Building a Framework

‘We are one club, with 14 sites.’

When Roger Cowan made that statement to Ian Temby, it reflected the philosophy that he had held since he first embraced the concept of amalgamations. It was another factor that helped to put him in that very courtroom on that day in June 2004.

The topic of amalgamations was first raised at Panthers in 1998 by John Wilson, who was then the Club’s gaming manager. The Registered Clubs Act had been amended to encourage the practice, and Wilson had come to believe there was a great opportunity there.¹

For a number of reasons, the rate of club closures had been increasing, and the change to the law was aimed at slowing down the trend.

At management meetings Wilson continued to argue strongly for the concept. Eventually a model was developed that overcame most of the concerns and it was agreed that an amalgamation strategy should be recommended to the Board.

The board resolved to test the strategy with a small struggling club not far away from Penrith – the Hawkesbury Sporting Club in Richmond.  This first amalgamation would be a pilot for bigger things in the future.  It had some reasonable potential, although it would not deliver the level of benefits that we hoped to achieve in other amalgamations. 

It would help us learn more about what difficulties might lie ahead and to develop systems to overcome them.  We believed that we could easily turn the club around, by introducing our management systems and by taking advantage of our purchasing power.

We would support them in every way needed, but our model provided that they would always be able to retain their identity and a strong sense of ownership of the club. This would, in turn, encourage a strong commitment to service their local members

When a business is considering something as important as this, the focus has to be on the desired outcomes rather than what has to be done. Management decided on a set of outcomes for the future that show us our amalgamation strategy had been successful. We needed agreement between Board and management on that future picture, and it was extraordinarily difficult to achieve. The failure to reach agreement delayed the start of the strategy for nearly twelve months. 

On the one hand, we could look upon each amalgamation as the formation of a new entity in which all stakeholders would have equal rights.  In the alternative picture, one club is in the centre, having the power and control over all its subsidiaries.  The first model is a true amalgamation.  The second example is effectively a takeover. 

The management of Panthers always believed the first model would be the pathway to success, whereas the takeover path would eventually create limits and barriers.  We believed that we finally had an agreement with the Board on the vision when we submitted a detailed list of the criteria that would be used to qualify clubs under consideration. Everything seemed to be covered and it was discussed to death before the Board gave it the final approval.

The word ‘takeover’ does appear in some early documents, but from day one, Cowan’s original concept was of amalgamation.² Later, some of the Five would claim that they thought they were agreeing to takeovers, not amalgamations, and that they had been misled by management.

Barry Walsh was chairman of the board when management first floated the amalgamation idea. He says they discussed the concept for more than a year, but there were problems convincing some directors. ‘I saw a number of benefits’, says Walsh.

The outcomes described by management sounded plausible, achievable and worthwhile. We were given a lot of information, and it was obvious to me that they had gone into an extensive research and analysis process. I could see the benefits of spreading our brand into other areas of the state, developing a larger rugby league following, and building assets and cash flow. Because of the financial situations of these clubs, we could get them at very good rates.

While documenting the benefits of amalgamation, the management recommendation put to the Board also highlighted one of the negatives. It would open the possibility that members of another club could nominate for the Board. At the time, this was not seen as an immediate problem, because it was thought they would have to be members for three years before they could stand.

Nevertheless, the prospect that members of an amalgamated club could stand for the Board, even after three years, raised the concerns of some board members to the extent that they simply could not reach agreement. The spectre of ‘reverse takeover’ had entered the picture.

The boardroom delays on the Hawkesbury proposal became very frustrating for management. They tried to explain that amalgamations could help the club to overcome some of the problems it was currently facing in a changing local market.

The threats it faced included over-capitalisation on one site, and the maturity of the local gaming market. Hotels and other clubs were continually improving. In previous years it had been commonplace for bus companies to bring tourists to Panthers from other areas such as Manly, Wollongong and country NSW. The improvement in club facilities in other areas had weakened that business.

Another threat was the attitude of the state government towards clubs, and the associated rumours of higher taxes and restrictive legislation.

There was also the danger of being dependent on one business, in one location, which was already suffering under the strains of its size.

At one Board meeting called specifically to consider whether to adopt an amalgamation strategy, the discussion circled laboriously for nearly four hours. Cowan says the final hour could have been completely eliminated had there been a recording of the first hour. After all that time, the only resolution was that management should prepare further documentation to prove that the threats actually existed. 

A frustrated management team came to the conclusion that the entire exercise had been a deliberate waste of time, and that the request for more information was just an excuse to put off making a decision. Deferring a decision was easier than raising logical argument.

To the management team, the threats were very real – and very obvious. They also should have been obvious to the Board. But how could it be proven that the government attitude, for example, was a threat? Today every club in the state would agree that it was the greatest threat of all.³

A major benefit of amalgamation would be the spreading of support for the rugby league team. That, in turn, would boost opportunities in sponsorship, merchandising and television. With the advent of Pay TV, management considered television exposure as a crucial part of its future success, particularly with the possibility of clubs being rewarded through their popularity on that medium. 

Another important consideration was the potential to spread many of the fixed overhead costs over a number of sites, without extra cost. Financial management, poker machine management and purchasing were just some of these.

Many of the clubs seeking to amalgamate had assets far more valuable than their liabilities, which would have a positive effect on the Club’s balance sheet. This could lay the foundation for future expansion into other profitable areas, and most importantly, it could be a way for Panthers to begin to break its dependency on gaming.

Former director Bateman, one of the Five who often spoke out against the amalgamation strategy, told the Temby Inquiry in 2004,

My initial attitude in regards to amalgamations was that we needed to explore it. I accepted there were pressures on our main source of revenue being gaming, and we needed to spread our wings.

He told Ian Temby – that ‘amalgamations were an appropriate way in which to extend outside our current Penrith base’.

Part of the management recommendation was a set of criteria for clubs wishing to amalgamate with Panthers. After 12 months, the Board agreed that an amalgamation strategy should become high priority. At that time, management was given authority to identify and pursue amalgamation possibilities.

The Board stipulated that every amalgamation must meet the criteria. Even then, there was no authority granted for amalgamations to proceed automatically. Each one had to be recommended and approved separately by the Board. Generally, a board sets policy, defines parameters and leaves management to work towards success within those parameters. In this case the Board put each new proposal under the microscope.

Although there was a lot of discussion about members of amalgamating clubs being able to stand for the Board, nothing was built into the criteria to provide against it. John Ralston⁴, an acknowledged legal expert in the club industry, had advised that it would be highly unlikely that the licensing court would approve an amalgamation unless the members of both clubs were treated equitably. He also reminded the Club that the Registered Clubs Act requires that at least 50% of members had to have the right to vote for the Board.

Management breathed a sigh of relief when it appeared that the five directors had finally agreed to a strategy that ensured all members be treated equally after amalgamation. At long last, it seemed they understood that the amalgamation strategy could only be successful if Panthers protected the rights of the members of the amalgamating club. Such beliefs by management were to prove naïve.

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1. The regulatory framework under the Registered Clubs Act increasingly recognised amalgamation as a means of dealing with clubs facing financial or operational difficulty. The Act provided for amalgamations subject to approval by club members and the licensing authority, with the Licensing Court supervising the amalgamation process and the transfer of the relevant club licence. The statutory framework governing amalgamations was subsequently expanded substantially in 2001.
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2. The terminology used in some early documentation was not always consistent. The distinction being drawn here is between the use of the word takeover and the model advocated by Cowan, under which amalgamating clubs would retain identity and local involvement and their members would ultimately share rights within the wider Panthers organisation.
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3. “Today” refers to the time of writing of the original manuscript in 2007.
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4. John Ralston BA LLB (Sydney University) was admitted to legal practice in 1975 and is today a consultant with Pigott Stinson. For more than 30 years he has acted extensively for registered clubs and practised across the wide scope of law affecting clubs and the club industry. Pigott Stinson describes him as one of the leading legal practitioners in the club industry. ↩︎

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