Pokies auction may leave us short, but in the long run we win

TAXPAYERS could have been up to $2 billion better off from the sale of the rights to operate Victoria's 27,500 poker machines located outside of the casino but just like poker machine winnings, it was fool's gold.

Poker machines are a dangerous form of gambling that must be judged on more than dollars just ask the thousands of problem gamblers whose lives are ruined by the machines every year.

No one is disputing that poker machines are a licence to print money for their owners. One machine in Victoria can generate $190,000 a year in profits, and the average annual profit per machine is $100,000.

Pokies baron Bruce Mathieson and his business partner Woolworths have been doing nicely from poker machines in Victoria for years, operating some of the most profitable venues in the state.

Yet the government revealed this week it made just $981 million from the pokies auction, far below expectations and what it could have made. But instead of chastising the government for not squeezing every drop out of the machines, critics should recognise it is a seminal moment in Victoria's 20-year addiction to pokies revenue. Finally, a decision about poker machines that was not just about dollars. How easy it would have been for this government to have sold new licences to current poker machine operators Tabcorp and Tatts Group, for what some analysts predict could have been up to $3 billion.

Premier John Brumby would have made a fortune for his government heading into a tight election, won applause from business analysts and had cash to splash around.

Even under the owner-operator model to be introduced in Victoria after 2012 in which pubs and clubs own 10-year entitlements to their poker machines the government could have set much higher minimum prices to operate machines and structured the auction to squeeze every last cent out of venue owners.

But who would have paid those higher licence fees in the end? Would Mathieson and Woolworths and other venue owners make do with smaller profits to offset the higher licence fees? No, they would ensure that the higher costs were passed on to the hapless punters. While the venue owners can't reduce the amount of money returned to punters from each machine for every $1 put into a poker machine, it returns 87? on average they can maximise turnover by clever management of the venue, such as offering discounted food, children's play areas and other incentives.

Gamblers would have been squeezed and squeezed again. Making poker machines hugely expensive to pubs and clubs is a recipe for more problem gambling, not less.

As it turns out, many clubs picked up machines at bargain basement prices $5500 for 10 years and so there are no excuses now for them not to vigorously pursue measures to counter problem gambling.

Sure, businesses such as Mathieson-Woolworths will continue to maximise profits ruthlessly, and have likely been delivered a huge cash win by the auction but they are only part of the industry and will attract little sympathy should they later complain about any new problem gambling measures.

Monday's poker machine auction and the decision to scrap the Tatts Group/Tabcorp poker machine duopoly is a critical moment in Victoria's sad reliance on poker machine revenue. While the auction was terrible economic policy and the Treasury boffins must be pulling their hair out, it was not terrible public policy.

Making less money from poker machines in Victoria is not a bad thing the government is already guaranteed $1 billion annually in poker machine taxes under the new structure. How much does the state want to rely on pokies to pay its way?

Gaming Minister Tony Robinson is unlikely to be losing sleep at the low prices paid, as he believes poker machines "burn out" problem gamblers more quickly than other forms of gambling, and that is why new problem gambling measures targeting poker machine venues have been introduced or are on the way.

On Tuesday, Robinson said some of those problem gambling strategies contributed to the low return for the licences. "Sometimes good policy costs," he said.

Industry experts argue that even with the problem gambling measures, venues were prepared to pay a lot more for the licences and the government bungled the auction. This is almost certainly true but who would have won if venues had paid a lot more? Would the government have increased its spending on problem gambling if it had got more from the pokies auction? No. There has never been a direct link between gambling revenue and spending on problem gambling measures.

A focus only on the dollars and not gambling policy would have continued the unethical trend of taking the maximum returns without much regard for the consequences. Of course, the best outcome for problem gamblers would have been the scrapping of poker machines in Victoria altogether.

While the Victorian government has not done all it can to limit problem gambling on poker machines, it is ahead of other states such as NSW.

When a forthright Robinson proclaimed the era of unbridled poker machine expansion and profits in Victoria was over, he was genuine.

Yes, taxpayers were short-changed in Monday's auction, but in the long run they win.