Members rewards programs are currently a perfectly legal way for clubs to reward member loyalty – they are specifically covered by the Gaming Machines Act which refers to 'player reward schemes'. These rewards programs generally reward members for all spend in the club: e.g. food, beverages, show tickets, gaming etc.
The accepted view has been that as long as your club had a benefit set out in your reward scheme, it was legal to give the benefit to the member. This is hugely important for clubs because you operate at a significant disadvantage to the Casino and hotels because of section 10(1)(i).
What is section 10(1)(i)?
If there is just one section of the Registered Clubs Act you need to know, this is the one. It makes it unlawful for a club to provide a profit, benefit or advantage to any member that is not offered equally to every full member of the club. This section has been interpreted by courts very broadly and has been the basis for many complaints against clubs over the years by LGNSW and its predecessors. It is the reason why almost all clubs put up resolutions to approve benefits to directors or other members at their AGMs every year.
Section 10(1)(i) and reward schemes
It is particularly important in relation to reward schemes – if your club gives something to a member as a reward or benefit which is not set out in your reward scheme, you will probably breach section 10(1)(i). Unfortunately this gives hotels a distinct competitive advantage over clubs because they don't have to offer benefits or rewards equally to their patrons. If hotels want to give free meals to patrons they want to favour, they can do so without it being part of a reward scheme. Hotels can invite selected patrons (or non-patrons) to external events such as race days and harbour cruises without having to justify how they selected the participants. Hotels are only in trouble if they cross the line and the benefit they offer becomes an inducement to gamble.
Priority when serving drinks
Drinks service priority is an area in which clubs need to be very careful. Many clubs give drink service priority to higher tier gamblers. This is close to the line. Recent media involving ALH hotels revealed that LGNSW investigated hotels for giving free drinks to gaming machine players to keep them gambling longer. Whilst this is different to priority drinks service, it shows how broadly LGNSW views inducements to gamble. Clubs cannot give free drinks of any description to members unless it is part of a reward scheme – otherwise it would be a breach of section 10(1)(i).
Hotels don't have to worry about section 10(1)(i). Hotels don't even need to have reward schemes to give benefits to patrons such as priority when serving drinks. This is why it is very important for clubs to keep reward schemes legally compliant. Ultimately, clubs benefit from having reward schemes as without them, clubs would be at a further significant disadvantage to hotels. This is particularly concerning when hotels are currently outperforming clubs in gaming machine spending growth in a significant way.
What you need to do
It is clear that just having a player reward scheme will not necessarily protect you and your club from investigation and complaint or prosecution by LGNSW. Your club needs a legal review – not just of your reward scheme but of the implementation and operation of that scheme. We are currently partnering with many clubs reviewing the club's Constitution, By-Laws, Responsible Conduct of Gaming Policy and Members Rewards Program T&Cs together with your surrounding business record documentation. If you are interviewed or investigated by LGNSW, they will most likely require your club to produce all that documentation. It is important to ensure as soon as possible that it is compliant. We will then be able to report to you on key issues that have been the subject of specific scrutiny by LGNSW and ILGA in their investigations.
Next time… we will share insights from our experience into further danger areas for clubs in conducting their gaming operations.
For further information please contact Brett Boon at firstname.lastname@example.org or Arj Puveendran at email@example.com of Thomson Geer.
Thomson Geer's Gaming & Leisure group is at the forefront of providing legal services to the registered clubs industry in New South Wales, providing broad services including liquor and gaming compliance; club constitutions and corporate governance; managing regulatory investigations; amalgamations; and property development and diversification projects.