The passage of legislation through the NSW Parliament this week paving the way for the sale of NSW Lotteries has received considerable media attention in the last couple of days. A report in the Southern Highland News sums up the concerns of most newsagents.
As I understand it, newsagents have a minimum of five years regardless of who takes over NSW Lotteries. This is an opportunity to make the newsagent network invaluable in the sale of lottery products and to seize every opportunity to leverage lottery traffic into other product categories.
Knowing the five year deadline is good for business planning. That’s my glass is half full view.
A new lottery operator is not going to replace a retail channel if they are achieving a good return. It will be up to newsagents to deliver that return and make it hard for a new owner to justify to their shareholders why they should shift retailers. If newsagents do the minimum and do not proactively pursue sales growth then the operator will need to look elsewhere.
In some respects, what happens in five years is up to NSW newsagents.
I agree with you Mark but like most others I am concerned that a new owner may wish to put more lotteries in more places just like the paper & magazine companies have in their belief that more spread gives more sales. As you know that can only dilute sales of the current newsagent/s in that area.
Woolies have already questioned why newsagents should have exlusive sales of NSW lottery products and I suspect they will continue the preassure. What if a new owner thinks Aust. Post is another good high traffic place to put a Lotteries sales point or even service stations and other convenience stores. My point is all other Newsagent lines are popping up all over the place in that chase for incremental sales increases I can’t see why Lotteries would not be any different.
I agree with you about putting in the best shot over the next five years to prove we are the best in our area but the chase for increased returns knows no loyalty and has a very short memory. Just ask Woolies or Aust Post what they think.
I can just imagine the queues at the Post office when they get Lotto…..also I don’t believe the Supermarkets will want Lotto when they realise the resource committment they will need to make, and the low return. We have a large subby that has Lotto, and many of their customers have come back to us as the subby makes more money out of hot food, and sangys and ignore their Lotto customers who have to wait, All the same Mark, it’s a good point.
Baz
Albnews
To play the devil’s advocate I would still be an extremely wary potential purchaser, if at all, of a NSW newsagency if I saw that a major component of that business’s return (lotto et al) is to be compromised in coming years. Lotto in my way of thinking was the only point of difference for a newsagency that had the potential to drive traffic through the door.
Take that point of difference away and why would you pay substantial monies for a business that possibly offers nothing different to an outlet next door, not being a newsagency, selling lotto, stationery, magazines, groceries and alcohol – (read Woolworths)
I only wish the best for NSW agents in that they can protect their years of hard work and dedication from the circling sharks of large monopolies.
Having said that, perhaps if the rumour of Woolworths or Coles being potential buyers was with merit, then we might see newsagencies bought up by these parasites as they did with liquor outlets, petrol stations and so on until you see Woolworths branded newsagencies competing against Coles branded newsagencies.
Mmm! I wonder?
You’re right g. There are many hurdles, commercial and social, for potential bidders to overcome.
This is why we need to take a considered view of the situation.
The security or apparent lackthereof in an agents continuity of having a licence is no different to what hapens now,we all only have 5 year licences,any provider of gaming products ie tatts,nsw lotteries or any new player, could change their retail channel partners any time they want in any 5 year cycle so you are no more or less secure in a new regime than we are now i dont see why the sudden cause for alarm,uncertainty in continuity of your licence is always lurking there anyway
As a worker in a small Newsagency, I can say with absolute clarity that this move is nothing shy of a Labor government utterly abandoning the smaller people, who it traditionally worked to protect, in an effort to maximise the profits of already huge industries.
If this sale goes to a grocery company like Woolworths, or if the network is changed in anyway which makes the Newsagency business even less rewarding, I will never vote for a Labor government ever again, and I will donate as much as I can possibly spare in campaigning for their biggest competitor.
This move is abhorrent, and will never be forgotten.
Helen, your right. The situation hasn’t really changed all that dramatically. Newsagents seem to be under the impression that licensing NSW Lotteries will remove some form of non-existent protection. There is probably an increased chance of diversification of outlets with a new operator (depending on who it is), but as Mark says “what happens in five years is up to NSW newsagents”.
Lets not also forget the risks for a new operator of diversifying. The disadvantages of agency diversification may very well outweigh the benefits in the long term.
It would also be short sighted to not look at what landlords want. I think many would be very unhappy with other tenants diluting the offering of their existing lottery agencies, especially if it reduces the viability of that existing tenant.
As far as I am aware QLD is the only state with legislative protection (which may prove to be somewhat of a hindrance long term). It would stand to reason that every state except one has the potential for changes in the retail channel through which lottery products are sold.
Mark,
For some time now you seem to have presented the view that Goodwill is not an option to pay as far as you are concerned.Formulas and price earnings are questioned. Your concern seems that figures are misrepresented.I am surprised for the founder of newsxpress and your partnet is a business broker for the QNF Graham Randall and I have had many meetings re marketing newsagencies over the past few years and owner’s wages versus hours 110 allocated has not been a problem.
Simply to take the view that one can recoup the return from Lotteries in five years and therefore that makes it okay is not so easy. Many newsagents have paid a hefty multiple of price earnings for that contract.
I have been asked on your blog just what effect this decision will have on the goodwill figure. I have stated as soon as I have gathered information relevant I will reply.
I have just finished reading 60 odd pages of Hansard
the arguments for and against. The Christian Democratic Party the Greens and the Coalition-what they had to say.
Interestingly enough is a thread that the Parliament was extremely concerned about the Goodwill – Superannuation effect that losing lotteries would have on the newsagent,s financial position.
I read this blog and find that obviously No One has read the final reading and what WILL be in the contract and what won’t be.
It is all very well to be commercially free and with deregulated spirit when one buys without the premium of Goodwill, however the nesagents I talk to when they want to sell would understandibly like to get back at least what they paid for their newsagency.
I believe the leader’s of this industry should show support and how they can achieve this. Assiocations ANF and NANA did their best to get the political clout onside and in my opion achieved as much as possibly could be achieved. Now it’s up to marketers such as yourself to show the way to reshaping the business model, making it less relient on the contracts and focus more on concept etc. or maybe the contracts and their role are the whole point of difference in what we are?
Let’s debate the Goodwill factor and try to be positive to those that bought security and want to sell security.
Anyone want a pdf copy of the important changes to effective for the next 5 years I am happy to forward an attached copy if they email me gaday@newstrade.com.au
Graenme, I havd not said what you claim.
My key message to a buyer is buy on real sustainable and provable figures. For me, personally, that means no add backs for owners wages when determining goodwill.
When we bought our newsagency, we thought we picked it up cheaply. Now 2 years later, I think we overpaid by about $200k. This is because of the addbacks, in particular the owners wages.
While I agree that someone buying a newsagency should not add this back, the problem is the people who already own a newsagency – are they going to accept that their business is worth less than what they paid for it, just because of a change in the valuation methodology?
Or, will it just increase the standard multiple that is applied against earnings to calculate the value?
There is no doubt that the wages present a problem as they are the biggest variable in the purchase factor.
Also because an enomous number of newsagents pay out wages to delivery personel – cash!
The 110 hours allocated is simply a formula that is designed to take the place of a nominal wage. Take a management wage for Humphreys newagency say compared to a 4 person operation. The 110 hoiurs standardises this. Correctly presented it is not a problem and easily calculated. Nothing too difficult in understang that what is left over after 110 hrs @ $20 p.h. deducted from the net is the owners return before income tax and interest payments.
Look at the “false” presentation of owner’s participation and cash wages plus the productivity factor of current performance of staff and management would perhaps be a better way to go.
In Qld the Casket seem to go where they like with instant tickets sometimes very close to each other,lotto not so much ,but if a new centre opens they go in as they should .Agents are on 5 year contracts ,some of the older agents are on life contracts untill they sell.There is two rates of fees as well
Greame I think the 110 hours at $20.per hour is the way to go ,as for agents paying cash ,if it is not in the tax return forget it. Fair to every one i think ,must be included in the goodwill, after all if you do not buy the bussiness you would be getting nothing.
Mark,
I have tried twice to blog the answer I promised re Lottery ooucome and my interpretation that it may have on Goodwill etc.
Unfortunately I lost the post both times with the answer incorret code.
Rather than risk it againg not to mention the length of time it takes to write I posted it along with attachments on the yahoo site. Unfortunaley it too was refused as it was to long and attachments too large.
Not to worry this is only an explanation to those that I committed to.
I have reposted as an attachment my say on the yahoo site without the actual transcripts.
It has been publishe.
I will endeavour once more -later, to repeat same here. However those wanting transcripts will need to contact me direct.
Regards
Hi
Is it a good time to buy a newsagency because there is threat of privatisation.
not in queensland –
beautiful one day – perfect the next
with a government that’s not bankrupt
Parikh,
Despite the comment from our Queenslander Lottery privitisation has not affected newsagencies there. The commonality is that NSW and QLD are both broke. It just goes to show that even though the Govt (State) won every lottery you can still go broke
I’d take another look at the balance sheet Anon, Qld is just as broke as the rest of us.
beautiful one day – perfect the next