Leagues Clubs Australia
Conference
May 2010
Managing budgets and the
bottom line
Topics
 Why so important - now more than ever
 Recent earnings trends
 Some budgeting techniques
 What targets to set
 Using budgets to drive performance
 Turning budgets into an operating plan
 Driving a marketing budget
 Summary
2
Thanks to CDOL
3
Financial flows – NSW
$100
Gaming
$69
Bar
$15
Catering
$13
Retail
$2
Other
$1
Gaming surplus
$44 (64%)
Bar surplus
$4 (27%)
Cater surplus
<$1 (2%)
Retail
<$1(14%)
Other
$1
Front of house GP
$51 (51%)
Community
$3-$4
Overheads
$34 (34%)
Capital/debt
$8 - $15 (8%- 15%)
EBITDARD
$17 (17%)
Financial flows – Qld
$100
Gaming
$61
Bar
$15
Catering
$17
Retail
$4
Other
$3
Gaming surplus
$37 (60%)
Bar surplus
$5 (33%)
Cater surplus
$1.70 (10%)
Retail
<$1(5%)
Other
$3
Front of house GP
$47 (47%)
Community
$3 (3%)
Overheads
$29 (29%)
Capital/debt
$8 - $15 (8%- 15%)
EBITDARD
$18 (18%)
Financial flows – ACT
$100
Gaming
$66
Bar
$19
Catering
$12
Retail
$?
Other
$2
Gaming surplus
$43 (65%)
Bar surplus
$5 (27%)
Cater surplus
$0 (0%)
Retail
$?(?%)
Other
$2
Front of house GP
$51 (51%)
Community
$3
Overheads
$31 (31%)
Capital/debt
$8 - $15 (8%- 15%)
EBITDARD
$20 (20%)
Financial flows – NT
$100
Gaming
$50
Bar
$15
Catering
$12
Retail
$22
Other
$1
Gaming surplus
$26 (51%)
Bar surplus
$4 (26%)
Cater surplus
$0 (1%)
Retail
$3 (14%)
Other
$1
Front of house GP
$34 (34%)
Community
Overheads
$23 (23%)
Capital/debt
EBITDARD
$11 (11%)
Why so important
 Gaming and beverage shows little growth
 Operating cost are growing by 4% to 6%
annually
 Capex has grown at over 6% per annum
in the last 5 years
 The margins are declining
8
EBITDA trend in NSW
22%
20%
18%
16%
14%
12%
10%
May-08
Longer term
trend is stable
Mar-09
9 month trend
is worrying
Jan-10
9
EBITDA trend in Qld
24%
22%
20%
18%
16%
14%
12%
10%
May-08
Mar-09
Jan-10
10
EBITDA trend in ACT
28%
26%
24%
22%
20%
18%
16%
14%
12%
10%
May-08
Mar-09
Jan-10
11
Expenditure per person
1,200
1,000
800
NSW
ACT
Vic
600
Qld
400
200
12
Leisure (3mnths)
80%
Use computer at home
68.4%
60%
40%
75.1%
66.9%
60.6%
Entertainment
54.2%
Novel
49.1%
45.3%
Saw a movie
34.8%
23.9%
52.9%
43.1%
Day trip
40.1%
Hobby
29.7%
Played sport
20.9%
20%
0%
Jan 02
Source: Roy Morgan
Mar 09
9 years
13
Leisure (3mnths)
30.8%
Went to a club
11.6%
Went to a casino
5.4%
Went to a racetrack
Jan 02
Source: Roy Morgan
28.4%
9.4%
4.6%
Mar 09
9 years
14
Spare time
 We are awake 112 hours each week
 Comprised of:
– 16 hrs on the Internet
– 12 hrs watching TV (declining)
– 8 hrs listening to radio
– 8 hrs using the PC off line
– 5 hrs playing video games
– 3 hrs reading newspapers
– 2 hrs reading magazines
 That’s 54 hrs without work, study or house work
15
Competition for leisure
wallet
 We now spend $32-$35b on mobile phones
each year
 32% of kids under 15 years have a mobile
 Pay TV $3.2b
16
So...
 Clubs must achieve at least 15% EBITDARD for
“survival”
 12% and below is concerning
 Over 20% allows a club to progress and grow with
the market
 Over 24+% EBITDARD is superior and will
advance a club far beyond competitors
 These parameters set the basis for targets and
budgets
17
Budgeting technique
 Top-down and bottom
-up and top-down
Board
Senior
management
Senior
management
Senior
management
Operational
management
Operational
management
Operational
management
Staff
18
Budgets to Op Plan
 Budgets are often the numbers that actual results
are compared with in the middle of the next month
 A budget is only effective if it drives operations the whole management team and staff
 Best results are achieved from converting budgets
to goals, initiatives, targets, responsibilities,
timeframes etc
 The whole team must be engaged and “own” the
budget
19
Budgeting technique
 Use of base budget and stretch budget
– Base budget is the most likely outcome given strong
management input and reasonable diligence
– Stretch budget is normally based on best case
outcomes eg 10% improvement in revenues and 2%
reduction in some costs
 Also use maximum reasonable adversity (MRA) to
assess the budget risk and financial sensitivity of
the business
 Profit and loss budgets PLUS cash flow
20
Debt coverage
 Debt coverage measures how susceptible the
business is to its debt burden - from movements
in earnings, interest rates and unforeseen
expenditure
 Interest rate cover – number of times the
earnings of the club can cover interest
commitments – 2 times is a min benchmark
 Principal and interest cover - number of times
the earnings of the club can cover principal and
interest commitments – 1.5 times is a min
benchmark
21
Key business drivers
Needs improvement
Excellent
EBITDARD
<12%
25%
Total wages
>24%
18%
Total AEMP
>12%
6%
Net/EGM/Day
<$120
>$180
Gaming Promo
>6%
4%
Gaming wages
?6%
4%
Bar GP
<55%
>64%
Bar wages
>24%
<20%
Catering GP
<55%
>62%
Catering wages >50%
<42%
Overheads
<25%
>35%
22
Marketing - AEMP
 AEMP – Advertising, Entertainment, Marketing
and Promotions
 Measured as a percentage of total revenue
3%-4% of
gaming
2.5% total
revenue
+
6.5% total
revenue
= 9%
23
How do we spend 9%
Gaming promotions
2.5%
General marketing and promotions
4.0%
Entertainment
1.5%
General advertising
1.0%
Total
9.0%
24
Marketing - AEMP
14%
12%
10%
12.8%
10.6%
9.6%
8.5%
8%
10.9%
9.4%
8.2%
9.1%
6.8%
6%
4%
High
Average
Low
2%
0%
Qld
NSW
ACT
25
Marketing - AEMP
10%
8%
6%
4%
2%
0%
26
Why 9%?
 We need high member penetration within the 2 – 5
km area – The average NSW clubs needs 17% of
every adult within 5km to be a member
 Average Qld club needs 12% penetration
 Larger clubs with over 250 machines needs a 30%
penetration rate in 5km
 On average, each member must visit around 11
times each year and spend $55
 Clubs survive on localised repeat visitation and
this requires regular communication and
engagement
27
Why 9%?
 High level of competition
 Members benefits form a large part of AEMP and
this is like a running “dividend”
 A large part of our benefits are provided as goods
in the venue, such as meals, which are recorded
at the full sales level but actually cost less (cost
of goods)
 But we suspect that clubs have historically layered
additional marketing initiatives rather than
rationalise, refine, rotate and modify
28
Where is it going?
 Web-based and SMS platforms are obviously
more cost effective compared with the traditional
forms of communications
 But clubs still cater by and large to an aged
demographic and they don’t respond well to this
technology
 Fighting against a very crowded array of
messages
 Response rates very low (20% open rate and 4%
click-through rate are considered good)
 The real costs are in the database and technology
29
Where is it going?
 Social media marketing – Twitter, Facebook
 350 million users worldwide
 7.6 million users in Australia
 But it’s hard to get a clear message on social
media
 Greatest benefit is gained when it is used as a
referral base from users (the social media
community)
30
Where is it going?
More tiered loyalty
 This is particularly the case in Qld with four
casinos
 Competition of the “wallet”
 Most wallets carry 12 cards
 We carry on average 3-4 credit cards each
 Add to that Medicare, MBF, licence, debit cards,
senior card and it’s a crowded space
 So your card has to be relevant
 Rebates of between 0.25% and 0.50% turnover
31
Measuring ROI
 If we spend 9% of every dollar that comes through
the door on AEMP, then we must understand the
return
 Every material marketing activity would benefit
from:
– A business case assessment
– A post completion short term and longer term
impact and return assessment
32
How to measure ROI
 Door counters
 Average spend analysis (revenue/door count)
 Hourly revenue tracking and comparison
 Player loyalty expenditure analysis
 Focus group research
 Survey research
 Compare business activity with and without the
marketing event (do nothing v outcome case)
33
Some common issues
 Marketing activity that generates enormous crowds
but no-one enjoys themselves
 Marketing activity that simply moves existing
visitation or expenditure to a different time or a
lower margin product
 Marketing activity that drives low value customers
in preference to high value customers
34
Some common issues
 Poorly executed marketing activities that no-one
understands including staff
 Broad media marketing eg radio and TV when
most clubs cater for a localised catchment (65%
within 2km)
 Showcases v cash v product rewards
 Small v medium v large cash rewards
 Members’ draws?
 Gaming promotions that annoy premium players
 Entertainment that annoys players
35
Summary
 In the current market there is a need to drive
EBITDA
 EBITDA below 15% needs to be improved upon
 We advocate all management understanding
EBITDA
 All staff should understand the budget and be
provided with business results
 At 9%, AEMP can be a big black hole or used to
drive the business
 Marketing is an investment
36
Jim Hollington
Partner PKF Chartered Accountants and
Business Advisors
Geoff Wohlsen
Principal DWS
37