Slot Operators to Go “Down Under” Down Under

Australians are known for their gambling habits. The saying goes that Australians would bet on two flies crawling up the wall. If proposed gambling reforms are passed in the legislature, will we see an end to this popular saying as well as to many operators in the industry?

In 2007–2008, Australians spent $18 billion, or $1,112 annually per capita, on gambling, according to the most recent Bureau of Statistics figures. More than $10 billion was spent on the country’s 200,000 slot machines alone. Taxes on poker machines made up 5.6 percent of all state government revenue, and gambling taxes in general totalled 9.1 percent.

Gambling policy in Australia has traditionally been the responsibility of the states rather than the commonwealth. State and territory governments regulate and provide gambling services.

However, society and some members of the government have questioned the states’ ability to regulate gambling when so much of their own revenue is derived from gambling. The issue was thrown further onto the front pages when the 2010 federal election resulted in a hung parliament and one independent MP (member of parliament), Andre Wilkie, used his powerful position to get the Labor government to agree to major slot machine reform in exchange for his support of the minority Labor government.

The Productivity Commission is the Australian government’s independent research and advisory body, and it estimates that between 80,000 and 160,000 Australians have severe gambling problems, with between 230,000 and 350,000 others at risk. Problem gamblers lose about $5 billion a year on poker machines. In short, a small number of gamblers account for a large percentage of gambling losses. The slot machine reforms are designed to help this minority of the population control their gambling habit, which the commission estimated has an overall social cost of $4.7 billion (AUD). The reforms range from change of maximum bet on a slot machine to development of two types of machines, note limit restriction and a nationwide pre-commitment system, which the industry is calling a “license to gamble.”

One of the reforms involves lowering the maximum bet on the slot machines from $5–$10 to $1. This measure is designed to reduce the maximum loss rate of $1,500/hour to only $120/hour, which the previously mentioned MP finds a more acceptable loss level for players.

One of the more controversial reforms is a nationwide pre-commitment system to help gamblers control their own loss limits by using a smartcard or similar technology to play a slot machine. Under the proposal, players would need to use a card with pre-set spending limits before commencing play. If you don’t have a card, you can’t play. Once you’ve reached your limit, you will be prevented from playing any machine in Australia for at least 24 hours, or maybe longer. The pre-commitment system would include a cooling-off period for limit increases, safeguards to prevent gamblers from machine- or venue-hopping, and a self-exclusion function. Machines would be linked across the nation.

One of the alternatives being considered is to allow operators to install a new type of slot machine called a “low intensity” machine, which wouldn’t be subject to the pre-commitment, unlike the “high intensity” versions. The low intensity machines would be designed to minimize spending to $50/hour and set a $500 jackpot maximum.

The proposal currently sets a date of 2014 for the pre-commitment system to be implemented, while smaller operators with fewer than 15 machines would have until 2018. Wilkie’s support for the minority Labor government hangs on implementing the reforms, and it is believed he will have the numbers in parliament to see legislation passed by mid-2012.

Years of changing their businesses to meet ever-changing regulations have had a significant impact on the business models of the operators in Australia. An increase in gaming taxes and smoking bans, and a decrease in the percentage of Australians who gamble, means the operators are arguing that they cannot sustain another blow to their business without there being widespread closures.

The industry argues that after years of adjusting their business models from the impacts of smoking bans, increases in tax rates, downturns in consumer confidence and other regulatory changes, they cannot afford to pay for the system. A recent report titled, “EBITDA Trends–June11” from the industry independent financial and gaming benchmarking company Industry Data Online, shows how much these regulatory changes have impacted the operators. Their key operating profit KPI is called EBITDA (Earnings Before Interest Tax Depreciation and Amortisation). The report highlights the impacts from the above changes: Where previously operators where achieving a 25 to 30 percent EBITDA, current levels for 2010–2011 are fluctuating between 17 and 19 percent (a 30 percent decline). The report shows that while many gaming operators are back to similar levels as they were prior to the total indoor smoking ban, the change to their business models means that operators need to get the gaming revenue back to 120 percent to get the EBITDA profits back to 100 percent.

The industry also argues that its current gaming harm minimization measure continues to work and believes that this fact is supported by a decrease in the “gaming prevalence” rate. In the country’s largest state, New South Wales, a 2006 study using the Canadian problem gambling index found 0.8 percent were problem gamblers, while 1.6 percent were classed at moderate risk. They also argued that independent consumer research shows that the percentage of Australians who played poker machines in the last three months dropped from 32 percent in 2002 to 23 percent in 2010 (a 28 percent decline)—and is evidence enough that the industry’s measures are working and that a system of pre-commitment, especially on only one form of gambling (slot machines), is not proven to decrease problem gamblers. They go on to argue that it will be an inconvenience to the majority of casual gamblers who don’t have an issue, a potential 30 percent decline in revenue, and that the replacement of machines to be compatible with the system is estimated to cost the industry $3 billion to $5 billion, effectively crippling the industry.

Australia is not the first country to look at strict problem gambling measures, including pre-commitment. Norway banned note acceptors in mid-2006 and then banned slot machines altogether, replacing them with interactive video terminals that were networked and subject to full mandatory pre-commitment. Both sides have cited the Norwegian experience, with the slot industry pushing firmly that all these measures have done is push people to online slot machines, as they work around the law and argue it will have the same effect in Australia, as it only applies to gambling on slot machines.

As governments around the world roll out gambling—and in particular slot machines—as they have done in the last 10 to 20 years, how will they adjust their regulatory requirements? Will America follow Australia as the country changes from the tourist-based gambling of Vegas, where there is one to several gambling sessions per year and problem gambling isn’t as much of an issue, to a locals-based gambling industry where players are coming several days a month or even every day to gamble? Governments will find it hard to ensure harm isn’t caused to those who are vulnerable without affecting the experience of other players who are playing within their means. Is it the role of government to make decisions for people, or should it instead educate people to make better decisions?

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