Pubcos bite bullet on AWP tie
A host of tenanted pubcos are to make changes to the AWP machine tie in the wake of the critical Business & Enterprise Committee report on tenant/pubco relationships.
The MA has spoken to a number of tenanted operators who have changes planned, largely based around not rentalising machine income. One operator, though, is considering rentalising AWP income, but allowing its tenants 100% of the machine earnings.
Charles Wells Pub Company this week followed the lead of Punch in promising not to rentalise tenants' machine share. It will still share the income with licensees, but no longer take machine earnings into account for rent calculations.
A Charles Wells statement said: "The company has reviewed its machines policy, covering retailer agreements on amusements with prizes, skill with prizes, pool tables and jukeboxes." The company said while it will continue to share machine income, the licensee's income from all of these machines will not be taken into account for rental calculation purposes.
It added: "The company's code of practice will now be amended to reflect this position, in consultation with the BII Benchmark and Accreditation panel."
It follows criticism by industry expert Phil Dixon at the MA's Tied Trade Summit. He compared some tenanted pub companies to Dick Turpin in relation to the machine tie — "taking with both hands" by rentalising AWP earnings. In the case of Charles Wells he said it was comparable to finding out "Mother Theresa was running an escort agency from the back of the convent".
Enterprise is understood to be writing to Lord Mandelson and is expected to address machine royalties. Greene King's tenanted division was praised by Dixon for not rentalising machine income. Pub Partners boss David Elliott said: "It's been our policy not to do it. That's been in place for the 10 years since I joined the company."
Top City analyst Geof Collyer, of Deutsche Bank, published a report this week, in which he said it was "something of a surprise to us" that the machine issue "had become even more opaque" since the 2004 Tisc report.
The Bec report says: "We remain unconvinced that the benefits of the AWP machine tie outweigh the income tenants forgo and we recommend that the AWP machine tie be removed."
Gaming machine exposure 2009
Enterprise Inns: 7,615 pubs; £19.8m ebitda from gaming machines; 9.6% of profit before tax
Punch Taverns: 7540 pubs; £24.4m ebitda from gaming machines; 13.3% of profit before tax
Marston's: 1,723 pubs; £5m ebitda from gaming machines; 7% of profit before tax
Greene King: 1,699 pubs; £3.9m ebitda from gaming machines; 3.4% of profit before tax
We would like to clarify that Marston's gaming machine income previously published in the above article was incorrect. The AWP income is £5m, 7% of profit before tax and not £8.3m and 12% as previously reported.
