NZ pokie laws need change so funds go to communities, not on pub fishing trips, flatscreen TVs or fit-outs, former Community Gaming Association CEO says

By Alex Tarrant

Laws regulating how pokie machine cash is distributed need to change to stop it being funnelled into pub fishing trips, flatscreen TVs and expensive pub fit-outs, when more should be going to communities, former Community Gaming Association (CGA) CEO Francis Wevers says.

Stories like that of a money-go-round of pokie funds between a West Auckland finance company, a trotting club and a pub management firm meant the industry was still seen in a bad light even though changes to the Gambling Act in 2003 were supposed to have stubbed out what were seen as corrupt ways of paying out pokie proceeds.

The relationship between the gaming societies which owned pokie machines, and the pubs which hosted those machines, needed to be revamped.

That would stop societies favouring certain pubs and being able to channel pokie proceeds to those pubs rather than to applications from community groups, who were the intended recipients of pokie funds, Wevers told interest.co.nz.

Pubs host pokie machines owned by gaming trusts - also called societies - which are represented as a body by the CGA.

While 90% of the NZ$9 billion that goes through pokie machines each year is paid out in prize money, the remaining 10% is distributed by those societies between the community (at least 37%), through grants distributed by societies; the government, through levies and taxes (about 30%); and with the balance going to the society.

Of that remaining cash going to a society, a society was allowed to pay out a maximum of 16% of that across the pubs which hosted its machines, for operating costs.

Ways to get around it 

The hospitality sector had always felt generally “that pokies should be the property of the venue owner, and that they should be able to take all the profits,” Wevers said. They had accepted “very reluctantly” the idea of pokie proceeds going to the community.

“In the bad-old days, and there were worse days before 2003, what used to happen was the pub owner, who was completely involved in the distribution of grant money, in making recommendations to the charitable trusts which owned the machines, would say to a sports club, 'well, I’ll make sure you get some money for your jerseys if you come and drink in my pub’.

“They tried to stamp that out in 2003 and the reality was that people found relatively clever ways around that because pub owners and venue owners are still – as far as the majority of societies are concerned – the most important people in the whole system," Wevers said.

“They host the machines. They’re the ones who bank the money, who look after the machines, and look after the customers.”

Which meant the societies looked after the well-performing pubs.

“Some pubs might produce NZ$10-15,000 a week in revenue. Others might produce a couple of million a month, just because their 18 machines are in a really busy central-city position," Wevers said.

So while a society could only pay out 16% of its pokie cash share across its host pubs, some venues would get less than their share of the 16% while the more favoured ones would get more, in an effort to keep them on board.

There was a lot of competition between societies for the well-performing pubs, which had led to societies pulling out all kinds of stops to keep their good ones.

Expensive fit outs

On top of that, “the reality is that some societies have paid out much more than the 16% because they’ve been hooked into contracts with venues and have thought they could get away with it, and as time has proved, not suffered any penalty," Wevers said.

“I don’t think there’s been a society closed down [completely] for over-paying venues. Some of them have had to shut their venues down for a few days at a time. But when you’re talking about three or four days in a year, they’ll pick their low revenue days or some days when they’re not open,” he said.

These deals between societies and their pubs were also not necessarily always monetary, although there would always be a financial element to them.

“What has been complained about in the industry for a long time – and there was a case involving Southern Trust – is where very expensive venue fit-outs were done with new carpet and new equipment at no cost to the venue," Wevers said.

“Now that adds some real value to the venue because it improves the quality of the space. So there was competition between societies to give people the best fit-outs. They used branded carpets and those sorts of things, to try and tie the venue into them for as long a period as possible," he said.

The society was therefore faced with excessive operational costs due to paying for the fit-outs, which meant money wasn’t available to go to community grant applications.

Paying for a pub's flat-screen TV’s was another favourite, "and sometimes those TV screens disappeared completely and ended up in people’s private homes," Wevers said.

Then there were the stories about how various societies would pay for pub owners to go on fishing trips, or to conferences so the pub operators didn’t have to meet those costs out of their own earnings.

'Endemic rorts'

Before changes made in 2003, there was a South Island pub which established a big-game fishing club which the pub-owner and his mates were all members of. The club received funding for a fishing trip from the society whose pokies were in the pub.

“Those things were much more endemic prior to 2003 than they are now, but they still exist," Wevers said.

“The primary focus should be on delivering the best value to the community – those decisions should be taken with a great deal more prudence than they often had been," he said.

There would be no way those types of funding applications would be allowed if they were spotted, but people were very adept at finding clever ways around regulations.

“People don’t put things in writing - promises are made not in writing, not to be confirmed anywhere, and there are a lot of people in the industry who have been used to working like that, and continue to work like that," Wevers said.

“I would find it incredible to believe that those people have actually changed their behaviour. I know the Department [of Internal Affairs] doesn’t believe that those people have changed their behaviour, and you can still see it," he said.

Finance company links

A famous case was in 2008 in West Auckland, where a whole lot of pubs were effectively bought by a finance company, which received its finance from pokie grants made from the pubs' society to a trotting club, which were then invested on deposit with the finance company, funding the purchase of new pubs. See more on that case here. In this case the Department of Internal Affairs promised to investigate.

Another was that real estate agents, at the behest of pub owners, had for the last 20 years factored in revenue from pokie machines as a business revenue stream. That has set the value of a pub when it changed hands higher than it should have been.

"The reality is that the purpose of having the pokies is to raise the maximum amount of funds for the community, and the 37% that’s encapsulated in the legislation is actually a minimum. They’ve got to do better than that and a lot of them should be doing much better than that," Wevers said.

The Invercargill Licencing Trust had been able to achieve 50% payouts - well above the 37% minimum.

"There are ways in which they achieve that which others would find really hard – that’s because they own the venues as well as being the society. So that makes it easier for them to leave some costs within the pub operation rather than in the pokies operation," Wevers said.

So what to do?

Wevers wrote a paper for then-Minister for Internal Affairs Nathan Guy outlining some options for change in January 2011.

“You have to change the nature of the relationship between the pubs and the fundraising entity which supplies them with pokie machines for this community purpose," he said.

“Instead of having the fundraising organisations (societies) negotiate contracts at an individual level with each pub, they should actually be awarded through a tender process on the basis of their best offer in terms of the amount of money going back to the community, their best offer in terms of the lowest overhead costs, and their best offer in terms of the best programme for harm minimalisation."

Societies would be given the right to have their pokie machines in all the venues of a particular district.

“Say, in Porirua for instance, there are half a dozen venues out there. They would be a district, it would go up for tender. Mana Community Grants Foundation, Lion Foundation, and NZCT would all put in their bids and the best one would get the right to operate all the gaming machines in that district," Wevers said.

“Then, instead of distributing the money, it would collect the money on a weekly or monthly basis, and hand that over to an entirely separate organisation which would be responsible for receiving the applications and distributing the funds," he said.

This was always a difficult political issue.

“When I presented the paper to Nathan Guy it was coming up to an election year, and there was no room in the legislative programme for the government to do anything about it. And they probably didn’t want to grapple with gambling, which is a pretty hot political issue in an election year," Wevers said.

He was hopeful a Bill put forward by Maori Party MP Te Ururoa Flavell would raise the focus on the pokie sector once again. However, "I don’t think the Flavell bill is the right solution at all. I think the whole notion of transferring all these issues to local government is woefully inadequate. That would bring the worst of local body pork-barrel politics to bear on it."

“I’m just hopeful the government will do something, because otherwise the problems that pokie gambling creates in terms of people’s confidence in the system will continue to undermine it, and it’s a useful tool for raising good community funds," Wevers said.