Welcome to the new look Gambits newsletter
Welcome to the first edition of our new electronic Gambits. This is the first of our bi-monthly newsletters, which will be interspersed with additional notifications and articles, as things happen. This new approach to Gambits is a work-in-progress so we welcome your feedback at any time.
Last week we held our first regional forums for the year in Dunedin, Auckland and Wellington. Thanks to those who attended for your feedback and questions on various discussion topics. For those who couldn’t make it, we’ve uploaded the presentation slides on our website. While we were in Auckland we also held a Stakeholder Reference Group meeting, which focused on the same issues as the regional forums.
We have automatically subscribed a long list of addresses to this newsletter, but if you’re unsure whether your colleagues have received it, please forward it and encourage everyone to subscribe individually on our website. The more individual addresses on our subscription list, the more insight we will have into who reads our newsletter and what you like to read!
Now onto our stories for this edition.
Director, Gambling Compliance
Class 4 reforms on their way
As you will have heard, Internal Affairs Minister, Hon Peter Dunne, recently made an announcement about progress of the gambling reforms.
The key points for the reforms, and any indicative timeframes are summarised below. We encourage you all to read the two amendment bills, and ensure you understand the changes before they come into effect, so you can prepare for them accordingly. We will keep you informed as much as we can as further information comes to light, and as we work through the details of how changes will be implemented.
New regulations (Changes to Gambling (Class 4 Net Proceeds) Regulations)
Minimum Rate of Return is to increase to 42 percent. This will be a staggered rise, increasing to 40 per cent in the first year, 41 per cent in the third year, and 42 per cent in the fifth year.
Societies will be required to distribute a minimum 80 per cent of gaming machine net proceeds in the same regional council area in which the proceeds were generated. We will confirm by August 2014 how “local” net proceeds will be defined. To be considered to benefit a local area, the grants should demonstrably benefit the residents of that region.
The changes will commence in the first financial year after the regulations come into force. It is anticipated that the new regulations will come into force around September 2014.
Gambling Amendment Bill (No 2)
It is important that societies and venue operators familiarise themselves with this Bill, as some of the changes will directly affect your operational processes, and it will take effect on the day after Royal Assent (when the Governor-General signs the Bill). The Bill is well-advanced through the parliamentary process, and while we will do our best to keep you informed of its progress, there may not be much advance warning to prepare for the changes. Our recommendation is that you make preparations now, so that you are ready for whenever the changes come into effect.
Much of the Bill is minor and technical in nature. Some key changes include:
- A stronger differentiation between Class 4 societies that apply funds to their own purposes and those that distribute.
- A requirement for Class 4 venue managers to bank gaming machine profits directly into the society's bank account.
- A new duty for grant recipients to use grants for the specific purpose it was granted for, together with an offence provision for non-compliance.
- A new duty for casinos and Class 4 venue staff to assist problem gamblers where ongoing issues exist.
Further changes brought by a Supplementary Order Paper include the following:
- Establishing that societies have ongoing obligations (such as to minimise costs and maximise returns).
- Clarifying that societies must incur only actual, reasonable and necessary costs.
- Clarifying that the Secretary can suspend or cancel a licence for past, one-off breaches of the Act.
- Ensuring that the calculation of net proceeds by societies aligns with generally accepted accounting practice, including the depreciation of gambling assets.
We will help operators build capability as they get to grips with new requirements, and anyone requiring assistance should get in touch with us.
Gambling Amendment Bill (No 3)
A new Gambling Amendment Bill (No 3) has been introduced to Parliament.
Conflicts of interest are addressed. For example, under provisions in the Bill the only benefits that venue operators will be able to receive from societies are those under the authorised venue payments scheme. In addition, any benefits that a reasonable person would believe could influence the grant-making process would be prohibited.
Other changes include:
- Bringing management companies into the Act's framework, meaning we will be able to audit and investigate their activities.
- An ability to replace the very complex Class 4 venue payments system that we're currently administering, with another model (for example, a commission-based approach).
- An ability for the Secretary to issue licences for up to three years (rather than the current 18 months). Highly compliant societies will likely receive longer licences.
- Streamlining the Act’s appeals framework so that an affected party, exercising their right of appeal, must utilise the Gambling Commission appeals process set out under our Act and have their appeal finally determined, before seeking a judicial review outside of the Act.
Once the Bill has had its First Reading in Parliament, it will be referred to a select committee for consideration. Societies and venue operators will have the opportunity to make submissions to the select committee on the Bill. Given that it is an election year, it is unlikely that the Bill will progress far through its parliamentary stages in 2014.
Cabinet has agreed to progress with a commission-based venue payment system, subject to the enactment of the Bill. Later this year we will work with the sector to design an effective system that can be implemented once the necessary legislative changes are in place.
Greater licensing scrutiny bears fruit
In its ruling of 11 April 2014 (GC04/14), the Gambling Commission upheld the decision of the Secretary of Internal Affairs to refuse to grant a Class 4 operator’s licence to a new society, Phoenix Charitable Trust Ltd.
We have been promising closer scrutiny of licensing applications for some time, and this was the first time we had refused to license a new Class 4 trust. The decision was based on the unsuitability of Phoenix directors because they lacked relevant experience, together with the involvement of a key person the Secretary considered unsuitable based on his profile of past compliance.
This decision is somewhat of a landmark because it confirms the onus on licence applicants to show that they are suitable to gain entry into the Class 4 sector. Section 52 of the Gambling Act sets out grounds to be satisfied if the Secretary is to grant a licence.
The Commission in its decision (para 40) said: “Satisfaction means that there is nothing that might arise under section 52 which results in something other than satisfaction. If there are doubts they are to be resolved by refusing the application.”
It also noted that satisfaction was with regard to the key persons having sufficient knowledge to not merely lodge an application for a licence, but to conduct a compliant Class 4 operation.
Our position, which this decision supports, is that obtaining a licence to operate in the gambling sector is not a right. Those seeking licences must be able to satisfy us that they are appropriate people to be involved in our sector.
We expect this will be supported by the large number of people in the sector who work hard to be compliant, and do a very good job. Unfortunately the reputation of the entire sector is often damaged by the non-compliant actions of a minority. Our efforts are intended to support those who are compliant, so they can remain in the sector and remain compliant without being undermined.
What does this mean for licence processing?
Our increased scrutiny and analysis of applications will sometimes result in longer processing times, which can introduce complications so societies and venues should take this into account.
We have made changes to some forms already to address some of these complications, but we also recommend that financial commitments are withheld until a licence has been granted.
In addition, based on what this decision demonstrates, for the Secretary to be satisfied, societies and venues may be expected to provide more information in the application process to explain how their application satisfies the requirements of the Act. If this information is not provided, there may be further delays if we require elaboration on any points. We will advise of any changes or developments to the licensing process in subsequent issues of Gambits.
Support for problem gamblers
Shift in gambling expenditure in 2013
Gamblers in New Zealand spent $2072 million dollars on the four main forms of gambling in the 2012/13 financial year, $7 million more than the previous year, but almost 19% less than a decade ago, when the figures are adjusted for inflation.
The picture of gambling in New Zealand is also changing, with a combined $35 million increase in spending across TAB racing and sports betting, NZ Lotteries and casinos, and a $28 million decrease in spending on pokies compared to the previous year. However, the only form of gambling that did not see a drop in inflation-adjusted expenditure over the past decade were Lotto products ($432 million in 2013), which have increased 22 per cent since 2004 ($355 million when adjusted for inflation).
How might this impact the sector long term?
Gaming machine proceeds from the pokie sector currently represent the largest community funding stream from gambling, followed by lotteries, the NZ Racing Board and finally casinos. Any change to the overall amount of funds will have implications for the community over a period of time, and if current trends continue, the Class 4 sector may face increasing challenges in the funding environment.
The increased rate of return and 80 per cent localised returns as a result of the reforms may have an effect on funding trends, but anecdotal reports from some societies currently suggest that demand for community grants is already exceeding availability in some areas. Coupled with decreasing funds this may become a more prominent issue, resulting in more applications being declined. While it is difficult and too soon to anticipate a solution to this potential issue, it is timely to start considering how we might play a role in supporting communities through any challenges in the grant funding environment.
We sometimes get asked by the sector, in light of the decreasing expenditure on pokies, why pokies largely remain the focus of our regulatory efforts. This is partly because a decrease in expenditure doesn’t necessarily equate to a decrease in non-compliant activity, but also because the harm resulting from pokies is still significant.
The Ministry of Health records statistics of people seeking help for gambling* (known as presentations) from the four main industry sectors. These figures show that for the 2012/13 year pokies accounted for 59 percent of presentations with Casinos at 22 percent, NZ Racing Board 9 percent and Lotto NZ at 10 percent.
Caution needs to be applied when considering these figures. It is not appropriate to suggest a simple link between expenditure changes by gambling sector with help seeking presentations This is partly because not all Gambling opportunities represent equal risk of causing harm and partly because these presentation figures do not represent all gambling harm, as they do not include the many people who seek help from other health and social sector service providers or modify their own gambling behaviour.
We will continue to address gambling harm where it is having the most impact, and we will also seek further insight into trends and changes in behaviour, as this may help us identify further opportunities to minimise problem gambling in the future.
* Figures reported reflect “help-seeking presentations” = the number of people who have received a full intervention or a follow up intervention, from a problem gambling service provider that the Ministry of Health funds, during the period and excludes brief only interventions
Overall expenditure In 2012/13:
- TAB racing and sports betting increased by 4 per cent from $283 million to $294 million, reflecting the continuing growth of race betting.
- Spending on NZ Lotteries products rose 3.1 per cent from $419 million to $432 million.
- Casino gambling expenditure rose 2.1 per cent from $509 million to $520 million.
- Spending on gaming machines in pubs and clubs dropped by 3.3 per cent from $854 million to $826 million.
Details are available on the Department’s website under Gambling Expenditure Statistics.
Returns to communities:
- Estimated $637 million or 31 per cent of total gambling expenditure was distributed to the community.
- Non-casino gaming machine trusts raised an estimated $290 million for authorised community purposes.
- NZ Lotteries transferred $202 million to the Lottery Grants Board for community services and projects.
- The New Zealand Racing Board allocated $142 million, mostly to support racing club activities and infrastructure.
- Casinos paid just over $3 million to their community trusts.