Taxpayers short-changed, and there's no extra help for problem gamblers.
FROM 2012, Victoria's poker machines will no longer be run by the duopoly Tattersall's and Tabcorp. In their place, pubs and clubs that were successful in Monday's auction by the state government of the post-2012 poker machine entitlements will own and operate their own machines.
Gaming Minister Tony Robinson has defended the modest return on the auction ($981 million) as the result of harm-minimisation measures introduced by his government to fight problem gambling. This would be a cause for celebration, if it were so. Unfortunately, with the Productivity Commission's recommendations before us,
the Victorian government's approach is revealed as seriously inadequate.
The commission recommended that poker machines be limited to $1 maximum bets and a $20 "load-up" (the maximum amount of credit that can be inserted). In Victoria, maximum bets are $5 a spin (which can be repeated every 2.14 seconds), with a $1000 load-up.
The commission also wants meaningful and effective pre-commitment systems. These would permit users to set limits of time and money on their pokies use. Once the limit is reached, more play is impossible. The government has said that pre-commitment measures will begin later this year for new machines. However, current measures are inadequate: gamblers can just move to another machine.
The government has also announced it will remove teller machines from gambling venues in 2012. This should help those who impulsively withdraw savings during gambling sessions, and may modestly reduce gambling revenue.
These measures indicate that the government acknowledges the harm caused by poker-machine gambling, and that this harm can be reduced. Unfortunately, the government has failed to act on this admission to any serious degree.
Ending the duopoly provided the government with a golden opportunity. By removing the third parties (Tattersall's and Tabcorp) that between them extracted the better part of a billion dollars, the government could have used the savings to implement truly effective (but overall revenue-reducing) harm-minimisation measures, as proposed by the Productivity Commission.
Instead, under the new system, pokies operators will hit a threefold jackpot. First, because they paid far less than they were expected to to secure the poker machine licences. Second, because even that modest cost can be paid off with no interest over up to 20 quarterly payments. Third, because pokies taxes have been reframed to provide significant increases in revenue to venues.
Hotel venues now keep 25 per cent of their pokies revenue and clubs keep 33.3 per cent. The rest is divided between the operator (currently Tattersall's or Tabcorp) and the government. Under the new arrangements, the venues will keep about half the revenue, and in some cases more, with the rest going to the government.
Last financial year, Victoria's 27,500 non-casino pokies had net revenue of $2.7 billion, a little under $100,000 per machine. Club machines averaged about $65,000 each; hotel machines about $130,000. The 10-year licences to operate these machines in clubs have reportedly been sold for an average $31,000; for hotels, $39,000.
Quite a bargain, especially compared with the pre-auction offer to clubs, under which clubs paid between 1.8 and two times their yearly revenue share for an entitlement. If the logic of that apparently concessional deal had been followed, the pokies auction should have garnered taxpayers $1.5 billion.
Asserting that the industry will be less voracious than previously because it has paid minimal amounts for the post-2012 gambling licences is remarkably unrealistic. Business people will always, quite reasonably, seek to maximise their returns, within the regulatory framework they encounter. Hope is not a method, as the family planning people used to say.
Kerry Packer, after selling Channel Nine to Alan Bond for about a billion dollars, and then re-acquiring it later for a fraction of that price, remarked that "you only get one Alan Bond in your lifetime". Victoria's pokies operators must be feeling that way about the Brumby government.
Large operators, such as the Woolworths-Mathieson joint venture, will be allowed to own and operate up to 35 per cent of Victoria's hotel pokies 4812 machines, which, if they earn the average (and Woolworths-Mathieson machines earn well above average), will generate revenue of at least $630 million a year, of which an estimated $380 million will be retained by their business.
The losers will be the 110,000 or so Victorians who have a moderate to severe problem derived from their use of poker machines, 3.06 per cent of the adult population having been estimated to be in this category by the government's 2009 study. They, and their children, partners, employers, and community, will continue to suffer significantly and unnecessarily because the government failed to take advantage of a golden opportunity.
And, to be blunt, the government couldn't even organise an auction that maximised the value of poker machine licences. Rather miraculously, the pokies entitlement auction managed to achieve the worst of both worlds.
Charles Livingstone is senior lecturer
in the department of health social
science at Monash University.
Frequently Asked Questions about this Article…
What was the outcome of Victoria’s pokies auction and why should everyday investors care?
Victoria’s auction of post-2012 poker-machine entitlements raised about $981 million and ended the long-standing Tattersall’s–Tabcorp duopoly so pubs and clubs can own and operate their own machines. Everyday investors should care because the change reshapes who captures pokies revenue (venues and large operators), affects earnings for listed businesses involved in hospitality or gaming, and exposes taxpayers and communities to the financial and social consequences of the policy choices made.
Did the pokies auction deliver good value for taxpayers?
The auction raised $981 million, which the government described as modest and partly a result of harm‑minimisation measures. Critics in the article argue taxpayers were short‑changed — pointing out that, by previous valuation logic, licences could have fetched roughly $1.5 billion, so the auction likely under‑realised the licences’ value.
How is poker-machine revenue shared under the new arrangements and what does that mean for venue profitability?
Under the new arrangements hotels keep about 25% of pokies revenue and clubs about 33.3% (with venues overall retaining roughly half or more of revenue in some cases). Given last financial year’s $2.7 billion net revenue from 27,500 non‑casino pokies (around $100,000 per machine on average, with hotels ~$130,000 and clubs ~$65,000), the revised revenue shares materially improve venue profitability.
How much did operators pay for the new 10‑year poker‑machine licences, and what does that imply for investors?
Reported average prices for 10‑year entitlements were about $31,000 for club machines and $39,000 for hotel machines — amounts the article describes as a bargain relative to the machines’ typical annual revenues. For investors this implies operators acquired valuable revenue-generating assets at low upfront cost, improving future cash flow prospects for businesses that own or manage many machines.
What harm‑minimisation measures were introduced and are they likely to reduce problem gambling effectively?
The government pointed to measures such as future pre‑commitment systems for new machines, and the planned removal of teller machines from venues in 2012. However, the article notes these measures are inadequate compared with Productivity Commission recommendations — Victoria still allows $5 maximum bets (vs a recommended $1) and up to $1,000 load-ups (vs a recommended $20), and current pre‑commitment rules let gamblers simply move to another machine, limiting effectiveness.
Who stands to gain the most from the new pokies arrangements — venues, operators or large corporate groups?
Venues and large operators stand to gain the most. Venues keep a much larger share of revenue than before, and operators paid relatively low sums for licences with favourable payment terms (including interest‑free staggered payments over up to 20 quarters). Large groups — for example the Woolworths‑Mathieson joint venture — are allowed substantial ownership (up to 35% of hotel pokies), which the article says can generate large annual revenues and retained profits.
How do these changes affect problem gamblers and the wider community?
The article highlights that roughly 110,000 Victorians (about 3.06% of adults) have moderate to severe poker‑machine problems. Because the reform package fell short of the Productivity Commission’s stronger recommendations, the piece argues that these people — and their families, employers and communities — will continue to suffer unnecessarily, since the measures are unlikely to substantially reduce harmful gambling behaviour.
What should investors watch now that the pokies duopoly has ended?
Investors should monitor regulatory developments (especially any stronger pre‑commitment rules or bet/load‑limit changes), venue and operator profitability trends (revenue per machine and venue revenue shares), any social or political backlash that could trigger tighter rules, and expansion moves by large operators such as the Woolworths‑Mathieson joint venture that could change market concentration and returns.
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