Clubs & Gaming Industry

Presented by Daniel Zadnik – General Manager, FinanceMcLean Delmo19 May 2010

Disclaimer: The contents of this presentation are based on the experiences of the presenter and do not necessarily reflect the actual credit polices of financial institutions mentioned. The examples detailed are for illustrative purposes only. Companies, organisations, associations and individuals should always seek professional accounting and legal advice in respect to their own financial circumstances prior to entering into financial contracts.

Agenda An industry in transition The lending environment pre the

credit crisis The lending environment post the

credit crisis Implications for Clubs & Gaming Implications for Financiers Potential changes to financing

clubs and gaming Tips for successful financing The Good News Questions

An industry in transition

New South Wales• IPART - Review of the Registered

Clubs Industry (Report June 2008) • Seven key recommendations:- - Financial reporting &

benchmarking - Club Viability Panel - Corporate Governance - Diversifying Income Streams - Consolidation & Amalgamation - Removing Regulation - Establishment of New Clubs

An industry in transition

Victoria • 2012 commencement of gaming

entitlements. Bidding closed May 10.

• The power of the Victorian Commission For Gambling Regulation

• Taxation changes including a tiered system

• Venue Operator’s Agreement with Tabcorp and Tattersalls

Lending pre the credit crisis

• High growth and significant competition

• Banks were lending centric• Irrational pricing• Relaxed lending principles and

credit standards (sub prime)• Cross selling or bundling of

products/services • Fixed interest rate facilities to

“hedge” from interest rate movements and competition

Lending post the credit crisis

Financiers selective on the industries and asset classes funded

• Reduced loan to valuation ratios• Reduction in low document lending• Little value attributed to stock and

debtors unless audited financials• Caution with enterprise values of

businesses • Repricing of loan facilities

Security Extension Ratios

Asset Type 2007 2010

Residential Property

80% 80%

Luxury Property > 3M

75% 70%

Commercial Property

70-75% 65-70%

Rural Property 60% 50%

Pubs & Clubs (Freehold)

65% metro50% regional

60%-55% metro50% -35% regional

Debtors* 60% 0-25%

Plant & Equipment 25% Nil *Excludes Debtor Finance Facilities

Lending post the credit crisis

Retail deposits are the number one priority for banks

$

Time

Turnover

Loan amount

Implications for Clubs & Gaming

• Price of gaming machine entitlements in Victoria?

• Outcome of IPART Recommendations

• Increased compliance, supervision and fees

• Relationships with suppliers/sellers of machines

• Better governance of licenses.• Maintenance of premises to retain

patronage and members.

Implications for financiers

• Serviceability testing of EBIT/Interest to increase

• Funding linked to length of entitlements and leasehold terms

• Smaller Clubs & Hotels under pressure if entitlements are lost or kpi’s not met

• Demand for better and more detailed financial reporting

• Maintain statutory payments - GST, PAYG & Employee Superannuation

Implications for financiers

• Time since refurbishment and future capex requirements

• Stock verification and Retention Of Title (ROT)

• Public liability and loss of profit insurance

• Charges over the company, entitlements and liquor licenses

• Non negotiable charges over lease/right of entry

• Experience of operators• Reputational risks • Restricted trading hours, promotions and

advertising

Potential changes to financing Clubs, Hotels & Gaming venues

• Banks will want to fund the bigger players

• Possible consolidation of the number of clubs and hotels

• Increased levels of financial reporting and loan covenants cover risk

• Accredited accountants and advisors to prepare, oversee and audit operations.

5 Tips for successful financing

1. Provide accurate and timely financial information to give confidence to your Bank.

2. Consider greater financial support from members / Diversify income streams.

3. Strategic alliances may enable a better risk profile

4. Use a professional to negotiate with the bank on your behalf. The savings can be considerable.

5. Talk to your accountant and professional advisors to get the right advice.

The Good News

• Clubs & Gaming is a significant industry• Banks want to capture the retail deposits generated by the industry • Reputable Clubs & Gaming venues facilitate community involvement (CDSE Scheme)• Banks like to align their brands with successful community clubs• Opportunities for smaller regional banks to build relationships with Clubs.

McLean Delmo Finance

Daniel ZadnikGeneral Manager Finance03 9018 46650430519073daniel.zadnik@mcleandelmo.com.au