Practice Notes

Approved for Publication 09.08.2004

COMMERCIAL PROPERTIES COMMITTEE

Practice Note 14

REVALUATION 2005

VALUATION OF BINGO HALLS

1.0 Introduction

This practice note applies to the valuation of subjects operating as licensed Bingo Halls, under a restricted gaming licence, with all participants requiring to be members (with membership either free or by payment of a membership charge).

The trend over the last few years continues to show a growing income in the case of the more recently - built and converted bingo halls, with a fairly static or declining level of income in the older and unconverted establishments, on occasion resulting in closure.

2.0 Basis of Valuation

These subjects are valued by application of the comparative principle, with the application of an appropriate percentage to receipts. The range of percentages to be applied is shown in Appendix 1.

3.0 Classification

3.1 Modern Purpose-Built Bingo Halls

These may be stand-alone or located on a leisure/retail park (often beside a multiplex cinema) with ample car parking.

3.2 1960s Purpose-Built Bingo Halls

These establishments are usually found in town locations, and may or may not have their own car parking areas.

3.3 Older Bingo Halls Often Converted From a Previous Use e.g. as a Cinema

Generally these establishments are located within town centres or in fairly close proximity to the centre.

Varying degrees of adaptation may have been carried out, and valuations should be carefully considered to ensure that a realistic account is taken of the extent of adaptation (see 4.6).

Where an older building has been modernised to such an extent that the character of the premises is similar to a modern purpose-built bingo hall, it may be appropriate to refer to the modern purpose-built percentages.

3.4 Older Bingo Halls with Falling Receipts or No Longer Operating

The relative success of modern bingo halls has resulted in an ever-increasing number of the more traditional types:

The recommended treatment of these premises is detailed at 4.2.

4.0 Receipts

4.1 A Bingo Club member pays for admission, participation and stake money. All the stake money, less gaming duty, is returned to the players as prize money, which means that the main game is non-profit making. The operator of the premises obtains his profit from admission money, participation fees, payments for link and prize bingo, bars, and buffet/restaurant, car park takings, advertising revenue etc.

For valuation purposes certified gross receipts (excluding VAT) from all sources, excluding stake money, should be obtained for the years 1998-2003, and examined for any trend. The figures to be used are those for the year to March, 2003 (or the nearest accounting period), adjusted if necessary to take account of any abnormal variations.

4.2 In the case of any bingo halls:

the following procedure should be adopted:-

a) The trend should be examined, to determine the reason(s) for the drop in receipts, which may be due to the opening of a new bingo hall nearby, demolition of local housing, a significant fall-off in the popularity of bingo in a particular area, etc. There may in fact be a number of reasons, which cannot all be specified here. If it is clear that the drop should be reflected in the receipts to be used, then any concession should be offset by a `percentage tolerance' reflecting the normal ups and downs in levels of receipts over the previous few years. The following shows a simplified example of the above in practice:-

Example - old bingo hall with reduced receipts; new club opened 1 mile away on 1/4/02.

It seems obvious that the substantial drop in receipts in the year ending 31/03/03 is due to the opening of the new club (in many cases with drastic reductions in the level of receipts, the exact date of opening of the new establishment can clearly be seen as the point from which the downturn has taken effect), and this should be reflected in the level of receipts adopted for valuation purposes. The average of 3 years' fluctuations in receipts is 4.9%, and therefore it may be considered appropriate to deduct a norm of approximately 5% from the 32.2% drop shown in the year to 31/03/03, i.e. notional gross receipts adopted for 2005 Revaluation = £220,000.

The `percentage tolerance' referred to above should also be taken into account in any consideration of value which might arise during the quinquennium, as a result of a material change of circumstances.

b) Where a bingo hall has been closed down completely, the licence to operate may be surrendered, and in such circumstances there are 2 basic options:-

It is recommended that a pragmatic approach to the problem is adopted, by valuing as a bingo hall, and at the same time recognising the potential value as a hall. Use of a notional level of receipts should permit valuers to arrive at a reasonable valuation.

Where a) or b) has occurred, the receipts of neighbouring bingo halls should be carefully examined in due time, to ascertain if a material change of circumstances has resulted in an increased income.

4.3 Where the returns include income from any café, restaurant or licensed bar, and where it is considered that this part of the premises operates in competition with and is similar in character to any nearby shop, licensed restaurant or public house, consideration may be given to excise such income and value the appropriate accommodation by reference to rates prevailing for the similar subjects in the vicinity. In these circumstances the resultant valuations may require downward adjustment to recognise their unum quid nature with the bingo hall. Otherwise such income should be included as part of the total gross receipts.

4.4 If live entertainment is provided as an attraction the income generated should be included in the gross drawings of the bingo hall. If, however, the cost of the entertainment is high in relation to the drawings generated, it may be reasonable to make an adjustment and in extreme cases include only 50% of the “live show” drawings. It is likely that such adjustments will only be made in the older establishments, where live entertainment is not the `norm'. In the larger modern halls, it is more commonplace for live entertainment to be provided.

4.5 Where trade is “bought in” by methods such as additional prize money and free transportation of customers, the cost of these attractions may be deducted from the gross receipts, dependent upon the individual circumstances in each case. (See Appendix 2 for appropriate deductions to be applied).

4.6 Where it is considered that the value produced by a strict application of

percentage of receipts does not properly reflect the age, quality, character or condition or any combination of these factors, a reduction in the percentage applied to the gross receipts may be appropriate.

5.0 Car Parks

Whether or not a car park is available will be reflected in the receipts and no further adjustment will be necessary.

Separate consideration may, however, be required, if a separate entry for a car park is necessary.

6.0 Valuation On Rate Per Seat Basis

Effective seating capacities may be useful for valuing subjects where no receipts are available.

In some establishments, (particularly in converted cinemas), a proportion of the seating may be surplus to requirements, or operationally unsuitable. Where these conditions apply, the actual seating numbers should be reduced in accordance with the table comprising Appendix 3, in order to identify the effective seating capacity.

APPENDIX 1

Interpolate between points

A deduction of up to 1% may be made from the above percentages in the case of converted cinemas or other such buildings with little or no adaptation, the extent of the deduction being dependent on the degree of adaptation and modernisation undertaken.

APPENDIX 2

In order to recognise the diminishing effect on profitability, where promotional expenditure is greater than 10% of Gross Receipts, the following scale of deductions from the adopted receipts should be applied.

For the purposes of this adjustment, promotional expenditure will cover the following items:-

Added prize money, give-aways (e.g. gifts and other additional prizes), printing and postage of special promotional flyers, transportation in/out of customers and live entertainment.

It sets a baseline for `normal' promotional expenditure and goes on to assume that the law of diminishing returns then applies.

APPENDIX 3

Adjustment to produce “effective number of seats”