Beyond gaming: should we diversify and how?

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With Xenephon and Wilkie’s $1 max bets back on the agenda and the future of gaming in Victoria under a cloud of fog, a number of gaming venues are responding by looking into options to diversify their income stream and reduce the reliance on gaming.

Reduce the reliance on gaming. Strong words, especially because of the difficulty to step away from the main income generator of venues. The process of diversifying can potentially be a costly, time consuming, resource heavy and, for a majority of venues, getting this decision wrong can be their own detriment. While we should always be looking at ways to future proof venues, diversifying should not be at the detriment of the core business – remember it’s the diversification project on top of great gaming, not the diversification project instead of great gaming.

What is the core business? We are hospitality venues, we are entertainment venues, we provide facilities in the form of food and beverage, and gaming to entertain our patrons. But what if we wanted to branch outside of these core assets?

Over the years we have witnessed a number of venues pursue diversification projects. Some of these projects were successful, they achieved their goal in adding a separate income stream to the business and reducing that reliance on gaming. However, some projects were not so successful and what was meant to be a project to future proof eventually turned to become the core businesses’ undoing.

Diversification projects vary from region, site location, availability of funds, to the objects or vision of the venue. The first questions we recommend asking before any project outside of the core business is conducted is to challenge yourself with:

  1. Do we have the resources and capabilities?

As hospitality operators, it is likely that the best chances of success in diversification are projects that capitalise on our core competencies and capabilities – customer service, entertainment, food and beverage. That’s why related linked diversification projects make sense. Think accommodation, an offsite café/bar/restaurant, kids play facilities, cinemas, etc. And do we have the resources? Can we fund it? Do we have surplus land that we can develop (up or out)? What are the planning restrictions? Do we have the personnel on the board and in the management team to drive this type of expansion of the balance sheet?

  1. Is it feasible?

This is next question to ask, will it work in the proposed market, what is the expected cost, what would be the return on investment on the project? Thorough research should be conducted into every aspect of the project, which should be designed to help make an informed decision on the project.

  1. What is the opportunity cost of diversifying?

With every project, there is always an opportunity cost. Where could the money being spent on the diversification project be invested instead? Will the desired project reduce the level of capital expenditure on the core business for two, five or more years? Will this reduced investment in the core lower the predominant income stream? Could we get better returns investing in the core?

Whatever your venue chooses to pursue to safeguard the business in the future, ensure the project is well researched, accurately calculated and that informed decisions are made rather than guesswork that could be detrimental to the core business.

Looking into options to diversify your venues income stream and reduce the reliance of gaming? Contact us today.

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