National-level organisations felt Mr Flavell's bill wrongly connected problem gambling with the funding of sports groups.
But anti-gambling lobbyists such as the Problem Gambling Foundation said sport's dependency on pokie machine profits perpetuated gambling addiction in New Zealand.
Foundation spokesman Graham Aitken said: "I wouldn't use the word addicted, but these clubs are extremely dependent on this money."
Mr Flavell's Gambling Amendment Bill would introduce tighter rules for the distribution of pokie proceeds and new measures to combat gambling harm. Nearly 5000 submissions were received.
The New Zealand Rugby Union, provincial unions and local clubs have received a total of between $20 million and $30 million a year from trusts over the last decade. This was the equivalent of a third of the NZRU's budget.
In a submission on Mr Flavell's bill, NZRU chief Steve Tew said the proposed changes would do "profound damage" to amateur and community sports.
He said the bill would force some rugby clubs to close, and national events such as the Queenstown Sevens would be scrapped.
Mr Flavell said he had no intention of stamping out gambling. He aimed to make the distribution of gaming proceeds fairer.
"The bill doesn't take away the right of any sports club or local community group to ... do what they want to."
One of his main concerns was that pokies created a transfer of wealth from poor areas to wealthy areas. The ratio of pokies to people in poorer regions was 1 to 75 compared with 1 to 425 in richer areas.
To combat this, the bill would ensure that 80 per cent of gambling proceeds returned to the region from which the money was lost.
This measure was criticised in many submissions because national sporting groups said it prevented them from centralising their funds and redistributing it nationwide.
Mr Flavell argued that the leftover 20 per cent of gambling proceeds which were not invested in the immediate area could be used for nationwide distribution.
He admitted it was a "huge ask" to eliminate pokie machines from New Zealand, because there was "a number of parties that had a vested interest".
But he believed it was still possible to reduce problem gambling and keep community sport thriving.
Mr Aitken reaffirmed this goal, saying even if problem gambling was eliminated there would still be "hundreds of millions" in profits from recreational gamers which could be channelled into sport.
The Commerce Committee is hearing submissions on the bill and is due to report back in November.
