In this latest edition of Gambling News, we cover the big supermarket chains potentially exiting the pokies industry, the pokies debate at the Moelis AGM, Victoria's move on the point of consumption tax, Britain slashing the maximum bet and plenty of action in the local government space.
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- As Wesfarmers prepares to exit pokies, what will Woolworths do?
1. As Wesfarmers prepares to exit, Woolworths remains under the pump on pokies
Wesfarmers, the owner of Coles, is in exclusive negotiation with US private equity firm KKR to exit its Australian pokies business.
The Australian broke the story last Monday and Patrick Hatch followed up with this interesting piece in the Fairfax papers on Thursday pointing out that a Coles sale would put further pressure on Australia’s biggest pokies operator, Woolworths, to also exit the toxic business.
You can click here to sign our petition supporting Coles to divest from pokies!
The Melbourne Football Club also recently announced it was joining North Melbourne in moving to a pokies free operating model by divesting one venue and not renewing pokies licences at a second. Even the Zagame family, which owns one of the largest pokies pub chains in Victoria, have announced they also want to exit the industry after the family patriarch Victor Zagame passed away and the next generation didn’t feel comfortable continuing in the industry.
But who is prepared to buy? KKR is the world’s most famous private equity firm and last year bought 80% of Dixon Hospitality Group (see announcement) which had previously championed itself as a venue operator that did not overly rely on poker machines for its profits.
The business was renamed The Australian Venue Company and you can see from its list of venues that many of them don’t feature poker machines, unlike Woolworths which has transformed itself into a specialist pokies pub operator.
The old Dixon Hospitality was also trying to float itself on the ASX last year with a blue-blood board including former Macquarie Group chair Kevin McCann and former Victorian Police Commissioner Ken Lay.
But it then instead sold 80% of the business to KKR which is now looking to expand further into the hotels industry by acquiring the Coles portfolio before Coles is formally demerged from its conglomerate parent, Wesfarmers.
The Australia Institute recently released a report detailing how Australia has 76% of the world’s poker machines in pubs and clubs, with Woolworths the single biggest operator and Coles coming in second with about 3000 machines.
If Woolworths wants to follow the lead of Wesfarmers and exit, the obvious move is a demerger of its pokies division ALH or a straight sale to its controversial billionaire joint venture partner, Bruce Mathieson, who has management control over the 12,000 poker machines across more than 300 Australian pubs, even though he only owns 25% of the joint venture.
This was an unusual deal struck back when Roger Corbett was CEO of Woolworths. Corbett, 76, is currently serving as the Woolworths-nominated non-executive chairman of the ALH joint venture and he remains close with Mathieson. The two of them both sit on the board of public companies Beovista, (an energy efficiency company) and Mayne Pharma.
Corbett also added another public company chairmanship today (see ASX announcement), at an outfit called Molopo Energy, after a board coup at the AGM last week. This move potentially gives the Woolworths board a chance to move against Corbett as ALH chair on workload grounds, as he is now breaking rules related to “over-boarding”.
ALH is under enormous pressure after the revelations by staff whistleblowers who spoke to Federal MP Andrew Wilkie. It needs the full attention of its board, including the Woolworths-nominated chairman.
Under the leadership of chairman Gordon Cairns and CEO Brad Banducci, Woolworths has repositioned itself as a more values-based organisation. The first big test of that will be if they are prepared to stare down Bruce Mathieson and Roger Corbett and follow the lead of Coles out of the pokies industry.
If they were prepared to exit both hardware and fuel, it is hard to see why they would stay in the predatory pokies business.
2. Taking the pokies challenge to the Moelis AGM
The Alliance popped along to the inaugural AGM of investment bank Moelis Australia in Sydney last week. The company recently paid $677 million for the Redcape Hotels pokies business last year and is hoping to float it on the stock market at some point in the next 12 months.
The pokies industry usually tries to downplay its power and profits, so we were shocked by the way Moelis gloated about Sydney's "gaming corridor" in the prospectus it used to attract 300 investors to help finance the acquisition.
Moelis is run by CEO Andrew Pridham, who is also chairman of the Sydney Swans, which doesn’t own or operate any poker machines at a time when the AFL is hoping its clubs will transition away from reliance on pokies losses.
Pridham is a wealthy investment banker who owns about $150 million worth of shares in Moelis Australia. He hasn’t shown a lot of sympathy for those harmed by a pokies addiction in the past and here is a transcript of how the pokies debate unfolded at the Moelis AGM:
Stephen Mayne (Alliance representative): The Alliance for Gambling is trying to reduce Australia’s world record gambling losses and obviously Moelis, through Redcape, is the second largest pokies pub operator in NSW. You talked about looking after your clients. I’d just like to ask, what do you do to protect your pokies pubs clients from harming themselves?”
CEO Andrew Pridham (also chair of Sydney Swans board): Well, I think, look, it’s a very good question and anybody in the hotel industry… it’s important to understand Redcape owns hotels which provide for all manner of, in terms of food and beverage…as well as electronic gaming machines. We are very focused at Redcape on the need to provide support to people who have problems with gambling. But it is important to put in context. It’s a very small proportion of people in Australia, do have a problem. But when they have a problem it is a big problem and we accept that. But it’s also important to put in context that that problem is not unique to electronic gaming machines or poker machines. It’s a problem that occurs on betting on horse racing, sports, across lotto, there’s all manner of things. There’s hundreds of things that people can wager on in this country and there is a small proportion of people who have difficulty with that, just as people have difficulty with drinking for example or smoking or whatever. So we are very focused on it. We put a significant amount of money back into the community, we’re involved in investing in support programs, putting capital into support programs. It’s a very complex issue and it’s a very complex problem. On the one hand you need to know which of your customers have a problem so you can help them. On the other hand you can be criticised for knowing too much about your customers. But we are very, very aware of it. As Jeff mentioned, we have a strong social conscience with our Foundation, with everything we do. And we will continue to be focused on being, in that business, the best we can possibly be in the industry.
Stephen Mayne: Okay, look, Just a specific, so your prospectus when you raised about $300 million, talked about the El Cortez Hotel in Canley Vale, in the city of Fairfield. Now it’s the number one yielding pokies pub in NSW. So $13.9 million, so you’ve got 30 machines, each machine is making $463,000 a year, which is the highest of any venue in Australia, of the 5000. Now, Fairfield is the most harmed local government community in Australia, so there’s more money lost in Fairfield than almost all of South Australia, in one council area. They have also taken 7000 refugees in the last 3 years, they are rated as the most disadvantaged community in Sydney. So this company is ground zero of gambling harm and addiction in NSW, which is the most gambling harmed jurisdiction in the world, outside of Macau and Las Vegas. So I want to ask you if you can do a couple of specific things to reduce the harm and the harm is directly related to the losses which at $13.9 million at The El Cortez is very, very large. And the first is to not stay open until 4 in the morning in the most vulnerable community in Sydney. So that’s a tangible reform you could do, you are open until 4 in the morning tomorrow morning and the next morning. Nothing good is happening at the El Cortez at 3 in the morning and I would encourage you to go there and talk to some of your clients there and ask them how they’re travelling, because they are not travelling very well. The other thing you can do across your portfolio is you can reduce the maximum bet, which at $10, is close to the highest in the world. So the Brits have are just reducing theirs from 100 quid to 2 quid. South Australia, Victoria and Queensland they have gone from $10 to $5. NSW is an outlier. Wesfarmers/Coles is trying to move to $1. So a tangible thing you could do, to show you are serious about reducing gambling harm would be to require the industry to supply you with $5 maximum bet machines. So I’d like ask you to consider taking on those two tangible reforms: reduced trading hours when you have got venues in the most vulnerable and harmed communities and less lethal machines, with a lower maximum bet.”
Andrew Pridham: “Well thanks, thanks for that. In terms of… We are very focused on people who have problems with addiction and that is something we are always focused on.”
Stephen Mayne: “Alright, so I’ll be back next year to hopefully hear about a few little tweaks and changes. What else can you tell us about the Redcape float? Obviously we know it is coming in the next 6 or 8 months. Have you got a board in place? Are you going to be on the board, Andrew, when it floats?”
Andrew Pridham: “Look, we’re still, obviously we have a board. We have over 300 shareholders in Redcape and it is something we are working towards whether it is this year or next year will just depend on a whole lot of factors, including the market, and we are preparing it for listing.”
- Ends -
That was the first time Moelis has talked about the Redcape float slipping into 2019, which would make sense given the heightened regulatory risk around the March 2019 NSW election, a point made in this story (pay) in The Australian last week.
3. Victoria moves, so now waiting for NSW on the point of consumption tax
“The Alliance was pleased with the proposed new point of consumption tax on foreign bookmakers announced by the Victorian Government on May 14 and we’re calling for all political parties and state governments to get on with passing similar legislation as soon as possible.
Alliance spokesman and director Tim Costello recently met with Victorian Treasurer Tim Pallas and whilst broadly supporting the proposed measures, we would have preferred a higher tax rate than 8% and an earlier start date than January 1, 2019.
This is a long overdue reform but it is better late than never, so The Alliance supports the move and hopes it is a catalyst for belated national action.
It would have been better to have national legislation but when negotiations with the Commonwealth fell apart last October over revenue sharing disagreements, a state by state approach was the only remaining option.
Australia’s Treasurers met again in Melbourne on April 5 but the Scott Morrison press release made no mention of any discussion about a national point of consumption tax.
The Alliance has long argued that lowly taxed foreign bookmakers operating through the Northern Territory have been the main cause of the deluge of gambling advertising indoctrinating future generations and poisoning Australian sport. It was good to see the Northern Territory News reported on our concerns last month.
It is simply scandalous that the 24 licensed bookmakers and betting exchanges in the Northern Territory were only budgeted to pay a miserly $5.4 million in taxes (see p80 of 2017-18 NT budget) to Territorians in 2017-18 when Australians are losing close to $2 billion a year gambling with these companies.
Sportsbet’s parent company Paddy Power Betfair has been gloating (see p7 of full year results presentation) about its soaring profits in Australia. They can definitely afford to make a modest contribution to state governments across Australia, especially when they contribute nothing to taxpayers!
South Australia was the first state to move on a point of consumption tax which commenced on July 1, 2017, at a headline rate of 15%, which Sportsbet has described as an effective rate of 7%. Victoria’s proposed 8% rate will be similar, although transferring 1.5% to the racing industry will dilute the benefit for taxpayers.
The former West Australian Liberal Government announced a scheme scheduled to start on January 1, 2019, which Sportsbet has described as an 11% tax on gambling expenditure. The latest WA state budget, the first for the new Labor Government, showed overall gambling tax revenues are forecast to rise from $260 million in 2017-18, to $295 million in 2018-19 and $328 million once the point of consumption tax is fully operational in the 2019-20 financial year. However, legislation still needs to be passed.
The Queensland Government has announced it is following the South Australian model, with details expected to be released in the June 12 state budget.
It is disappointing only South Australia has actually passed legislation and imposed this tax so the onus is now on all states to get on with legislating so we can have a uniform start date of January 1, 2019.
The NSW Government has been the slowest to move and only recently released this 13-page consultation paper on the point of consumption proposal and is expected to announce its decision in the June 19 budget.
The foreign bookies have been deluging our kids with ads because the super-profits from the failure to tax them has attracted a flood of new competition fighting for market share in the lucrative online market.
Introducing new state taxes across Australia which collectively brings in revenues of more than $200 million once fully operational will clearly reduce the profits available for advertising which should benefit long-suffering consumers and protect our kids from saturation gambling ads.
Tim Pallas press release.
Alliance press release after May 1 Victorian budget made no mention of new tax.
Tim Costello interview with 774 ABC Melbourne morning presenter Jon Faine on May 14.
Alliance press release on May 14 when Victorian tax announced.
Audio of exchange between Tim Pallas and Alliance representative at the Melbourne Press Club
4. Offshore moves: Britain slashes the maximum bet
The Alliance was delighted to see the UK government recently announced it would dramatically reduce maximum bets from 100 pounds to 2 pounds on 33,611 fixed odd betting terminals (FOBTs) spread across more than 8000 UK high street betting shops.
Surely this should mean Australia’s most gambling captured state, NSW, could at least follow the lead of other states and reduce its maximum bet from $10 to $5.
It was also noteworthy that the UK proposes to recover some of the lost revenue by increasing the point of consumption tax on the online gambling sector, which is currently 15% in the UK. This is an interesting model for the US, where sports betting has just been legalised by the Supreme Court and there is a scramble across about 20 states to legalise it. Delaware is expecting to launch tomorrow, with a predictably low-tax and light-touch regulatory arrangement.
The 1.8 billion pounds lost annually on FOBTs in Britain is dwarfed by the $13 billion-plus Australians will lose on 193,000 high intensity gambling machines in 2018.
Why is that? Well, for a start, UK betting shops were limited to 4 FOBTs per outlet, whereas in NSW there is no venue limit on poker machines with several big clubs each having more than 600 on a single site.
Australian venues can also stay open most of the night, unlike High Street shops in the UK.
Here is some more useful background on the FOBTs decision:
Statement released by UK government last night announcing decision
62 page consultation paper produced by the British for the triennial review
Video created by UK MPs arguing the case for change, led by Welsh MP Carolyn Harris.
Briefing paper for MPs by the House of Commons library
Statement by SNP MP Ronnie Cowan, who led the reform push
2014 video by The Guardian explaining the history of FOBTs in Britain
5. Council action on pokies reform: NSW update, Victorian election policy and more council motions
Byron Shire Council continues its leadership on the pokies front with this great investigation into some very strong options for a gambling harm strategy in the iconic coastal community, including consideration of pokies interests when leasing council land to clubs. It passed at the 24 May meeting and the council will now bring a policy back for approval in August.
Northern Beaches is not far behind, with their policy currently out for community consultation before a full policy is brought back later this year. You can make a submission here.
The Alliance also recently launched its Victorian election policy with a group of councillors and officers at the regular Local Government Working Group On Gambling (LGWGOG) meeting at the VLGA. We also had an excellent discussion at the recent MAV Council Working Group on Gambling and Liquor and continue to work productively with Councils across Victoria.
The Alliance’s Victorian pokies policy outlines a range of reform asks for the upcoming Victorian election ranging from $1 maximum bets, reduced trading hours and retirement of the machines surrendered as part of the current licence renewal process.
Our new Victorian campaign manager and council co-ordinator will be announced in coming days and we’ve been engaging with councils through the annual budget season.
To highlight the good work of local government in the gambling reform space we’ve started a page on our website dedicated to successful councillor motions which advocate reform.
The latest is from City of Monash which is putting pressure on Hawthorn Football Club to exit the pokies business. The Monash motion generated strong coverage in The Monash Leader, which in turn led to Hawthorn President Jeff Kennett firing off a controversial letter equating pokies gambling to the road toll.
Given that the former Victorian Premier is the majority shareholder in a pokies maintenance company called Amtek, there’s an argument that he shouldn’t be speaking about the pokies issue on behalf of Hawthorn. That’s one for the rest of the Hawthorn directors to consider.
In terms of Local Government motions on gambling, our last newsletter foreshadowed a City of Darebin motion to the Municipal Association of Victoria state council meeting on May 18 which was framed in the following terms:
That MAV State Council:
Condemns Woolworths for operating Australia’s biggest poker machine business in a reckless and unsustainable fashion, deluging harm and misery on the community by making more than 12,000 predatory and addictive gambling machines available at 300 hotels across Australia, including more than 80 in Victoria.
Authorises the MAV to engage with the Vision Super board to advocate for full divestment of its Woolworths investment by the end of 2018 if the Woolworths board has not publically announced its intention to divest its poker machine division.
The Age’s Nick Toscano covered the story in advance but it was defeated when 70% of delegates voted against. A number cited the language in the first paragraph as being too strong. Potentially, the motion could come back in a revised form to the October state council meeting which will take place shortly before the Victorian election.
Meanwhile, individual councils are free to pursue similar gambling divestment motions related to Woolworths or the broader gambling industry and put them directly to their local government super fund.
For instance, City of Melbourne did precisely that with tobacco 12 months ago, as is explained in this press release at the time following a unanimously supported motion.
Woolworths divestment wasn’t the only pokies item in the full agenda for the MAV State Council meeting on May 18 as there was strong support for Brimbank’s pokies motion which read as follows:
The Municipal Association of Victoria advocates to the State Government to adopt a public health approach to reduce the harms caused by Electronic Gaming Machines (EGMs) by legislating to:
Reduce the maximum cash withdrawal limit from EFTPOS facilities at gaming venues from $500 to $200 in a 24-hour period.
Strengthen the regulatory framework governing the enforcement of the Victorian Responsible Gambling Code of Conduct.
If you’re a councillor reading this newsletter, why not get on board with a motion of your own. And if you’re aware of other strong council gambling motions which should be added to our motions web page, drop us a line to Stephen@agr.org.au.
6. Latest Alliance media releases and media monitoring
2018 has been a busy time in the media for The Alliance and here are links to the press releases we’ve issued since the last newsletter went out on May 9:
Coles exit from pokies will crank up the pressure on Woolworths
The Age, 31 May, 2018
Monash and Jeff Kennett duke it out over Hawthorn pokies den Vegas at Waverley Gardens
Monash Leader, 29 May, 2018
Extract from Drew Rooke's excellent new book on the pokies
The Guardian, 25 May, 2018
Northern Territory scandalously under-taxes foreign bookies
Northern Territory News, 25 May, 2018
Who should oversee US sports betting after Supreme Court decision?
New York Times, 23 May, 2018
Charles Livingstone calls for WADA-style body to oversee sports betting corruption
Associated Press, 23 May, 2018
Labor's pro-casino Queensland Tourism Minister Kate Jones heads to Vegas and Macau
Casino News Daily, 22 May, 2018
Peregian Beach residents fight to stop the pokies at their surf club
Noosa News, 22 May, 2018
Statement by UK government slashing the maximum bet
UK Government, 17 May, 2018
GVC explains big impact of British decision on maximum bets
GVC, 17 May, 2018
Time to fix Australia's weak regulation of video games for gambling content
The Conversation, 16 May, 2018
Online bookies face $30m tax in Victoria as industry splits
The Age, 15 May, 2018
Interview with Drew Rooke over new book "One last spin"
Radio National, 14 May, 2018
Nine News Melbourne on Victoria's 8% point of consumption tax
Nine News, 14 May 2018
Seven News Melbourne on Victoria's 8% point of consumption tax
Seven News, 14 May, 2018
Victoria eyes softer betting tax on foreign bookmakers
The Age, 14 May, 2018
Tim Costello interviewed by Jon Faine on new bookies tax
774 ABC Melbourne, 14 May, 2018
More delay in Canberra pokies forfeiture scheme
The Canberra Times, 10 May, 2018
If you know of any other stories which should be added – no matter how old – send the links through to firstname.lastname@example.org and we’ll make them available. The same goes for interesting academic research papers or submissions to government regulators.
That’s all for now. We’ll be back with another edition of Alliance News in a couple of weeks.
Stephen Mayne and The Alliance team