Gaynor: Loading the dice against casinos

The TAB and Lotteries Commission have struggled to maintain their income while casinos and gaming machines have boomed. But legislation is likely to change the odds, writes BRIAN GAYNOR.

Gambling is a huge industry in New Zealand and it is getting bigger every year. The latest figures show that total expenditure on gambling has increased from $2.2 billion in 1991 to $8.4 billion in the year to June 2000.

The amount lost by punters was $1.297 billion compared with $575 million in 1991. This represented 2.9 per cent of the country's total wages and salaries compared with 1.7 per cent in 1991.

Although there has been a huge increase in gambling losses, the TAB and Lotteries Commission have struggled to maintain their income while casinos and gaming machines outside casinos have enjoyed huge growth.

The TAB's share of gambling losses has fallen from 85 per cent in 1987 to 18 per cent in 2000.

The organisation, which is 50 years old and has a monopoly on race and sports betting, is facing fierce competition from other forms of gambling inside and outside New Zealand.

International agencies are offering betting on New Zealand racing and sporting events via the internet and by telephone. They do not pay taxes here or make any distributions to our racing industry or sporting bodies.

The TAB's biggest problem is the local gallops industry.

Total off-course and on-course betting has fallen from $530 million to $436 million over the past four years, mainly because of a reduction in race entrants.

Betting income from overseas racing has increased dramatically over the same period and revenue from sports betting has risen from $34 million to $67 million.

In an effort to generate more income, the agency has also expanded its internet facility and introduced gaming machines to several outlets. But its distribution to the racing industry has remained relatively static at $60 million a year.

The TAB and domestic racing industry are in a slow but steady decline and unless this is arrested their prospects are not exciting.

The Lotteries Commission had a golden period in the second half of the 1980s when its share of gambling losses rose from 15 per cent in 1987 to 52 per cent in 1990.

But its share has now fallen to 21 per cent and the commission no longer publishes a five-year trend statement in its annual report. This is a clear indication that it is embarrassed by its performance.

The weekly lotto draw still represents 60 per cent of total revenue, but sales fell from $395 million in the June 2000 year to $367 million last year.

Lotto strike, instant kiwi, telebingo and daily keno all suffered lower sales last year and powerball has been introduced to try to arrest the decline.

The commission's surpluses are distributed through the Lottery Grants Board to community projects, sports and leisure groups, the arts and the Film Commission.

Because the amount paid to the grants board has fallen from $133 million in 1996 to $130 million last year, and is predicted to be $115 million this year, many organisations are being affected by the commission's poor performance.

Casinos and gaming machines outside casinos have been the big winners from the surge in gambling expenditure.

The four established casinos, Christchurch (opened in 1995), Auckland (1996), Queenstown (2000) and Dunedin (2000), accounted for $343 million or 26 per cent of gambling losses in the June 2000 year.

Since the June 1998 year, Sky City's net profit before non-recurring items has increased from $32 million to $70 million and its dividend payment from $29 million to $63 million.

Total distributions by the TAB and Lotteries Commission fell by $7 million between 1998 and last year and Sky City's dividend increased by $34 million over the same period, so the relatively strong performance of the casinos has benefited company shareholders at the expense of the racing industry and community, arts and sporting groups.

But the biggest winners have been the gaming machines outside casinos, first licensed in April 1988.

Hotels, pubs, RSAs, sporting clubs and other outlets now have 20,100 machines.

They accounted for gambling losses of $450 million, or 35 per cent of the total, in the June 2000 year.

The machines are owned by non-profit organisations, called societies, which are licensed to raise money for authorised purposes, mainly sports, arts, community projects, heritage, conservation and other activities.

Until October 1, site owners were paid reasonable expenses to house the machines, but this has been changed to a maximum of $150 a machine a week (excluding GST).

The Department of Internal Revenue believes the capped fee will reduce the attractiveness of these machines to site owners and dramatically slow their rate of growth.

Societies must pay at least 33 per cent of the gaming machine profits to authorised recipients.

The rules and regulations of the gambling industry are about to change after an extensive review.

The results of this review will be embodied in the Responsible Gambling Bill, now being drafted. The bill is expected to be introduced into Parliament by the end of February and be passed into law before the November election.

The bill is aimed at reducing the growth of high-risk forms of problem gambling (e.g. casinos and gaming machines) and to ensure money from gambling losses is mainly used to finance community projects.

The Government hopes to achieve these objectives through measures including:

* The number of gaming machines allowed on any one site will be limited, and communities will be able to veto new sites or plans to add machines to existing sites.

* Gaming machines will be electronically monitored and site owners will not be allowed any involvement in the distribution of grants.

* No more casinos will be licensed, and existing casinos will not be allowed to expand their gambling operations.

* The Lotteries Commission will remain in public ownership and will not be allowed to expand into high-risk types of gambling such as casino games and gaming machines.

* The TAB will be allowed to establish agencies in casinos and to operate gaming machines in TAB outlets and racing clubs for the benefit of the racing industry.

* Problem gambling will be managed as a public health issue.

The legislation, together with the capped payment of $150 a machine a week to site owners, will reduce the growth in gaming machines. Sky City's growth prospects will also be reduced under the Responsible Gambling Act.

The TAB has been given concessions that could boost its performance, but gaming machines in its outlets and racing clubs could have the opposite effect - they could reduce the amount of money spent on betting.

The Lotteries Commission has the lowest social cost, in terms of problem gambling, and the highest distribution to community groups.

The restraint in the growth of gaming machines should benefit the organisation but it will have to develop new products, market them more effectively and compete with a wide range of gambling products, including those from overseas.

The new legislation will give the TAB and Lotteries Commission some assistance.

But they will have to lift their performance if they are to claim back market share from gaming machines and beat the marketing expertise and atmosphere of Sky City and the other casino operators.

* bgaynor@xtra.co.nz