Last Month we provided an update of the latest Gaming Machine Tender Results, from this we had a number of calls in relation to where the gaming machine prices are heading.
If you listen to industry leaders and gaming experts they are still under the impression that the capping of gaming machines are going to move prices higher long term and the industry is not under threat of continued decreases in prices. This sediment seems to have staved off another reduction of prices in gaming licenses.
Is it time to purchase Poker Machine Licenses whilst the prices are low, this is one of the toughest questions in the market at the moment.
What you need to answer is:
1) What utilisation of Gaming Machines are being used in premises now and will it increase?
2) Can you win more market share by putting in place new licenses?
3) Will new Gaming Licenses return more money to the business?
4) Are you financially able to pay for the gaming license and actual gaming machines?
5) If you spent the money on other business ventures or parts of the hotel business would you make more money, instead of outlaying money for licenses and machines?
If you can answer yes to these questions then you need to sit down with your business advisor and recheck what impact the licenses will have on your business.
History of Gaming Machine Issue with Hotels becoming Over-Capitalised and Cash Poor
Some larger Hotel Groups bought Licenses for the sake of wanting 40 machines and thus being able to sell the hotel to groups like Coles, Woolworths and Headley group. However many did not take into consideration the 5 questions above and are now sitting on hotels which are over-capitalised and cash poor.
I note the number of emails I am receiving from Hotel Brokers in relation to Hotel's with book value of around $13million, however operating net profits of around $500,000, thus value of around $5 million. Those with money in the bank may pick up some hotels for well below book value previously paid.
Before everyone jumps up and down, yes many hoteliers made money as a result of changing their hotels and are now sitting back with many millions in their bank accounts, unfortunately for others they got in at the wrong time.
What I am saying is that we need to get back to the fundamentals of the hotel industry and ensure we start making decisions based upon future growth in cash not based upon hoping someone buys me out.
Wayne Patten