The transfer of entitlements is heavily regulated and clubs must do their due diligence.
August 05, 2016
There are many factors that contribute to a good club, ranging from the board’s strategic planning to the employees’ customer service. However, for many clubs a key driver of success is gaming. To ensure that clubs provide a competitive offering many clubs invest in new equipment, promotions and, if possible, the purchase of more gaming machine entitlements (GMEs).
However, as all club directors and CEOs are aware, the industry is heavily regulated and the transfer of GMEs is no exception. When a club is considering increasing the number of gaming machines it operates, it needs to consider a number of matters before entering into any agreement to purchase GMEs.
The transfer, including the sale and purchase, of GMEs is regulated by the Gaming Machines Act 2001 (“the Act”). GMEs must be purchased in blocks of two or three entitlements with one entitlement per block being forfeited to the Independent Liquor and Gaming Authority (subject to certain exemptions). This is part of the New South Wales Government’s strategy to reduce the number of gaming machines in the community. Accordingly, there will be a significant difference in the value of a block of two GMEs (as opposed to three GMEs) as the percentage forfeited is significantly higher.
Also, for the purposes of the Act, a club’s premises has a gaming machine threshold and the number of GMEs at a club’s premises must not exceed that threshold. For a club with two or more premises, each will have its own threshold. Accordingly, before entering into any agreement a club must consider whether it needs to increase its threshold. It is generally the case that a club must lodge what is called a Local Impact Assessment (LIA) when it makes an application to increase its gaming machine threshold. This may be a class 1 LIA or a class 2 LIA, and both require a club to make an additional contribution to the community. Clubs need to seek advice on the likely prospects of success of any LIA application and consider the amount of contribution that is likely to be required. A club that is purchasing GMEs should ensure that any contract is conditional upon the club successfully increasing its threshold (if required). Clubs should also consider whether to purchase GMEs from inside or outside of its Local Government Area (LGA) and, if a club intends to do both, decide which it should do first.
Clubs must also take into account the Personal Properties and Security Act 2009 (PPSA) and its potential application to a transfer of GMEs. Considering the PPSA before entering into an agreement can protect a club from an unnecessary dispute.
In 2012, PPSA established a new system for the creation, priority and enforcement of security interests in personal property. Security interests include what used to be known as fixed and floating charges, while personal property is generally all property other than land, fixtures and some statutory rights.
In Queensland and other states, GMEs have been specifically excluded from the PPSA. However, in New South Wales the Gaming Machine Act has not been amended to refer to the application of the PPSA to GMEs.
If a club wants to purchase GMEs it should do its due diligence, including checking the PPSA register to see if anyone has registered a PPSA security interest against the vendor club. This may indicate that there is a risk that someone will try to claim priority over those GMEs. This can and should be dealt with in a contract that clearly sets out the vendor club’s obligations and protects your club.
This article is a general overview. If you are unsure about what is required to ensure compliance, you should seek legal advice. More information is available by contacting Bruce Gotterson at Pigott Stinson on email@example.com
Click on the image below to see the article as it appeared in Club Life August 2016.