Terry O’Halloran MBA, B.Ec CMAA Finance Summit Gaming in 2030 Terry O’Halloran MBA, B.Ec November 2018

Topic for today Diversification strategies and alternate forms of revenues can become a more sustainable business model for clubs rather than a reliance on gaming. As an industry, questions we should ask are: where do we go to next, who do we partner with: someone external, or do we continue to struggle, do we form partnerships with other like-minded clubs, can we survive with EGM’s only, how do we execute good corporate governance and protect member funds and the future viability of our club.

A story of diversification

Diversification What is it and why? What is Club and Management’s first considerations? What plays to a Club’s strengths? What doesn’t play to a Club’s strengths? What form can partnerships take? How does Governance play into this? Learn from others – we have had a few pokes in the eye

$100 Gaming importance GAMING $64 BAR $16 OTHER $3 OTHER $3 CATERING $17 OTHER $3 GAMING SURPLUS $37 (58%) BAR SURPLUS $5 (30%) CATERING SURPLUS $1.5 (8%) OTHER $3

What the numbers are telling us ITS ALL IN THE DATA

The steroid problem

Top heavy EGM SHARE AVERAGE

2030 Prediction

The demographic challenge The player base is getting older Life expectancy increasing Retirement funds are finite

The gender challenge Female involvement 50+ Changes in society

Polar opposites 2014 to 2018 The move down The move up What are the risks? Why has this happened?

Not-for-profit doesn’t mean a charity CLUB ECONOMICS

2030 Gaming RTP @ 92% Maximum bet ($10) and top prize ($10,000) will remain In 1995 dollars (at 2% CPI), that is exactly half in 2030 dollars Smoking rates in adults will be in single digits, expect further encroachment on areas people can smoke Reward programs further limited and regulated

Club Market Continued reduction of licenses by trading scheme What will happen to the value of licenses if the SA2 boundaries change in 18 months? EGM Rationalisation – market will move from 70,000 (present) to 65,000 (2030). Venue rationalisation – 1,100 Clubs (2018) to 803 (2030) with an average of 81 machines per venue, up from 63 (2018).

Cost changes The issue of power costs and self sufficiency How should layouts change to reduce costs? 95% of Clubs have enough room. What is the future of ‘sacred cows’? TABs Courtesy Buses Bowlers Bars Auditoriums

Starting point EGM Ratio General Business Carparks Members CRT Café seats Restaurant seats 1 EGM per 2.5sqm 2.5m aisles Average EGM age – 1,700 days $4,200 per EGM per year investment (non system) Outdoor reaches balance at 1.2 Promotions / loyalty : gaming revenue = 4.5% (subset of AEMP at 8%) Gaming wages (gross) – 3%

Ask the hard questions What is your Rewards program really costing? How are you evaluating and measuring promotions in all their forms? Is your plan based on your venue or cloning parts of other venues? What works in Canada Bay won’t necessarily work in Coonamble.

Ask the hard questions Are you using applicable and relevant benchmarks? Does everyone have a finance hat/glasses on? Are the skillsets up to scratch? Are the right people getting a seat to the table? The wider the inclusion, the better the input.

Predictions ‘Member Manager’ will develop as a position and surpass that of ‘Gaming Manager’ Player analysis will be the most sought after skillset by 2020 Skill based gaming will not meaningfully eventuate Online Gaming under Club licenses will not materialise before 2030. Clubs will be permitted to trial ‘play for fun’ games online using points that are not Gambling product derivatives by 2021.

Predictions We will see server based gaming in by 2025 Cashless and TITO will not be surpassed by virtual money by 2025 Lighting Dragon Cash Link will still be 8-10% of the installed base by 2023 and stand alone dollar games will be less than 1.5% We will see Revenue Participation by 2021 We will impose our own limits on RTP approval by 2022 Smoking ban by 2023

2020 Checklist Benchmarks for key silos in Gaming Investment schedule RTP and retention Rewards program costs as a %age of Gaming revenue Contribution of top players vs All Gaming room investment, age of machines Investment schedule Relevant constitution Property utilisation review Objective operational review Form a Gaming Group

2030 Checklist Functioning Strategic plan Functioning Master Plan Organisational Structure road map Demographic projections and regional development plans

Terry O’Halloran MBA B.Ec Associate – Member Insights and Gaming Specialist (m) 0426 468 738 (e) terry.ohalloran@russellcorporate.com.au