leagues clubs australia conference may 2010 managing budgets and the bottom line
TRANSCRIPT
Leagues Clubs Australia Conference
May 2010
Managing budgets and the bottom line
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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
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Thanks to CDOL
Financial flows – NSW
Gaming surplus$44 (64%)
Bar surplus$4 (27%)
Cater surplus<$1 (2%)
Other $1
Front of house GP$51 (51%)
EBITDARD$17 (17%)
Overheads$34 (34%)
Gaming $69
Bar $15
Catering $13
Other $1
Retail$2
Retail<$1(14%)
Community$3-$4
Capital/debt$8 - $15 (8%- 15%)
$100
Financial flows – Qld
Gaming surplus$37 (60%)
Bar surplus$5 (33%)
Cater surplus$1.70 (10%)
Other $3
Front of house GP$47 (47%)
EBITDARD$18 (18%)
Overheads$29 (29%)
Gaming $61
Bar $15
Catering $17
Other $3
Retail$4
Retail<$1(5%)
Community$3 (3%)
Capital/debt$8 - $15 (8%- 15%)
$100
Financial flows – ACT
Gaming surplus$43 (65%)
Bar surplus$5 (27%)
Cater surplus$0 (0%)
Other $2
Front of house GP$51 (51%)
EBITDARD$20 (20%)
Overheads$31 (31%)
Gaming $66
Bar $19
Catering $12
Other $2
Retail$?
Retail$?(?%)
Community$3
Capital/debt$8 - $15 (8%- 15%)
$100
Financial flows – NT
Gaming surplus$26 (51%)
Bar surplus$4 (26%)
Cater surplus$0 (1%)
Other $1
Front of house GP$34 (34%)
EBITDARD$11 (11%)
Overheads$23 (23%)
$100
Gaming $50
Bar $15
Catering $12
Other $1
Retail$22
Retail$3 (14%)
Community
Capital/debt
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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
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EBITDA trend in NSW
Longer term trend is stable
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EBITDA trend in Qld
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EBITDA trend in ACT
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Expenditure per person
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Leisure (3mnths)
80%
0%
40%
60%
20%
68.4%
60.6%
54.2%
49.1%
45.3%
34.8%
23.9%
75.1%
66.9%
52.9%
43.1%
40.1%
29.7%
20.9%
Jan 02 Mar 099 years
Use computer at home
Entertainment
Novel
Saw a movie
Day trip
HobbyHobbyHobbyHobby
Played sportPlayed sportPlayed sportPlayed sport
Source: Roy Morgan
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Went to a club
Went to a casino
Went to a racetrack
30.8%
11.6%
5.4%
Jan 02 Mar 099 years
28.4%
9.4%
4.6%
Source: Roy Morgan
Leisure (3mnths)
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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
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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
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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
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Budgeting technique
Top-down and bottom -up and top-down
Senior management
Operational management
Staff
Operational management
Senior management
Senior management
Board
Operational management
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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
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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
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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
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Key business drivers
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 >35% <25%
Needs improvement Excellent
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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%
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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%
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Marketing - AEMP
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Marketing - AEMP
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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
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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
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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
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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)
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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
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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
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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)
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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
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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
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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
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Jim HollingtonPartner PKF Chartered Accountants and
Business Advisors
Geoff WohlsenPrincipal DWS