The government of New South Wales in Australia is proposing a tax increase on slot machines – “pokies,” as they’re called there. The tax proposal is only one of several suggestions in Australia to reform, regulate, and reel in the country’s estimated 187,600 pokies, most located in clubs. The political opposition in most Australian states would like to limit or eliminate them. At the moment, cashless slot machines are on top of the list of suggestion; the press, regulators, and some lawmakers favor imposing a cashless system for all pokies that would include strict playing limits. The Greens in New South Wales are proposing the end of pokies in five years, with a goal of a totally pokie-free state in a decade.
Needless to say, ClubsNSW is opposed to the taxes and mandatory cashless slot machines. The organization represents 1,400 clubs, which operate more than 80,000 games. The club system is ingrained in Australian culture, supporting athletic teams and offering a wide range of services and amenities to members. The clubs and their pokies have traditionally been given many breaks. But the constant anti-gambling drumbeat of the Australian media and the investigations into money laundering in casinos have changed their sacred-cow status somewhat. Supporters of the new taxes and regulation cite two goals: limit the harm to vulnerable gamblers and block criminal money laundering. They claim criminal gangs launder billions of dollars a year through the slot machines.
The clubs have money and some political clout. Many members of the clubs are prominent in government and politics. Defeating them will not be easy. On the other hand, the press in Australia has proven it can bring about change. The investigations into money laundering were very much driven by investigative journalism.
The pokies are not alone under the microscope. The casinos in Australia are also under siege. Crown, Star, and SkyCity have been investigated for money laundering, failure to comply with regulations, and deceptive and illegal practices. Two fines of more than $100 million have been levied and in a new twist, the Australian Securities and Investment Commission is pursuing legal action against 11 former board members and executives of Star Entertainment. The industry may survive, but the people who lead Crown, Star, and SkyCity will not.
Crown was forced into an entire change of management and board of directors by the investigations. That also led to the sale of the company. The new company, private-equity firm Blackstone, purchased Crown for $6.3 billion — a hefty price for a company under such heavy scrutiny. And like the casinos in Macau, the post-investigation Crown will not have the same revenue streams that its predecessor had; the Chinese high rollers are gone, credit is going to be much tighter, and the entire operation will be closely watched and monitored. There is no doubt that Blackstone has a plan and faith in its ability to navigate the waters. However, that will be more challenging than it was for Crown in the wild-west days of big spenders from China.
The other two major casino companies, Star and SkyCity, are also being forced to undergo drastic changes in management and operating methods.
Besides the possibility of increased taxes on gaming machines, the cost of regulation is going to go up significantly. To say that the gaming landscape in Australia is in flux is an understatement.
In the early 1980s, I attended several Laventhol & Horwath gaming conferences. The presentations mostly dealt with Nevada, New Jersey, and Great Britain, with some speculation on expanding into other states. Except for Great Britain and Australia, there was very little discussion of international opportunities. However, one presentation offered a word of caution for operators investing in new, untried, and foreign jurisdictions. The presenter cited the case of a Hilton in Turkey that had been very successful until a new government took over and tripled the tax rates. In the eyes of that presenter, that risk was out there in any but the tried-and-true experienced jurisdictions like Nevada, New Jersey, and Great Britain. Gaming is a highly regulated and taxed industry; investing in the industry is risky.
The events in Australia further illustrate the point. Markets can change, as evidenced by the Chinese government stopping Chinese gamblers from spending large amounts of money in casinos. Taxation rates can change and the regulatory environment can be altered dramatically by politics, new technology, and/or criminal activity. Australia and Macau demonstrate just how risky gaming can be at times.
Public gaming corporations always list the risks they face and warn that things could go wrong. It is, as they say, a risky business. Fortunately, just like the clubs in Australia, gambling has its supporters. The lawmakers dependent on the the revenue are its defenders. But the most important constituents are the gamblers themselves; the people who gamble generally enjoy it.
In the meantime, however, things are going to be tricky Down Under in the foreseeable future.
