Pokies in transition

 

Licenses to allow pubs and clubs to own and operate electronic gaming machines (EGMs) passed through Parliament in October/November of 2021 after the Labor party abandoned its brief flirtation with a principles based policy approach.

It was a watershed moment for the gambling industry. Years of funding and lobbying the government were finally about to yield a jumbo jackpot with net profits from EGMs estimated to rise by an average of 50 per cent for EGM pubs.

Federal Hotels lost its monopoly ownership of EGMs but was compensated by the slashing of taxes on EGMs at its two casinos and the knowledge that its twelve Vantage pubs with EGMs were about to be become even more lucrative. Federal was also considered as the front runner in the process to select a Licensed Monitoring Operator (LMO) to replace its own Network Gaming which has been running the monopoly network.

However subsequent events have put a dampener on the industry’s euphoria. Federal failed to win the LMO tender. Maxgaming a wholly owned subsidiary of the listed gambling behemoth Tabcorp was awarded the job in August 2022.

 Shortly thereafter the government announced the introduction of mandatory pre commitment cards as a way to limit player losses as part of a revised harm reduction strategy.

The outrage from pub owners was predictable. For years they have been telling us that problem gamblers were only 0.4 per cent of the population and the bleeding hearts in the welfare lobby just wanted to rob the overwhelming majority of a bit of harmless fun.

Private mutterings are now telling a different tale. Without obsessives playing the machines, bottom lines will be severely impacted. Federal Hotels in its 2022 Annual Report issued late October 2022 confessed it was unable to assess the impact “at this point in time”.

This is a far cry from a year earlier when Federal Hotels was able to independently value eleven of its twelve Vantage pubs as part of a sale and leaseback arrangement with various associated parties. This was disclosed in it 2022 Annual Report.

The striking thing about the sale of the eleven pubs was their value was clearly based on successful passage of the new EGM licensing arrangements at a time operators had zero expectation of any revised pre commitment rules.

Sales contracts were dated 28^th October 2021, just a day after the Future Gaming Markets Bill passed the House of Assembly. The Legislative Council was yet to pass the Bill but with both major parties in agreement this was a mere formality given the numbers in that chamber.

The government’s LIST site details the eleven pubs were acquired from 1999 onwards by Federal Hotels.The inside knowledge from Network Gaming enabled it to cherry pick the most profitable pokie pubs. Bought for a total of $52 million they were valued at $258 million in the celebratory days of October 2021.Five pubs in Hobart’s northern suburbs were valued at $30.5 million each and the four north west pubs at $23.4 million each.

But are they worth that amount now after the Government’s surprise about face with pre commitment rules? The fear in the industry is that pubs with EGMs mightn’t realise any of the windfall gains anticipated with the new licensing arrangements. In fact, they may end up being worse off. We are yet to discover the effects. The government is yet to update its forward estimates for gambling tax revenue. Pubs haven’t been changing hands recently. The last is believed to be the acquisition of the Goodstone Group’s tenth hotel, Devonport’s Elimatta Hotel reputedly bought with the proceeds of its JobSeeker windfall in July 2021.

The industry was too smart by half when they rewrote the Liberals’ 2018 gambling policy removing the need for pubs to pay for pokie licenses. Instead, they were to be gifted. It’s harder to invoke the sovereign risk argument with a straight face when the value of a gift turns out to be less than expected. The THA has resorted to describing the new pre commitment rules as reneging on a promise, as an attack on freedom. That is starting to sound a little like a plea for honour from a thief.

It’s a mystery why Federal Hotels would attempt such a sale and leaseback deal before the dust had settled, given that stamp duty on a $258 million sale is approximately $10 million and capital gains tax (if applicable) on a $200 million gain is enough to dent even the Farrells’ fortunes.

Federal Hotels’ 2022 Annual Report showed net profits had returned to pre Covid levels, an after-tax profit of $22 million on turnover of $522 million, with most of the after-tax profits still being paid as dividends to family members.

Covid actually produced windfall profits for Federal Hotels via $40 million of JobSeeker payments spread over the 2020 and 2021 financial years. Whilst accommodation suffered, gambling and grog sales boomed. Federal Hotels used the money to reduce debt, especially the amounts owing on EGMs.

By the time pubs and clubs pay Federal Hotels for the machines they need under the new licensing arrangements, Federal Hotels will owe next to nothing on its 1,500 odd EGMs in its 2 casinos and 12 pubs.

The prices of EGMs being sold by Federal Hotels to pubs have been surprisingly low. Perhaps Federal didn’t want to run the risk of ending up with a heap of unwanted machines. Older EGMs which can’t handle pre-commitment technology are being sold for $1. Newer machines will change hands at prices up to $5,000 but there’ll still be more $s required to instal the pre commitment software. Brand new machines will cost at least $25,000.

Therein lies the problem for small operators. Whatever noble reason the Devonport RSL gives for quitting the pokies, the simple truth is that without addicted players a lot of venues will be seriously considering their future options given the costs, risks and uncertainties that abound.

Devonport RSL’s situation is little different from that faced by the Glenorchy RSL a few years ago. Pokies were operating below break-even levels. Yet that didn’t stop that abominable performance by the gambling industry and the Liberal government who stood outside the Glenorchy RSL during the 2018 election campaign and shamelessly asserted that removing EGMs from clubs like the RSL would hasten the demise of Anzac Day.

The process of change in the gambling policy space has been a series of ad hockery at its craziest. Rebecca White could have been the most respected pollie in the Federation, given the mood for change in the pokie space as evidenced by events in the current NSW election campaign, had she stuck with the strategy she took to the 2018 election. It might not have won that election, but it showed a game plan that would eventually produce results. Instead, she went back to the old game plan pushed by the gambling industry and its acolytes embedded in the Labor party. She now finds herself playing against an opponent wearing a new jumper, on a different ground with new goalposts playing a game that appeals to the majority of Tasmanians.

Stand by for more fallout and the battle to see who gets the forsaken licenses.

It’s bound to be messy.

Squalor always is.