These qualities would be difficult to replicate in any other line of business, particularly in the hospitality sector into which most clubs feel comfortable diversifying as it is a sector with which they are familiar.

Table 8.1 shows industry profit margins for some of the typical lines of business into which clubs have diversified.

Table 8.1 Australian industry operating profit margins

Industry Operating profit margin (%)

Cafes and restaurants 4.8

Store-based retailing 5.9

Accommodation services 9.7

Health and fitness centres and gymnasia 4.6

Note: Year sources for lines of business differ.

Source: Cafes and restaurants: ABS Cafes and Restaurants Industry 1998-99; Store based retailing: ABS Retail and Wholesale Industries 2005-06; Accommodation Services: ABS Accommodation Services 2003-04; Health and fitness centres and gymnasia: ABS Sports and Physical Recreation Services 2004-05.



Compared to these lines of business, gaming operations are low risk, with superior and more clearly defined returns in percentage terms. IPART understands that gaming operations are typically capable of providing net cash operating profit margins of approximately 65 per cent. 134 Given the vast difference between this operating profit margin and those shown in Table 8.1, as well as the high volumes associated with gaming operations, diversification is unlikely to be successful in reducing clubs’ reliance on gaming and improving their overall financial viability

This was also borne out by analysis of IPART’s case study clubs. Most business lines apart from gaming were loss-making or operated at best at margins consistent with those in Table 8.1.

In a survey of clubs cited by ClubsNSW135, adopting diversification strategies as a response to financial challenges over the next five to 10 years ranked fourth behind improving existing products; increasing non-gaming income136; and increasing membership. This suggests that clubs are cautious about the ability of diversification to improve financial viability.

In making the observation that many clubs rely on gaming machines, IPART notes that there are clubs that do operate without gaming machines. 137 This sub-set of clubs could perhaps diversify their operations as one strategy to promote long-term financial viability, although they tend to be the clubs lacking the resources to do so.

8.4 Diversification may still be a worthwhile strategy for some clubs

Stakeholders cited other reasons for diversifying apart from reducing reliance on gaming machine revenue. For example, clubs may lease part of their premises to a third-party operator at rates that are below market in an attempt to attract a new customer segment to the club.

Another example cited by ClubsNSW and others was the expansion of some clubs into aged care services. ClubsNSW sees this as an opportunity for clubs to assist the government in pursuing its policy goals, an opportunity the government has recognised in its draft State Environmental Planning Policy (Seniors Living). 138 The Richmond Club is one club that already has several years’ experience in providing aged care services, with high care and independent living units as well as a specialist dementia ward. The Richmond Club stated in an interview with IPART that it saw aged care as part of its social responsibility in the local community (and not, in fact, as a diversification from its core business). 139

134 KPMG (IPART’s financial viability consultant). 135 ClubsNSW submission, p 103. 136 IPART has assumed from other core activities of the club, such as food and beverage. 137 See section 6.1.7. 138 ClubsNSW submission, pp 105-106. 139 IPART interview with Richmond Club, 15 October 2007.



IPART considers that, on the evidence presented by clubs, diversification can be an effective means of expanding a club’s revenue base, broadening market appeal and maintaining relevance through additional services to members and the local community.

8.5 Diversification should take advantage of club strengths

IPART considers that the clubs industry has not generally recognised its unique and collective strengths. These include:

the size and loyalty of its membership bases, particularly when taken as a state-wide group

the high levels of land ownership in the industry, including a high proportion of underused or unproductive land

clubs’ extensive geographic reach, with clubs located throughout metropolitan areas and in most regional markets

the collegiate nature of the industry, which provides unique opportunities for co-operation between clubs.

When reviewing opportunities for diversification, it is important that clubs consider entering into joint venture arrangements with business operators. These allow a club to gain access to skills that they might not otherwise have, and to share the risks of operating a new business with a third party.

While many other not-for-profit entities engage in common and joint strategies, clubs tend to operate unilaterally and independently of other clubs. By sharing information and using these collective strengths to their advantage through joint venture arrangements between clubs, opportunities for diversification would increase. In saying this, IPART recognises that because clubs, particularly those nearby to one another, are in competition and collaboration may not be an option.

8.6 The risks associated with diversification

Any diversification strategy is not without risks and diversification may not be an option at all for smaller to medium-sized clubs that do not own surplus land holdings or space on strategic sites, or which could ill-afford for a diversification strategy to fail. 140 These issues are further considered in the following sections.

140 For example, ClubsNSW, Sydney roundtable, pp 30-31.



8.6.1 Competitive nature of industries

Clubs have traditionally operated in uncompetitive and tightly regulated markets, such as gaming machines (where clubs had a monopoly until 1995) and licensed operations. While the competitive pressures on clubs are increasing, most club managers and boards have relatively limited experience operating in competitive markets.

Many of the diversified business sectors that clubs are seeking to enter are mature and highly competitive, such as health and fitness, accommodation and off-licence bottle shops. These types of businesses tend to record low operating margins and are at risk of draining the financial resources of the club.

8.6.2 Complexity of diversified businesses and managerial ability to operate these businesses

In pursuing diversification initiatives, a club may increase the level of complexity within its business and therefore increase the level of operational risk; because most club managers have relatively limited experience outside the clubs industry, the risk of operational failure is increased. It is therefore important that clubs continually assess their level of internal control and management review to ensure that the new businesses are being operated properly.

8.6.3 Inadequate due diligence, risk analysis and planning

Diversification strategies often involve a significant capital investment and/or the contribution of club assets (for example land); therefore it is important that adequate due diligence and planning are performed when assessing the proposed new business venture. IPART noted during the case study process that some clubs had performed a detailed due diligence or feasibility process, others had not engaged in any formal assessment process.

The inability of some clubs to adequately assess and compare the feasibility of different diversification initiatives is a significant risk. This may be compounded by the collective lack of financial skills on some club boards and the limited experience of most club managers in operating businesses outside the clubs industry or hospitality sector.

At the Sydney roundtable ClubsNSW suggested it could cite numerous examples of poorly executed diversification strategies due to inadequate planning, including ones involving joint venture parties where there was no financial ‘upside’ for the club in the deal, and undercapitalised ventures that meant the club was financially overcommitted and put at risk from default from the lender.141




8.6.4 Other risks

Other identified risks of diversification include:

There is a risk that the significant financial commitments and management attention required could distract clubs from their core purpose and function. It is important that clubs ensure they have an appropriate and sufficient level of financial and management resource to pursue the initiative. Clubs NSW stated at the Sydney roundtable that 62 per cent of clubs did not have professional management, and so they struggle managing day-to-day operations let alone a diversified business. 142

Clubs are often required to sign long-term contracts in the form of lease agreements or management arrangements. These reduce the level of operational flexibility and prevent the clubs from exiting any onerous contracts. IPART considers it critical that clubs adequately assess the implications of entering into such arrangements.

Gunnedah Services and Bowls Club at the Armidale roundtable also noted how regional clubs should be cautious about diversifying into areas that may take away business from others in the community, because the “political fall-out” can rebound on the club.143

8.7 Advice and education about when and how to diversify effectively

IPART finds there is a need to support clubs considering financially sound diversification strategies and avoiding unsound, risky diversification by providing education about the risks associated with diversification and advice on how to make an informed judgement on the relative merits of any proposed diversification strategy.

As discussed above, diversification strategies carry inherent risks. These risks are generally amplified the further a business, in this case a club, diverges from its core business. The consultation process also identified that diversification strategies deliver varying degrees of success.

Given the risks associated with diversification, it is essential that clubs engage in appropriate due diligence and planning before entering into diversified businesses. This would typically include (but not be limited to):

A thorough assessment of the needs of the local community and of the club’s membership base to find out whether there is demand for the new product or service.

Thorough forecasting and budgeting, particularly where the diversification strategy involves a significant up-front capital commitment or entering into a long-term contract.

142 ClubsNSW, Sydney roundtable, p 30. 143 Gunnedah Services and Bowls Club, Armidale roundtable , pp 30-31.



An analysis of the market, financial and operational risks of entering into the new venture.

Consideration of possible opportunities to mitigate the risks identified. This could include joint venture arrangements with third-party operators or other clubs.

IPART recommends that clubs be provided with advice and education about the risks of diversification and the appropriate processes and strategies to, where possible, mitigate risks. IPART considers that ClubsNSW is best placed to develop and deliver guidance and education material about diversification.

Recommendation

18 That 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.

9 Amalgamations


9 Amalgamations

IPART reviewed the procedure for amalgamations and movement of assets between registered clubs, while maintaining their status as community-based not-for-profit entities and ensuring the protection and preservation of community assets.

As outlined in Chapter 6, a club’s financial viability can be addressed in various ways, including:

improved management and directorship

diversification of revenue sources

amalgamation.

The consensus from stakeholders is that industry consolidation is inevitable. However, it is important that consolidation is underpinned by the aim of preserving community assets and maintaining services for the benefit of members and the local community. Past experience has shown that amalgamations can be an important step to ensuring that a club continues operating and its services and facilities remain available, especially in non-metropolitan areas. However, this does not mean that every club will survive or needs to survive. The natural waxing and waning of demand from the changing demographics of the community may mean that over time the need for a club no longer exists. But where that need does exist, and amalgamation is vital to the survival of that club, it is important the process for amalgamating does assist and not hinder industry consolidation.

IPART finds that some areas of the current amalgamation process do create barriers, whether intentionally or not. Some of these barriers include:

The complexity of the process and the involvement of various government bodies and professionals make it quite a daunting and costly project, especially for smaller clubs with fewer resources.

The legislated restrictions relating to gaming machine entitlements, the number of amalgamations and dealings with the major assets of the dissolved club in an amalgamation.

The timing of when to amalgamate is also important for its success. Experience indicates that it is better to consider amalgamations earlier rather than later. However, the willingness of clubs to amalgamate can also be a barrier to the process that stems from the nature of the industry. Some members are quite attached to their club and equate amalgamation with the death of their club.

9 Amalgamations


Apart from willingness, management and/or the board’s inability to identify amalgamation as a “first choice” strategy to improve a club’s viability is also another barrier.

This chapter will look at club amalgamations, in particular:

Why and how do clubs amalgamate?

The importance of club amalgamations in the future.

How to create a better environment for amalgamation.

9.1 Why do clubs amalgamate?

Provisions in the Registered Clubs Act allowing amalgamations were introduced in 1985. Since 1998, there have been over 100 amalgamations.

Amalgamations are usually effected by one club taking over the membership and assets of another club. The amalgamated club keeps the registration number of the first club and the second club is dissolved. The Registered Clubs Act refers to the first club as the parent club and the second club as the dissolved club. However, because the second club is not dissolved until the end of the amalgamation process, to avoid confusion this report uses the terms ‘parent club’ and ‘other club’ for the clubs contemplating or engaged in the amalgamation process, and ‘dissolved club’ only once the other club has been dissolved.

While it is technically possible for two clubs to amalgamate to create a new entity, this model is rarely used.

A common view expressed by stakeholders is that amalgamations have been seen by clubs as a last resort to save a struggling club, with the parent club going in as a ‘saviour’. However, during the 1990s, Penrith Rugby League Club embarked on a strategy of expansion by amalgamation. 144 Penrith Rugby League Club was the first club to engage in amalgamations with clubs well outside its own geographic area.

This raised concerns that:

this was contrary to the community-based, local nature of clubs

that amalgamation could be used as a strategy to strip assets (by transferring gaming machines and selling property from the dissolved clubs).

Subsequently amendments were made to the Registered Clubs Act aimed at inhibiting predatory behaviour. These included limits on the number of amalgamations allowed, restrictions to disposal of major assets of the dissolved club, and limits on movement of gaming machine entitlements.

144 Department of Gaming and Racing, Inquiry in relation to Penrith Rugby League Club Ltd, December

2004, p 10.

9 Amalgamations


Consultation has revealed there is growing recognition that the current amalgamation provisions need to be revised to facilitate ‘positive’ amalgamations. Amalgamation should not be viewed as a negative or last resort option, but rather as a serious option to be considered when trying to improve a club’s financial viability and shoring up its future.

9.2 Current amalgamation process

The current amalgamation process involves various pieces of legislation; this includes the Registered Clubs Act, Registered Clubs Regulation, Licensing Court Practice Directions and the Corporations Act. On 13 December 2007, the Liquor Act 2007 received assent. Provisions in this Act will have implications for club amalgamations and establishment, in particular the governing bodies that will oversee such matters. However, such provisions will only become effective once the corresponding regulations are implemented. OLGR has indicated it expects these regulations will be completed by the second half of 2008.

Further, on 21 December 2007, the Registered Clubs Amendment Regulation 2007 was gazetted, which changed some of the steps in the amalgamation process. The essential steps to amalgamation as legislation currently prescribes are summarised below.

1. Seeking amalgamation: a club’s board of directors decides to seek an amalgamation.

2. Expression of interest (EOI): a club must call for an EOI in amalgamating from registered clubs within a 50km radius of its location, regardless if it is in a metropolitan or non-metropolitan area. If a club is unable to find an acceptable amalgamation partner from the EOI, it may consider partners outside of the 50km radius.

3. Notice to members: clubs party to the proposed amalgamation need to inform their members. The form of the notice is to be determined by each club and displayed on the noticeboard at the main club premises.

4. Due diligence and negotiation process: once an amalgamating club is found, due diligence investigations begin as well as negotiations on how the clubs will operate as a result of the amalgamation.

5. Memorandum of Understanding (MOU): clubs party to the amalgamation need to enter into a MOU which needs to be lodged with the Licensing Court when submitting the application for amalgamation. The MOU has to be publicly available for inspection at the premises of the clubs that are party to the amalgamation.145

145 Previously a Deed of Amalgamation (Deed) and a separate notice of motion to members were

required.

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6. Extraordinary general meeting to vote on the amalgamation: each club that is party to the amalgamation must hold an extraordinary general meeting to vote on the motion. A majority of 50 per cent or more of members casting votes at the meeting is required for the motion to be passed. If this is not achieved, the amalgamation does not proceed.

7. Conditional application to the Licensing Court: if the members approve of the amalgamation, a conditional application is made to the Licensing Court. Various documents are required as part of the application, including minutes to the extraordinary meetings approving the amalgamation, proof of the EOI, copy of the MOU, affidavits as to the financial status of both clubs, plans relating to the premises of the amalgamated club etc.

8. Transfer of the other club’s assets and liabilities to the parent club: where the conditional application is approved by the Licensing Court, the common practice is for the other club to go into voluntary liquidation as a means of winding up and transferring its assets and liabilities to the parent club.

9. Further application to the Licensing Court: this is the final stage where the parent club applies to have the other club added to its certificate of registration and the other club’s registration is dissolved.

9.3 Stakeholder comments

Though the general views appears to be that industry consolidation is inevitable, case study clubs146 have expressed that industry consolidation should be underpinned by the aim of preserving community assets and maintaining services for the benefit of members and the local community. Some of the case study clubs147 have expressed concerns that large-scale consolidation that produces a large club with many premises may risk diluting the focus away from the needs of the local community. As outlined in Chapter 2, clubs by nature are member-driven and (local) community-focused. So it is important that the underlying motive and outcome of the amalgamation are to preserve community assets and benefits for the local community, as demanded by the local community.

Stakeholders have described the current amalgamation process as complex, lengthy and costly. ClubsNSW estimates that amalgamations can take anywhere between six to 18 months and cost a minimum of $50,000 in due diligence, legal fees and associated costs.148 IPART considers that the complexity involved in an amalgamation stems from two major aspects:

The legal requirements of the various instruments and bodies, which affect club amalgamations. This includes – what documentations need to be lodged – what procedures need to be followed

146 For example, Club Old Bar and Clubmulwala. 147 For example, Club Old Bar and Riverstone-Schofields Memorial Club. 148 ClubsNSW submission, p 129.

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– when they need to be taken, and – how they should be carried out.

Business procedures relating to the due diligence and investigations required to assess the financial viability of the amalgamation, as well as negotiations regarding the outcomes of the amalgamations for each club and its members.

Clubs rely heavily on legal consultants to run the amalgamation and ensure they comply with necessary requirements. Forbes Services Memorial Club suggested a check sheet for amalgamation to assist the dominant partner club to fully understand what it is getting into.149

Various submissions have mentioned that the current Social Impact Assessment (SIA) process, limitations on the number of amalgamations and restrictions on shifting gaming machine entitlements are a hindrance to amalgamation.150

9.4 IPART’s findings

IPART observes that amalgamation will be an important tool for industry consolidation and assisting clubs to improve financial viability. However, there are some barriers to amalgamation, including:

the complexity of the amalgamation process

the cost of the amalgamation process – legal costs – costs to keep the other club operating

members and directors unwilling to amalgamate and let go of ‘their’ club

restrictions on transferring gaming machine entitlements.

The following sections will outline IPART’s recommendations to deal with these barriers.

9.4.1 Importance of club amalgamations going forward

A consistent view expressed by stakeholders is that industry consolidation is inevitable due to regulatory, competitive and financial pressures. In recent years, there has been growing recognition that amalgamations can be a positive and proactive step to strengthening a club’s financial position.

There are two main scenarios where amalgamation would be of benefit to the community, in terms of preserving the services and facilities that clubs provide.

149 Forbes Services Memorial Club, Dubbo roundtable, p 29. 150 For example, see Betsafe Group submission, p 3 and the Leagues Clubs’ Association submission, p 33.

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Areas where clubs may be struggling

Financial viability can be achieved by amalgamating two or more clubs, as this will offer cost efficiencies through pooling of resources and back office, better use of assets, and stronger purchasing power with suppliers. This scenario often refers to non-metropolitan areas where the facilities and services clubs provide are important because alternative providers are scarce, yet the population density may not necessarily be able to support several clubs. An example raised at the Sydney roundtable is in Sale, Victoria, where the four clubs in town consolidated into one club premise to ensure the continued availability of the clubs and their sporting facilities.

Areas over-serviced by clubs

ClubsNSW at the Sydney roundtable commented that some areas have too many clubs providing similar services. A strategic amalgamation by these clubs would improve financial viability, as the merger would allow the clubs to rationalise and make better use of the assets they hold collectively. This may occur in both rural areas where there are too many clubs given the population, or in metropolitan areas where a demographic shift has changed the demand for services. A common example often mentioned is the number of bowling clubs compared to the population of bowlers. The ability to amalgamate should be looked upon as a solution that will allow the unique (as opposed to generic) assets to be preserved.

These more strategic amalgamations might benefit from a model that is more along the lines of a partnership amalgamation than a parent-other one. The identity of both clubs could be preserved while savings in costs are made (see Box 9.1).

Ultimately, it should be the individual club’s members and directors who decide whether to amalgamate or not. However, in making this decision, some clubs may need assistance and advice about how to make this assessment, especially if the decision not to amalgamate may result in closure of the club.

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Box 9.1 Panthers amalgamation model

In its submission, PEG puts forward its model for amalgamation and describes it as

based on the principles of ‘twin citizenship’ which in this context meant that while they would become part of a greater group, each club would also remain part of its local community.

While legally the PEG amalgamations were parent-other amalgamations, PEG has incorporated features of a partnership-style amalgamation. The PEG model allows the dissolved clubs totake advantage of the support and investment from the larger group, such as PEG’sprocurement, payroll and financial reporting systems, while improvement in the dissolvedclub’s performance means it can continue its services and support for its local community.

Local community commitments are taken into account in the amalgamation with aMemorandum of Understanding (MOU) and a local advisory board. The MOU was in additionto the legislative requirement for a Deed of Amalgamation at that time.

The MOU provides a commitment from the parent to the dissolved club as to how it will dealwith its assets, traditions, members, employees, creditors etc. The statements and intentionsrelating to how the dissolved club’s local community commitment, history and traditions willbe maintained and supported are of particular interest.

PEG also sets up an advisory board for each dissolved club that is made up of members fromthat dissolved club. Members are elected to positions on the advisory board in a similar way to the election of PEG board members (the legal board of directors for all clubs in the group).Only members on an advisory board are eligible to stand for the PEG board of directors,thereby providing more representation from the dissolved clubs.

Source: PEG submission and discussions with Panthers Entertainment Group.

9.4.2 Complexity of amalgamation process

A key finding of this review is that the current amalgamation process is complex due to the various legal instruments and government bodies that feed into the process. Some of the complexity relates to the procedures and others relate to the conditions and restrictions to amalgamation.

The State Government has acknowledged that some of the restrictions regarding amalgamation in the Registered Clubs Act have served their purpose, and will need to be relaxed or removed. The Registered Clubs Amendment Act 2006 was passed in November 2006, (although much of it did not commence until December 2007 and some provisions are yet to commence) and on 21 December 2007, the Registered Clubs Amendment Regulation 2007 took effect. The Act and Regulation contain sections that aim to relax the restrictions on amalgamation.

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The main change relating to amalgamation is to replace the Deed of Amalgamation (Deed) with a Memorandum of Understanding (MOU) (see section 9.2, step 5). A Deed requires legal drafting and input, whereas clubs can draft and easily amend a MOU. This could help clubs reduce legal costs and allow more flexibility to incorporate changes as the negotiations proceed. Other major changes from the Registered Clubs Amendment Act and Regulation include:

raising the limit on the number of amalgamations a club can enter into from four to 10

requiring clubs to look for Expressions of Interest (EOI) from within a 50km radius of their club (regardless of whether the club is metro or non-metropolitan)

replacing ‘major assets’, which had to be negotiated between the clubs and recorded in the Deed, with core property as defined in the Registered Clubs Act.151

IPART supports these moves towards making the amalgamation process simpler and perhaps less costly, which should address some of the concerns raised by stakeholders and is consistent with the Government’s policy of reducing the regulatory burden on businesses.

However, though the process of amalgamation is complex, some of that complexity is unavoidable, in particular the negotiations and due diligence investigations. Hence the Registered Clubs Act provides a list of the matters to be dealt with in the MOU. Discussions with clubs have also highlighted that, although the process is complex, there is not much that can be done in the way of simplification given the nature of a merger between two businesses is inherently complex.

IPART considers that further assistance can be provided by developing a step-by-step guide to amalgamation to help clubs (especially smaller clubs) navigate the complexity. It is envisaged this guide would serve as the main reference document that can better inform clubs (both parent and other) about amalgamation.

Although this guide is not expected to exhaustively cover all facets of amalgamation, it should still be comprehensive so it can help clubs begin the amalgamation. The guide should be written in plain English and cover a wide range of issues, including:

Information on ways to approach an amalgamation, such as: – options for amalgamation structures, parent-other model, or a partnership

model – use of management agreements as an alternative or a stepping stone to

possible amalgamation.

What are the legal steps required, when they need to be taken and how they should be carried out.

151 While core property can be defined by the vote of members, usually core property is the club

premises (clubhouse and associated facilities); non-core is any other property such as investment property.

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Financial considerations that all clubs party to the amalgamation should investigate, such as: – identifying the full extent of assets and liabilities of the other club, this is

especially important for parent clubs as they will assume the other club’s business

– compliance of the clubs in relation to the Registered Clubs Act and other related legislation, an example would be checking for building compliance with relevant standards and regulations

– modelling the viability of the amalgamated club under various scenarios to consider the risks and impact that may eventuate, particularly in the case of a parent-other model where the parent is ‘saving’ a struggling other club

– how much assistance the parent/stronger club should provide or can afford to provide to the other/struggling club prior to and after the amalgamation.

Operational considerations that clubs need to negotiate, such as: – business and management structure of the amalgamated club – autonomy of the other club, what services, amenities and traditions will remain – how memberships at the other club will be absorbed into the parent club and

what benefits will remain or change – charter of separate accounts for other club’s core assets/activities to allow for

the monitoring of the preservation of the other club’s main purpose post amalgamation

– treatment of major assets and core property152 – impacts on employment and existing staff, particularly for the other club – strategic future direction of the amalgamated club and how this will impact on

the individual clubs in the amalgamation – under what circumstances and after how long should the parent club consider

or be allowed to close down the dissolved club, and any required consultation process.

The availability of such a step-by-step guide should help clubs understand and negotiate the complexity of the process better. This guide may also make it cheaper for smaller clubs with limited resources because they would not need to rely heavily on consultants and/or allow them to manage their consultants more effectively.

152 As defined in the Registered Clubs Amendment Act 2006.

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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.

9.4.3 Cost of the amalgamation process

IPART observes that the cost associated with an amalgamation can be a major deterrent. If the industry’s future sees more small to medium clubs amalgamating for financial viability reasons, then cost will be even more important given these types of clubs tend to have fewer resources to draw on.

Stakeholders have indicated that the costs in an amalgamation not only include legal fees, which have been indicated to cost around $50,000153, but also the need to invest in the other club’s facilities, assume their debts, and carry out due diligence studies can bring the total costs of an amalgamation to well over $100,000.

Roundtable participants and case study clubs154 indicate that although clubs recognise it is important to save community assets, more and more clubs now look for the benefit that the amalgamation will bring to them. Many are no longer willing to go in and rescue a dying club, as it may adversely affect their club’s financial position. This is an important issue for parent clubs undertaking a ‘rescue mission’ because they have a duty to their members as well.

IPART has assessed the current amalgamation process and considers there are areas that can be improved to help streamline and potentially reduce the costs associated with an amalgamation. Coffs Ex-Services Club155 has suggested that the regulator should consider issuing templates for the Deed of Amalgamation to provide clubs negotiating an amalgamation with a starting point. Though the aim is not to entirely do away with legal consultants, a pro-forma could reduce a club’s reliance on legal consultants.

153 ClubsNSW submission, p 129, meeting with Wagga Wagga RSL, 14 September 2007, and meeting

with Coffs Ex-Services Club, 19 September 2007. 154 For example, Club Old Bar and Nowra Bowling & Recreation Club. 155 Meeting with Coffs Ex-Services Club, 19 September 2007.

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Recommendation

20 That 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.

9.4.4 Costs to continue running the other club

IPART finds that another major cost in the amalgamation process is operational rather than legal – namely the financial assistance provided by the parent club before the amalgamation is complete. This is especially the case where the other club is struggling and the parent needs to invest in the other club to keep it trading during the amalgamation. An example is Wagga Wagga RSL, which156

…assumed responsibility for the running of the golf club, including ongoing maintenance and payment of accounts for almost two years, before the formal amalgamation was formalized on April 2004. Costs associated with this period totalled about $474,000, including some $50,000 for costs directly associated with the amalgamation (eg, legal and consultancy) and payout of the club debt of $75,000.

ClubsNSW also raise this as a barrier to amalgamation and would like157

…some guidance by regulation as to the extent a continuing club can assist a struggling dissolving club at the early stages of the amalgamation and prior to member approval and to what extent this can increase after member approval.

IPART considers that this is an area of negotiation between the clubs involved in the amalgamation. The club providing assistance does need to bear in mind how such assistance will impact its own financial viability, but ultimately it is up to the club and its members to decide how much risk it wants to take on. However, given that some clubs in the past have gone into an amalgamation as a “rescue mission”, it is envisaged that the guide (see section 9.4.2 and Recommendation 19) should raise this as an important financial issue for clubs to consider and address in amalgamation negotiations. One way to mitigate this situation is to encourage clubs to look at the option of amalgamation earlier rather than later.

9.4.5 Clubs should consider amalgamation before their situation deteriorates too far

Getting clubs to think about amalgamation earlier rather than later is important because a club should approach another club while it is still an attractive amalgamation partner. Otherwise struggling clubs may allow themselves to run down assets to the point where they are debt laden and have little assets to offer, and are not an attractive proposition. Given that the parent club must assume the other

156 RSL & Services Clubs Association submission, p 18. 157 ClubsNSW submission, p 132.

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club’s business, this is an important factor for a potential parent club when considering if and whom it amalgamates with.

Indeed it is arguable that a club with more to offer could have more bargaining power in the amalgamation negotiations. Thus amalgamations that are approached from a strategic point of view, rather than as a last resort of saving the club, may see the structure of the amalgamation resemble a partnership rather than parent-other model. This may allow the club to retain more of its identity while accessing the cost savings and other resources offered by being part of an amalgamated club entity.

However, identifying an earlier point when a club should start considering amalgamation can be difficult, especially for clubs lacking strong financial acumen. The inability of some management and/or boards to identify amalgamation as a first choice to improving their club’s viability can be a barrier to timely amalgamations. Roundtable participants and some case study clubs158 have suggested standardised reporting for the industry would allow for some benchmarking and even compulsory audits from the regulator could help identify clubs that are at risk. IPART considers that there is a role here for the Club Viability Panel (see Chapters 6 and 12).

Apart from the difficulty of identifying when to amalgamate, IPART finds that another key barrier to amalgamation is actually the members/directors themselves. Some people are quite attached to their club, or club rivalry is strong enough to influence members/directors to not consider amalgamation, even if it means the club eventually must close.

There are three possible scenarios in relation to the affected clubs:

1. both members and directors are not willing to amalgamate

2. directors are willing to amalgamate but members are not

3. members are willing to amalgamate but directors are not.

To address scenarios 1 and 2, members and directors could be made more aware of the importance of amalgamation to a club’s survival. In order to engage members and directors effectively, IPART considers there is a need to better educate members and directors about amalgamation. OLGR provides workshops to clubs on compliance issues, among other things. If industry peak bodies were to provide similar education about amalgamation, this could dispel some of the misunderstanding and encourage clubs to approach it more strategically and innovatively, to the benefit of their members, community and the club. For example, a workshop providing information about the different types of amalgamation models could help directors and members to understand that amalgamation does not have involve a parent club taking over another club. Instead they can adopt a partnership model where both clubs join to create a new, bigger and better club.

158 For example, Club Old Bar and Nowra Bowling & Recreation Club.

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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.

Under scenario 3, where members may be willing to consider amalgamation but directors are not willing “to give up their blazers”, the board of directors may knock back any amalgamation approaches and members would not be informed. But if members were aware of the financial position of the club and the amalgamation proposal by another club, they may well decide to vote in favour of amalgamating or at least further investigation of this option. This raises the question, when does the board have a duty to disclose amalgamation offers to its members?

IPART considers there is merit in encouraging management and the board of a club to notify its members when formal offers of amalgamations are presented to the club. Defining what constitutes a formal offer may be difficult; however, clubs could be encouraged to state in their (written) communication that this is a formal offer or that it would like this offer to be presented to members. This would help the board of directors to decide whether its members should be informed about an amalgamation offer. This would also give members the opportunity to express their views on whether they want the board to further consider the amalgamation offer or ignore it.

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.

9.4.6 Transition from conditional approval to final approval of amalgamation

An issue that clubs have raised concerns about is the process to get from conditional approval to final approval of an amalgamation. IPART considers that the overlap of the Corporations Act and the Registered Clubs Act could create some practical difficulties.

Following the completion of certain required steps, including conditional approval by the Licensing Court and the passing of a winding-up resolution by the club to be dissolved, that club is dissolved and its assets and liabilities are transferred to the parent club. Concerns raised focus on the uncertainty and added layer of cost that this transition period creates, especially for the parent club. Conventional industry practice is to wind up the club being dissolved using voluntary liquidation as a means of transferring the business to the parent club. The process of winding-up and voluntary liquidation raises two main concerns:

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For the wind-up of a company, the Corporations Act 2001 requires a special resolution from members with a majority vote of 75 per cent or more. Failure to achieve this resolution can stall the amalgamation, even after members have voted at an earlier meeting to approve it (which only requires a 50 per cent majority).

Where a liquidator is brought in to wind up a club, the liquidator is obliged to carry out his/her duties in accordance with the Corporations Act 2001. Though s/he may have regard to the contents of the MOU, there is no compulsion to follow what is set out in the MOU.

ClubsNSW has suggested that members be allowed to pass a resolution to wind up the club being dissolved at the same meeting they vote on the amalgamation; however, that the wind-up resolution will only take effect when the Licensing Court grants conditional approval. This should reduce the costs of having to organise another members’ meeting and reduce uncertainty surrounding the outcome of the second meeting. However, passing such a resolution does not appear to be legally practicable given the requirement in the Corporations Act 2001 that a business cease operations immediately after passing a winding-up resolution. This means the amalgamation vote and wind-up resolution would have to take place when the amalgamation is pretty much complete and the wind-up can be effected immediately, which given past experience is unlikely to be the case.

Coffs Ex-Services Club queried the necessity for the club being dissolved to go into voluntary liquidation because bringing in a liquidator adds to the costs.

IPART has explored some alternative options to the transition from the conditional to final approval stage, apart from using voluntary liquidation. The options considered include deregistration of the other club rather than liquidation and making the other club a ’subsidiary’ of the parent club.

Option 1 – Deregistration of the other club

This option replaces the voluntary winding up of the club being dissolved with deregistration of the company that underlies the club. The assets and liabilities of the club being dissolved are transferred to the parent club and then the club being dissolved is deregistered. The manner in which the business of the club being dissolved is to be transferred to the parent should be negotiated and set out in the amalgamation’s MOU.

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The benefit of this approach is that the vote to deregister can occur at the same meeting as the vote on the amalgamation, and should be less costly than bringing in a liquidator. However, the following requirements must be met for this option to be possible:

The constitution of the club being dissolved must not prohibit disposal of club assets.

To deregister, the club must: – no longer be carrying on business – have assets worth less than $1,000 – have no outstanding liabilities – not be a party to any legal proceedings – all fees and penalties under the Corporations Act 2001 are paid.

The vote to deregister requires approval from all members.

Given the nature of the industry, getting all members to vote and agree constitutes a virtually insurmountable barrier.

Option 2 – One club becomes a subsidiary

Under this option, the parent club would take control of the other club in a transaction akin to a takeover. Under such an arrangement, the other club would still exist as an independent legal entity without the need to wind up the other club. The other club is converted into a subsidiary of the parent club. Note that under the Registered Clubs Act, this would not be considered an amalgamation. The following procedures must be followed:

When negotiating the MOU, the process to effect the takeover should be included. Issues regarding control, structure of the subsidiary’s board of directors, dealings with assets etc should also be carefully set out.

Members then vote on the proposal to amalgamate and, if approved, they then vote at the same meeting to effect the takeover.

If the members approve the vote to effect the takeover, then the procedures agreed in the MOU are implemented.

Once the takeover has been completed, the other club lodges a form with the Australian Securities and Investments Commission to inform of a change in its company structure.

Practically, the benefits to the parent club of this option are few. This raises the question, would a stronger club be willing to enter into such an arrangement? Under a takeover arrangement, the other club remains as a company limited by guarantee and so will have its own board of directors. The parent club can negotiate in the MOU to have a certain representation on the subsidiary club’s board, but there is still the risk that members of the subsidiary club can vote those directors off the board at

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the next election. Further, the legislative scheme requires that any profits or income from a club shall only be used for the promotion of that club, and prohibits a club from distributing its profits to members. This raises doubts as to whether the parent club can derive any ongoing benefit from the future revenues of the subsidiary club.

IPART’s view

Though the two options outlined above have some advantages, the legal issues associated with their implementation introduce new barriers and obstacles that outweigh their benefits. On balance, IPART considers that the voluntary liquidation of the other club is still the preferred method.

One way of dealing with some of the uncertainty associated with the motion to liquidate would be an amendment to the Corporations Act to allow for a simple majority vote in the case of registered clubs that have agreed to amalgamate only, to bring this requirement into line with the vote on amalgamation.

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.

9.4.7 Restrictions on transferring gaming machine entitlements

Another legal requirement that influences what a club can offer to a parent club is the restriction on movements of gaming machine entitlements. The Gaming Machines Act restricts the movement of gaming machines by the parent club. These requirements effectively reduce the number of gaming machines another club can offer to the parent club (or that a parent club can shift to another club to improve its operations). The underlying policy objective of these restrictions is both gambling harm minimisation and deterrence of predatory behaviour by stronger clubs. These restrictions include:

A club must forfeit one gaming machine entitlement for every two to three gaming machines it transfers, unless both clubs are located within a certain distance from each other.

Where a premise has less than 10 gaming machine entitlements, none can be transferred unless approved by the majority of ordinary members at an extraordinary general meeting.

The NSW Liquor Administration Board (LAB) may require a SIA when transferring gaming machine entitlements.

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The Report on the Five-year Statutory Review of the Gaming Machines Act 2001, released in December 2007, has addressed some of the above issues in its proposals, which include:

Relaxing the restriction on gaming machine transfers between related clubs by removing the forfeiture requirement if the transfer is within the same local government area (LGA) and changing the forfeiture ratio to one entitlement for every six for inter-LGA club transfers.

Amending the SIA process (which will be renamed Local Impact Assessment (LIA)) to change the threshold for when it is required, and simplify some of the steps involved (see Box 9.2).

Box 9.2 Social Impact Assessment and Local Impact Assessment

Currently each club premises has an SIA threshold expressed in number of gaming machineentitlements, such that any transfers that breach this threshold require an SIA. The proposal is to move to a local government area (LGA) threshold while keeping Class 1 and 2 assessment categories. There will be ‘bands’ decided (and revised periodically) for each LGA by referenceto gaming machine numbers, expenditure on gaming machines and socio-economic indicators published by the ABS.

Identifying what type of LIA is required is as follows:

no LIA is required if the transfer is within the same LGA

no LIA is required for transfers into an LGA deemed as Band 1, with a limit that only 20 or less gaming machine entitlements can be transferred per year

venues seeking to transfer entitlements into LGAs deemed as Band 2 would need to submit an LIA; the type of LIA will be determined by the decision-maker

venues seeking to transfer entitlements into LGAs deemed as Band 3 would need to submit a class 2 LIA.

This would provide more flexibility, as the threshold would effectively change with thedemographics in that LGA, while still ensuring measures for gambling harm minimisation are in place.

The replacement of the SIA with an LIA is expected to simplify the steps in some areas;however, there will still remain class 1 and class 2 assessment categories. Current criticism is with the SIA class 2 assessment, which the Review of the Gaming Machines Act 2001 will not change significantly. But the change in the premises-specific SIA threshold to an LGA gaming machine threshold should make it easier to decide whether a club requires a class 1 or 2 LIA,see Figure 9.1.

Data source: Report on the Five-year Statutory Review of the Gaming Machines Act 2001, pp 21-22.

9 A

malgam

ations

154IPA

RT Review of the N

SW registered clubs industry

Figure 9.1 Comparison of current SIA and proposed LIA process

Current SIA process Proposed LIA process

Gaming machine venue seeks to increase the number of or move gaming machines

Is venue seeking to move its premises within 1km of the

original premises

Is the venue within a retail shopping centre Class 2 SIA

Some venues within a retail shopping

centre are unable to increase gaming

machine numbers

Is venue seeking to increase the number of gaming machines by moving gaming machines

from another venue within 1km

Is the venue a registered club

Is the club proposing to move gaming machines to its other premises or to a proposed new premises

Are these premises within 50km of each other and in a non-metropolitan area

Is the club de-amalgamating

Is the de-amalgamating child premises seeking to remain open and maintain gaming machines

Proviso: the child premises obtains no

more gaming machines than it

had prior to the de-amalgamation

Does the club have two adjoining premises that are seeking to

become single premises

Is the venue seeking to increase the number of gaming machines by no more than 10 machines over a 10 year period

Class 2 SIA Class 1 SIA

YES NO YES

NO

NO

YES

YES

NO

NO

NO

NO

YES YES

NO

YES

YES

YES YES

NO

YES

Gaming machine venue seeks to increase the number of gaming

machines

Are the gaming machines coming

from within the LGA

In what band is the buying venue

located

Band 1

Low gaming machine density and expenditure and high SEIFA

Band 2

Moderate gaming machine density and expenditure and mid-

level SEIFA

Band 3

High gaming machine density and expenditure

and low SEIFA

Is the number of machines sought over 20 machines

per year

Discretion of decision-maker

LIA not required Class 1 LIA required

Class 2 LIA required

NO

NO

YES

Data source: Report on the Five-year Statutory Review of the Gaming Machines Act 2001, pp 51-52.

9 Amalgamations


IPART supports the general direction of the proposals in the Review of the Gaming Machines Act 2001 and the Registered Clubs Amendment Regulation 2007, as they relate to club amalgamations.

9.4.8 Management agreements: an alternative to amalgamation or a first step towards it

This chapter has focused on amalgamation. However, IPART found that management agreements may also provide assistance to clubs under certain circumstances, and can also be used as a stepping stone to amalgamation.

A management agreement is generally where the management of a facility, in this case the club’s facilities, is contracted out to another party, while the underlying control of the club still remains with its board of directors.

At the time of consultation with Coffs Ex-Services Club, the club had a management agreement in place with Urunga Golf and Sports Club. This arose because Urunga Golf and Sports Club was not able to find a secretary manager or an amalgamation partner. Coffs Ex-Services Club entered into an agreement to effectively second a manager to Urunga Golf and Sports Club for a small fixed monthly fee. Apart from getting a secretary manager (who could access advice from other managers and the CEO at Coffs Ex-Services Club), Urunga Golf and Sports Club was also provided with gaming, finance and reporting services from Coffs Ex-Services Club. From the point of view of Coffs Ex-Services Club, it provided an opportunity to offer alternative employment roles to its staff and, most importantly, it could assess the true situation of Urunga Golf and Sports Club before deciding whether or not to enter an amalgamation.159

Coffs Ex-Services Club’s experience with this arrangement has been positive. Where a small club is struggling to find and keep a secretary manager, management agreements could provide a solution and a stepping stone to amalgamation. Coffs Ex-Services Club suggested that a template secondment contract could be developed by OLGR to provide clubs with assistance in drafting the contract, as well as reduce costs, if they choose to go down this route.160

Though the experience of Coffs Ex-Services Club with management agreements is positive, there have been cases where management agreements have not worked to the benefit of the club, because of the quality of the manager. Thus it is important that club directors need to exercise care in selecting who the club engages. As outlined in Chapter 10, the quality of management is important to the success of a club.

159 Information provided by Coffs Ex-Services Club at a meeting on 19 September 2007. 160 The RCA requires the club secretary manager to be the licensee. Thus the secondment contract needs

to be drafted in a way which allows the employee to maintain his/her employment with the managing club while still taking up all the responsibilities of being secretary manager of the club being managed.

9 Amalgamations


Box 9.3 Management agreements in Queensland’s registered clubs industry

The Queensland Gaming Machine Act 1991 specifically allows for a club to enter into management agreements with another club or a private business. Common types ofmanagement agreements include:

private business offering its professional management services to the club for a fee

private business buying up the clubhouse and land and leasing it back to the club andtaking over the management of the property under a management agreement

one club entering into a management agreement to manage another club.

Guidelines have been introduced to assist with the set-up management agreements; in particular, the agreement must not restrict the board’s control of the club. It is desirable thatthe agreements should include periodic performance reviews of the Manager with the Clubhaving the ability to terminate the Agreement (without any compensation to be paid) shouldthe Manager's performance be unsatisfactory. Other requirements from the Qld Gaming Machine Act 1991 are that the remuneration must be commercially realistic, transparent, easilycalculated and not linked to gaming earnings, profits or revenues.

Source: Queensland Office of Gaming Regulation, Guidelines Management Agreements Section 67.

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).

10 Establishment


10 Establishment

In recent times only a handful of clubs have been registered. The reasons can be attributed to changes including:

structural changes like demographic movements and industry maturity

increased competition through greater leisure and entertainment choices

legislative developments, like regulatory requirements and alternatives to club registration.

While another boom in the number of new registered clubs, such as there was during the 1950s, is unlikely to occur, this does not mean that the establishment of registered clubs is not expected at all.

IPART recommends that the following three changes will assist in making it easier for clubs to be set up in areas that need them:

1. Greater guidance should be provided to groups wishing to establish a registered club. IPART recommends that the OLGR and peak bodies produce both a guide to registration as well as a pro-forma club constitution to assist in this area.

2. Planning for new developments should include an allowance for land that is suitable for the establishment of a registered club.

3. New clubs should continue to have access to ten free gaming machine entitlements to help keep the costs of establishment to a minimum.

This chapter assesses how and why registered clubs are established and identifies any barriers that can be overcome to establishing both brand-new and satellite clubs in new and developing areas.

10.1 Starting up a registered club in new and developing areas

Registered clubs can be established in three ways:

1. brand-new club where a group of people get together and form the club

2. satellite club where an existing club sets up new premises

3. relocation where an existing club moves from its current premises to a new location.

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In the past, clubs have largely formed organically, that is, from a group of individuals in a community getting together and slowly building up to obtaining a certificate of registration as a club and operating as a registered club. Between 1998 and 2006 only 30 new clubs and satellite premises were registered, and one club relocated (Figure 10.1).

Figure 10.1 New clubs between 1998 - 2006

-

2

4

6

8

10

12

1998 1999 2000 2001 2002 2003 2004 2005 2006

New Club Satellite Relocation

Data source: Information provided by OLGR and IPART’s analysis.

What is the likely scenario for club establishment in new and developing areas?

With regards to relocation, ClubsNSW believes that a club is unlikely to relocate significantly from its current location, given it draws membership from the local area and members are unlikely to continue their involvement in the club once it has relocated.161 The RSL & Services Clubs Association also submit it is very rare that clubs will relocate premises as a result of choice; they will only do so in circumstances whereby the club must cease to exist on the current site and is forced to move.162

Instead club establishment at greenfield sites is more likely to occur by organic growth of a brand-new club or by an existing club setting up a satellite premises.

Setting up a brand-new club organically is more likely suited to the small-scale club model. This model sees a group of people, dedicated to their common purpose, run a small club operation for a particular interest group in the community, whether it be cultural, sport, religious or others. To establish a new club in developing areas that can provide services similar to the large diversified clubs, the only realistic option would be to encourage satellite clubs. It is only by relying on an existing club’s

161 ClubsNSW submission, p 127. 162 RSL & Services Clubs Association submission, p 16.

10 Establishment


financial strength and experience that a wider set of facilities and services could be developed sooner in a greenfield location.

10.2 Factors affecting club establishment

The number of clubs being established has diminished significantly in recent years. IPART has identified three main areas of change as reasons for the reduced numbers of newly registered clubs: structural, operating environment and legislative environment.

IPART acknowledges that structural changes reflect changing times and, as such, there is little that government or anybody can do to address them. However, there do appear to be some barriers to establishing new clubs, particularly concerning operating and legislative environments, which can be tackled. These are explored below.

Other developments, though negative for club establishment, are positive for the community. For example, more providers of like facilities give consumers more choice, while more flexible licensing options provide (small) clubs with alternatives to registration.

10.2.1 Structural changes

Clubs by nature are driven by community demands. Thus it is not surprising that demographic changes affect the establishment of registered clubs. For example, many of the existing registered clubs were established during the 1950s. The main reason for this growth was the increase in the number of RSL clubs to cater for returned servicemen and women after World War II.

Cultural changes also influence the establishment of clubs. These changes affect the pool of people clubs can draw on to continue their operations, particularly smaller clubs that rely on many volunteers. The Australian Bureau of Statistics (ABS) survey of voluntary work shows that, though the proportion of the population carrying out voluntary work has increased, the type of voluntary work involvement has changed. Between 1995 and 2006, volunteer work activities like management and committee, coaching and refereeing had fallen, while activities like counselling and support, fundraising, and teaching/mentoring had increased.163

Such structural movements are part of the landscape that clubs and other industries operate in. It is a business risk that needs to be managed, but there is little that government can or should do to make the population change its tastes.

163 Australian Bureau of Statistics, Voluntary Work, Australia, publication 4440.0 (1995) and 4441.0 (2006).

10 Establishment


10.2.2 Operating environment

The operating environment of the clubs industry has changed since the boom of the 1950s. Two main areas that have had a negative impact on the establishment of registered clubs are competition and set-up costs.

Competition

Competition has increased in many industries and the clubs industry is no exception. There is now greater competition from commercial providers offering services that once only clubs provided, such as sporting facilities and meeting/conference venues. On the other hand, clubs are being encouraged to diversify and some have moved into new areas competing with the private sector, such as fitness and accommodation.

The number of businesses operating sports grounds and facilities, from 1994/95 to 2004/05, grew by 15 per cent in NSW164 to 508 venues, while cafes and restaurants grew by around 19 per cent to 5,770 venues. On the other hand, the number of registered clubs had decreased. Though competition may be placing pressure on clubs, the increase in options can be regarded as a good thing for the community.

Set-up costs

In the past, many clubs were able to build facilities on Crown land provided at peppercorn rates. The availability of such land has greatly reduced and clubs have commented that councils and State government agencies are increasingly seeking commercial rents for existing Crown land leases.

Set-up costs for a club, particularly in relation to land and building, are significant. In the process to get registered, a requirement of the Registered Clubs Act is that the club must have bona fide premises. Given that clubs must be incorporated, any attempt to raise capital would require a prospectus under the Corporations Act. For many start-up clubs, preparing a prospectus would be onerous. This leaves clubs with a dearth of methods to raise the capital they need.

10.2.3 Legislative environment

The legislative environment is also another important factor influencing the establishment of clubs. In the 1950s, legislation supported growth in the industry through amendments that allowed clubs to operate gaming machines and removed the cap on the number of clubs that could be registered. At the same time, there were operating restrictions on competitors in the liquor and gaming markets. Hotels and pubs had restricted trading hours and were not allowed to operate gaming machines.

164 Australian Bureau of Statistics, Sports and Physical Recreation Venues, publication 8686.0 (1994-95) and

(2004-05), and Australian Bureau of Statistics, Cafes and Restaurants, publication 8655.0 (2003-4).

10 Establishment


However, since the 1950s, the legislative environment relating to clubs has become more complex as more and more areas of the industry are regulated. Some legal instruments, specific to the clubs industry, have introduced barriers to the establishment of clubs including:

complexity of the process and requirements to become a registered club

limits on the number of free gaming machine entitlements for new clubs and restrictions on movement of gaming machine entitlements for satellite clubs

cost and complexity of the Social Impact Assessment (SIA) process.

In addition to industry-specific regulatory changes, more requirements are being placed on clubs in areas such as training for Responsible Service of Alcohol (RSA) and Responsible Conduct of Gambling (RCG), corporate governance, occupational health and safety, planning and environmental regulations. However, progressively broader legislative requirements are not unique to the clubs industry. IPART notes that various other industries, such as finance and building, have also experienced greater levels of regulation in recent times.

Another legal development that may affect the rate of registered club establishment is the introduction of new types of licences. Some small clubs no longer need to be registered, as there are alternative function licences they can use. For example, clubs that do not hold regular events can apply for a Permanent Function Licence that allows them to hold up to 26 functions a year (no more than one a week) where alcohol can be served.165 Under the Liquor Act 2007, a Limited License option will be available where the number of functions allowed is up to 52 times per year. Though this may reduce the number of clubs that become registered, IPART considers this is a positive step for small clubs as it provides them with more flexibility for their operations.

10.3 Stakeholder comments

ClubsNSW believes that current government policies do not encourage the establishment of clubs. It submits that the low rate of newly registered clubs is:166

…primarily a result of the broader legislative and regulatory environment (especially as it relates to access and movement of gaming machine entitlements) and the large capital commitment required to establish a clubhouse of an appropriate standard to attract a sufficient level of patronage and create a viable business.

Another hindrance to the establishment of registered clubs that stakeholders have mentioned is the inadequacy of the 10 free gaming machine entitlements. Clubs do not believe that 10 gaming machine entitlements are enough to support a club’s ongoing operations financially and some peak bodies have called for an increase to

165 The Department of Gaming and Racing, Fact Sheet 9 Permanent Function Licenses, April 1999. 166 ClubsNSW submission, p 117.

10 Establishment


this allowance.167 In addition, restrictions on movement of gaming machines, in the case of satellite clubs, have been raised as a barrier to setting up new clubs in developing areas.

A related issue is the SIA process, which has been criticised as onerous and costly.168 The recent release of the Report on the Five-year Review of the Gaming Machines Act 2001 proposes to amend and change the SIA process to a Local Impact Assessment (LIA) process, which will address some of the concerns about the SIA (see section 9.4.7).

10.4 IPART’s findings

As explained above, there are many reasons for the decline in the number of clubs that seek registration. IPART believes that there are some areas where government can help to remove the barriers for a club wanting to become registered, including:

process to become a registered club

location for the new club

gaming machine entitlements and SIA.

The following sections present IPART’s considerations and recommendations in these areas.

10.4.1 Process to become a registered club

IPART recommends that greater guidance be provided to groups wishing to establish a registered club. The process of getting registered involves many government bodies, which can make it complex, time-consuming and expensive. Once the Liquor Act 2007 is fully implemented, some of the governing bodies that administer club registration will change. Based on current legislation, the major bodies involved in registering a club are:

Licensing Court: the main body that assesses the application and grants the licence.

Local councils or consent authorities: they consult the community to see if there are any objections to the establishment of a registered club in that location.

OLGR: Director of Liquor and Gaming (Director) prepares various reports, including premises report, (that is, compliance with statutory, regulatory and other requirements such as Licensing Court Practice Directions). The Director also prepares a probity report on the proposed secretary manager.

167 RSL & Services Club Association Ltd submission, pp 15-16 and The Leagues Clubs’ Association of

NSW Ltd submission, p 30. 168 Wests Ashfield Leagues Club submission, p 6.

10 Establishment


Police: Commissioner of Police reports on Section 10 issues in the Registered Clubs Act (for example, the club is conducted in good faith, membership requirements are met, the premises is appropriate for the purposes of the club), checking into the constitution of the club, the company that underpins it, the membership etc.

Liquor Administration Board: conducts the SIA process if required.

ClubsNSW’s submission outlines 20 steps to becoming a registered club. IPART considers that each of the steps is essential (see Appendix E for full list of ClubsNSW’s steps to establishing a registered club).169

However, IPART considers clubs would be significantly assisted if a comprehensive guide to the establishment process were available, and that drafting a constitution could be made simpler for clubs by the production of a model club constitution template.

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 the Registered Clubs Act 1976 and the Corporations Act 2001.

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.

– Resources and contacts for assistance and information.

10.4.2 Location of a new club

The process to become a registered club is not without its costs. There are legal fees and application fees that submissions and Hamrun Association (NSW) Incorporated has indicated can add up to over $50,000.170 However, an even more significant cost is the land and building from which the club is to operate.

The Registered Clubs Act requires a club applying for registration to be the bone fide occupier of a premises that has a properly constructed bar room where liquor for sale or supply cannot be carried away from the premises. The costs associated with gaining a club premises that is purpose-built can be significant. Campbelltown Catholic Club suggests that to set up a new moderate-sized club would require $6-9 million, reflecting the cost to construct and fit out the club. However, this

169 ClubsNSW submission, pp 117-121. 170 ClubsNSW submission, pp 118-121.

10 Establishment


estimate excludes the cost of purchasing land and securing gaming machine entitlements.171

ClubsNSW submits that planning for land release and residential development should include clubs. The Leagues Clubs’ Association also suggests that planning for urban growth include club locations.172

A club should only be established if there is demand from the local community. Developments over time may make the generic offerings of a club available in another way or from other providers, so establishment of a registered club should be related to the unique attributes of a club. However, where there is demand for a club, its location is an important issue.

IPART understands that the two options for clubs to obtain land in new release areas are:

1. A club can approach the NSW Department of Planning at the stage of precinct planning to put forward a case for an allowance of land in the master plan. This is more likely to suit clubs looking to set up a satellite premises (and seeking a large tract of land).

2. Master plans for greenfield sites include commercial zoned land, which clubs are free to purchase. This is more likely the option for clubs that develop over time from a group of people in the local community who want to set up a club. The risk here is that the size and location of the land may not be suitable, depending on how the area develops.

Under both of the above options, the club would have to raise capital to purchase the land.

IPART considers that clubs looking to set up a satellite premises need to become more familiar with the processes and principles of the NSW Department of Planning and engage in discussions at the early stages when the precinct is being planned. Clubs should also consider the design of the premises and it’s compatibility to the plans for that precinct.

Councils also purchase land for community facilities. It is open to clubs and councils to work together to develop community facilities. One party could provide the land and the other the facilities and services. ClubsNSW presented the example of Blacktown Workers Club in its submission (see Box 10.1).

171 Campbelltown Catholic Club, confidential submission, p 10. 172 ClubsNSW submission, pp 122-123, and Leagues Clubs’ Association submission, p 30.

10 Establishment


Box 10.1 Blacktown Workers Sports Club

Blacktown Workers Sports Club is located on approximately 50 hectares of land in Blacktown.

The cost of constructing the premises was $8 million and took, from concept to completion, 18 months. Club facilities include:

100 gaming machines and TAB

members’ courtesy bus

bar facility, members’ bottle shop and buffet

outdoor barbecue and entertainment area

lounge

administration.

The sporting complex features two soccer fields, two rugby league fields/cricket ovals, twobowling greens, five all weather tennis courts and a baseball diamond. Other facilities includeon-site storm water treatment, on-grade and multi-level car park, and a Travelodge motel.

Blacktown Council assisted this development by rezoning the site to make the multiple usespermissible.

Source: ClubsNSW submission, pp 125-127.

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.

10.4.3 Gaming machine entitlements

At present, there are three main areas in the legislation that stakeholders have raised as a hindrance to club establishment, these are the 10 free gaming entitlements, forfeiture scheme when transferring gaming entitlements and the SIA process.

10 Establishment


As highlighted earlier, many stakeholders have commented that 10 entitlements are not sufficient to support a club’s operations, and that this entitlement needs to be increased to make the establishment of a new club more viable.173

On a similar note, many clubs regard setting up satellite clubs as not feasible at present due to the restrictions on transferring gaming machine entitlements. At present, the movement of gaming machines between club premises is subject to the forfeiture scheme. Under this scheme, if a club wanted to move gaming machine entitlements to a satellite club, it must forfeit one gaming machine entitlement for every two to three gaming machine entitlements it transfers.174 This effectively penalises a club by reducing its entitlements. Further, if it wanted to apply for more entitlements, and this exceeds the club’s SIA threshold, it would have to also go through the SIA process, adding another layer of costs.

Proposed changes to the Gaming Machines Act

The Report on the Five-year Review of the Gaming Machines Act 2001 was released in December 2007. Of particular interest here are the proposals relating to the free gaming machine entitlements, forfeiture scheme and the SIA process. The proposed changes are:

Reduce the state-wide cap on gaming machines and provide a mechanism for the automatic reduction of the cap over time.

Eliminate access to 10 free entitlements, as this inhibits the proposal to reduce the overall state cap on gaming machines. Instead it proposes to develop other mechanisms, in consultation with the industry, to assist small clubs and new clubs (particularly in greenfield areas).

Relax the restriction on gaming machine transfers for related clubs by removing the forfeiture ratio for transfers within the same LGA and changing the forfeiture ratio to one entitlement for every six that is transferred for inter-LGA transfers.

Significantly amend the SIA process to reduce time and complexity, while still ensuring that an impact assessment of additional gaming machines on the community is carried out (see Box 9.2 and Figure 9.1)

New gaming laws arising from the Five-year Review of the Gaming Machines Act 2001 are expected to be introduced sometime in 2008. In principle, IPART supports moves to relax the forfeiture ratio and improve the SIA process. This should, with appropriate implementation, reduce some of the cost and barriers to establishing a registered club or satellite club. IPART also considers that such proposals still provide a level of protection to uphold the underlying principles of gambling harm minimisation and deterring predatory behaviour.

173 For example, see ClubsNSW submission, pp 124-125 and Leagues Clubs’ Association submission,

p 30. 174 Gaming Machines Act, Section 20. Forfeiture rules apply unless both club premises are located within

1km of each other for metropolitan locations and 50km for non-metropolitan clubs.

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However, IPART is concerned about the proposal to eliminate access to 10 free gaming machine entitlements for new clubs. As highlighted in section 6.1, gaming revenue, especially from gaming machines, is an important source of funding for clubs. This proposal effectively means that new clubs wanting to operate gaming machines would have to purchase all their gaming machine entitlements, adding to the cost of establishment.

IPART notes that alternative mechanisms are proposed to be developed in lieu of removing access to the 10 free gaming machine entitlements for new clubs.175 However, as the report does not provide further details regarding what these mechanisms may be, IPART considers that the 10 free entitlements should only be removed when appropriate alternative mechanisms are in place.

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.

175 Report on the Five-year Review of the Gaming Machines Act 2001, p 15.

11 Corporate Governance and Training



In general terms, effective corporate governance encourages an organisation to create value and provide a level of accountability that corresponds to the risks involved in its activities. However, defining what constitutes effective corporate governance in more practical terms is difficult, as there is no single model that is appropriate for all organisations. Defining effective corporate governance in relation to clubs is even more complicated due to the diversity of clubs in the registered clubs industry.

IPART considers the existing corporate governance arrangements for clubs provide a useful framework. Stakeholders were generally satisfied with the corporate governance provisions under the Registered Clubs Act, which has recent amendments aimed at reducing the cost of compliance. The Registered Clubs Act’s provisions mainly focus on ensuring club boards and management are accountable to their members and require them to disclose certain information to members.

Stakeholders suggested that any new corporate governance initiatives should focus on improving the effectiveness of club boards and management. This would rectify a number of the perceived deficiencies in club corporate governance and assist clubs to respond to future challenges.

IPART has drawn attention to the link between training and corporate governance – training can enhance an organisation’s corporate governance and allows boards and management to improve their skill sets and keep up-to-date with recent developments in the registered clubs industry. This link is further demonstrated by stakeholder comments that corporate governance in clubs could be improved if boards operated more effectively. Deficiencies in director skill sets, particularly a poor grasp of financial concepts and lack of business acumen, and difficulties in attracting and electing directors presented challenges to board effectiveness.

IPART has proposed recommendations that aim to not only maintain and develop a strong code of corporate governance within the registered clubs industry, but also answer its training and development needs. In summary, IPART’s recommendations deal with:

improving director skill sets through ongoing professional development training

overcoming difficulties in electing directors through encouraging clubs to remove voting and board restrictions in their constitutions and permitting board-appointed directors in limited circumstances

improving director skill sets through encouraging performance assessments



dealing with difficulties in attracting directors through encouraging succession planning

ClubsNSW encouraging better corporate governance in clubs by more extensively promoting this issue and expanding its Guidelines to deal with best practice in pivotal areas such as: – frequency of board elections – the roles of the board and management; and – factors for boards to consider when hiring managers and assessing their

performance.

This chapter discusses IPART’s findings and recommendations on corporate governance within the registered clubs industry, as well as cost-efficient and effective ways to provide training and development that will enhance corporate governance. The following sections:

outline what is corporate governance

explain the links between corporate governance and training and development

describe the existing framework for corporate governance

indicate stakeholder concerns about corporate governance and training

provide IPART’s recommendations for improving corporate governance and training.

11.1 Corporate governance and training

11.1.1 What is corporate governance and why is it important?

Corporate governance is the system by which an organisation is directed and controlled.176 It includes the mechanisms by which those controlling the organisation are held to account177 and encouraged to use the organisation’s resources efficiently.178 It also involves the systems in place to manage an organisation’s risks and reduce the possibility of loss (or other adverse effects) to an acceptable level.179

Some aims of an organisation’s corporate governance framework include:

176 Standards Australia, Australian Standard Good Governance Principles (AS 8000-2003), June 2003, p 8 177 Australian Securities Exchange, Corporate Governance: Principles and Recommendations (2nd Edition),

August 2007, p 3. 178 A Cadbury, Corporate Governance and Development, Washington: Global Corporate Governance Forum,

2004. 179 Standards Australia, Risk Management (AS/NZ 4360-2004), August 2004, p 4 and Standards Australia,

Risk Management Guideline s Companion to AS/NZ 4360-2004), December 2005, p 7.



to align the interests of the organisation’s management, board and stakeholders180 so as to provide proper incentives to management and the board to pursue objectives that are in the interests of the organisation and its stakeholders.181

to create an adequate system of controls for the organisation to safeguard its resources.182

to prevent any one individual’s influence from becoming too powerful,183 and ensure the organisation’s resources are harnessed for its agreed purpose rather than diverted to some other purpose.184

The differences between clubs and commercial enterprises create different corporate governance challenges, such as making sure club boards and management are accountable to members.185 A club’s members do not directly benefit from the club improving its profitability in the same way as shareholders of publicly listed companies do from increased dividends or rising share prices. So club members may be less concerned about their club’s financial performance, and subject it to less scrutiny than that experienced by a publicly listed company from its shareholders.

Accountability was an area that the reforms to the Registered Clubs Act in 2003 sought to improve (see section 11.2.2). These reforms were enacted as a result of perceptions and allegations concerning mismanagement of clubs. For example, some directors and managers receiving substantial corporate hospitality from people with whom they subsequently entered into major contractual arrangements.186

11.1.2 What is effective corporate governance?

Defining what constitutes effective corporate governance in practical terms is difficult, as there is no single model that is appropriate for all organisations.187 Examples of effective corporate governance may include an organisation:

specifying the respective roles and responsibilities of its board and management

having a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties

establishing a sound system of risk oversight and internal control. 188

180 A Cadbury, Corporate Governance and Development, Washington: Global Corporate Governance Forum,

2004. 181 C Mallin, Corporate Governance (2nd Edition), 2007, p 6. 182 C Mallin, Corporate Governance (2nd Edition), 2007, p 5. 183 C Mallin, Corporate Governance (2nd Edition), 2007, p 6. 184 UTS Centre for Corporate Governance, The Significance of Corporate Governance

(www.ccg.uts.edu.au/corporate_governance.htm, accessed 13 December 2007). 185 See section 2.4 for an outline of these differences. 186 Mr Grant McBride, Second Reading Speech, Registered Clubs Amendment Bill 2003, 14 November 2003. 187 Organisation for Economic Co-operation and Development, OECD Principles of Corporate Governance:

(2nd Edition), 2004, p 13. 188 ASX, Corporate Governance: Principles and Recommendations (2nd Edition), August 2007, pp 10-11.



Defining effective corporate governance for the diversity of clubs in the registered clubs industry is even more complicated. Stakeholder comments and case study observations describe the following as aspects of effective corporate governance:

boards and management being accountable to club members for their actions and use of club resources, through disclosure of relevant information to members

boards and management ensuring that appropriate risk management systems are in place at their club

boards engaging in succession planning to ensure regular renewal and target club members who they think will make useful contributions to their club

boards and management using strategic planning to develop appropriate responses for future challenges to their club

boards assessing management’s performance, as well as their own performance, on at least an annual basis

boards monitoring how successful management is in carrying out board decisions.

11.1.3 How does training link with corporate governance?

There is a link between training and corporate governance, as training can enhance an organisation’s corporate governance. For example, induction training assists boards and management to understand their respective roles and responsibilities. Ongoing training also allows boards and management to improve their skill-sets and keep up-to-date with recent developments in the registered clubs industry, such as the changes to the amalgamation regime referred to in Chapter 9.

11.2 Existing corporate governance framework

The existing sources of club-specific corporate governance requirements are the ClubsNSW Code of Practice (Code), the ClubsNSW Best Practice Guidelines (Guidelines) and the Registered Clubs Act.



11.2.1 Code and Guidelines

ClubsNSW introduced its Code and Guidelines in 2005. Under the Code, clubs that are members of ClubsNSW commit to common standards of conduct.189 For instance, directors and managers agree to:

make decisions that are consistent with their club’s role and interests of members

keep up–to-date with changes to relevant legislative requirements

promote a culture of continuous professional development.190

ClubsNSW established a body known as the Code Authority to examine alleged breaches of the Code by ClubsNSW members, to make determinations and, if necessary, impose sanctions. ClubsNSW advises that the Code Authority will typically only hear a complaint once the club in question has been given the opportunity to address the issue through their complaints handling processes.

The Code Authority has three members, including a chairperson who is independent of ClubsNSW. Members of the Code Authority are appointed by the ClubsNSW board for a period of two years and are eligible for re-appointment. Criteria for selecting Code Authority members include:

the ability to exercise sound and fair judgement

experience in handling disputes

expertise in administration of self-regulatory schemes.191

Some of the sanctions the Code Authority may impose for non-compliance with the Code include requiring a club to provide financial compensation, offer an apology or take remedial steps in accordance with a specified timeframe. If a club does not comply with these sanctions, the Code Authority may recommend to the board of ClubsNSW that it cancel the club’s membership. The Code Authority may also refer the matter to the Minister for Gaming and Racing for further action.192

According to ClubsNSW, the Code Authority heard five complaints in 2007, mainly relating to disciplinary proceedings and member suspension. The Code Authority upheld one of these complaints, requiring the club in question to reinstate a person’s membership that it had cancelled.

189 According to ClubsNSW, around 90 per cent of the approximately 1,400 registered clubs in New

South Wales are ClubsNSW members. 190 ClubsNSW, Code of Practice, July 2005, Part B, Clause 23. The Code is available from:

www.clubsnsw.com.au. 191 ClubsNSW submission, pp 146-147. 192 ClubsNSW, Code of Practice, July 2005, Part D, Clause 68.



The Code is supported by the Guidelines193, which assist clubs to meet their Code obligations through highlighting best practice for items such as major capital works, board operation and overseas travel. While the Guidelines are not mandatory, the Code Authority has regard to them in assessing whether a club has complied with the Code.

11.2.2 Registered Clubs Act

The main corporate governance provisions in the Registered Clubs Act were introduced in 2003;194 they focus on improving accountability and probity in the registered clubs industry. OLGR subsequently reviewed some of these provisions in consultation with the industry peak bodies, resulting in amendments that became effective in late 2007.195

Accountability

The provisions aim to create a high standard of transparency and accountability, mainly though disclosing information to members. Box 11.1 outlines examples of these disclosures.

193 The Guidelines are available to download from the ClubsNSW website (www.clubsnsw.com.au). 194 Registered Clubs Amendment Act 2003. 195 Registered Clubs Amendment Act 2006 and Registered Clubs Amendment Regulation 2007.



Box 11.1 Disclosure of information to members

The Registered Clubs Act requires that a club keep a register containing information thatrelates to the management and financial administration of the club, including:

A list of disclosures, declarations and returns made by the directors or employees (egmaterial personal interests in contracts).

The number of top executives whose remuneration falls within each successive $10,000band, starting at $100,000.

Details of any overseas travel made by directors or employees that is funded by the club.

Details of loans made by the club to any employee in excess of $1,000.

Details of certain contracts executed by the club (eg contracts in which directors have apecuniary interest).

Name and remuneration of any employee who is a close relative of a director or top executive.

The total amount paid by the club to consultants, including the details of payments of $30,000 or more.

Details of legal settlements made by the club with a director or employee.

Details of legal fees paid by the club on behalf of a director or employee.

The club’s annual gaming machine revenue.

The amount applied by the club to community development and support.

Members may view the register by written request to the club.196

Allowing members access to this information helps them to gain a greater working knowledge of their club’s activities.197 Members can also access their club’s quarterly financial reports, keeping them informed as to their club’s financial position (see section 7.1).

One outcome of the recent amendments to these provisions was to change how members could access this information. Previously the information needed to be included in the copy of the club’s annual report sent to members. In addition, some of the information needed to be displayed on a noticeboard at the club. Now the information is provided to members on written request. This amendment was made to reduce red tape and the compliance burden on clubs.198

196 Clause 47HA(1)(d) Registered Clubs Regulation. 197 Mr Grant McBride, Second Reading Speech, Registered Clubs Amendment Bill 2003, 14 November 2003. 198 Mr Grant McBride, Second Reading Speech, Registered Clubs Amendment Bill 2006, 14 November 2006.



Probity

The provisions also aim to improve probity in clubs.199 They were included in response to various concerns raised by members. For instance, that some clubs were disposing of assets without appropriate member consultation. Another concern was that some managers were improperly benefiting from contracts to supply goods and services to their club. As a result, clubs are required to seek member approval before they can dispose of certain items of club property.200 Further, clubs are prohibited from entering into contracts with their managers.201

11.3 Stakeholder comments and case study findings

Stakeholders were generally satisfied with the existing corporate governance requirements. Their principal message was that corporate governance could be enhanced by improving the effectiveness of club boards. The main problems stakeholders raised about club boards involved:

deficiencies in director skill sets

difficulties in attracting directors

difficulties in electing directors.

Stakeholders did not have significant concerns with management efficiency or risk management in clubs. However, the case study process indicated that some clubs could better manage their risk of fraud.

Stakeholders indicated there were a wide range of training options available to club boards and management. However, the case study clubs revealed that directors had a low take-up of training. As such, many stakeholders thought that in order to improve director skill sets, directors should be required to undergo training.

11.3.1 Overall satisfaction with existing corporate governance requirements

Stakeholders were generally satisfied with the existing corporate governance requirements. Their main complaint was that some of the Registered Clubs Act requirements were irrelevant, imposing unnecessary compliance costs on clubs.

Code and Guidelines

ClubsNSW indicated that there was strong awareness and acceptance of the Code among its members. For example, its December 2006 survey of members found that the vast majority of clubs directors and managers were committed to the Code.202

199 Mr Grant McBride, Second Reading Speech, Registered Clubs Amendment Bill 2003, 14 November 2003. 200 Section 41J Registered Clubs Act. 201 Section 41L Registered Clubs Act. 202 ClubsNSW submission, p 146.



This view was borne out by the case study clubs. In general, case study clubs thought the Code and Guidelines were useful resources for clubs to refer to and use to guide their actions. However, the case study club Clubmulwala thought the Guidelines were not effective because of their voluntary nature.

Registered Clubs Act

Case study clubs generally thought the Registered Clubs Act corporate governance provisions had improved club governance, viewing them as part of the accepted landscape. Indeed, some case study clubs (eg, Nowra Bowling & Recreation Club) thought that the Registered Clubs Act provisions had enhanced the clubs industry’s image, making it more transparent and professional.

The stakeholders’ main complaint related to the cost of complying with the Registered Clubs Act. Some stakeholders noted that this typically imposed a significant burden on small to medium-sized clubs. Large clubs were able to employ full-time compliance officers to monitor compliance.203 In contrast, smaller clubs lacked the time and expertise to properly deal with compliance issues internally and did not have the financial resources to employ compliance professionals.204

Several case study clubs205 thought that some of the Registered Clubs Act corporate governance provisions were irrelevant and had led to an undue increase in compliance costs. That being said, a number of them206 went on to say that the recent amendments to the Registered Clubs Act would deal with many of their concerns and remove most of the disclosures they considered to be unnecessary.207

11.3.2 Improving the effectiveness of club boards and management

Stakeholders suggested that any new corporate governance initiatives should focus on improving the effectiveness of club boards and management.208 This would rectify a number of the perceived deficiencies in club corporate governance and assist clubs to respond to future challenges.

203 ClubsNSW submission, p 102. 204 Wests Ashfield Leagues submission, p 7. 205 For example, Asquith Bowling and Recreation Club, Club Old Bar, Clubmulwala, Cronulla-

Sutherland Leagues Club and Tathra Beach Country Club. 206 For example, Asquith Bowling and Recreation Club and Bowlers Club of NSW. 207 For example, the requirement to disclose the remuneration of a club’s top executives has been

amended. Now it only picks up those people with a managerial role at the club. As noted by OLGR, the previous definition of ”top executive” resulted in difficulties due to its broad reach – in some cases employees with no managerial responsibilities, such as greenkeepers or bar staff, were being captured (www.olgr.nsw.gov.au/legislation_top_exec.asp, accessed 4 February 2008).

208 Campbelltown Catholic Club submission, p 11 and RSL and Services Clubs Association of NSW (RSL & Services Clubs Association), Sydney roundtable, p 67.



The Leagues Clubs’ Association indicated that it was critical to the future of the club movement to improve corporate governance.209 ClubsNSW viewed it as the number one issue for the registered clubs industry,210 and has noted in its Guidelines that an effectively operating board is the most significant component of an effective club.211 Additionally, the RSL & Services Clubs Association considered that poor corporate governance could jeopardise a club’s financial viability.212

11.3.3 Director skill sets

Deficiency in director skill sets

Stakeholders indicated that the calibre of directors was a big concern within the registered clubs industry.213 This was extensively discussed at all the roundtables. Specifically, some directors:

did not have a strong grasp of financial concepts214

lacked business acumen215

did not have a strategic focus, instead opting to deal with more minor operational matters216

lacked clarity regarding their roles and responsibilities.217

Desired director skill sets

Partly due to this deficiency in director skill sets, ClubsNSW considered that clubs needed to broaden the talent pool of directors and attract a wider range of members to board positions, in particular, those members with desired skill sets.218

From the case study process, it appeared that what constituted a desirable a skill set varied according to club size. The management and boards of medium to large clubs219 preferred directors to have experience in areas such as accounting, property development, construction and real estate. In smaller clubs220, directors who had experience in running a business were highly regarded.

209 Leagues Clubs Association, Wagga Wagga roundtable, p 50. 210 ClubsNSW, Wagga Wagga roundtable, p 46. 211 ClubsNSW, Best Practice Guidelines: Guideline for Board Operation, July 2005, p 25. 212 RSL & Services Clubs Association submission, p 14. 213 Dubbo roundtable, p 33. 214 Dubbo roundtable, p 39 and Armidale roundtable, p 24. 215 RSL & Services Clubs Association submission, p 14. 216 Dubbo roundtable, p35. 217 ClubsNSW submission, p 157. 218 ClubsNSW, Wagga Wagga roundtable, p 47. 219 For example, Bega RSL Club, Bowlers Club of NSW and Club Old Bar. 220 For example, Bingara Sporting Club and Hamrun Association (NSW) Incorporated.



11.3.4 Attracting directors

Stakeholders indicated that some clubs were having difficulty attracting directors.

Difficulty attracting directors

A number of stakeholders indicated that club boards were unable to attract sufficient nominees for board positions, in particular candidates with skill sets in desired fields, such as property development or accounting.221

In contrast, several of the case study clubs222 thought they had no trouble attracting directors. However, this did not necessarily mean there was a deep pool of director talent available. Some regional case study clubs223 said they would struggle to find a replacement director if the need arose. Additionally, the case study club Club Old Bar considered that even if people were standing for election, they may not have desired skill sets. Finally, there was generally little competition for board places in the case study clubs (eg, Cronulla-Sutherland Leagues Club), with the incumbent board being re-elected unopposed if members were happy with the club’s performance.

Time-poor

The manager of Wagga Wagga Country Club suggested that one reason clubs find it difficult to attract people with desired skill sets to club boards was that such people were generally very time-poor.224 In this regard, the case study process highlighted that many directors commit a considerable amount of time to club activities. Several case study club directors225 estimated that they spent between five and 20 hours a week on club activities. Additionally, some case study club directors226 in special positions, such as club presidents and treasurers, said that they spent between 20 and 30 hours a week on club activities.

221 Campbelltown Catholic Club submission, p 11 and Cabarita Beach Bowls and Sports Club, Armidale

roundtable, p 24. 222 For example, Asquith Bowling & Recreation Club, Bowlers Club of NSW and Tathra Beach Country

Club. 223 For example, Bingara Sporting Club and Tathra Beach Country Club. 224 Wagga Wagga Country Club, Wagga Wagga roundtable, p 54. 225 For example, Club Old Bar, Mounties and Riverstone-Schofields Memorial Club. 226 For example, Bega RSL Club, Club Old Bar, Hamrun Association (NSW) Incorporated and Tathra

Beach Country Club.



Succession planning

Some stakeholders indicated that they were addressing the problem of attracting directors through succession planning.227 However, this pro-active approach to recruiting directors appears to be a minority one. For instance, the RSL & Services Clubs Association found that less than 20 per cent of the clubs that it represented had a succession plan in place.228

Director remuneration

The RSL & Services Clubs Association229 and the Leagues Clubs’ Association230 thought that allowing clubs to remunerate directors could assist clubs to attract a greater number of professionally experienced businessmen and women to their boards.231 Some case study clubs232 agreed that remunerating directors would provide a club with a way of attracting directors with particular expertise. However, several case study clubs233 were concerned that remunerating directors would attract people with the wrong motivation to club boards. That is, people lacking a community focus or concern for their club and only serving on the board for their own financial gain.

11.3.5 Electing directors

Stakeholders indicated that voting and board restrictions in club constitutions presented significant barriers to members becoming directors. This was a particular problem for RSL clubs and, to a lesser extent, bowling clubs. The problem was compounded by the subset of members who benefit from these constitutional restrictions being unwilling to remove them. Stakeholders also indicated that pushing the frequency of electing directors out to three years could improve board effectiveness.

227 Wagga RSL Club, Wagga Wagga roundtable, p 51, Leagues Clubs Association, Wagga Wagga

roundtable, p 50, Wagga Wagga Country Club, Wagga Wagga Roundtable, p 54 and Forbes Services Memorial Club, Dubbo roundtable, p 39.

228 RSL & Services Clubs Association submission, p 33. 229 RSL & Services Clubs Association submission, p 33. 230 Leagues Clubs Association, Armidale roundtable, p 43. 231 The Registered Clubs Act permits directors to be paid for their services provided the payment is

approved by members (section 10(6)(b). However, IPART understands that where directors do receive a payment, it is usually in the form of an honorarium or payment for out-of-pocket expenses.

232 For example, Asquith Bowling and Recreation Club, Bowlers Club of NSW and Clubmulwala. 233 For example, Mounties, Nowra Bowling & Recreation Club, Riverstone-Schofields Memorial Club

and Tathra Beach Country Club.



Constitutional restrictions

A significant number of stakeholders indicated that constitutional restrictions, which generally meant that social members had difficulty becoming directors or voting at board elections234, were limiting boards to a narrow pool of directors.235 For example, one common constitutional restriction is a requirement that the majority of board positions are reserved for returned service people who are sub-branch members (in the case of RSL clubs) or bowling members (in the case of bowling clubs).

ClubsNSW thought these restrictions prevented clubs from encouraging competent and willing individuals to stand for election to the board.236 That is, even if a club was able to identify potential directors with desired skill sets, constitutional restrictions could act as barriers to those people being elected to the board.237

ClubsNSW also considered that constitutional restrictions led to clubs not reflecting their true membership base, leaving only a small pool of eligible directors to choose from.238 It thought this could lead to inequitable outcomes. For instance, the minority of a club’s total membership controlling its financial resources, even where such resources predominantly flowed from the club’s broader membership.239

RSL clubs

Stakeholders indicated these board and voting restrictions were having a particularly significant impact on RSL clubs. The RSL & Services Clubs Association said the number of members who were eligible to vote or become directors (ie, returned service people who were sub-branch members) had shrunk dramatically. Its survey showed that sub-branch membership decreased Australia-wide by around 25 per cent between 2000 and 2006, with annual declines of approximately 6 per cent in NSW over that period.240 Further, the RSL & Services Clubs Association found that sub-branch members typically only made up around 4 per cent of a club’s total members. In some clubs, this figure was as low as 1.5 per cent.241

The RSL & Services Clubs Association representative said that he was aware of a number of large clubs having directors resign and being unable to find replacements for up to six months due to constitutional restrictions.242 The manager of Wagga RSL Club indicated that constitutional restrictions were not only limiting the size of

234 ClubsNSW submission, p 140. 235 RSL & Services Clubs Association submission, p 33. 236 ClubsNSW submission, p 140. 237 ClubsNSW, Wagga Wagga roundtable, p 47. 238 ClubsNSW submission, p 157. 239 ClubsNSW submission, p 140. 240 RSL & Services Clubs Association submission, p 33. 241 RSL & Services Clubs Association submission, p 33. 242 RSL & Services Clubs Association, Armidale roundtable, p 25.



eligible director pools, but were also leading to some board and member meetings being unable to operate due to a lack of a quorum.243

Bowling clubs

Cabarita Beach Bowls and Sports Club thought that restrictions in bowling clubs’ constitutions created problems electing directors. In its experience, less than 10 per cent of its total membership base was eligible to stand for election to the board.244 Its manager thought that having the ability to draw on the club’s entire membership base for board positions was essential to the club’s future, as otherwise the club would struggle to remain relevant to the majority of its members.245

However, the case study bowling clubs246 did not think constitutional restrictions were problematic. They thought there were plenty of current bowling members from which to source directors, and that people could easily become bowling members if they wanted to stand for election to the board.

Resistance to change

It is already open to club members to vote to remove these constitutional restrictions. Some case study clubs (eg, Riverstone-Schofields Memorial Club) had managed to remove their board restrictions in this manner. However, other case study clubs indicated that changing their constitutions was an expensive and fraught process. For instance, Clubmulwala took 13 years and four attempts before members approved an amendment that partially removed the club’s board restriction.

Stakeholders indicated there were three main reasons for this difficulty.

A relatively small number of members could block proposals to amend club constitutions due to member apathy and low voter turnout. For example, this had been the experience of the case study club Club Old Bar.

Some of the voting and board restrictions could only be removed by those members who benefited most from them as they stand. As ClubsNSW noted, some of those members only saw the negatives from removing restrictions, such as loss of control, and not the positives.247

243 Wagga RSL Club, Wagga Wagga roundtable, p 51. 244 Cabarita Beach Bowls and Sports Club submission, p 1. 245 Cabarita Beach Bowls and Sports Club, Armidale roundtable, p 21. 246 For example, Asquith Bowling and Recreation Club and Nowra Bowling and Recreation Club. 247 RSL & Services Clubs Association, Sydney roundtable, p 67.



Some members feared that if voting and board restrictions were removed, clubs would not retain their fundamental traditions on which they were based and so lose their identities.248 ClubsNSW noted that the original intention behind the constitutional restrictions was to protect a club’s objects and main purpose.249 In this light, the RSL & Services Clubs Association considered that some members were reluctant to let go of the reins, as otherwise their club’s traditions could be dismantled.250 In this regard, the boards of some case study bowling clubs251 were concerned that removing restrictions would allow other sporting factions to take-over their boards and redevelop the bowling greens.

Frequency of board elections

Stakeholders indicated that pushing the frequency of electing directors out to three years could improve board effectiveness. The Registered Clubs Act permits three-year rolling elections.252 That is, directors having three-year terms and staggered re-elections, so that each year one-third of the board is up for re-election.

Stakeholders generally favoured moving to the three-year rolling model for the following reasons:

It would enhance board stability.253 For example, the Leagues Clubs’ Association was aware of situations where whole boards were replaced at annual general meetings, which the three-year model would prevent.254

It would assist management’s working relationship with the board by allowing its relationship with board members to build over the three years rather than just 12 months.255

It would encourage directors to invest time and money into training. For example, the manager of Riverina Australian Rules Club thought that having directors commit for a longer term would mean they would appreciate the need for training.256

11.3.6 Risk management

Stakeholders did not raise any major concerns regarding risk management in clubs. This may be because OLGR and ClubsNSW already provide a number of resources for clubs to use to manage their various risks. However, the case study process did reveal that clubs could improve their approach to managing the risk of fraud.

248 RSL & Services Clubs Association submission, p 34. 249 ClubsNSW submission, p 140. 250 RSL & Services Clubs Association, Armidale roundtable, p 25. 251 For example, Asquith Bowling & Recreation Club and Nowra Bowling and Recreation Club. 252 Section 30(1)(a)(iii) Registered Clubs Act. 253 ClubsNSW submission, p 158. 254 Leagues Clubs Association, Wagga Wagga roundtable, p 50. 255 Leagues Clubs Association, Wagga Wagga roundtable, p 50. 256 Riverina Australian Rules Club, Wagga Wagga roundtable, p 52.



OLGR has developed several tools to assist clubs manage their compliance risks. For example, clubs can access:

A self-audit checklist. This is the same checklist that OLGR’s officers use when auditing clubs. Most case study clubs had used it to check their compliance.

A standards and systems audit. Clubs can complete this audit to assess and identify their compliance risks, identify strategies for reducing their compliance risk rating and compile a compliance folder outlining their compliance program.257

The Guidelines issued by ClubsNSW also assist clubs to manage various day-to-day and longer term risks. For example, the Guideline on the Procurement of Goods & Services explains how clubs can manage the tender process for major procurements.258 Further, the Guideline on Major Capital Works assists clubs to manage the risks resulting from significant capital expenditures.259

One area of risk management not specifically addressed by the above resources was the risk of fraud. Some case study clubs260 noted that the volume of cash transactions combined with the appeal and transferability of products, such as alcohol, meant that the risk of fraud was especially high within clubs. A number of case study clubs261 indicated that they had experienced instances of fraud, ranging from misappropriation of cash and goods to intentional manipulation of financial records.

Factors found to increase the risk of fraud include:

The lack of oversight of management by some club boards due to deficiencies in directors’ skill sets, especially risk management and financial fundamentals (see section 11.3.3). Indeed, the manager of one case study club commented that the board left management in total control of most matters, contributing to the risk of fraud.

The apparent difficulty many club boards have in monitoring their club’s financial performance. The case study process indicated that some boards were “flying blind” in terms of understanding their clubs’ financial performance. This was partly due to the inadequacy of financial information made available to them (see Chapter 6).

Lack of segregation of duties, particularly within the finance departments of some clubs. This was predominantly noted in the case of smaller clubs, where low staff numbers meant proper segregation was impractical.

257 www.olgr.nsw.gov.au/gaming_info_compliance_tools.asp (accessed 4 February 2008). 258 ClubsNSW, Best Practice Guidelines: Guideline for Procurement of Goods & Services, July 2005, p 11. 259 ClubsNSW, Best Practice Guidelines: Guideline for Major Capital Works, July 2005, p 5. 260 For example, Bega RSL Club and Club Old Bar. 261 For example, Bega RSL Club, Club Old Bar and Riverstone-Schofields Memorial Club.



11.3.7 Director training

ClubsNSW indicated that it provides extensive director training; however, while stakeholders generally view this positively, there was a low take-up by directors. Stakeholders thought this may be due to barriers to training such as time, cost and distance.

Current training

ClubsNSW indicated that it offers training targeted at club directors through the Club Director Institute (CDI). Over the last five years, CDI provided training in areas relevant to club boards, such as strategic planning, risk assessment and management oversight.

ClubsNSW noted that around 3,000 of the 12,000 or so club directors were CDI members, with over 500 clubs participating in it.262 Perhaps reflecting the typical age profile of club directors, ClubsNSW found that most CDI participants were older retired or semi-retired people who had not participated in formal training for a long time, if ever. This had implications for the delivery style and methods of CDI training.263

ClubsNSW considered that member retention at CDI was significant. In its experience, once a club’s directors joined CDI, their adherence to the program was strong.264 Further, stakeholders were on the whole positive about CDI.265

Low take-up of training

Stakeholders indicated that only a minority of directors participated in regular training.266 This also became apparent in the case study process, where only a few case study clubs had a culture that promoted training. One case study club that did have a training–orientated culture, Riverstone-Schofields Memorial Club, required people nominating for board positions to sign a form committing them to training if elected. However, many case study clubs did not consider training to be a high priority, with only a few clubs even running internal training for their directors.

262 ClubsNSW submission, p 161. 263 ClusbNSW submission, p 161. 264 ClubsNSW submission, p 161. 265 Riverina Australian Football Club, Wagga Wagga roundtable, p 53. 266 Leagues Clubs’ Association, Wagga Wagga roundtable, p 49.



Barriers to training

Stakeholders cited the following main reasons why directors did not get more training:

Some directors consider training would be irrelevant and would not improve their performance.267

Some clubs cannot afford the cost of training. In particular, those smaller clubs operating largely with volunteer staff.268

Some directors cannot attend training because it would conflict with work or other commitments.269

Some directors find training seminars to be located too far away from their club.270

Some directors are uncomfortable with formal training.271

Training requirements

A significant number of stakeholders thought that requiring directors to undergo training would improve their skill sets.272 For example, the majority of case study clubs supported training requirements for directors. Unsurprisingly, clubs with a training–orientated culture were happy for there to be more requirements for training (eg, Clubmulwala). However, many clubs273 with boards that did not engage in regular training also thought it would be a good idea.

Some stakeholders thought that training requirements should have a pre-election or an induction component, with people attending training before being elected to club boards or shortly afterwards.274 For example, ClubsNSW thought pre-election training would help nominees better understand their obligations as directors, and allow them to make an informed choice about becoming a director.275

267 Dubbo Railway Bowling Club, Dubbo roundtable, p 34. Case study clubs included Asquith Bowling

and Recreation Club, Bingara Sporting Club, Hamrun Association (NSW) Incorporated and Tathra Beach Country Club.

268 ClubsNSW submission, p 159. 269 Case study clubs included Asquith Bowling and Recreation Club, Bingara Sporting Club, Bowlers

Club of NSW and Nowra Bowling and Recreation Club. 270 Case study clubs included Club Old Bar, Nowra Bowling & Recreation Club and Tathra Beach

Country Club. 271 ClubsNSW submission, p 159. 272 PEG submission, p 31, ClubsNSW submission, p 163. 273 For example, Asquith Bowling & Recreation Club and Bowlers Club of NSW. 274 Narromine Services Memorial Club, Dubbo roundtable, p 34, Leagues Clubss Association, Wagga

Wagga roundtable, p 49 and Moama Bowling Club, Wagga Wagga roundtable, p 56. Case study clubs included Asquith Bowling and Recreation Club, Club Old Bar and Clubmulwala.

275 ClubsNSW, Wagga Wagga roundtable, p 48.



Some stakeholders also thought there should be an ongoing component to training requirements, with people receiving training once elected to club boards. For example, ClubsNSW considered that ongoing training would allow directors to improve their skill sets and keep abreast of issues relevant to their roles.276 Further, one large case study club, the Bowlers Club of NSW, thought that ongoing training should be viewed as part and parcel of being on the board of a multi-million dollar business.

Some case study clubs277 believed this type of training must cover financial management and board functions. ClubsNSW thought directors also needed training in areas like strategic planning and risk assessment278, and chairpersons needed extra training in areas such as managing directors’ performance and effective board decision-making.279

Stakeholders’ main concern with requiring training was that it could discourage people from becoming club directors. ClubsNSW noted that directors are volunteers and give up their free time to perform their duties.280 If the type of training required was too onerous, potential directors could be unduly deterred from standing for board positions.

Concern about deterring people from board positions was particularly strong among small and regional clubs. The smaller case study clubs281 thought that requiring training would act as a significant disincentive to people standing for election. Further, the Leagues Clubs’ Association considered that requiring training would impose an undue burden on regional clubs, which were already struggling to attract people to board positions.282

However, some stakeholders283 thought the deterrent effect of requiring training could turn out to be positive for the registered clubs industry. This is because it would be better for the industry to only attract directors who were willing to improve their level of knowledge through training.284

276 ClubsNSW submission, p 162. 277 For example, Asquith Bowling and Recreation Club. 278 ClubsNSW submission, p 158. 279 ClubsNSW submission, p 159. 280 ClubsNSW submission, p 138. 281 For example, Bingara Sporting Club, Nowra Bowling & Recreation Club and Hamrun Association

(NSW) Incorporated. 282 Leagues Clubs Association, Sydney roundtable, p 68. 283 Case study clubs included Asquith Bowling and Recreation Club and Clubmulwala. 284 Anthony Ball, ClubsNSW, Wagga Wagga roundtable, p 48.



11.3.8 Management training

Few stakeholders raised concerns about management training. They indicated that the CMAA285 and SCU286 both offered training tailored to club managers. These institutions had a wide range of programs, with various entry levels and delivery options for club employees to choose from.

PEG thought the training offered by CMAA was very beneficial, providing a structured and consistent learning program. It encouraged its entire staff, from the duty manager level up, to receive CMAA training.287

SCU indicated there were similar barriers to increasing management’s take-up of training as there were for director training, namely time, cost and negative attitudes to formal education.288

11.4 IPART’s findings on corporate governance and training

IPART considers that corporate governance in clubs could be improved by responding to the main challenges to club boards operating effectively, which should in turn improve management effectiveness. In relation to improving the existing training situation, IPART considers this could be achieved through measures such as offering more flexible delivery options.

11.4.1 Improving corporate governance

Existing corporate governance framework

On the whole, IPART is satisfied with the existing corporate governance arrangements. It considers that the Code, Guidelines and Registered Clubs Act provide a useful framework for corporate governance in clubs.

The Code sets out key principles for club directors and managers to refer to when carrying out their activities, such as the principle of not taking improper advantage of club information.289

The Guidelines outline best practice in important areas of club operations using a plain English, practical approach. For example, the Guideline for Board Operation sets out items for boards to complete on an annual basis, such as reviewing the club’s strategic plan.290

285 CMA submission, pp 1 - 3 (contained in an attachment to ClubsNSW submission). 286 SCU submission, p 1. 287 PEG submission, p 34. 288 SCU submission, p 12. 289 ClubsNSW, Code of Practice, July 2005, Part B, Clause 23(j). 290 ClubsNSW, Best Practice Guidelines: Guideline for Board Operation, July 2005, p 27.



The Registered Clubs Act has a strong focus on accountability, mandating disclosure of essential matters so that members can improve their awareness of the activities of their club’s board and management. It also enhances probity in clubs through imposing various restrictions, including prohibiting certain dealings between clubs and their managers.

New corporate governance initiatives

In spite of this framework, aspects of corporate governance in the registered clubs industry remain problematic. Stakeholder comments were predominantly aimed at club boards, indicating that many directors did not having a strong grasp of risk management techniques, financial concepts or the responsibilities attaching to their position. Further, many clubs were unable to attract or appoint sufficient candidates for board positions, in particular candidates with skill sets in desired fields such as property development or accounting. IPART finds these comments concerning, bearing in mind the vital role the board plays in a club’s corporate governance.

In IPART’s view, the Code and Guidelines already provide guidance on how clubs can resolve many of these corporate governance issues. For example, in relation to the demarcation between director and management responsibilities, the Guidelines set out that best practice is for club boards to:

…decide what matters are delegated to management and…ensure that adequate controls are in place to oversee the operation of those delegated powers. 291

However, this advice does not always appear to be translated into practice. Stakeholders indicated that a number of directors were not clear about their responsibilities, leaving important functions to management by default rather than as a result of considered delegation. There are numerous other examples where the Code or Guidelines cover an item that stakeholders raised as a concern.

In light of this situation, IPART considers that some aspects of the corporate governance framework need to be amended to improve the effectiveness of club boards. IPART’s approach to formulating its recommendations is based on the following principles:

The leading industry peak body, ClubsNSW, has developed several useful resources to assist clubs in improving their corporate governance, namely the Code and Guidelines. Clubs are ultimately responsible for availing themselves of these resources.

OLGR, as the registered clubs industry regulator, has a greater focus on monitoring compliance rather than promoting best practice in relation to corporate governance issues. Therefore, it is chiefly ClubsNSW’s role to bring corporate governance into line with best practice.

291 ClubsNSW, Best Practice Guidelines: Guideline for Board Operation, July 2005, p 28.



Where possible, IPART’s recommendations use the Code and Guidelines, rather than relying on new legislation. Government intervention, in the form of additional legislative requirements, is reserved for dealing with the most critical corporate governance issues.

Overview of recommendations

In summary, IPART’s recommendations deal with:

Improving director skill sets through ongoing professional development training (see section 11.5).

Overcoming difficulties in electing directors through encouraging clubs to remove voting and board restrictions in their constitutions and permitting board-appointed directors in limited circumstances (see section 11.6).

Improving director skill sets through encouraging performance assessments (see section 11.7).

Dealing with difficulties in attracting directors through encouraging succession planning (see section 11.8).

ClubsNSW encouraging better corporate governance in clubs by more extensively promoting this issue and expanding its Guidelines to deal with best practice in pivotal areas such as: – frequency of board elections – the roles of the board and management; and – factors for boards to consider when hiring managers and assessing their

performance (see section 11.9).

In addition, IPART considers that ClubsNSW could assist smaller clubs to meet their compliance obligations under the Registered Clubs Act by employing compliance officers for them to use as needed (see section 11.9.5).

ClubsNSW best practice recommendations

IPART considers that ClubsNSW could implement several of its recommendations by:

including them as best practice recommendations in its Guidelines

amending its Code to require a club to either: – follow the best practice recommendations – or if it does not follow a best practice recommendation, explain why the

recommendation was not appropriate in light of its circumstances.

A club would then set out in its annual report the extent to which it had followed the best practice recommendations.



This approach is based on a similar one used by the Australian Securities Exchange (ASX), known as the ‘if not, why not’ approach. The ASX has a suite of corporate governance recommendations for listed companies to follow. If a listed company considers that a particular recommendation is not appropriate to its circumstances, it has the flexibility under the ‘if not, why not’ approach to not adopt the recommendation, as long as it explains why. The ASX requires that listed companies disclose in their annual reports the extent to which they have followed each recommendation.292

The obvious advantage of this approach over mandating best practice is that it provides clubs with the flexibility to determine what is appropriate in light of their circumstances. That said, IPART does acknowledge it has a number of limitations. For instance:

Requiring clubs to disclose in their annual reports the extent to which they follow best practice recommendations is somewhat inconsistent with the direction of the most recent amendments to the Registered Clubs Act. Previously, the Registered Clubs Act required a club to disclose in its annual report various corporate governance information. Now clubs only need provide details of these disclosures on written request by members.293 The impetus behind these amendments to the Registered Clubs Act was to reduce red tape and the compliance burden on clubs (see section 11.2.2).

Member apathy about corporate governance may mean that the annual report disclosures are not sufficiently scrutinised, reducing a club’s incentive to follow the best practice recommendations. For example, the case study club Riverstone-Schofields Memorial Club estimated that in its experience, 90 per cent of members did not read its annual report.

ClubsNSW does not audit compliance with the Code and Guidelines, instead relying on people to report alleged breaches to bring matters to its attention. As such, if members are not reviewing the annual report disclosures and reporting alleged breaches, ClubsNSW will not be adequately aware of the extent to which clubs are complying with the ‘if not, why not’ requirement.

The Code Authority does not have extensive powers to sanction clubs for breaches of the Code. Its most serious sanction would be to recommend to the board of ClubsNSW that it cancel the club’s membership. It could also refer the matter to the Minister for Gaming and Racing for further action, presumably if there was some concomitant breach of the Registered Clubs Act.

The Code and Guidelines only apply to ClubsNSW members.

Despite these limitations, IPART considers that on balance this the most appropriate way to foster best practice in club corporate governance.

292 ASX Corporate Governance Council, Response to Submissions on Review of Corporate Governance

Principles and Recommendations, August 2007, p 2. 293 Clause 47HA(1)(d) Registered Clubs Regulation.



Club management

Club management is also a fundamental part of a club’s corporate governance. Further, as noted in section 6.1.7, the capability of a club’s management has a strong influence on its financial viability. However, stakeholders generally did not have major concerns with management effectiveness. As such, IPART did not think it was necessary to make significant recommendations in this area.

That said, IPART considers that its recommendations to improve board effectiveness will also lead to an improvement in management effectiveness. This is due to the role that the board plays in hiring the club’s secretary manager, reviewing the secretary manager’s performance and identifying when a new secretary manager needs to be brought in to revitalise the club. In particular, boards should be assisted in these areas by IPART’s recommendations for ClubsNSW to develop a Guideline on best practice in recruiting management and revise its Guideline on assessing management’s performance (see section 11.9.4).

IPART’s recommendations to introduce standard financial reporting and performance benchmarking, as set out in Chapter 7, will also improve management efficiency. These tools help managers take actions based on a better understanding of their clubs’ financial position and relative performance.

Risk management

IPART considers that the existing risk management tools developed by OLGR and ClubsNSW are appropriate for the risks to which they relate. With respect to the risk of fraud, IPART considers this will be dealt with through its recommendations remedying some of the underlying risk factors. In particular, boards’ oversight of management should improve through attending ongoing professional development training (see section 11.5.2). Further, introducing standard financial reporting should improve the consistency and relevance of financial information reviewed by boards and management (see Chapter 7).

Director remuneration

While some stakeholders suggested that remunerating directors could attract people to become directors, this option did not receive wide support among stakeholders. IPART is similarly wary of clubs remunerating only some of their directors. It considers it would lead to disharmony between remunerated and non-remunerated directors. Further, it considers that permitting boards to appoint a limited number of directors would be a more appropriate way of dealing with the issue of attracting people with desired skill sets to club boards (see section 11.6.2).



11.4.2 Improving training

IPART’s recommendations for improving the existing club-specific training available to club directors and managers follow.

Accredited director training

ClubsNSW should provide directors with the option of training accredited by Australian Qualifications Framework (AQF). ClubsNSW indicated that it is working on this initiative.294

IPART considers more directors would be encouraged to take up CDI training if AQF recognition were available. IPART notes that CMAA and SCU already offer the option of accredited training to managers.

Flexible delivery of director training

ClubsNSW should look at providing more flexible director training to overcome the time and distance factors that are cited as barriers to training. For example, online training programs or smaller scale face-to-face training programs in regional areas.

IPART notes that management training is already available in a flexible form. For example, managers may complete the SCU program by distance education.

IPART acknowledges ClubsNSW’s comment regarding the age profile of its CDI members and resulting implications for training delivery options. However, IPART considers that providing more flexible training for directors would complement IPART’s other recommendations to encourage people to take up director training, such as ongoing professional development training (see section 11.5.2).

Greater promotion of training

IPART considers there should be greater promotion of training. The various programs offering club-specific training for directors and managers appear to be relevant and generally well received by the stakeholders who participate in them. Continuing to raise awareness of the benefits of training will likely lead to an increase in participation by directors and management.




Recommendation

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

– offering AQF accredited training for directors

– offering more flexible delivery options for director training; and

– with other providers of club-specific training, increasing their promotion of the programs that they offer.

11.5 Improving director skill sets through ongoing professional development training

Many stakeholders suggested requiring directors to attend training as a way to improve their skill sets. Some stakeholders considered it should take the form of pre-election training, while others thought training should be ongoing. However, support was not universal among stakeholders, with the main concern being that requiring training would deter people from standing for board positions.

IPART’s view is that directors can improve their skill sets by training in areas in which they are currently lacking. Due to the low take-up of existing training, IPART considers this improvement in director skill sets needs to be brought about through requiring certain training.

IPART supports the recent initiative requiring people to receive pre-election packages before standing for board positions. In addition to this, it considers directors should attend ongoing professional development training, using a flexible model that allows them to choose the areas they need training in and accommodates various delivery options, such as face-to-face and online.

IPART considers that ongoing professional development training should only apply to directors at clubs with gaming machine revenue greater than $1 million a year. This threshold will ensure that training is directed at those clubs who will most benefit from it, namely clubs whose business operations are relatively diverse and sophisticated, and require a commensurate skill level from their boards.



11.5.1 Pre-election training

IPART supports pre-election training as a way of increasing potential nominees’ awareness of the responsibilities involved in being a club director. In this respect, IPART notes the recently introduced pre-election package requirement in the Registered Clubs Act whereby people nominating for board positions must give a written declaration they have received a pre-election package approved by OLGR.295

IPART understands that OLGR is in the process of approving a pre-election package developed by ClubsNSW. It is likely to be based upon the existing ClubsNSW pre-election package, which contains practical information on club directorships. For example, it contains a DVD that touches on such items as:

qualities sought after in club directors, such as strategic thinking and/or a background in business

some of the responsibilities involved in becoming a club director

the importance of understanding financial statements

what training is available for directors

some of the reasons why people may want to become directors, such as to assist the community

where people can go for further information about being a club director.

Once the pre-election package is approved by OLGR, ClubsNSW will make it freely available to all clubs, including those that are not members of ClubsNSW.296 If the version of the ClubsNSW pre-election package approved by OLGR is along the same lines as the existing one, IPART considers it appropriate for required pre-election training.

That said, IPART also encourages clubs to look at offering more extensive pre-election and induction training where appropriate. In particular, clubs should encourage candidates to review the ClubsNSW Directors Guide, which IPART understands ClubsNSW provided to all its member clubs in 2006.297 This booklet provides a plain English overview of a club director’s responsibilities and potential liabilities. It also includes the Code and Best Practice Guidelines.

295 Registered Clubs Amendment Act 2006. This provision will commence when the supporting regulations

are finalised later in the year. As the provision is currently drafted, if a director does not comply with the requirement, his/her club could be liable to pay a fine of up to $1100 (Section 47 Registered Clubs Act).

296 Mr Grant McBride, Second Reading Speech, Registered Clubs Amendment Bill 2006, 14 November 2006. 297 Clubs can buy additional copies of the Directors Guide from ClubsNSW ($132 for ClubsNSW members

and $300 for non-ClubsNSW members). Directors also receive a copy of the Directors Guide when they join the CDI program.



11.5.2 Ongoing professional development training

IPART considers that directors should be required to complete ongoing professional development training as a way of improving their skill sets. IPART examined a number of models for this training. While it saw merit in adopting a prescriptive training model, IPART ultimately favoured a more flexible training model.

Prescriptive training model

In selecting the most appropriate form of ongoing professional development training, IPART took into account stakeholders’ calls for directors to be trained in specific areas like financial fundamentals, risk management and directors’ duties. For example, ClubsNSW supported of a form of training under which OLGR would set down a list of basic subjects for directors to complete.298

IPART saw merit in having standardised training courses for directors, as this would ensure that directors were receiving training in core areas. However, IPART thought that requiring directors to learn about topics selected by OLGR could be problematic. For example, the core areas for training selected by OLGR might not necessarily be relevant to all directors. Further, if OLGR assumed responsibility to decide these core areas, it could lead to a ‘tick-a-box’ mentality among club directors. That is directors might focus on completing the minimum amount of training required to comply with the legislation, rather than assess whether they were receiving adequate training in light of their clubs’ activities and operations.

Flexible training model

IPART considers a more flexible approach to ongoing professional development training should be adopted. It favours a model under which directors select the training that is relevant to their needs. This allows a greater degree of involvement by directors in devising ways to improve their skill sets, which would increase their engagement in this issue. The main elements of this model are outlined in Figure 11.1 and Box 11.2 below.




Figure 11.1 Flexible training model

Box 11.2 Main elements of the flexible training model The director must take part in any training which he/she has nominated as part of his/her

performance assessment process (see section 11.7).

If a director does not complete an annual performance assessment:

– He/she must take part in activities that he/she considers are relevant to his/her presentor future development needs at the club. For example, attending a seminar on recentregulatory changes or receiving training on the quantitative indicators of financial viability outlined in section 6.1.4.

– He/she must ensure that he/she accrues 5 units of activities a year. A director may accrue units by:

– attending seminars (internal or external to their club)

– presenting seminars

– participating in online programs

– privately studying materials.

– ClubsNSW determines how many hours per activity are required to accrue a unit. Forexample, one unit accrues for each hour of seminars attended and 0.5 units accrue for each hour of private study.

– Education providers do not need to be approved by ClubsNSW. Directors self-assess whether education providers are offering activities that meet the criteria. That is, theactivity must be relevant to a director’s present or future development needs at the club.

Directors keep records of the training they have attended. ClubsNSW makes yearlycompliance checks of a random sample of clubs. Clubs selected are required to submitdetails of their ongoing professional development activities to ClubsNSW.

ClubsNSW would have the discretion to grant temporary or permanent exemptions in alimited number of circumstances, such as recognition for prior learning or experience, orillness.

Has the director completed an annual

performance assessment?

Director must take part in 5 units of ongoing

professional development training

Director must take part in any training identified in his/her performance

assessment

YES NO



IPART notes the following advantages of using this more flexible training model:

It allows for a number of ways of training, such as online learning.

It is likely to be less costly than more formal, course-based education.

It is easier to recognise informal or internal training under this model. For example, if a club board attends a presentation by its management on financial concepts like EBITDA, it could count towards their training requirements.

Its ongoing nature encourages directors to keep their skill sets up-to-date and stay-in-touch with current developments.

Similar models are already used in other industries, such as accounting and law.

IPART notes that under this flexible training model, a director’s ongoing professional development training is linked to his/her performance assessment process. If, as part of this process, a director decides that there are no areas in which he/she needs to train in during the next financial year, that director will not be required to take part in training. The requirement to take part in 5 units of ongoing professional development training only applies where the director does not complete a performance assessment.


3 Should ongoing professional development training be linked to the performance assessment process?

4 Alternatively, should a director be required to take part in 5 units of ongoing professional development training irrespective of the performance assessment process?

Administration by ClubsNSW

IPART thinks that it would be more appropriate for ClubsNSW to administer the ongoing professional development program than OLGR. Involving the leading industry peak body in the program sends the message that clubs should view ongoing professional development as more than just compliance. OLGR would only become involved if ClubsNSW found that a club’s directors were not completing the required training.

Once ongoing professional development training is established, it is likely that other training providers would be interested in offering programs to club directors. As such, ClubsNSW would need to administer the program in a way that allows other training providers to participate in it.



Recognition of prior learning or experience

IPART considers ongoing professional development training could be counter-productive if there was no recognition of prior learning or experience. Directors with useful skills or experience could be deterred from joining club boards if they were required to undergo training in areas they already had expertise in. As such, ClubsNSW should have the discretion to grant permanent exemptions from training based on prior learning or experience.

Financing training

Some stakeholders called for financial incentives to be provided to assist directors to undertake training. For example, ClubsNSW suggested subsidising training along similar lines to ClubBiz; that is, using unclaimed Keno funds.299 However, IPART considers that clubs should finance training. As the flexible training model readily allows for informal and internal training, IPART does not think that it would impose a large financial burden on clubs.

Exceptions for small clubs

IPART considers that ongoing professional development training should only apply to directors at clubs with gaming machine revenue greater than $1 million a year, as this threshold will ensure that training is directed at those clubs who will most benefit from it. That is, clubs whose business operations are relatively diverse and sophisticated, requiring a commensurate skill level from their boards.

Further, the case study process highlighted that the boards of smaller clubs300 are generally involved directly in running their clubs. As such, requiring directors of these types of clubs to volunteer even more of their time would adversely affect the ability of these smaller clubs to attract directors.

Consequences for non-compliance

If a director does not comply with the ongoing professional development requirements, IPART considers that the consequences should be in line with those for directors not complying with the pre-election package requirements (see section 11.5.1). These pre-election requirements are yet to commence. As they are currently drafted, if a director did not comply with them, the director’s club could be liable for a fine of up to $1100.301

299 ClubsNSW submission, p 163. 300 For example, Bingara Sporting Club and Hamrun Association (NSW) Incorporated. 301 Section 47 Registered Clubs Act.



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.

11.6 Overcoming barriers to electing directors through encouraging constitutional changes and board-appointed directors

Stakeholders indicated that constitutional restrictions were limiting clubs to a narrow director pool, inhibiting people with desired skill sets from being elected to boards. For instance, restricting board positions to members of the RSL sub-branch (ie, returned service people) in RSL clubs or bowling members in bowling clubs. IPART considers this situation can be remedied by encouraging clubs to remove these constitutional restrictions or by permitting the board to appoint some directors.

11.6.1 Encouraging constitutional changes

In IPART’s view, board and voting restrictions reduce the likelihood of boards operating effectively.

Board restrictions mean that candidates with desired skill sets may be unable to stand for election. Further, those restrictions may lead to boards that do not reflect their membership base and so are less aligned with the interests of the majority of members.

Voting restrictions can disenfranchise a significant proportion of ordinary members,302 meaning that members are less likely to engage with the club’s affairs and scrutinise the board’s performance.

As such, IPART considers that clubs should be encouraged to remove any board and voting restrictions from their constitutions.

IPART recognises the difficulty some stakeholders have experienced in effecting constitutional changes. It considers that both ClubsNSW and the Government can play a role in encouraging clubs to remove their constitutional restrictions. As such, IPART recommends that the following steps be taken:

302 The Registered Clubs Act permits the voting membership for board elections to comprise a sub-class

of ordinary members, provided the sub-class constitutes at least 25 per cent of ordinary members (Section 30(9)(a) Registered Clubs Act). However, there is a requirement that ordinary members approve any resolution by a club to reduce its voting membership below 50 per cent of ordinary members (Clause 50D Registered Clubs Regulation).



That the proposed model club constitution template to be produced by ClubsNSW (see recommendation 25) not contain any voting or board restrictions.303 Clubs would complete the constitution by inserting the core features of the club in the objects section.

The Government amend the Registered Clubs Act to include a provision defining the core features of the various types of clubs (eg, services clubs and bowling clubs).304

This would then give members the option of voting to replace their existing constitution with the model constitution or they could vote to have the ‘core club features’ provision apply to their club in exchange for removing constitutional restrictions from their existing constitution. These features would then be protected by statute.

The main advantage of these methods is that members retain the right to choose whether their club should remove its constitutional restrictions. The above initiatives simply make it easier to overcome some of the more common concerns.

IPART did consider another option to overcome constitutional restrictions, which was to ban them under the Registered Clubs Act. This would overcome some of the barriers to constitutional change, such as member apathy and cost. However, IPART thought that club members should retain the discretion to decide how their clubs’ constitutions should be amended. Forcing constitutional changes on clubs could radically alter them in unpredictable ways.

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.

11.6.2 Board-appointed directors

A number of stakeholders thought that permitting boards to appoint a proportion of their directors could help them overcome the problem of constitutional

303 A similar proposal was put forward in the RSL & Services Clubs Association submission, p 34. 304 RSL & Services Clubs Association, Armidale roundtable, p 25.



restrictions.305 However, it would not necessarily address the issue of improving board effectiveness, due to the dearth of people with desired skill sets wanting to become club directors.306 Further, Narromine Services Memorial Club noted that it was important for board-appointed directors to have the interests of their club at heart.307

IPART considers that, in limited circumstances, boards should have the option of appointing directors as a way of overcoming constitutional restrictions. Specifically, this should only be an option for a club if:

the club has board or voting restrictions in its constitution; and

the club’s members have voted at an annual general meeting to not adopt the model constitution developed by ClubsNSW or apply the ‘core club features’ provision of the Registered Clubs Act once effective.

In these circumstances, boards would be able to appoint up to three directors, irrespective of a club’s size by majority vote. These appointments are in addition to any directors boards may appoint in order to fill casual vacancies as they arise. Safeguards to minimise the risk of this option being abused should include:

Term limits, with the club’s board nominating the term for the board-appointed director of between one and three years.

Member ratification, with members at the club’s annual general meeting voting to approve the appointment of the director to the board for the nominated period of time.

Disclosure, with boards needing to document their reasons for appointing the directors and note these reasons in their annual reports.

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; and

– 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.

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

305 Riverina Australian Football Club, Wagga Wagga roundtable, p 52, Panthers submission, p 31 and

ClubsNSW submission, p 140. 306 Narromine Services Memorial Club, Dubbo roundtable, p 34. 307 Narromine Services Memorial Club, Dubbo roundtable, p 34.



11.7 Improving director skill sets through performance assessments

IPART considers that club boards should be encouraged to assess the performance of individual directors and the board as a whole on an annual basis. IPART thinks that performance assessments would improve director skill sets through assisting directors to identify their strengths and weaknesses. As part of the performance assessment process, directors would decide what training they should take part in over the next year to address any weaknesses and improve their performance. As ongoing professional development training only applies to clubs with gaming machine revenue of greater than $1 million a year, this should also be the threshold for performance assessments.

To encourage clubs to conduct performance assessments, ClubsNSW should amend its Guideline for Board Operations. The Guideline currently states that each financial year the board should facilitate:

…the giving and receiving of performance feedback for directors by their peers based on the agreed role expectations.308

This should be expanded, so that directors then nominate what training, if any, they will take part in over the next financial year in light of the performance feedback. In addition, this should become a best practice recommendation for clubs with gaming machine revenue of greater than $1 million a year. The Code should then require such clubs to state in their annual reports the extent to which they follow this best practice recommendation.

Recommendation

33 That boards of clubs with gaming machine revenue of greater than $1 million a years 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.

11.8 Addressing problems with attracting directors through succession planning

Stakeholders indicated that many clubs were struggling to attract people to board positions, in particular people with desired skill sets in areas such as accounting and property development. There were also calls to broaden the talent pool of directors. IPART considers that these issues may be addressed through clubs engaging in greater succession planning.




IPART considers that a club’s board should be encouraged to have in place a formal succession policy dealing with board renewal. This policy should set out how the board intends to renew itself in order to achieve a balance between keeping existing expertise and bringing in new ideas and skill sets. For example, a club could have a policy outlining how it plans to use sub-committees to recruit and train future directors.

IPART sees succession planning and performance assessments as complementary exercises: succession planning is a useful way of working out how to fill skills gaps identified through the performance assessment process. However, IPART does not think that succession planning is only useful for clubs with gaming machine revenue greater than $1 million a year, and indeed considers it highly relevant to smaller clubs. Therefore, all clubs should be encouraged to prepare a policy dealing with succession planning.

To encourage succession planning, ClubsNSW should amend its Guideline for Board Operations to include a best practice recommendation on this issue. The Code should then require clubs to state in their annual reports the extent to which they follow this best practice recommendation.

IPART considers that this best practice recommendation should emphasise the need for succession planning to be an open and transparent process. Such an approach would be consistent with the current tone of the Guideline, which encourages boards to ensure that their make-up is representative of a club’s membership. For example, the Guideline notes that clubs that have a large number of women as members should actively encourage appropriately qualified women to seek directorships.309

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.

11.9 Other ClubsNSW initiatives to improve corporate governance

IPART considers that ClubsNSW could more extensively promote examples of effective corporate governance and provide further guidance for clubs about best practice in such areas as:

frequency of board elections

the respective roles of the board and management

factors for boards to consider when hiring managers and assessing their performance.




In addition, IPART considers that ClubsNSW could assist smaller clubs meet their compliance obligations under the Registered Clubs Act by employing compliance officers for them to use as needed.

11.9.1 Promoting examples of effective corporate governance

ClubsNSW already makes significant efforts in promoting corporate governance in clubs. For example, corporate governance is one of the categories at the ClubsNSW Awards for Excellence.

However, IPART sees merit in ClubsNSW more extensively promoting examples of effective corporate governance in clubs. If clubs are made aware of these examples, they can more readily assess how they and their fellow clubs are tracking in relation to corporate governance.

IPART considers that ClubsNSW could give greater prominence to effective corporate governance by including articles in publications such as its ClubLife magazine about clubs that comply with its Code and Guidelines. These articles could set out what arrangements the club had put in place and how it implemented them.

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.

11.9.2 Frequency of board elections

IPART considers it would assist clubs to attract and train directors if they moved to three-year rolling elections. To encourage this among clubs and to assist clubs overcome member resistance to it, IPART considers that ClubsNSW should develop a Guideline on this issue.

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.



11.9.3 Roles of board and management

ClubsNSW indicated that having a board charter would encourage clarity about their respective roles for boards and management. It would allow club directors to focus their energy on strategically leading the club and managers to get on with the job of managing day-to-day operations.310

IPART considers that club boards should be encouraged to develop a board charter setting out their functions and responsibilities and distinguishing them from the functions and responsibilities delegated to management. Further, boards should be encouraged to review the board charter annually to ensure that it remains consistent with their functions and responsibilities.

To encourage clubs to develop board charters, ClubsNSW should amend its Guideline for Board Operation to include a best practice recommendation on this issue. The Code would require clubs to state in their annual reports the extent to which they follow this best practice recommendation.

ClubsNSW could assist clubs to develop a board charter by creating a pro-forma one for boards to adopt and amend as relevant. The pro-forma board charter could be based on the information on board functions already included in the Guideline on Board Operations.311

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.

11.9.4 Recruitment and performance assessment of management

A number of case study club boards indicated that the quality of their management was an important factor in their club’s success. However, despite management’s vital role, IPART found that some case study clubs did not have appropriate procedures in place for either recruiting management or assessing management’s performance.

IPART considers that clubs should be encouraged to develop and maintain:

a formal recruitment policy outlining the procedures for recruiting management roles

a document listing the key capabilities for each management role.

310 ClubsNSW submission, p 159. 311 ClubsNSW, Best Practice Guidelines: Guideline for Board Operation, July 2005, pp 25-26.



To encourage clubs to improve the recruitment practices, IPART considers that ClubsNSW should develop a Guideline on this issue.

In addition, IPART considers that club boards should be encouraged to:

Set key performance indicators (KPIs) for management on at least an annual basis. Some of these KPIs could be based on the business efficiency performance measures and financial viability measure outlined in section 7.5.

Assess the performance of management against the KPIs on at least an annual basis.

To encourage clubs to assess management’s performance, ClubsNSW should amend its Guideline for Remuneration of Club Executives to include a best practice recommendation on this issue. The Code should then require clubs to state in their annual reports the extent to which they follow this best practice recommendation.

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 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.

11.9.5 Compliance officers

Several stakeholders commented on the difficulties faced by smaller clubs in complying with the Registered Clubs Act. While larger clubs were able to afford compliance officers to manage their compliance obligations, this was not an option for smaller clubs due to the costs involved.

IPART notes that OLGR has provided useful compliance tools for clubs, such as the self-audit checklist (see section 11.3.6). However, it thinks there is scope for further assistance in this area for smaller clubs. It considers that ClubsNSW should employ a pool of compliance officers for smaller clubs to use as needed, on terms similar to those set out below:

A club requests ClubsNSW to allocate a compliance officer to it for a fixed period of time.

The compliance officer provides the club with services such as: – auditing the club’s current level of compliance with the Registered Clubs Act

requirements; and – reviewing the systems the club has in place to manage compliance.



ClubsNSW charges the club for the compliance officer’s services on a cost recovery basis. That is, ClubsNSW charges the club a fee equal to the cost incurred by ClubsNSW for salary, insurance etc, to provide this compliance service per year, pro rata for the number of days the club uses the compliance officer over that year.

The compliance officer is subject to confidentiality arrangements with the various clubs s/he assists.

Only clubs with gaming machine revenue of $1 million or less a year should be able to access the service.

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.

12 Club Viability Panel



IPART’s recommendations concerning standardised financial management reporting, financial performance and viability benchmarking and club amalgamations require the support of a central body to assist in implementing the recommendations and drive the agenda for change. IPART recommends the establishment of a Club Viability Panel (the Panel) to implement these measures to support the industry.

This chapter describes the Panel’s proposed role in the registered clubs industry. The following sections discuss

the Panel’s purpose and functions

the Panel’s advisory nature

how the Panel’s activities differ from other assistance schemes

the Panel’s membership

the Panel’s main tasks and activities.

12.1 Purpose of the Club Viability Panel

IPART proposes that the main purpose of the Panel would be to assist clubs to identify the early warning signs of financial distress as soon as possible in the club financial distress cycle (see section 7.1.7), and to provide ongoing advice and support to clubs to improve their financial viability.

The earlier the identification of the signs of financial distress, the sooner strategies can be put in place to promote the long-term viability of the club (in its own right or as a viable prospect for amalgamation), thereby assisting with retention of community assets.

IPART proposes that the primary functions of the Panel would be to:

assist in the process of moving clubs to a standard format for financial management reporting

produce and communicate industry benchmarks to the clubs industry on an annual basis

based on examination of an initial financial viability indicator, EBITDARD as a percentage proportion of revenue, identify clubs that are showing potential warning signs of financial distress



advise the identified clubs exhibiting the warning sign and provide further investigation, advice and support (if requested) to assist the club to assess and if necessary improve its financial position, and

in situations where the long-term viability of the club is questionable and amalgamation is identified as an option, assist both clubs through the process of amalgamation.

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.

12.2 The role of the Club Viability Panel should be advisory not supervisory

IPART proposes that the Panel be an advisory body that provides ongoing advice to support clubs in their efforts to achieve long-term viability.

ClubsNSW suggested that the Government (via an industry taskforce) should mandate or direct those clubs identified as in financial distress to use measures to improve financial performance in the interests of preserving member and community assets312. ClubsNSW argued there were many examples of clubs failing due to the reluctance of the board and management to make unpopular (but sensible) business decisions in the best interests of members and the wider community. ClubsNSW also suggested that, should a club resist bringing in improvement strategies, it would be forced to enter into discussions aimed at amalgamation with other clubs.

A further function of this proposed taskforce would be to identify regions where there is a potential oversupply of clubs and to develop strategies to consolidate club facilities in those areas.

IPART recognises that the approach suggested by ClubsNSW arises from a desire to actively protect the interests of club members and the wider community from poorly performing boards and management (who have no interest in change). IPART considered the ClubsNSW approach and identified the following issues:

The supervisory approach suggested by Clubs NSW is in contrast with the democratic principles on which clubs were established.

The NSW Government, via the proposed taskforce, would be a pseudo-administrator of the industry, adding another layer of compliance for the industry.

312 ClubsNSW submission, pp 114-115.



With the Government potentially overriding the board and management of clubs, it may in effect become liable for the club’s outcomes. IPART suggests the NSW Government would not want to take on this position.

For these reasons, IPART recommends that the Panel be advisory in nature. It would not make decisions on behalf of the management and board to tackle financial viability. This responsibility (and liability) would continue to be the sole responsibility of the board and management. In other words, the board would maintain control over the club’s future.

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.

12.3 Distinction from existing club support schemes

ClubsNSW, with funding support from the NSW Government (from unclaimed Keno prizes), established ClubBiz in 2002. That scheme’s objective was similar to the Panel: to identify clubs in distress by funding financial health checks, then assist such clubs where possible by providing further funding for initiatives identified by the health checks that could improve the club’s financial viability.

The distinctions between the Panel and ClubBiz are as follows:

With the benefit of financial data from clubs and relevant benchmarks, the Panel would proactively identify and engage with clubs in financial distress – ClubBiz relied on a club identifying itself as being in financial distress. As noted in section 7.1.7, some clubs’ board and management lack the skills to recognise that the club is in financial distress in the first instance.

With an advisory function and appropriate secretariat support, the Panel would be in a position to provide ongoing advice to clubs on how to deal with financial distress.

The Panel’s members should have the relevant skills and experience to provide assistance to those clubs seeking it. The assistance would focus on recommendations/suggestions for future steps the club could take to tackle difficulties with viability.

12.4 Membership of the Club Viability Panel

IPART recommends that the Panel should have the relevant mix of skills and experience to advise on industry issues, operational issues, financial viability, performance benchmarking and club amalgamations (as a mechanism to retain member assets).



IPART recommends that the Panel’s members be drawn from the groups shown in Table 12.1.

Table 12.1 Club Viability Panel Membership

Organisation Expertise

ClubsNSW Industry-wide issues, secretariat support for the Club Viability Panel

Industry peak bodiesa Segment-specific issues

Individual club managers and board members Day-to-day club operations

OLGR Compliance, other NSW Government issues

Independent advisers to the industry Clubs industry-specific finance and legal knowledge

a eg, Bowls NSW, Leagues Clubs’ Association and RSL and Services Clubs Association.

IPART considers it important that the Panel have members from individual clubs as well as industry groups to enhance its peer support and advocacy. Otherwise, clubs may perceive the Panel as a pseudo-supervisory body.

The Panel should have up to seven members and should have an independent chair.

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.

12.4.1 Club Viability Panel secretariat

In pursuing its activities, the Panel would require secretariat support. IPART recommends ClubsNSW is best placed to assume this role given its:

existing role as industry advocate and provider of industry support

established administration structure and industry experience

established relationships and communication with the vast majority of the clubs industry (including industry suppliers – particularly those providing financial and legal services)

established relationships with the other industry associations and OLGR.

ClubsNSW should decide whether it would need to employ additional staff (or staff with the necessary skills) to provide secretariat support or whether it could be absorbed into existing operations. Should there be a need for additional or specialist resources, ClubsNSW could put forward a business case to the NSW Government and/or industry to provide incremental funding for secretariat services.



Recommendation

43 That ClubsNSW should provide secretariat support to the Panel.

An alternative to ClubsNSW assuming the role for the initial review of club management accounts, as well as collecting, analysing and developing annual benchmarks, would be to outsource these tasks to a third party. For example, Clubdata On-line already provides benchmarking services to the industry. The Panel could take advantage of Clubdata On-line’s existing software platform, processes, skills and administration if it could demonstrate that to do so would be more cost-effective than ClubsNSW performing these tasks.

The principal activities of the Panel and operational issues are further considered in the following sections.

12.5 Principal activities of the Club Viability Panel

The Panel’s principal activities would be to assist in implementing recommendations for a standard industry format that management would use for financial reporting and financial performance benchmarking (Chapter 7) and amalgamation (Chapter 9).

12.5.1 Club Viability Panel tasks and activities

Standard management accounts and financial benchmarking

IPART recommends two activities for the Panel in relation to standard management accounts and financial benchmarking, as outlined in Recommendations 14 and 17 in Chapter 7:

Develop a standard reporting format.

Collect industry financial data and produce and distribute industry benchmarks.

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.

Identifying, advising and monitoring clubs in financial distress



IPART recommends the following activities for the Panel in relation to identifying, advising and monitoring clubs in financial distress:

Identify those clubs with an EBITDARD percentage proportion of revenue less than a threshold value.

Formally communicate to the club board that it may be exhibiting signs of financial distress. It would be important to ensure this is communicated with some sensitivity and couched in such a way that it is understood it is in the interest of supporting the long-term viability of the club. By virtue of this notification, the club would be eligible for a more detailed analysis of its financial position to understand the nature and extent of financial distress.

A club should also be able to seek assistance from the Panel outside the above process. For example, if a club received no formal correspondence from the Panel yet believed it was in financial distress, it would still have the opportunity to approach the Panel and be considered for assessment and advice.

A more detailed review of a club’s financial position

Should the club accept the Panel’s offer for further analysis to identify the extent of financial distress, this could be completed by the Panel’s secretariat (in-house by ClubsNSW) or an approved business consultant.

This would depend on whether ClubsNSW had the expertise within the secretariat. If not, the secretariat could outsource it to an industry consultant with appropriate financial skills at an agreed cost. The funding mechanism for the second option in further considered in section 12.5.2.

At the conclusion of this stage, the Panel would better understand the extent of the club’s financial position and could make recommendations to the club about options available to deal with any identified concerns.

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.



Next steps and monitoring of progress

If the club board were to accept the outcomes of the detailed review and request ongoing advice, the Panel would present a number of options for the club to consider. These could include:

Engaging an industry consultant to work with the club to formulate and implement remedial actions. For example, the detailed financial review may identify that the club’s catering facilities were placing a significant drain on the club’s financial position. The Panel may recommend the club consider engaging a catering specialist to review the operations, make recommendations and, most importantly, take action.

Refinancing or restructuring bank debt. The detailed financial review may identify that the club’s financial performance is in line with industry benchmarks and there are strong cash flows; however, the reason for the financial distress is onerous repayment covenants on bank debt. The Panel may recommend that the club consider refinancing external debt on more favourable terms.

Amalgamating with another club. The detailed financial review may identify that the club’s medium-term solvency is questionable. The Panel may recommend the club consider amalgamation. Subject to the club board accepting this advice, the Panel could assist the club navigate this process, in the first instance, educating the board about the process and the pros and cons. The Panel could help the club seek Expressions of Interest to find potential amalgamation partners. The Panel could also refer amalgamating clubs to other service providers, such as appropriate government offices, legal consultants, financial advisers, investigative accountants etc. Though it is not expected that the Panel would have a list of recommended service providers, it could provide advice to clubs about the type of professional assistance they require.

Periodic follow-up and review of those clubs identified as being in financial distress to track their progress in implementing strategies to address the issues.

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.



12.5.2 Funding for the Club Viability Panel and its initiatives

In a similar way to the ClubBiz program, clubs identified as in financial distress would be eligible to lodge an application for financial assistance to the Panel to act upon the recommendations of the Panel or an independent industry consultant. Applications for financial assistance could include (but not be limited to):

engaging a specialist industry consultant to develop, implement and monitor remedial strategies

assistance in installing new accounting systems and processes to comply with the standard management accounts

due diligence of potential amalgamation partners

legal and other costs associated with the amalgamation process.

To be eligible for funding, the club would have to demonstrate that it does not have the financial capacity, that is, cash reserves, to, for example, engage a consultant. The Panel would also administer the application process and the grant of funds.

IPART recommends that the amount of funding be assessed on a case-by-case basis, but that an upper limit of $50,000 a club generally be applied.

IPART suggests that unclaimed Keno prizes would be the most appropriate source of funds for the Panel’s activities. IPART understands there are residual funds in the ClubBiz Trust Fund, and further unclaimed Keno prizes could be made available at the discretion of the Minister for Gaming and Racing.

Recommendation

47 That clubs should be eligible for a general maximum of $50,000 under the Panel’s funding scheme.

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.

Other activities

Other related activities that the Panel may consider to support the long-term financial viability of the industry include:

ongoing education for the industry about – club viability issues and the early warning signs of financial distress – the benefits of adopting a standard set of financial accounts to easily measure

performance and identify areas for improvement.

periodic review of industry sub-sectors (size of club, type, location) to understand specific issues affecting financial performance and to identify potential areas for industry consolidation, such as a number of under-performing clubs in a regional community



monitoring the impact of changes in government policy (and advising the government about them).

The Panel should be reviewed after three years to assess its effectiveness.

Recommendation

49 That the Panel should be reviewed after three years to assess its effectiveness.

13 A framework for a management plan



The terms of reference direct that the outcome of this review will be a framework for a management plan that supports and guides a sustainable registered clubs industry for a 10 to 15 year period.

The framework will assist stakeholders in the industry to develop a detailed industry management plan by mapping out principles, processes and issues to be considered. The framework is also a means to draw together the review’s recommendations encompassing all the areas canvassed in the previous chapters.

In proposing a framework, this chapter describes what the management plan is intended to do, how it might be developed, and what it might contain.

13.1 What is the management plan intended to do?

The management plan will build on the existing cooperative relationship between the registered clubs industry and the Government by formalising an agreed set of principles and actions for the way forward for the clubs industry. The plan is intended to provide a blueprint for a flourishing clubs industry which continues to provide substantial and effectively targeted community support, without attempting to ensure the future of every individual club in its current form.

13.2 Who will use it?

The plan will help guide the actions of individual clubs, club organisations and Government.

13.3 Proposed content for the management plan

13.3.1 Principles

IPART’s issues paper suggested that principles for the management plan could include that:

Clubs will strive to be financially viable.

Clubs will operate in an efficient manner.

Clubs will operate with sound corporate governance.



Clubs will be responsive to their members’ and their broader communities’ needs.

ClubsNSW’s submission suggested a longer list of proposed principles, some of which IPART agrees would be appropriate for the management plan. IPART proposes the following draft list of principles that might be considered for the management plan:

The Government recognises the role of clubs in facilitating community involvement and building social capital.

The Government should seek to create long-term certainty and consistency in policy-making.

Gaming revenue is central to the most common registered club model.

However, 13 per cent of registered clubs do not operate gaming machines and this is also a legitimate model for registered clubs that should be supported.

Volunteers are important to the registered club model.

Clubs should be responsive to their members’ and the wider community’s needs.

Clubs should seek to optimise their financial performance, but not with the sole aim of generating profit.

Clubs should operate with sound corporate governance.

Club organisations play an important role in club development, education, training and leadership.

13.3.2 A Clubs Charter

ClubsNSW has suggested that a Clubs Charter, as part of the industry management plan, should set out the overall vision, goals and obligations that are shared by both government and industry. IPART generally agrees with ClubsNSW’s proposed elements of a charter, as outlined below.

The charter should set out the key principles that underpin the management plan (as outlined in section 13.3.1), and the broad obligations that apply to clubs in conducting their operations and to government in regulating clubs.

The charter could state that the primary role of clubs in NSW is to provide a means for people to come together for the benefit of each other and the broader community. To this end, clubs strive to:

Provide a range of facilities and services according to the needs and desires of their members.

Provide support to their communities in a targeted, effective way that meets the identified needs of those communities.



Under the charter, the responsibilities of registered clubs could be to:

Operate primarily for the benefit of their members, while having appropriate regard for the needs of local communities.

Adopt governance and operational strategies to achieve compliance with the requirements of the Registered Clubs Act and other applicable legislation.

Follow best practice in corporate governance, management, training, industrial relations and the responsible provision of liquor and gaming services.

Treat club members respectfully, fairly and equitably.

Under the charter, the responsibilities of Government could be to:

Create a legislative and regulatory environment that allows for the sustainability of the registered clubs industry.

Consult with the industry to determine the likely impact of any proposed changes to Government policy affecting the revenue stream from gaming machines.

Facilitate research and data collection to inform policy-making.

Recognise the diversity of clubs by size, location and purpose and develop policy that accommodates that diversity.

13.3.3 Other components

The management plan should be constructed around IPART’s recommendations for action for the industry and could include the following sections.

Social contribution

Actions should aim to encourage continuation of clubs’ social contribution, enhance it, better target it and communicate it to the community. Actions could include:

Government and ClubsNSW making a commitment to the fundamentals of the current CDSE Scheme.

Local government and clubs enhancing their promotion of the CDSE Scheme on council and club websites, including publicising CDSE-funded projects on club websites and in annual reports.

ClubsNSW encouraging smaller clubs below the CDSE threshold to participate in a CDSE local committee process.

OLGR providing greater support to CDSE local 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.



Financial viability

Actions should aim to enhance clubs’ financial viability, in accordance with the principle that clubs should seek to optimise their financial performance, but not with the sole aim of maximising profit.

Financial reporting and performance benchmarking

Actions should aim to improve clubs’ financial reporting and use of benchmarking as a means of better understanding their financial positions, and could include:

The implementation of a system of standardised financial reporting and compulsory benchmarking for clubs earning less than $5 million in gaming revenue per annum.

Diversification

Actions should aim to assist clubs to better understand the benefits and risks associated with pursuing diversification, and could include:

ClubsNSW (or the Club Viability Panel) should develop material to assist clubs to understand the benefits and risks associated with pursuing diversification.

Clubs should explore, recognise and benefit from their collective strengths when thinking of diversification.

Amalgamation and industry consolidation

Actions should aim to encourage clubs to see amalgamation as a strategic move that can preserve a club’s assets and identity, and could include:

OLGR to produce a comprehensive guide to the amalgamation process.

OLGR to develop pro-formas for documents that need to be lodged with a club’s application for amalgamation.

Industry peak bodies to educate clubs on both the benefits and risks of amalgamation.

The Club Viability Panel to have a role in facilitating amalgamations as a means of orderly industry consolidation.



Establishment

Actions should aim to remove identified barriers to club establishment, and could include:

OLGR and ClubsNSW to produce a guide to registration for clubs.

Planning for new developments should include an allowance for land that is suitable for the establishment of a registered club.

New clubs should continue to have access to ten free gaming machine entitlements until alternative measures are in place to assist establishing clubs.

Corporate governance and training

Actions should aim to encourage a strong corporate governance culture that is supported by appropriate training, and could include:

ClubsNSW to enhance its director training by offering more flexible delivery options, and more extensive promotion of existing programs.

Directors of clubs with gaming machine revenue greater than $1 million a year to be required to attend ongoing professional development training.

All clubs to be encouraged to prepare a formal succession policy dealing with board renewal.

Clubs to be encouraged to remove board and voting restrictions in their constitutions by ClubsNSW developing a model constitution for members to vote to adopt.

ClubsNSW to develop best practice guidelines on frequency of board elections, the roles of board and management and recruitment and performance assessment of management.

Club Viability Panel

Actions should aim to establish the Club Viability Panel as an advisory body to assist clubs with assessing their own financial viability and taking steps to address any weaknesses, and could include:

Establishing the Panel with members drawn from individual clubs, industry peak bodies, government and independent industry experts.

Defining the Panel’s role and tasks.



13.4 Developing the management plan

ClubsNSW’s submission proposed that the Club Industry Working Group be charged with developing the management plan in accordance with the framework. This body was established in 2006 to pursue a number of reform initiatives that had been under discussion between the clubs industry and the Government and has representatives from both club organisations and government. IPART agrees that the Club Industry Working Group would be the most appropriate body to undertake the task, but it should do so in consultation with stakeholders.

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.

13.5 Monitoring the management plan

ClubsNSW should report annually on progress on developing and implementing the management plan. The plan should be reviewed at regular intervals, to ensure it is still relevant and effective for the 10 to 15 year timeframe it is intended to serve.

Appendices

A Terms of reference



I, Morris Iemma, Premier of New South Wales, pursuant to Section 9 of the Independent Pricing and Regulatory Tribunal Act 1992, request the Tribunal’s assistance in reviewing and making recommendations on the role and performance of the NSW Registered Clubs industry, with the purpose of facilitating a sustainable Registered Clubs industry in the future.

The NSW Government acknowledges the valuable social and economic contribution made by registered clubs to the State’s social infrastructure and services.

Social, demographic and commercial changes over the past 10 years have affected the Registered Clubs industry in many ways. Commitment to the overall industry appears strong. However the ability of individual clubs to provide services that meet the needs of members and the community while continuing to be financially viable, differs depending on location, size and many other factors.

The NSW Government wishes to assist the clubs industry to flourish, while stipulating that the industry meets its mutuality requirements, works co-operatively with Government and other community members in providing substantial community support that is effectively targeted, and operates in a commercial and professional manner.

I would appreciate the Tribunal’s assistance in undertaking a review and making recommendations that will assist Registered Clubs to enhance their role in the community in an efficient and effective manner. The outcome for the review will be a framework for a management plan that supports and guides a sustainable registered clubs industry for a 10 to 15 year period.

In conducting the review, the Tribunal is asked to recognise the diversity of the constituents of the Registered Clubs industry and the diversity in the needs and expectations of members of individual Registered Clubs and communities in which Registered Clubs operate. It is also to recognise the different needs of clubs in metropolitan, regional and remote areas.



The Tribunal is asked to review and make recommendations on the following key issues:

Registered Clubs’ role in the community

The existing contribution of the Registered Clubs industry to the provision of social infrastructure and services and a methodology to identify and record the value of such provision both now and in the future.

Employment and other economic opportunities afforded by the Registered Clubs industry and how the industry can enhance these opportunities, with special reference to regional and rural areas.

Existing and proposed statutory requirements for the provision of assistance to the community and the effectiveness of current community expenditure by clubs, ways in which Clubs can best target expenditure towards identified community needs.

Development of a Charter to support Registered Clubs, their members, and the wider community, defining Registered Clubs’ roles and stakeholders’ and the NSW Government’s expectations of them. This should include consideration of ways of communication between clubs and the community about available services and support for the community.

Options for the roles Registered Clubs might play in advancing the NSW Government’s priorities as set out in the State Plan. Consideration should be given to opportunities for Registered Clubs and NSW Government agencies to work together to identify and pursue the best social outcomes of the community.

Options for enhancing the social contribution of Registered Clubs in the future.

Financial viability and strengthening performance

The financial viability of the Registered Clubs industry, specifically identifying areas where clubs are either prospering or declining and examining the reasons for any decline and how it might be reversed. The Tribunal should make recommendations on business efficiency performance measures for use by the industry, having regard to the diversity of the industry.

Effective operations of Registered Clubs in the context of being community based, not for profit, entities and options for future diversification of business operations.

Options for improving financial management including capital expenditure proposals, and support schemes (including ClubBIZ) to provide guidance, management, strategic planning and other assistance to clubs. Consideration should be given to the steps to be taken where a Registered Club is in financial difficulty. Consideration should also be given to successful financial management strategies that could be exercised by Registered Clubs.

Training and development needs for the Registered Clubs industry and cost-efficient and effective ways for the provision of these needs.



The procedure for amalgamations and movement of assets between Registered Clubs, while maintaining their status as community-based not–for-profit entities and ensuring the protection and preservation of community assets.

Barriers to the establishment and relocation of Registered Clubs and how they could be reduced in order to encourage Registered Clubs to locate in areas that would most benefit from them.

Existing and proposed legislative and policy objectives and possible changes that may be required to the regulatory framework to support industry development and reduce ‘red tape’.

Maintenance and development of a strong code of corporate governance (including risk management).

Developing a shared vision between Government and the Registered Clubs industry on compliance issues, nature and levels of community service support and social responsibility.

Any additional issues it identifies that would significantly improve the sustainability of the Registered Clubs industry.

Timing, Consultation and Deliverables

The Tribunal is asked to take into account the views of stakeholders in the Registered Clubs industry.

The Tribunal is also asked to release an issues paper to facilitate discussion, and to engage in community consultation.

The Tribunal is asked to provide its final report to the Minister for Gaming and Racing 15 months from the receipt of the Terms of Reference.

B Terms of reference checklist



Terms of reference Report section

I, Morris Iemma, Premier of New South Wales, pursuant to Section 9 of the Independent Pricing and Regulatory Tribunal Act 1992, request the Tribunal’s assistance in reviewing and making recommendations on the role and performance of the NSW Registered Clubs industry, with the purpose of facilitating a sustainable Registered Clubs industry in the future.

Whole report

The NSW Government acknowledges the valuable social and economic contribution made by registered clubs to the State’s social infrastructure and services.

IPART notes the supportive nature of the terms of reference. It however considered that an important part of this review was an assessment of the contribution made by the industry (both benefits and costs) to social infrastructure and services. These considerations are outlined in Chapter 3.

Social, demographic and commercial changes over the past 10 years have affected the Registered Clubs industry in many ways. Commitment to the overall industry appears strong. However the ability of individual clubs to provide services that meet the needs of members and the community while continuing to be financially viable, differs depending on location, size and many other factors.

Chapter 6 (specifically section 6.1.7) considers where and why clubs are prospering and declining and the factors that affect this.

The NSW Government wishes to assist the clubs industry to flourish, while stipulating that the industry meets its mutuality requirements, works co-operatively with Government and other community members in providing substantial community support that is effectively targeted, and operates in a commercial and professional manner.

Chapters 3 and 5.

I would appreciate the Tribunal’s assistance in undertaking a review and making recommendations that will assist Registered Clubs to enhance their role in the community in an efficient and effective manner. The outcome for the review will be a framework for a management plan that supports and guides a sustainable registered clubs industry for a 10 to 15 yea period.

Whole report

Chapter 13 outlines IPART’s recommendations concerning the framework for a management plan.

In conducting the review, the Tribunal is asked to recognise the diversity of the constituents of

Section 1.2. IPART has undertaken an extensive review process with a high degree




the Registered Clubs industry and the diversity in the needs and expectations of members of individual Registered Clubs and communities in which Registered Clubs operate. It is also to recognise the different needs of clubs in metropolitan, regional and remote areas.

of stakeholder consultation. In particular, it conducted a series of club case studies with 16 clubs of varying size, type and location

The Tribunal is asked to review and make recommendations on the following key issues:

Registered Clubs’ role in the community

The existing contribution of the Registered Clubs industry to the provision of social infrastructure and services.

Chapter 3

A methodology to identify and record the value of such provision both now and in the future.

Chapter 4

Employment and other economic opportunities afforded by the Registered Clubs industry and how the industry can enhance these opportunities, with special reference to regional and rural areas.

Section 3.1.3 and 3.2.3

Existing and proposed statutory requirements for the provision of assistance to the community and the effectiveness of current community expenditure by clubs, ways in which clubs can best target expenditure towards identified community needs.

Chapter 5

Development of a Charter to support Registered Clubs, their members, and the wider community, defining Registered Clubs’ roles and stakeholders’ and the NSW Government’s expectations of them. This should include consideration of ways of communication between clubs and the community about available services and support for the community.

Section 13.3.2

Options for the roles Registered Clubs might play in advancing the NSW Government’s priorities as set out in the State Plan. Consideration should be given to opportunities for Registered Clubs and NSW Government agencies to work together to identify and pursue the best social outcomes of the community.

Section 3.2.4

Options for enhancing the social contribution of Registered Clubs in the future.

Chapter 3

Financial viability and strengthening performance

The financial viability of the Registered Clubs industry, specifically identifying areas where clubs are either prospering or declining and examining the reasons for any decline and

Chapter 6 (specifically 6.1.7)




how it might be reversed.

The Tribunal should make recommendations on business efficiency performance measures for use by the industry, having regard to the diversity of the industry.

Chapter 7 (specifically section 7.5.1)

Effective operations of Registered Clubs in the context of being community-based, not for profit entities and options for future diversification of business operations.

Chapters 2, 3, 6 and 8.

Options for improving financial management including capital expenditure proposals, support schemes (including ClubBIZ) to provide guidance, management, strategic planning and other assistance to clubs. Consideration should be given to the steps to be taken where a Registered Club is in financial difficulty Consideration should be given to successful financial management strategies that could be exercised by Registered Clubs. Consideration should also be given to the steps to be taken where a Registered Club is in financial difficulty.

Chapters 6, 7, 8 11 and 12

Training and development needs for the Registered Clubs industry and cost-efficient and effective ways for the provision of these needs.

Chapter 11

The procedure for amalgamations and movement of assets between Registered Clubs, while maintaining their status as community-based not–for-profit entities and ensuring the protection and preservation of community assets.

Chapter 9

Barriers to the establishment and relocation of Registered Clubs and how they could be reduced in order to encourage Registered Clubs to locate in areas that would most benefit from them.

Chapter 10

The Tribunal is also asked to review and make recommendations on:

Existing and proposed legislative and policy objectives and possible changes that may be required to the regulatory framework to support industry development and reduce ‘red tape’.

Chapters 8, 9 and 10

Maintenance and development of a strong code of corporate governance (including risk management).

Chapter 11

Developing a shared vision between Government and the Registered Clubs industry on compliance issues, nature and levels of community service support and social responsibility.

Chapter 13




Any additional issues it identifies that would significantly improve the sustainability of the Registered Clubs industry.

Chapter 12

C List of submitters, roundtable participants, case study clubs



C.1 Submissions to Issues Paper

Organisation/Individual Name

1 Aristocrat Technologies* Guy Wood

2 Australasian Gaming Machine Manufacturers Association Ross Ferrar

3 BetSafe Group Paul Symond

4 Cabarita Beach Bowls & Sports Club Ltd Phillip Mallon

5 Campbelltown Catholic Club - King of Clubs* Michael Lavorato

6 Canterbury - Bulldogs Leagues Club Ltd John Ballesty

7 Catalina Country Club Richard Hogg

8 ClubsNSW Peter Newell

9 Club Willoughby* Craig Robertson

10 Gambling Impact Society (NSW) Inc Kate Roberts

11 Gosford North Probus Club Allan Kilpatrick

12 Goulburn Club Roger Lucas

13 Individual* Anonymous

14 Individual Anonymous

15 Individual Andrew Cathcart

16 Individual J. P. Donellan

17 Individual Ernest Goldberg

18 Individual Tina Hormann

19 Individual Sandra & Jim Horne

20 Individual Julie & Bill McArthur

21 Individual Don & Edna Macdonald

22 Individual Gregg McKelvey

23 Individual Jill Neville

24 Individual* H. Pearce

25 Individual Wayne Sampson

26 Individual Len Sargant

27 Leagues Clubs Association of NSW Ltd Peter Turnbull

28 Licensing Court of NSW & Liquor Administration Board D.B. Armati

29 NCOSS (Council of Social Service of NSW) Dinesh Wadiwel

30 Newsagents Association of NSW & ACT Ltd Gary Monks

31 NRL Limited David Gallop



32 Penrith City Council Erich Weller

33 Panthers Entertainment Group** Glenn Matthews

34 Responsible Gambling Fund Trustees Rev. Harry Herbert

35 Royal NSW Bowling Association Inc* Ray Tozer

36 RSL & Services Clubs Association Ltd Graeme Carroll

37 Southern Cross University Nerilee Hing

38 Turramurra Bowling Club Geoff Hamilton

39 Union, University & Schools Club of Sydney Paul Sprokkreeff

40 Wesley Community Legal Service Richard Brading

41 Wests Ashfield Leagues Andy Timbs

42 Wests Campbelltown* Tony Mathew

Note: *Submissions not publicly available due to confidentiality. **Part of submission not publicly available due to confidentiality.

C.2 Attendees at Sydney Roundtable – 27 August 2007

Organisation Name

1 Aristocrat Technologies Guy Wood

2 Australian Hotels Association (NSW) Charles Shields

3 Australasian Gaming Machine Manufacturers Association Ross Ferrar

4 ClubsNSW Anthony Ball

5 ClubsNSW Emma Cannen

6 ClubsNSW David Costello

7 ClubsNSW Wayne Krelle

8 ClubsNSW Josh Landis

9 ClubsNSW Peter Newell

10 Goulburn Club Roger Lucas

11 Leagues Clubs Association of NSW Ltd Matt Cranney

12 Maritime Credit Union Mark Genovese

13 NCOSS (Council of Social Service of NSW) Linda Frow

14 Office of Liquor, Gaming & Racing Michael Foggo

15 Office of Liquor, Gaming & Racing David Greenhouse

16 Panthers Entertainment Group Glenn Matthews

17 Panthers Entertainment Group Barry Walsh

18 Panthers Entertainment Group Rob Weaver

19 Revesby Workers Club Edward Cammillen

20 Royal NSW Bowling Association Inc Ray Tozer


22 RSL & Services Clubs Association Ltd Luke Heard

23 Turramurra Bowling Club Geoff Hamilton

C.3 Attendees at Wagga Wagga Roundtable – 14 September 2007



Organisation Name



3 Griffith RSL Club Gus Lico

4 Leagues Clubs Association of NSW Ltd Peter Turnbull

5 Leeton Bowling Club David Campbell

6 Moama Bowling Club Paul Barnes

7 Office of Liquor, Gaming and Racing Michael Foggo

8 Office of Liquor, Gaming and Racing David Greenhouse

9 Riverina Australian Football Club Jack Jolley

10 Wagga RSL Club Andrew Bell

11 Wagga Wagga City Council Janice Summerhayes

12 Wagga Wagga Country Club John Turner

C.4 Attendees at Armidale Roundtable – 21 September 2007

Organisation Name

1 Armidale City Bowling Club Robert Adams

2 Armidale City Bowling Club Phil Wheaton

3 Armidale Ex-Services Club Doug Lennox

4 Cabarita Beach Bowls & Sports Club Ltd George Davidson

5 Cabarita Beach Bowls & Sports Club Ltd Phillip Mallon



8 Department of Community Services Wendy Colyer

9 Gunnedah Services & Bowling Club John Campbell

10 Gunnedah Services & Bowling Club James Gallen

11 Leagues Clubs Association of NSW Ltd Rod Laing

12 Office of Liquor, Gaming and Racing David Greenhouse


14 RSL & Services Clubs Association Ltd Bryn Miller

15 Tamworth Services Club Gil Swan

16 West Tamworth Leagues Rod Laing

C.5



C.6 Attendees at Dubbo Roundtable – 12 October 2007

Organisation Name

1 Bathurst RSL David Veness


3 Dubbo Railway Bowling Club Garry Leo

4 Dubbo RSL Club Matt Dover

5 Dubbo RSL Club Geoffrey Holland

6 Dubbo RSL Club John Millar

7 Forbes Services Memorial Club Dennis Butler

8 Forbes Services Memorial Club David Fitzgerald

9 Narromine Services Memorial Club Bob Walsh

10 Office of Liquor, Gaming and Racing Michael Foggo


12 West Dubbo Bowling Club Rod Firth

C.7 Case Study Clubs

Organisation ABS Division

1 Asquith Bowling and Recreation Club Sydney

2 Bega RSL Club South Eastern

3 Belmont Golf Club Hunter

4 Bingara Sporting Club Northern

5 Bowlers Club of NSW Sydney

6 Club Old Bar Mid North Coast

7 Mulwala & District Services Club (Clubmulwala) Murray

8 Cronulla-Sutherland Leagues Club Sydney

9 Tuggerah Lakes Memorial Club (diggers@the entrance) Sydney

10 Glen Innes Golf Club Northern

11 Hamrun Association (NSW) Incorporated Sydney

12 Mount Pritchard & District Community Club (Mounties) Sydney

13 Nowra Bowling & Recreation Club Illawarra

14 Petersham Bowling Club Sydney

15 Riverstone-Schofields Memorial Club Sydney

16 Tathra Beach Country Club South Eastern

D Methodology for recording and valuing clubs’ social contribution



The terms of reference require IPART to review the existing contribution of the registered clubs industry to the provision of social infrastructure and services. The terms of reference also require IPART to develop a methodology to identify and record the value of such provision both now and in the future.

Under IPART’s recommended approach the total value of this provision is calculated as the sum of the following components:

Direct, cash contributions made to charities, community and sporting related activities.

Direct, in-kind contributions through provision and maintenance of community and sporting facilities and infrastructure (eg, bowling greens, gyms, tennis courts as well as meeting rooms and other venues).

Contributions from club volunteers.

As discussed in Chapter 4, IPART’s methodology acknowledges indirect contributions qualitatively rather than quantitatively.

D.1 Methodology for recording the provision of social infrastructure and services

D.1.1 An overview of the proposed methodology

ClubsNSW currently publishes the results of a four-yearly socio-economic impact study (SEIS) conducted by the ACG on its behalf. The SEIS collects information from registered clubs through a comprehensive industry survey. The ACG uses this information for various analyses, including an assessment of industry contribution. ClubsNSW has provided IPART with data from the ACG survey to calculate its own estimate of the value of the clubs industry’s contribution to the provision of social infrastructure and services.



IPART recommends that the value of the clubs industry’s social contribution be calculated according to the following expression.

Total social contribution = Total direct cash contributions

plus

Total direct in-kind contributions through provision of club facilities

plus

Total contributions from volunteers

IPART recommends a market value based approach to determine the value of direct in-kind club-provided social infrastructure and services. As outlined in the issues paper, this approach focuses on the opportunity cost in revenue a club foregoes through its provision of the contribution. It calculates the difference between the commercial or market value of the product, less the price charged by the club, to determine the club’s direct social contribution. Where a club provides the product at no charge, the commercial or market value represents the total direct social contribution.

The equation below illustrates how the market value approach is applied:

(1) MVX – SPX = SCX

where: MVX represents the market value of product X; SPX is the club sale price for product X; SCX represents the measure of social contribution for the provision of product X.

D.1.2 Measurement of representative club type contribution

IPART’s valuation has used data from ACG’s survey of clubs to aggregate representative club contributions. This involved the following steps:

1. Developing representative club types (RCTs). IPART has used 40 RCTs to represent the variations of 4 club types (bowling, golf, RSL and other), five commonly used size categories (which use GMR as a measure of club size) and either a country or metropolitan location. For example, RCTs were developed for country-based bowling clubs that generate $200,000-$1m GMR and metropolitan-based RSL clubs that generate between $5-10m GMR. The number of RCTs was selected by balancing whether there were enough clubs sampled within a category and also whether combing categories would aggregate the contributions to a level where the number/type of facilities were not consistent with IPART’s observations.



2. Calculating the value of direct cash contributions made by each RCT. IPART divided the total cash contributions made by the number of clubs surveyed in each RCT.

3. Calculate the value of the direct in-kind social contribution made by each RCT for the provisions of community infrastructure and facilities. IPART undertook the following four steps: a) identify market prices for each of the facilities provided by clubs b) identify the sale prices for each of the facilities provided by clubs c) identify the number of community facilities, such as bowling greens, meeting

rooms, billiard tables, etc, provided by each RCT category d) applying equation 1 and taking club numbers in each RCT sample, one could

then estimate each RCT’s ‘typical’ per club provision of community facilities.

4. Sum the value of direct cash contributions and direct in-kind contributions for each RCT to obtain an estimate of the total value of club contributions for each RCT.

5. Scale up the result of the total social contribution for each RCT based on appropriate statistical weightings to obtain a value for the total industry social contribution.

IPART notes the following issues concerning this methodology:

Market values for different products differ based on factors such as location, type and quality of product. Therefore, where appropriate, IPART developed a range of market values for metropolitan and country facilities.

Market values cannot be estimated for all club-provided facilities. IPART recommends that no market values be attributed to these products and the contributions associated with them be acknowledged qualitatively

Club sale prices and annual sale quantities have not been collected by ACG as part of the survey. IPART therefore recommends an alternative calculation of direct in-kind social contributions.

The following sections explore how IPART has accounted for these difficulties.



D.1.3 Overcoming measurement difficulties with a representative club type contribution

Market values differ based on location, type and quality of product

IPART has observed that the market prices of club-provided facilities vary based on location, type and quality of service. Ideally, there would be a survey of market prices for each of the facilities to develop an understanding of the distribution of market prices. Given that it is not practical, IPART has accounted for these differences by reporting a range of market values for each of them. IPART obtained market prices for a sample in both metropolitan and country locations for each of the facilities. In some cases (for example tennis courts) very little difference was observed and thus similar market prices have been applied to metropolitan and country locations.

Based on this sample, IPART has developed a high and low estimate range of market values. IPART notes that these values do not necessarily reflect the absolute low and high values for these facilities, but are a likely reflection of the average low and average high prices for a typical club-provided facility.

IPART has calculated and reported a total value based on the midpoint of the ranges estimated.

Market values cannot be estimated for all club facilities

There are a variety of club-provided facilities IPART has either been unable or does not feel it is appropriate to estimate a market value on a per facility basis (see Table D.1).



Table D.1 Club provided facilities considered by IPART

Facilities for which market values have been estimated

Facilities for which no market values have been estimated

Bowling greens Carpet bowls

Gyms Boat/ski facilities

Sporting fields Memorials

Golf courses Playgrounds

Swimming pools Library

Tennis courts Other (sporting)

Squash courts Other (non-sporting)

Billiard tables

Meeting rooms/halls

Entertainment venue/hall

Accommodation

Bars (aggregate level only)

Bistro/restaurant (aggregate level only)

IPART’s reasoning for not including all contributions in its valuation is as follows:

Memorials: these typically commemorate the contributions made by the servicemen and women of the country in RSL/services clubs. IPART believes they should be acknowledged together with indirect contributions and recorded by clubs through a qualitative approach.

Playgrounds and libraries: these are typically provided free of charge by council/other government organisations and therefore a market value is not observable. IPART believes they should be acknowledged in the same manner as an indirect contribution and recorded by clubs through a qualitative approach.

Carpet bowls: market prices for these were not observed as they are generally only provided by clubs. Additionally, this activity generally occurs within existing club facilities, such as meeting rooms, halls or entertainment venues (although some clubs do have custom-built carpet bowling facilities). IPART believes carpet bowling activities should be acknowledged in the same manner as an indirect contribution and recorded by clubs through a qualitative approach.

Boat/ski facilities: IPART’s view is that the heterogeneity of what is provided in this category makes it difficult to estimate a meaningful value range. ACG has advised that this category ranges from a pair of water skis, up to the provisions of fishing/ski boats and moorings. In the absence of better data/information on the provision of goods and services within this category, IPART believes this contribution should be acknowledged qualitatively.



The rationale for not calculating a market value on a per facility basis for bars/bistros/restaurants is that, as outlined below, in the absence of a detailed club survey, observing market prices and quantities for the meals and beverages provided by clubs is problematic. However, the provision of low-cost meals and beverages has been one of the contributions most widely acknowledged by stakeholders. IPART has therefore accounted for this contribution at an aggregate industry level, rather than on a per RCT basis. ACG has estimated that, on average, these products are provided at a 20 per cent discount to the market price (reflecting a range of 15-25 per cent). Using the total industry revenue for bars, bistros and restaurants and assuming an average level of discount of 20 per cent, IPART has estimated the industry’s total contribution in providing these facilities.

Club sale prices and annual sale quantities have not been collected by ACG as part of its survey

ACG collects data on the number of facilities provided by each of the clubs that it surveys. It does not collect club sale prices and annual sales quantities. Additionally, ACG does not collect information on sources of revenue by the facility types identified in Table D.1. This means it is not possible to calculate the social contribution value for each type of facility for each RCT as in equation 1.

To deal with this, IPART has calculated the market values (and not the social contribution) of facilities for each RCT. The value of direct in-kind contributions can then only be calculated on an industry-wide level by subtracting the revenue received by clubs for the provision of their facilities.

IPART has used the following approach to assign market values to the community facilities identified by the ACG survey:

Market values for services provided by bowling greens, golf courses, tennis courts, squash courts and swimming pools were estimated by using the ABS NSW sport participation and frequency rate, the market value (ie, typical price) for annual participation and the number of facilities in the NSW. IPART estimated the market value of services provided by the sports facility, such as a golf course or tennis court; the market value being equivalent to the annual sum of revenue generated using market values for participation. Expressed through an equation:

(2) ( PFABS x MVAP ) / NSF = VSF

where: PFABS is the ABS participation and frequency rate; MVAP is the market value for annual participation; NSF is the number of the sports facilities in NSW; VSF is the annual market value per single facility.

Market values for the provision of gymnasiums were estimated by multiplying the average gym membership (Australian figure available only) with the market value for annual participation, where IPART’s estimated market value is equivalent to the annual sum of revenue generated per gymnasium. Expressed through an equation:



(3) ( AMFA x MVAP) = VG

where: AMFA is the average gym membership size (as reported by Fitness Australia); MVAP is the market value for annual participation (ie, annual gym membership); VG is the annual market value per gymnasium.

Market values for the provision of billiard tables were estimated based on an assumption of 20 hours of usage per table per week and an observed hourly market rate for billiard table use. IPART estimated the annual market value for a billiard table by multiplying the weekly usage for a table by the hourly market rate, accounting for the 52-weeks in a year. The estimated market value is equivalent to the annual sum of revenue generated. Expressed through an equation:

(4) WUPT x HR x 52 = VBT

where: WUPT is the estimated usage per table per week; HR is the hourly market rate; VBT is the annual market value per billiard table.

Market values for the provision of meeting rooms/entertainment halls and accommodation were estimated by multiplying the ABS room occupancy rate with the market value for the meeting/motel room rate (based on three star accommodation for motel rooms), accounting for the 365 days per year. The estimated market value is equivalent to the annual sum of revenue generated per meeting/motel room. Expressed through an equation:

(5) ORABS x MVRR x 365 = VPR

where: ORABS is the ABS room occupancy rate; MVRR is the market value room rate; VPR is the annual market value per room.

The resulting low, midpoint and high market values are shown in Tables D.2 (metropolitan values) and D.3 (country values).



Table D.2 Estimated market value of club facilities – metropolitan

Market value per facility ($’000)

Facility Low Midpoint High

Bowling green 30 45 60

Gym 558 1,059 1,560

Sporting field 14 57 100

Golf course 1,589 2,868 4,147

Swimming Pool 258 314 369

Tennis courta 10 16 22

Squash court 12 20 29

Billiard table 6 6 6

Meeting room/hall 41 84 126

Entertainment venue/hall 41 84 126

Accommodation 26 37 48

Table D.3 Estimated market values of club facilities – country

Market value per facility ($’000)

Facility Low Midpoint High

Bowling green 7 14 22

Gym 558 1,059 1,560

Sporting field 4 45 85

Golf course 68 142 216

Swimming Pool 74 210 347

Tennis courta 10 16 22

Squash court 12 20 29

Billiard table 6 6 6

Meeting room/hall 46 57 69

Entertainment venue/hall

46 57 69

Accommodation 17 27 37



Recognition of volunteer hours

ACG also collected information on the total number of volunteer hours for each of the clubs surveyed. IPART has included an allowance for these hours in the total social contribution value. While this inevitably includes an element of double counting (given that many volunteers are involved in providing the facilities valued in Tables D.2 and D.3), these volunteers are also involved in providing facilities for which IPART has not estimated market values, as well as many of the indirect contributions made by clubs.

D.2 An estimate of the clubs industry’s social contribution

Based on the above methodology, IPART has estimated the following range for the value of the registered clubs industry’s social contribution.

Table D.4 Value of social contribution ($ million)

Industry values Low Mid High

Direct cash contributions 91 91 91

Direct in-kind contributions

Market value of facilities 764 1,244 1,724

Less revenue received by clubs for their facilities 568 568 568

Volunteer hours 126 126 126

Total value of social contribution 413 893 1,373

Note: Rows may not add due to rounding

E ClubsNSW – steps to establishing a registered club



1. The first step requires a group of citizens with a common purpose to get together with the intention of establishing a club. Their intentions should be expressed by way of some form of memorandum of intent which sets out the objects of the club and their short, medium, and long- term objectives. All participants should sign this document.

2. The foundation group does not need to be very large (say 10-15 people) but they all need to be committed and hardworking.

3. The foundation group needs to appoint a foundation committee which will be the first board of directors (once the club is incorporated) but which in the meantime is charged with the task of steering the club through its formation towards incorporation and ultimately registration under the Registered Clubs Act.

4. The foundation committee needs to create a constitution for the club. The constitution must comply with the Registered Clubs Act, the Corporations Act and be in a form appropriate for a company limited by guarantee.

5. Once the foundation committee has created a constitution it can then apply to have the club incorporated as a company limited by guarantee pursuant to the Corporations Act. This is done by way of filing various documents with ASIC.

6. Once the club is incorporated the foundation committee must have regular meetings and maintain proper minute books and accounts and registers of members.

7. Also once incorporated the club can start attracting members and carrying on activities for members consistent with the objects of the club. Even though the club at this stage is not subject to the requirements of the Registered Clubs Act in relation to the holding of meetings, the procedures for admitting new members and the maintenance of books and records etc, it is considered essential that these requirements be followed. This is necessary to establish the appropriate track record of compliance prior to the club applying for its certificate of registration.

8. Legal costs associated with preparing a new constitution and applying for incorporation will typically be approximately $10,000.



9. Fundraising for a club before it is registered under the Registered Clubs Act (and indeed afterwards) is very difficult. The fundraising provisions of the Corporations Act require disclosure statements or a document in the form of a prospectus together with a variety of compliance issues. These are all prohibitively complex and expensive. Accordingly the usual forms of fundraising for clubs seeking to become registered are those generally available to community and charitable organisations such as sausage sizzles, donations, membership fundraising nights etc. This was not the case prior to clubs being required to incorporate in 1972.

10. It is also possible for the club at this stage to apply for a functions licence under the Liquor Act. A functions licence will allow the club to sell liquor at specific functions conducted by the club on 26 occasions each year (one every two weeks). A functions licence will give the club: – Experience in the sale of liquor and in responsible service of alcohol; and – A modest but reasonably regular revenue stream.

11. It is recommended (and almost essential) that the club trade for at least 18 months after incorporation before making application for a certificate of registration under the Registered Clubs Act. The reasons for this are as follows: – The club needs to have at least 200 members (100 members outside the

metropolitan area) before it can make an application to the court. – The club has to acquire suitable premises of which it is the bona-fide occupier

and which are maintained from the funds of the club (see paragraph 13 below). – The club will need to demonstrate to the Licensing Court that it has kept

correct accounts and books in respect of the financial affairs of the club and that the board meets at least once a month and maintains proper minutes of those meetings.

– The club needs to appoint an auditor. – The club needs to demonstrate to the Licensing Court that it is and will

continue to be financially viable. A period of 18 months of trading and operating will help.

– The club needs to have a good track record in relation to the sale of alcohol and generally in relation to its activities.

– The Corporations Act requires the club to have its first annual general meeting within 18 months of incorporation. This annual general meeting will demonstrate the ability (or otherwise) of the club to provide for the orderly election of its governing body and satisfy the statutory reporting requirements to members and the ASIC requirements imposed on a public company.

– The club will have to appoint a Secretary (either on an employed or honorary basis) who has completed all necessary educational requirements, has the requisite RSA and Gaming Machines Act certificates and understands his/her responsibilities as the Chief Executive Officer of the club and who will ultimately be the approved secretary (licensee).



– The club must also be prepared to demonstrate that its existence meets a genuine and substantial need (Registered Clubs Act section 25(1)(c)).

12. The premises for a new club can be 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)). – 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.

13. 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 application but first a rezoning application. By its nature, a rezoning application is a very politicised process.

14. An application for a certificate of registration is a substantial application to the Licensing Court requiring evidence covering all the matters referred to in Section 10 and in appropriate cases anticipating and where necessary dealing with potential grounds of objection indicated in Section 25. The new club must have an initially approved secretary who holds RSA (and RCG, if gaming machines are proposed), certification.

15. The application is filed with the Licensing Court and is then advertised both in a local newspaper and in a state-wide newspaper. A copy of the application is also displayed on the premises of the club.



16. Objections can be taken to the application under Section 25 of the Registered Clubs Act. An objector can be the Commissioner of Police, the Director of Liquor & Gaming and a local council or other consent authority. Also the owner or lessee of any land or any person who ordinarily resides on any land within two kilometres of the club’s premises (if the premises are located in an area covered by the Local Government Act) or within eight kilometres of the premises in any other area may object.

An objection can also be taken by any person who alleges that his or her interests financial or other are likely to be adversely affected by the granting of the application. Accordingly local hotels, restaurants, reception centres etc can file objections. A major concern in relation to any application concerning a club or a new club is the potential for objections ultimately found to be frivolous or without reasonable foundation to delay applications for a considerable time and cause considerable uncertainty and additional expense. As demonstrated by many applications for liquor licences, an objector who can cause delay will often succeed in substance merely by having caused the delay.

Not only is there scope for a frivolous objector to delay the application at first instance, the delay can be continued by appeal proceedings even though they might ultimately be unsuccessful.

17. Notwithstanding the comments in relation to the problems with club premises above there has been at least one instance of the Licensing Court granting a certificate of registration conditionally without the club having any premises but on the basis that council-approved plans were submitted with the application which were approved by the court. Once the premises were constructed a further application could be made for a final order in relation to the certificate of registration. Ironically that club was not able to proceed as it could not raise the funds to construct the clubhouse. It has now merged its activities with a large registered club.

18. The issue of getting a conditional grant of a new certificate of registration without first committing to building costs is partially alleviated by the existing section 18 which allows a conditional application where the new club proposes to have ‘new premises’.

19. Once an application for a certificate of registration under Section 7 is granted the club will: – Be able to sell liquor in its premises to members and guests of members; and – Be able to apply to the Liquor Administration Board for the 10 free gaming

machine entitlements available under the Gaming Machines Act. However it will still have to purchase or lease the gaming machines in respect of each of those entitlements. Once again this raises issues of finances and cash flow.

20. The legal costs from the first step to the last will approach $35,000 and conceivably be much more if difficulties such as problems with Council and objectors in the Licensing Court are experienced. This does not include the cost of the premises construction, renovation or business and operational costs.

Glossary and Abbreviations



ABS Australian Bureau of Statistics

ACG The Allen Consulting Group

Amalgamation An amalgamation of two or more clubs, effected by either:

One club taking over the members and assets of the other club, which is then dissolved; or

A new club being established and taking over the members and assets of the two clubs, which are then dissolved.

AQF Australian Qualifications Framework

ASIC Australian Securities and Investments Commission

ASX Australian Securities Exchange

ATO Australian Taxation Office

CDI Club Directors Institute

CDSE Community Development and Support Expenditure

ClubsNSW The Registered Clubs Association of NSW

CMAA Club Managers’ Association Australia

Code ClubsNSW Code of Practice

CPGI Canadian Problem Gambling Index

[Department] NSW Department of the Arts, Sport and Recreation

Dissolved club A club which has transferred its members and assets to another club under an amalgamation and has been dissolved.

DOCS NSW Department of Community Services

EBIT Earnings before interest and income tax

EBITDA Earnings before interest, income tax, depreciation and amortization

EBITDAR Earnings before interest, income tax, depreciation, amortization and rent

EBITDARD Earnings before interest, income tax, depreciation, amortization, rent and donations

EBITDARD % EBITDARD as a percentage proportion of revenue

EOI Expression of interest

FCSWCL Federation of Community, Sporting and Workers’ Clubs Limited

FTE Full time equivalent

GIS Gambling Impact Society (NSW) Inc

GMR Gaming machine revenue

Guidelines ClubsNSW Best Practice Guidelines

KPI Key performance indicator

LAB NSW Liquor Administration Board



Leagues Clubs Association

Leagues Clubs Association o f NSW

LGA Local government area

LIA Local Impact Assessment

Licensing Court Licensing Court of NSW

Liquor Act Liquor Act 1982

Minister NSW Minister for Gaming and Racing

MOU Memorandum of Understanding (Gaming machine tax/Amalgamation)

NCOSS Council of Social Services of NSW

Bowls NSW Royal NSW Bowling Association Incorporated

NSW Golf NSW Golf Association

OLGR NSW Office of Liquor, Gaming and Racing

Other club A club which is transferring its members and assets to another club under an amalgamation.

Panel Club Viability Panel

Parent club A club which is taking over the members and assets of another club under an amalgamation.

PEG Panthers Entertainment Group

RCG Responsible Conduct of Gambling

RCT Representative club type

Registered club A club which has been granted a certificate of registration under the Registered Clubs Act.

RSA Responsible Service of Alcohol

RSL Returned & Services League

RSL & Services Clubs Association

RSL & Services Clubs Association of NSW

SEIS Socio-economic impact study

SCU Southern Cross University

SIA Social Impact Assessment

review of the registered clubs industry in nsw...2 the registered clubs industry in nsw 23 2.1...

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