As featured in the latest edition of Club Insight Magazine
We have seen a significant increase in the number of Clubs acquiring additional sites in the last six to 12 months. While some Clubs are struggling, many are thriving and confident in their ability to take on extra sites. Others may even have plans to develop brand new greenfield sites or to increase gaming machines at existing sites.
In this environment, the demand for gaming entitlements is higher than ever before, and we are seeing a notable increase in the value of entitlements. Accordingly, many “buying” clubs are eager to secure entitlements as soon as possible – even before they have OLGR approval to operate an additional gaming premises or otherwise increase their number of approved gaming machines.
If your Club finds itself in this position, an Option Agreement may be the best way to secure entitlements at the earliest possible opportunity.
Background and considerations for Buyers
In the April/May edition of Club Insight, Clear Henderson set out a great summary of the process for transferring entitlements between Clubs.
In short, gaming machine entitlements can be bought and sold in private transactions between Clubs, and Clubs who are buying entitlements must have room on their licence to purchase the additional entitlements before the purchase can be approved by OLGR. So, a Club with 40 entitlements and 50 approved gaming machines could buy up to ten entitlements.
However, our experience is that Clubs planning to build a new site or seeking an increase in gaming machines usually want to buy the gaming entitlements before OLGR has approved the new site/ increase in machines. They want the entitlements sitting in reserve and available to use soon as possible once any building work is complete and OLGR approvals have issued.
How an Option Agreement can help
An Option Agreement enables a buying Club to secure a Call Option, which is essentially a legally enforceable right to purchase gaming entitlements from a selling club on pre-agreed terms.
Parties can sign the Option Agreement before the buyer has room on their licence to purchase additional entitlements. Then, once they receive all necessary OLGR approvals, the buyer can exercise their Call Option to trigger the commencement of a separate Contract of Sale. That Contract of Sale is agreed and annexed to the Option Agreement when the Option Agreement is signed.
That Contract of Sale should provide for all the usual terms that would be included in a regular contract for the sale of operating authorities, including:
- the number of entitlements to be sold;
- the price per entitlement;
- the process for the seller to complete any “prerequisite reduction” to decrease the number of approved gaming machines under their licence; and
- the process for the parties to obtain the final OLGR approval to authorise the sale.
Is there a "marketplace" for entitlements?
Under the Gaming Machine Act, the process to transfer gaming entitlements is very different to the process for buying and selling operating authorities (the pub/ hotel equivalent of entitlements). Whereas Operating Authorities are bought and sold at government tenders, entitlements are bought and sold in private sales as mentioned above. So, how does a willing buyer find a seller from whom entitlements can be purchased?
There is no official marketplace for buyers and sellers to find each other, and much of this occurs through word of mouth within the industry. However, OLGR may be able to provide prospective buyers with a list of Clubs that have made a “prerequisite reduction” but not yet transferred their additional entitlements to another Club. Our firm, and Clubs Queensland, are often also aware of Clubs who may be looking to buy or sell entitlements, should you have any enquiries about this.
Conclusion
Please do not hesitate to contact our team should you have any questions about buying or selling gaming entitlements, including in relation to the preparation of sale contracts, option agreements, or OLGR applications to make a prerequisite reduction and/ or transfer of entitlements between Clubs.