CITATION: Toowong Bowls Club Inc v Queensland Gaming Commission [2011] QCAT 221

PARTIES: Toowong Bowls Club Inc v Queensland Gaming Commission

APPLICATION NUMBER: GAR190-10

MATTER TYPE: General administrative review matters

HEARING DATE: 7 February 2011

HEARD AT: Brisbane

DECISION OF: Jim Allen, Member

DELIVERED ON: 23 May 2011

DELIVERED AT: Brisbane

ORDERS MADE: That the Respondent’s decision of 23 November 2010 is confirmed.

CATCHWORDS: Review of decision of the Queensland Gaming Commission to fix the number of gaming machines at less than applied for

Gaming Machine Act 1991, ss 1A, 57, 59, 60

APPEARANCES and REPRESENTATION (if any):

APPLICANT : The Toowong Bowls Club inc was represented by Mr Les Chamberlain

RESPONDENT: The Queensland Gaming Commission was represented by Mr Simon Grant of Counsel

REASONS FOR DECISION Introduction

[1] The Toowong Bowls Club Inc was established in 1904 and is recorded as the second oldest bowling club in Queensland. The Club moved to its current location at 59 Gailey Road in the 1960s. Gaming machines were introduced into the club in 1995 with five machines. However, the lack of professional management led to the decision by the committee of the day to relinquish the licence. For many years the Club suffered from marginal trading performance and declining membership and its facilities were in some disrepair. It became clear to the Club committee that improvements to the facilities and the 2

operation of gaming machines would provide strong prospects to generate sufficient earnings to enable the Club to continue to provide the game of bowls for its membership and a community facility. The Club entered arrangements with a management company in 2003 which failed and also attempted to form an association with another club, Logan Diggers which was not approved by the Brisbane City Council, the lessors of the club premises. In 2007 Mr James Adams and his son, Mr Thomas Adams became involved with the Club and not only joined it as members but also have entered heads of agreement and a consultancy agreement to perform management services for the Club. It was a term of the heads of agreement that the Club make application to the Commission for a gaming machine licence. Once the Club received a gaming machine licence it was to enter a management agreement with Hospitality Leaders Pty Ltd, a company controlled by the Adams family. The Club made application to the Commission for a gaming machine licence to operate 55 gaming machines between the hours of 10.00 am and 12.30 am Monday to Sunday on 6 February 2008. The Commission granted a gaming machine licence on 27 April 2010 with the number of gaming machines fixed at 35 between the hours requested above. The Club being dissatisfied applied to the Tribunal for a review of the decision. The Club was given opportunities during the course of the application to provide further evidence in support of the application and as a result the Commission reconsidered the application on 28 September 2010 and 23 November 2010 and issued the same decision as the original one on both occasions, although the weightings given to the various matters considered by it in reaching the decision may have varied from time to time. The Law

[2] The Club was required to provide a community impact statement with its application in accordance with sections 55A and 55B of the Gaming Machine Act 1991 („the Gaming Act‟) and its application was accompanied by the other material required under section 56 of the Gaming Act. The decision to grant the gaming machine licence was made under section 58 of the Gaming Act and that decision is not under review. The decision to fix the number of gaming machines at 35 was made under section 59(2)(a)(i) of the Gaming Act in accordance with the matters to which the Commission is to have regard under section 60 of the Gaming Act and that decision is the one subject to review. The chief executive, through the now Office of Liquor and Gaming Regulation made recommendations in regard to the number of gaming machines which are appropriate for the subject premises in accordance with section 57(10) of the Gaming Act also having regard to the factors set out in section 60 of that Act. The object of the Gaming Act is set out in section 1A and is to ensure that, on balance, the state and the community as a whole benefit from gaming machine gambling. The Commission may in accordance with section 17 of the Gaming Act issue guidelines about the attitude the Commission is likely to adopt on a particular issue. A Guideline has been issued in respect of the how the Commission will exercise its power to fix the number of gaming machines. The Guideline states that the onus will be on the applicant to demonstrate that there is a sustainable demand for the number of machines sought in the application. And that the Commission may approve a lesser number than the number sought in the application: 3

a) To minimise any potential adverse affect on the amenity or character of the locality; b) Where the Commission forms the view that there is already an adequate number of gaming machines in the venue and/or the local community; c) Where the applicant cannot a sustainable demand for the full number of gaming machines sought in the application.

[3] The right to apply for review of the decision is under section 29 of the Gaming Act. The Tribunal is required by section 31 of the Gaming Act to hear and decide the review of the decision by way of a reconsideration of the evidence before the commission and in accordance with the same law that applied to the making of the original decision. This is subject to section 32 of the Gaming Act which gives the Tribunal discretion to grant a party leave to present new evidence if the Tribunal is satisfied the party did not know and could not reasonably be expected to have known of the existence of the new evidence before the decision and in the circumstances it would be unfair not to allow the party to present the new evidence. The decision under review here is taken, in accordance with the decision in Liquorland (Qld) Pty Ltd v Queensland Gaming Commission [2011] QCAT 32 at para 8, to be the decision of 23 November 2010. In which case the evidence filed since the application is not fresh evidence as it was before the Commission at the time of its decision. The Tribunal when exercising its review jurisdiction does so in accordance with section 19 of the Queensland Civil and Administrative Tribunal Act 2009 and must decide the review in accordance with that Act and the Gaming Act; may perform the functions conferred on the Tribunal by those Acts and has all the functions of the decision-maker for the reviewable decision being reviewed. In accordance with section 20 of the QCAT Act the purpose of the review of the reviewable decision is to produce the correct and preferable decision. The Commission is required in accordance with section 21 of the QCAT Act to help the Tribunal so that it can make its decision on the review and to provide a written statement of reasons and any document that may assist the tribunal. The Commission has carried out this obligation and this material will be referred to in the course of these reasons. The Applicants Material

[4] The community impact statement prepared by Dickson-Wohlsen consultants which was submitted with the application stated that as at 30 June 2007 the Club had 102 ordinary members, 8 life members, 4 associate members and 88 social members.1 The application itself does not refer to the social members and lists 3 junior members in addition to the other members.2 During the course of the application both before the Commission and the Tribunal there have been changes to the membership of the Club. The membership of the club as at 10 February 2010, which were the figures used in the original recommendation by the Office of Liquor and Gaming Regulation, the OLGR, were 83 full members, 7 life members, 3 associate members and 429 social members.3 The latest membership figures for the

1 Statement of Reasons (SOR) page 97. 2 SOR page 10. 3 SOR page 1079. 4

club as at 18 October 2010 are 81 full members, 7 life members, 3 associate members and 635 social members.4

[5] The Club proposed to install the gaming machines in 2 phases: i) The initial installation of machines in the existing lounge and men‟s locker rooms (35 machines); ii) Upon completion of the proposed extension of the western end of the building the gaming room will accommodate an additional 20 machines.5 The Club premises are leased from the Brisbane City Council6 and in accordance with clause 12.5 of the lease if the Club wished to allow gambling on the premises it was required to apply in writing to the Council for the Council‟s consent.7 The Club requested consent of the Council to install gaming machines at the premises by letter dated 15 April 2008.8 The Council by letter dated 7 May 2008 supported the proposal of the Club to apply for a gaming licence for the initial 35 in the proposal.9 Councillor Peter Matic, the local alderman for the Toowong Ward supported the proposed development (including up to 60 gaming machines).10 In terms of the planned redevelopment of the Club premises the timelines for these changed during the course of the application with a five year development plan provided to the OLGR on 31 May 2009.11 In the first year this provided for an initial refurbishment within the confines of the existing building footprint to include: a) facilities and security for gaming machines; b) refurbishment/modernisation of existing bar area general security upgrade; c) install initial gaming machines as approved within confines of existing building; d) employ additional hospitality staff including trainees as required.

Approximate cost $150,000 in 2009/10.

In the second year:

a) Extension of building upgrade to permanently house gaming machines; b) Build associations with other clubs and associations eg UQ sports, little athletics etc to use and share improved facilities; c) Convert area adjacent to existing bar to an all weather al fresco dining area; d) Relocation of games office and ladies lounge; e) Refurbishment/upgrade function room, kitchen, washrooms etc.

4 SOR page 1297. 5 SOR page 100. 6 SOR page 99. 7 SOR page 403. 8 SOR page 431. 9 SOR page 502. 10 SOR page 176. 11 SOR page 887. 5

Approximate cost $300,000. The funds to perform these works were to be borrowed with Mr James Adams agreeing to provide a guarantee in respect of the initial borrowing of $150,000. There were additional works to be funded from profits of the Club over the next three years with a total to be expended over the 5 year period of $1,090,000.12

[6] The community impact statement compared the supply and future demand for machine gaming in the Local Community Area, which was defined as Indooroopilly, St Lucia, Taringa and Toowong, with the LGA (Brisbane City) and Queensland as a whole in the years 2006 and 2007.13 The gaming machines per 10,000 adults in 2006 was 34 in the LCA; 116 in the LGA and 141 in Queensland14. The metered win per adult in 2006 was $152 in the LCA, $533 in the LGA and $609 in Queensland.15 The metered win per machine per day in 2006 was $123 in the LCA, $126 in the LGA and $119 in Queensland.16 In 2007 the gaming machines per 10,000 adults were 34 in the LCA, 117 in the LGA and 136 in Queensland.17 The metered win per adult in 2007 was $139 in the LCA, 509 in the LGA and $580 in Queensland.18 The metered win per machine per day in 2007 was $113 in the LCA, $120 in the LGA and $117.19 It is stated that the LCA exhibits very low per capita metered win levels, compared with both Queensland and Brisbane LGA.20 The low level of per capita expenditure may reflect one or a combination of: a low resident propensity to participate in machine gaming; low level of supply of machines; and/or leaking of activity out of the LCA to Treasury Casino.21 There are currently five licensed venues approved for a cumulative total of 131 gaming machines in the LCA.22 The LCA has an extremely low supply of gaming machines with 34 per 10,000 adults.23 There is somewhat lower demand for gaming within this area with metered wins of $139 per adult, compared with the Brisbane level of $509 and the state level of $580.24

[7] There was also a survey of members undertaken in November 2005 for the community impact statement. Of the respondents 72.5% held bowling memberships and 21.3% social membership25 A relatively large proportion (20.3%) of respondents have not been to a club, tavern or hotel in the past 12 months other than the Club.26 Many respondents visited the club regularly

12 SOR page 889. 13 SOR page 104. 14 SOR page 120. 15 SOR page 120. 16 SOR page 120. 17 SOR page 120. 18 SOR page 120. 19 SOR page 120. 20 SOR page 120. 21 SOR page 120. 22 SOR page 121. 23 SOR page 122. 24 SOR page 122. 25 SOR page 143. 26 SOR page 144. 6

24.4% a few times a week and 43.6% weekly.27 In regard to what was their main reason to visit the Club 87.7% responded to play bowls and 26% said drinks with 4.1% nominating dining.28 When asked why they visited hotels, taverns or clubs other than the Club 68.7% said dining and 24.2% said the pokies.29 When asked about visiting the casino 31.6% of respondents said they had visited the casino in the last 12 months.30 With 14.3% saying they visited monthly and 3.6% saying they visited weekly and 35.1% said the main activity at the casino was the “pokies”.31 While 5% of respondents thought they would divert funds from household essentials to gaming machines 31.6% thought it would result in others doing so.32 When asked whether considering positive and negatives a refurbishment of the Toowong Bowls Club with 66 (original number proposed) gaming machines will be a good thing for the local community 63.8% of members either agreed or strongly agreed.33

[8] A survey was also undertaken of residents adjacent to the Club in the period October to December 2005. Only 2.6% said they were members of the Club.34 While 68.4% said they had visited the Club in the last 12 months35 they visited infrequently.36 The main reason for visiting, 61.5% was for a function/meeting.37 With 30.8% nominating drinks, 23.1% meeting with friends and 7.7% dining.38 86.6% said they had visited a hotel, tavern or club in the last 12 months39 and 31.4% visited those monthly, 11.4% weekly and 8.6% several times a week.40 Playing games machines was the main reason for only 2.6% of respondents going to a hotel, tavern or club.41 20% of respondents said there main activity at the casino was playing the pokies though respondents visited the casino infrequently.42 While 54.3% of respondents agreed that 66 gaming machines will increase the number of problem gamblers in the local community only 2.7% said that the gaming machines would result in them spending more money on gaming machines and less on household bills, food and clothing.43 81% of respondents agreed or strongly agreed that a refurbished Toowong Bowls Club will provide more opportunity to enjoy leisure activities.44

[9] The community impact statement contained budget projections which are summarised as follows: First full year of trading with gaming machines will be the year ending 30 June 2010.

27 SOR page 146. 28 SOR page 146. 29 SOR page 145. 30 SOR page 147. 31 SOR page 147. 32 SOR page 149. 33 SOR page 149. 34 SOR page 151. 35 SOR page 152. 36 SOR page 153. 37 SOR page 153. 38 SOR page 153. 39 SOR page 151. 40 SOR page 152. 41 SOR page 153. 42 SOR page 154. 43 SOR page 155. 44 SOR page 155. 7

2009/10 Bar revenue $385,000 Bar profit $238,700 Gaming revenue $1,140,250 Gaming surplus $538,651 Bowls revenue $97,400 Bowls surplus $15,400 Other revenue $31,300 Overhead expenses include management agreement $768,307 Profit before depreciation $55,794

2010/11 Bar revenue $404,250 Bar profit $250,635 Gaming revenue $1,262,250 Gaming surplus $599,706 Bowls revenue $107,140 Bowls surplus $21,093 Other revenue $31,300 Overhead expenses include management agreement $793,698 Profit before depreciation $109,974.45 The gaming machine revenue was based on a win per day of either $65 or $70 per day for 55 machines in the 2010/11 year.46 The gaming machine expenses include rental of $334,896 per annum.47 The management fee was suggested by Mr James Adams to be an amount of $150,000 per annum.48

[10] The community impact statement analysed the demographics of the local community area and summarised the results as follows: a) Low population growth outlook for the next 10 years; b) Very high population density levels; c) Low concentration of dependant children and mature adults aged 35 and above; d) High proportion of mature and established family groups; e) High tertiary education levels; f) Skew towards managers and professional occupations; g) High proportion of very low income and very high income levels; h) Predominance of persons renting their principal place of residence; i) High mortgage payments; j) Low proportion of Aboriginal and/or Torres Strait Islanders; k) Low proportion of dependent children; l) Declining and low unemployment rate; m) High DEIFA levels (indicate area of advantage); n) Relatively low personal crime levels but high property crime rates.49 It was also noted that the proportion of young adults aged 20 to 29 is very high reflecting the student population within and close to the University of Queensland.50

[11] There was also a community consultation undertaken with community leaders and members of government. The Hon Andrew Fraser, member for Mt Coot-

45 SOR page 103. 46 SOR page 294. 47 SOR page 294. 48 SOR page 102. 49 SOR page 118. 50 SOR page 106. 8

tha recognised that many people derive enjoyment of gaming machines and such machines can assist clubs to serve a community. He noted that he had not been contacted by constituents and reserved his right to advocate on their behalf.51

[12] A strategic plan was prepared by Mr Tom Adams in May 2008 with one of its objectives being sustainable financial performance delivering profit and growth across all areas of operation.52 The plan broke up the target markets for the Club and what areas of the Club could service these markets.53 The focus of the student target market was said to be the bar and barefoot bowls noting with UQ and many thousands of students living in the local area, students are a significant and specific target market.54 It was noted that within Toowong and the neighbouring suburbs there is a favourably large proportion of residents with significant disposable income.55 And while this is not necessarily ideal for all areas of operation (such as gaming) it is vital to our dining (and subsequent bar) operation that we are able to attract and retain this market.56 Residents with moderate disposable incomes are said to present strong opportunities across all areas of operations.57 An example of this market is said to be a young professional couple with a mortgage.58 In regard to residents with low moderate disposable income it was stated that the market segment presents limited opportunities however based on industry norms, our gaming operations would be a justified focus.59 The plan contained income projections which were described as being conservative showing net income from gaming per month rising from $24,000 in September 2009 with 20 machines to $95,509 in June 2010 with 55 machines.60 The plan contained plans for all areas of operations and strategies for marketing and promotion with an emphasis on increasing membership. The draft management agreement between the Club and Hospitality Leaders Pty Ltd included targets for membership at schedule 7.61 Originally these were for full members and social members with 200 full members and 1,000 social members in 2009/10 rising to 300 full members and 9,000 social members in 2013/14.62 The latest targets are only for social members with 1,000 in 2009/10 rising to 1,450 in 2013/14.63

[13] Following a request from the OLGR for more detailed financial projections the Club submitted cash flow projections for the period July 2009 to June 2011.64 These showed a win per day of $50 on 20 machines in September 2009 increasing to a win per day of an average of approximately $85 on 55 machines by June 2011. With a gaming machine surplus of $377,794 on

51 SOR page 341. 52 SOR page 595. 53 SOR pages 598 to 605. 54 SOR page 600. 55 SOR page 602. 56 SOR page 602. 57 SOR page 603. 58 SOR page 603. 59 SOR page 605. 60 SOR pages 611 and 630 (gaming machine numbers). 61 SOR pages 810, 975 and 1030. 62 SOR page 810. 63 SOR page 1030. 64 SOR pages 681 to 685. 9

income of $659,750 in the 2009/10 year and gross bar trade profit of $257,000 on sales of $415,000. The overall profit before depreciation in 2009/10 was to be $41,498 on gross trading income of $720,444 with expenses of $678,946 including the management fee of $150,000. In the 2010/11 year the gaming machine surplus was to be $829,223 on metered wins of $1,566,250. With Gross bar profit of $270,165 on sales of $435,750. The 2010/11 profit before depreciation was to be $417,456 on gross trading income of $1,191,617 and expenses of $774,161. In recognition of delays in the approval of the application for the gaming licence revised budget forecasts were submitted by the Club by letter of 31 May 2009.65 These show the initial 20 machines being installed in February 2010 with daily wins of 50. The daily wins were to increase to $85 per day for 30 machines in July 2010 and falling to $65 per day for 50 machines in June 2011. Though the daily win in 2012/13 is to be $75; 2012/13 $82 and 2013/14 $88. The gaming machine surplus is set to be $981,696 by 2013/14 on net gaming income of $1,596,875 with a profit before depreciation of $383,579 on total gross trading income of $1,490,217 and expenses of $1,106,638. Upon being queried by the OLGR about how realistic the above metered win projections were the club stated that “There are very few Clubs with gaming machines in the vicinity of Toowong Bowls Club, and as a consequence the projected revenue is regarded as being realistic. However, as indicated earlier, the business plan is regarded as a living document, and the clubs development plan, including installation of gaming machines, club refurbishments and extensions etc, and associated financials will be closely monitored and adjusted accordingly”.66

[14] The Club provided detailed material in regard to its financial position. Firstly in the community impact statement for the 2006 and 2007 years. This showed total income of $180,202 in 2006 including net bar profit of $63,182 (gross sales $143,182) and green fees of $83,957.67 The net profit was $31,737 after expenses of $152,465. In the 2007 year the total income was $180,084 on net bar profit of $68,943 (gross sales $146,111). There was a net loss of $27,452 in 2007 after expenses of $207,536. It is stated that the assistance of Logan Diggers enabled the Club to generate the profit in 2006 through the payment of wages for the venue manager. There were also legal costs of $20,692 in 2007. The Clubs balance sheet for the 2006 year disclosed total current assets of $92,954 including bank account of $62,614.68 With non- current assets of $246,577 and liabilities of $16,264 including trade creditors of $10,216. The net assets of the club in 2006 were $323, 267. The current assets of the Club in the 2007 year were $54,164 with bank accounts of $23,624.69 The total non current assets in 2007 were $255,744 with liabilities of $8,791 including trade creditors of $5,085. The net assets of the Club in 2007 were then $305,117. The profit and loss account for the 2008 year disclosed total income of $214,236 with net bar profit of $78,338 (gross sales $164,969) and green fees of $74,567 from the Club and $16,081 from

65 SOR pages 890 to 895. 66 SOR page 946. 67 SOR page 101. 68 SOR page 222. 69 SOR page 252. 10

Indooroopilly Bowls Club, who were sharing the club premises at the time.70 There was a net loss of $67,096 in 2008 after net revenue from normal operations of $7,798 with expenses of $206,438 and abnormal expenses including costs of the gaming application and writing off of debts associated with the former management company of $78,894. The current assets of the Club in 2008 were $23,937 with bank accounts of $14,176. The non-current assets were $256,971 and liabilities of $42,887 in 2008. The net assets of the Club in 2008 were $238,021. The liabilities included legal expenses of $10,071 and gaming machine application costs of $9,175. The Club profit and loss for the 2009 year disclosed total income of $212,189 with net bar profit of $98,630 (gross sales $317,335) and green fees of $62,438.71 There was a net loss of $11,887 in the 2009 year with consultancy fees of $27,521. The current assets of the Club in the 2009 year were $32,112 including cash float of $4,975 and cash at bank of $15,253.72 The non-current assets of the Club in 2009 were $252,463 and liabilities were $58,529 with trade creditors of $10,678. The net assets of the Club in 2009 were $226,046. The Club profit and loss account for the 2010 year disclosed total income of $319,401 with net bar profit of $189,538 (Gross sales $564,366) and green fees of $64,456. There was a net loss of $20,298 with consultancy fees of $52,629 and repairs and maintenance of $34,456. The Club‟s comment on the financial results was that the Club directed as much spare funds as available to the repair and refurbishment activities, to improve member facilities, and that clubhouse assets increased by $6,000.73 The reported paper loss is largely due to “non cash” items including depreciation and provision for employee benefits eg recreation leave. The current assets of the Club were $23,068 with $7,027 cash float and $15,126 stock on hand, cash at back was $825. The non-current assets were $253,638 and liabilities $70,958 with trade creditors of $12,655. The net assets of the Club as at 30 June 2010 were $205,748.

[15] In his submissions at the hearing, Mr Les Chamberlain for the Club stated that Hospitality Leaders, Mr James Adams and Mr Thomas Adams had assisted the Club in establishing a management framework to move forward after settlement of the legal dispute with the previous manager. That the flat fee in the new agreement with a bonus was an incentive to grow the business and there has already been significant growth since the consultancy agreement was signed with Hospitality Leaders. That $40,000 had been spent in refurbishing the Club last year and the Club had considerable annual cash flow and as a result liquidity. That the Gaming Commission concentrates on barefoot bowlers, there is overemphasis on them though they generate green fees 9% and the function room hire 6%. A lot of revenue is community using function room bar and catering facilities. There is regular use of facilities by 2 probus groups RSL and 2 dance groups. The Club is now home of UQ soccer and hockey. And is often used during the day as a convention and meeting place. That when comparing the likely gaming results from the Club

70 SOR page 818. 71 SOR page 1034. 72 SOR page 1033. 73 Letter Toowong Bowls Club to Director General, Department of Employment, economic Development and Innovation dated 18 October 2010 to which audited financial statements for the year ended 30 June 2010 were attached. 11

with other Clubs it needs to be noted that the Club is open 7 days a week 10.00 am to 6.00 pm and that other clubs close during the day. Some other Clubs do not have all day dining facilities. If gaming revenue was even 30% lower the Club would still be in a profitable position. The Club had done research with other Clubs and we stand by our figures. There was a low density of gaming machines in the local community area and even if the Club got 55 machines this would only bring the number of machines up to 48% of the south east Queensland benchmark. The Club is currently exceeding the revenue predictions from non-gaming activities and those projections were underestimated. It would be expected that revenue from other activities would increase when gaming machines come in.

[16] In regard to the membership of the Club Mr Chamberlain stated that the Club has maintained 80 full members with 11 new members in the last 12 months and now has 1,000 social members. The Club has strong representation in competition with the ladies winning the 2010 pennants and the men in the finals. In regard to the Brisbane City Council it was submitted that Councillor Matic had supported the approval of up to 60 gaming machines and the leasing unit approved installation of 35 machines and had not at any stage not approved 55 machines. That the Club would seek approval from the Brisbane City Council to extend the building. Mr Chamberlain concluded by saying that the Club would be viable with 35 gaming machines and that the management agreement would be reworked in regard to payments and bonuses. Though the management fee would stay the same. That there was currently damage from the January floods which the council as landlord is undertaking the repairs of. He confirmed that the cost of the initial installation of the 35 gaming machines would be $150,000 which would be funded by loan and internal profits and that the cost of installing the 55 machines would be $200- 250,000. The Respondents Material

[17] The Information services section of the OLGR prepared an analysis of the community impact statement which confirmed that the survey methodologies of the community impact statement adhered to the guidelines.74 In terms of the accessibility of gaming machines the report notes that the local community area (LCA) has a lower level of gaming machine accessibility that the South East Queensland Benchmark (SEB).75 In particular the LCA contains 32 operational EGMs per 10,000 adults, compared to 118 for the LGA and 132 for the SEB. The area also has relatively fewer sites with an average of 1.1 sites per 10,000 adults compared to 3 for the LGA and 3.4 for the SEB. The LCA exhibits a lower level of gaming expenditure than the SEB. For example, the LCA‟s expenditure for the last 12 months is equivalent to $145 per adult, compared to $547 for the Brisbane LGA and $618 for the SEB. Financial projections supplied in the community impact statement indicate that gaming revenue would be approximately 69% of total revenue by 2009/10 financial year and 70% by 2010/11.76

74 SOR page 558. 75 SOR page 578. 76 SOR page 580. 12

[18] The Probity Unit of the OLGR provided a report following an investigation of the suitability of the Club and its associates to hold a licence.77 The report states that an analysis of the Club‟s financial statements has found that, whilst the club is in a strong equity position, it has suffered consecutive trading losses in the past two years which has resulted in poor current liquidity. The Club intends to carry out the redevelopment of its premises and facilities which will require significant investment (estimated to be in excess of $1M) in the first five years of operations and intends to source these funds from finance arrangements ($150K initially and then $300K by the second year of trade) and then from profits derived from it‟s licensed operations.78 The club has advised that due to its financial position, it has found it difficult to obtain finance through traditional sources without the assistance from a third party.79 The club advised that a director of the management company, Mr James Adams may provide a personal guarantee with respect to the Club‟s initial finance (anticipated to be $150K). It is considered that the Club‟s likely inability to finance its initial redevelopment without the provision of a guarantee by a third party should be taken into account when considering the Club‟s future financial stability.80

[19] Further concerns were held by the Probity Unit for the achievability of projections provided with respect to the application due to the fact they are based on higher than average daily metered win from gaming machines. It is considered that, should these projections not be achieved, the Club‟s future financial stability may be of concern.81 The Club has suffered consecutive financial losses in recent years and, as at 30 June 2009 had a current ratio of .56, this office generally considers a current ratio of 1.0 to be acceptable in the sporting, hospitality and gaming industry.82 The Club‟s current ratio indicates that as at 30 June 2008 there was only 56 cents available to repay each $1.00 of current liabilities. In light of this recent financial history and the possibility that this may be of concern to the Queensland Gaming Commission the OLGR afforded the Club the opportunity to provide information to address this possible concern. The Club provided the following information in response: “The 2007/2008 year had a number of abnormal expenses, in particular legal expenses associated with the settlement of a legal dispute and the update and preparation of the community impact statement and other documentation associated with our application for a gaming licence. However, since the involvement of the Management Company, trading has improved and it is expected that a trading profit in excess of $40,000 will be posted for the 2008/2009 financial year. The impact of the Management Company’s involvement didn’t fully come into effect until October/November 2008.” Whilst the Club has a strong equity position, its cash liquidity is poor and must be considered in relation to the financial stability of the Club.83 The Club provided financial projections and a development plan for the next five

77 SOR pages 1057 to 1069. 78 SOR page 1068. 79 SOR page 1068. 80 SOR page 1068. 81 SOR page 1069. 82 SOR page 1062. 83 SOR page 1062. 13

years.84 It should be noted that the gaming revenue projections provided by the Club are based on an assumed average daily metered win (ADMW) ranging from $50 to $85 per gaming machine with an average of $66 which is higher than that which is being achieved by clubs in the surrounding area.85 The largest ADMW of any club in a 5 km radius of the Club is from Yeronga Services Club Inc (120 EGMs 3.58 kms from the Club) with an average of $78 for the past financial year, the ADMW for Bowls Clubs in Queensland is $68.2 and most clubs in the area achieved ADMW figures significantly below these figures.86 The ADMW for bowls clubs in a 10 km radius is $32.91 and clubs in a 10 km radius is $37.50.87 The Club anticipates carrying out development plans at the costs of $1,090,000 in the first five years of the conduct of gaming.88 The Club also anticipates profits ranging from $33,429 in 2009/10 to $438,276 in 2013.14 according to projections provided.89 These outcomes are dependant on the Club receiving income at the projected level therefore it would appear that the Club‟s future viability is dependant upon the Club achieving higher than average ADMW.90 Concerns have been raised by the Probity Unit with the Club in relation to the achievability of the Club‟s projected revenue given the ADMW on which they are based. In reply the Club states: “There are very few clubs with gaming machines in the vicinity of the Toowong Bowls Club, and as a consequence the projected revenue is regarded as being realistic, However the business plan is regarded as a living document, and the Club’s development plan, including the installation of gaming machines, club refurbishments and extensions etc, and associated financials will be closely monitored and adjusted accordingly. Considering the growth in use of facilities and financial turnaround experienced over the past year, largely as a consequence of a focussed business approach, the Club is confident of meeting the Business Plan forecasts.”

[20] In regard to the Club‟s membership the Probity Unit stated that investigations have shown that as at 31 May 2009 the Club has a total of 105 voting members and 380 social members.91 Information provided in respect of the application also indicates a low level of involvement of voting members in the administration of the club and difficulty to find capable people willing to take on board positions. This matter is considered to be of concern with respect to the Club‟s ability to sustain a viable voting membership and board which is capable of providing suitable oversight of a privately managed, licensed club with 55 gaming machines.92

[21] The chief executive‟s report to the Gaming Commission dated 21 April 2010 dealt specifically with the issues of financial stability of the Club by referring to correspondence from the Probity Unit to the Club and the Club‟s reply which

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are discussed in the Probity Unit report above.93 The report sets out gaming statistics for the LCA in comparison to the SEB as at January 2010 and notes that the number of EGMs (electronic gaming machines) per 10,000 adults in the LCA is 34 and the SEB is 128, a difference of 94 and the ADT (Average Daily Take) for the SEB is $1,174 and the LCA is $1,002 a difference of $172.94 In regard to the demand for gaming it was noted that “The club has suffered consecutive trading losses in the past three years (a net loss of $18,150 for the 2007 year, a loss of $67,096 for the 2008 year and a loss of $11,975 for the 2009 year), has a low membership base (currently voting membership at 90 and social at 429) and draft minutes of the Club‟s AGM shows that of the voting membership of the Club, 33 members attended the AGM with 8 apologies made. OLGR wrote to the applicant on 12/11/09 to advise that the commission may consider, with the low membership of the Club, the apparent low involvement of the Club‟s full members in the administration of the Club and the poor financial liquidity of the Club, that there is not a sustainable demand for the provision of 55 gaming machines at the Club. They may also have concerns regarding the clubs ability to manage the provision of the 55 machines.”95 The report sets out the Club‟s reply dated 23 November 2009 which highlights the Club‟s explanation of the financial results and membership issues.96 It concludes by stating “In summary the Toowong Bowls Club is a strong bowls club, on a sound financial footing and is providing valuable sports facilities for its members and an entertainment, sports and function venue for local residents, businesses and members of the public. It is an area which is lightly served by clubs and with a low density of gaming machines.”97 The recommendation of the chief executive in regard to the number of machines was that “I do not consider that the Club has demonstrated that there is a sustainable demand for the 55 of machines sought in the application. Further I note that the BCC has advised in its letter of 7 May 2008 that it supports an application for an initial 35 machines. The commission has on occasion approved a smaller number of machines than the number requested in the application. A particular example of an application in which the Commission approved a lesser number was the decision of the Commission to approve the Cowboys Leagues Club Limited application for the provision of 140 gaming machines in August 2000 (the Cowboys made application for the provision of 200 machines).”98

[22] The Gaming Commission‟s statement of reasons in regard to the decision to approve the gaming machine application for the Club with 35 gaming machines stated that the Commission determined, on the recommendation of the chief executive, to exercise its powers under section 59 of the Act, and fix approval for a lesser number of machines 35 rather than the 55 sought by the applicant.99 Sections 60(3)(c) and (d) of the Act state that the Commission may have regard to the anticipated level of gaming on a premise and for an application by a club the number of members in deciding the number of

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gaming machines appropriate for a premises.100 The Commission considered that the Club holds insufficient membership for the Club to demonstrate that there is a sustainable demand for the 55 machines sought in the application.101 It considers that the provision of 35 machines at the premises is an appropriate number to meet the demands of the Club‟s membership.102

[23] The chief executive responded to further material filed by the Club during the course of the Tribunal application in regard to its membership and finances with an additional report to the Gaming Commission.103 Although the material submitted by the Applicant indicates that the number of social members of the Club has significantly increased over the 2009 and 2010 periods (from approximately 30 social members in 2008 to approximately 600 in 2010), there is no supporting information relating to how often these members actually frequent the Club.104 Further, it is noted that the Club‟s website promotes free social membership for anyone who plays a $10 game of barefoot bowls, suggesting that anticipated demand for gaming at the premises, as based on membership figures, has potentially been distorted by members who do not actually attend the club on any regular basis.105 Despite demonstrating an increase in the number of social members over the 2009 and 2010 periods, the graph supplied by the Club appears to indicate a decline in the number of full members of the Club over the same period.106 Due to the fact that the Club has not submitted any detailed financial statements, including details of income, expenses, overall results and a balance sheet, the Probity Unit has not been able to form an opinion as to the current financial position of the club. A comparative analysis of the new evidence was undertaken by the licensing unit taking into consideration: a five year development plan lodged by the Club (submitted to OLGR 3 June 2009), which includes projected trading figures for 20, 30, 40 and 55 gaming machines; and member numbers, gaming machine numbers and metered win per machine for ten (10) gaming sites throughout Queensland, with approximately 55 operational gaming machines.107

[24] This analysis reveals that With 55 gaming machines: a) The Club expects that, should it be permitted to operate 55 gaming machines, its projected metered win per year will range somewhere between $1,520,833 and $1,774,305 (net before tax) in the first three year of trade; b) The projected metered win per year equates to an expected average daily metered win, per machine per day, of between approximately $75 and $88; c) The projected metered win per year is equivalent to an expected average daily metered win, per member per year of approximately $2,172; and

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d) With 55 gaming machines and 700 members, there will be approximately 1 gaming machine available for every 13 members.108

With 35 gaming machines: a) Based on projections provided by the club in relation to the operation of 30 and 40 gaming machines respectively, it has been calculated that the club‟s metered win per year would be approximately $1,018,484 (net, before tax); b) The projected metered win per year equates to an expected average daily metered win, per machine per day of approximately $80; c) The projected metered win per year is equivalent to an expected average daily metered win per member per year, of approximately $1,455; and d) With 35 gaming machines and 700 members, there will be approximately 1 gaming machine for every 20 members.109

Comparison to similar sites After assessing the Club‟s application (including the new evidence) for 55 gaming machines, having regard to the 10 selected sites with approximately 55 gaming machines each, the following is noted:

a) In regard to the annual metered win projections provided by the Applicant in relation to operating 55 gaming machines ($1,520,833 during the 2011/12 period), it is noted that, on the face of it, these projections compare favourably to the average turnover recorded by the 10 selected sites (average $1,796,837); b) The Club‟s current membership sits at approximately 700 members, which is considerably lower than the average of the 10 selected sites, which currently sit at 4,781 members per site (approximately 6.8 times higher). It is also noted that, of these 10 sites, the lowest membership figure is 1,477 members (approximately 2.1 times higher); c) As noted above, if the Club were to operate 55 gaming machines with only 700 members, this would equate to approximately 1 gaming machine being available for every 13 members, compared to an average of 1 gaming machine being available for every 91 members at the 10 selected sites (this would mean that gaming machines would be approximately 7 times more accessible to members at the Club than on average throughout the other comparable clubs). It is also noted that, of these 10 sites, the lowest number of members per gaming machine is 31 (approximately 2.4 times lower that the Toowong figures); d) Based on projected annual turnover of $1,520,833 with only 700 members, this equates to each member spending approximately $2,173 on gaming machines throughout the year, which is significantly higher that the average of $584 at the 10 selected sites (approximately 3.7 times higher). It is also noted that, of these 10

108 SOR page 1214. 109 SOR page 1215. 17

sites, the highest average spend per member is $1,348 (approximately 1.6 times lower than the Toowong figures).110

What this analysis shows is that, based solely on the Applicant‟s trading projections for gaming, it could be argued that the Club can demonstrate that there is a demand for the operation of 55 gaming machines at the premises.111 However, when these figures are considered in the context of the Club‟s comparatively low membership figures with regards to the 10 selected sites, it is considered that the projections provided are unreasonable and unrealistic.112 Given this it is not considered that, at this stage the Club can adequately demonstrate demand for 55 gaming machines as requested.113 It is also noted that, even if the Club continues to expand its membership base for another year at approximately the same rate as recorded between 2009 and 2010 (an increase of approximately 250 members), the estimated membership of the Club will still only be approximately 950 members.114 Based on these projected figures, it is noted that club membership would still be approximately 5 times lower than the average, while gaming machine accessibility would remain quite high, with approximately 1 gaming machine being available for every 17 members (meaning gaming machines would be approximately 5 times more accessible to members at the Club than on average).115 The recommendation of the chief executive was that despite the new evidence submitted by the Applicant, OLGR does not consider that the Club demonstrated that there is a sustainable demand for the 55 gaming machines sought in the application. Therefore, the previous recommendation that the licence be granted to the Applicant for the provision of thirty five (35) gaming machines, with the trading hours fixed at 10.00 am to 12.30 am Monday to Sunday, still stands.116 The Gaming Commission following submission of the new material and the chief executive‟s report issued a gaming machine licence to the Club on 28 September 2010 on the same terms as the previous grant.117

[25] The chief executive responded to further material provided by the Club with a further recommendation to the Gaming Commission dated 18 November 2010.118 This took account of material provided in the Club‟s correspondence of 18 October 2010 including further membership details, audited financial accounts for the year ended 2010 and details and photos of Club refurbishment with Brisbane City Council approved plans for an upgraded cold room at the site. It is noted that although the Club has seen an increase in social membership, it has experienced a further reduction in voting membership of the Club – reducing from 105 in September 2009 to 88 in October 2010 and that the Club has experienced an increase in sales.119 Subsequently, the further material provided by the Applicant has not

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compelled me to change my recommendation in respect of this application. I do not consider that the Club has demonstrated that there is a sustainable demand for the fifty five (55) gaming machines sought in the application.120 Therefore the previous recommendation that the licence be granted to the applicant for the provision of thirty five (35) gaming machines, with the trading hours fixed at 10.00 am to 12.30 am Monday to Sunday, still stands.121 The Probity Unit had provided an updated report based on the information provided by the Club.122 The report states that, the Club contends that decision by the commission was based on trading and financial information up to October 2009 and has provided a copy of the Club‟s audited financial statements for the year ended 30 June 2010 “demonstrating significant growth in trading results and liquidity.”123 The information provided shows that, although the Club has experienced increased trade, it has suffered an increased net loss for the last financial year and its cash position, current liquidity and overall equity have reduced in comparison to the previous corresponding period. Therefore the Probity Unit recommendation cannot change in this regard.124 The Gaming Commission granted a new licence to the Club on 23 November 2011 on the same terms as the original licence, that is 35 gaming machines, with trading hours of 10.00 am to 12.30 am Monday to Sunday and the receipt of the executed Management Agreement within seven (7) days.125

[26] The Commission submitted at the hearing that the Club needs to establish the need for the machines and that when considering the members of the Club it should be the full voting members. That it was always intended to be a two stage development and that at some point in the future assuming approval from relevant authorities such as the Brisbane City Council is given it will be open to the Club to apply for further machines. That the chief executive is guided by the head lessor, and specific approval was given by the Brisbane City Council for an application for 35 machines. That 35 machines was appropriate for the premises as the current footprint exists. The philosophy of the Act where a Club is to bring in gaming machines is that the purposes of the Club are paramount. It was the view of the Commission that the Brisbane flood which had affected the Club changed circumstances in favour of the Commission‟s decision.

[27] The Commission also provided written submissions. These dealt in depth with the application of section 60 of the Gaming Act. It was stated that the premises are not suitable for 55 gaming machines, section 60(2)(e) referring to the two stage development and the Brisbane City Council approval. That the Club has historically demonstrated a decline in membership and that it is insufficient to sustain a grant of 55 machines and is constituted by social membership which is extremely easy to obtain, section 60(2)(d). That the low voting membership and low membership participation, especially in circumstances where the premises is managed by a third party, indicates a large number of machines may inappropriately benefit the third party

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management rather than the members actively participating in the operation of the licensee. The bona fide status of a community club licensee is questionable when it has a large number of gaming machines compared to a low membership level of participation and a very large number of machines for the total membership both active and social. This is especially so where there is a low level of demand for gaming in the community. This is because the large number of machines creates a very real risk of turning a community club into a private gambling club operated for the benefit of the third party management rather than a community club operated for the benefit of its members. Social members of the Club have no community link to the licensee or the premises. For example, a single game of barefoot bowls entitles participants to social membership for a nominal fee. However, it is considered that persons engaging in barefoot bowls typically do so on a casual basis and such persons would not access the club facilities on a regular and ongoing basis. Accordingly, assessing the stability and strength of the membership of the Club by relying on social membership distorts the actual position.

[28] The submission notes that the CIS demonstrates no characteristics of a community with a high demand for gaming. Demand for and anticipated level of gaming is insufficient to sustain 55 machines. It is undisputed that there is a very low concentration of machines in the local community area with only 123 machines in the LCA which is equivalent to 34 machines per 10,000 adults. Concerns with low levels of demand include the likelihood of a licensee to push gaming more than the primary purpose of the licensed premises and engage in irresponsible gaming practices; the financial viability and integrity to support 55 machines. The chief executive conducted a comparison of clubs with a 10 kilometre radius. Based on the evidence before the Commission 35 machines was generous. The evidence demonstrates that 35 machines is the maximum number of machines that can be justified compared with similar premises. That the evidence of the Club in its audited statements, shows a significant lack of adequate financial stability to support a grant of 55 machines. The poor performance of the licensee demonstrates a propensity to push the gaming activities on the premises rather than other activities which are the primary purpose of the community club for the sake of developing income.

[29] The submission states that the chief executive has consistently expressed concerns in relation to the management of the premises as a community club licensee by a third party indicating operation of the club for the benefit of its third party management rather than its members and financial support of this third party and also its lack of a sound financial basis of operation having little tangible assets apparently having a significant target market of student barefoot bowlers. The concerns regarding third party management of community clubs with too many gaming machines are manifest. The gaming operations of the premises become the focus for the benefit of the third party managers especially where the licensee, the Club, had a low and declining full membership but an increased level of social membership through barefoot bowling. Then the focus of the Club is not upon its members, but barefoot bowling and gaming for the purpose of maximising income rather than its stated object it becomes a mere money making enterprise. This is clearly the case where the audited financial reports show poor performance and a clear 20

propensity to rely on gaming income. The submissions discuss the communication between the OLGR and the Club and the reports of the chief executive and the Probity Report. The Gaming Commission submission was that it neither consents to nor opposes the presentation of the new evidence presented by the Club. It was submitted that it is apparent from the new evidence the Club seeks to present that its position is the potential inherent in the Club for growth is sufficient to justify a grant of 55 machines. This is contrary to the evidence and it not a relevant criteria which the Gaming Commission or chief executive can have regard to in determining the number of machines that ought be installed in the premises pursuant to section 60 of the Act. Discussion

[30] In granting a gaming machine licence to the Club the Gaming Commission affirmed that the presence of gaming machines on the Club‟s premises was within the objects of the Gaming Act and so it was for the benefit of the State and the community. The Club not only is a venue for the game of bowls but is also used by a variety of community groups and it is in the interests of the community that the Club be preserved. It is clear that the ability of the Club to sustain itself has been affected by falling membership over the years meaning that the income it was able to generate from membership and green fees with some bar and dining trade was not sufficient to maintain the Club. The Club hoped that the introduction of gaming machines would provide an income stream not only so that it could maintain its current facilities but it also has an ambitious plan to expand its facilities and spend approximately $1,000,000 over a five year period funded mainly from gaming machine income. The Club has calculated all of its income projections based on the granting of 55 gaming machines and has prepared a management agreement with a third party which would require it to pay a $150,000 per annum fee to the management company to manage all of the operations of the Club.

[31] In achieving the balance required under the Gaming Act in regard to its objects it is necessary to minimise the potential for harm from gaming machine gambling. It has been argued by the Gaming Commission that if a licence for 55 machines was granted to the Club it may lead to irresponsible gaming practices. This is said to be as a result of the low level of club membership compared to the requested numbers of gaming machines and that this will result in the need for the management company to push the use of the gaming machines rather than the primary purpose of the Club. In terms of the guidelines prepared by the Commission in regard to fixing the number of approved gaming machines which are set out above the one that has been referred to by the OLGR and Commissioner is the question of sustainable demand. Sustainable demand is not defined in the Gaming Act. A working definition is “the desire of purchasers or consumers for a commodity that can be maintained or kept going continuously”.126 The Club points to the low level of supply of gaming machines in the local community area and the rising social membership of the Club as justifications for a licence for 55 machines. The Gaming Commission through the work done by the OLGR has sought to demonstrate that the ADMW from each gaming machine and the number of machines per member of the Club even based on the total membership of the

126 The Australian Concise Oxford Dictionary 4th ed. 21

Club including full and social members in comparison with clubs which have similar numbers of machine are materially greater than the average due to the fact that these clubs have greater numbers of members than the Club. The Tribunal notes that the requirement to become a social member of the Club is the payment of $10 for a game of barefoot bowls. This was submitted by the Gaming Commission and was not refuted by the Club. While the CIS analysis provided in regard to the member survey showed that a significant number of members at the time of the survey visited the Club regularly there has been no new material submitted in regard to attendance by the new social members of the Club. The Tribunal notes that bar trade has increased substantially over the last couple of years which is indicative of increased patronage of the Club overall. As the licence is being sought by a Club the Tribunal is entitled to have regard to the number of members of the Club and the Club membership at the time of the last decision by the Gaming Commission was 700. At the hearing Mr Chamberlain stated that the current number of social members was 1,000. The projections done by the licensing unit showed that with a membership of 950 the membership would be 5 times lower than the average for clubs with 55 machines and 1 gaming machine would be available for every 17 members as opposed to the average of 1 gaming machine for every 91 members in other clubs with 55 gaming machines.

[32] The Club has submitted that the fact that there is a low concentration of gaming machines in the local community is a reason to support the level of gaming machines requested by the Club. While the community impact statement and the OLGR reports confirm this, it is noted that the metered win per gaming machine per day in the local community was comparable to that for the Brisbane LGA and the State as a whole. This indicates that there is not a higher level of demand for each gaming machine in the local community which would be expected if there was an undersupply of gaming machines in the community and therefore unmet demand. The CIS noted that there is a low level of per capita metered win level in the local community and that this may reflect a low propensity to participate in machine gaming; low level of supply or leakage to the casino. The neighbourhood survey performed with the community impact statement indicates that only 2.6% of residents visited hotels, clubs or taverns for the purpose of gaming while 24.2% of participants in the member‟s survey said that was their reasons for visiting a club, hotel or tavern. The strategic plan prepared by Mr Tom Adams indicates that the focus for gaming machines is not to be barefoot bowlers or residents with high disposable income but is those with moderate disposable income and low incomes. The CIS noted that there was a high proportion of very low income levels and very high income levels in the local community. From the material provided it would appear that the majority of new members have been sourced from barefoot bowlers in terms of the membership qualification. The increase in the bar trade was also anticipated in the strategic plan as this was to be a focus with barefoot bowls for the student market. The respondent submitted that consideration of membership numbers should be limited to the full members as it is not known how often or to what extent social members attend the Club. The Tribunal will noting that the OLGR projections were based on the total membership including full and social members give consideration to all members. 22

[33] The Tribunal is satisfied that based on the current membership of the Club that with 55 gaming machines the Club will be required to achieve ADMWs per machine which are considerably higher than the average of similar clubs in Queensland and that this means that the Club cannot demonstrate sustainable demand for the number of machines requested by the Club, being 55 machines. Having regard to the definition above the fact that the number of machines per member and that the ADMW is significantly higher than average show that the level of demand cannot be maintained continuously. In arriving at this conclusion the Tribunal has taken account of the mattes set out in sections 60(2)(a), (b) and (d) of the Gaming Act. The Tribunal notes that there were no relevant community comments or relevant representations made under section 55F, though the community impact included Cr Matic‟s support for 60 gaming machines and the Hon. Andrew Fraser noted the community benefits of moderate use of gaming machines. The Tribunal notes the recommendation of the chief executive that the Club be granted a gaming licence for 35 machines and that the Brisbane City Council had supported the granting of a licence for the initial 35 machines. The Council was provided with all relevant material in regard to the proposal and therefore knew that 55 gaming machines were ultimately to be installed after the extension to the Club but had chosen to advise the Club that it supported the application for 35 machines only. While this does not indicate that the Council would not support 55 gaming machines in the future, the Council as landlord had clearly chosen to confirm support for only the 35 gaming machines which could be installed without major work to the Club premises.

[34] The Tribunal must also consider the layout of the facilities in accordance with section 60(2)(e) of the Gaming Act. The application notes that it is intended to convert part of the premises being the men‟s lockers and lounge to install the first 35 gaming machines and that the premises are therefore suitable for that number of machines. It was submitted by the Gaming Commission that the premises are not therefore suitable for 55 gaming machines. It is clear that the Club did not intend to install the whole 55 gaming machines in the premises as they are currently and that the installation of the 55 gaming machines was going to require an extension of the premises at a significant cost to the Club of $300,000. And that this was not anticipated to occur until the second year of operation of gaming machines in the Club. The installation of the initial 35 gaming machines is also expected to cost $150,000 which funds will be required to be borrowed with a guarantee to be provided by Mr James Adams, a director of the Management Company. The Club as noted above leases the premises from the Brisbane City Council and is not able to give any security for borrowings. The Club also does not have any funds available for this work and that is made clear in the latest financial statements supplied by the Club. While the Club has increased its trade considerably over the last couple of years it has not made a profit since 2006 and that profit was made at a time when the venue manager wage was subsidised. The ability of the Club to borrow the additional funds for the extension of the Club will depend on it being able to show cash flow to support those borrowings. And the need for those gaming machines should be reflected in excess demand for gaming machines at the premises. The projections prepared by the OLGR do not show that there will be excess demand if the Club is granted a gaming licence for 35 machines even with an increase in membership. 23

There is clearly not a current demand for the additional 20 machines based on those projections and if they were installed there is a danger that the financial burden created could lead to irresponsible gaming practices by the Club, due to the inherent costs of each gaming machine which are fixed requiring that the Club promote gambling excessively to ensure that the use of the gaming machines is maximised.

[35] The Tribunal is concerned to ensure, having regard to the objects of the Gaming Act, that the granting of a gaming licence to the Club results in a benefit to the Club and the community and this will only occur if the Club is able to operate the gaming machines profitably. This is not necessarily related to the total number of gaming machines as there will only be demand enough for a certain number of gaming machines in any premises in any location. That is why sustainable demand is an important factor in fixing the number of gaming machines which should be installed in the premises. The Club has been able to demonstrate that it has a sustainable demand for 35 gaming machines and this is the recommendation of the chief executive and the Tribunal confirms the decision of the Gaming Commission dated 23 November 2010.