Image for A Poker Machine led boost for Tasmania’s economy and social health

Summary: An opportunity exists to convert Tasmania’s problematic poker machine gambling social and financial costs to a world leading example whereby poker machine use incurs no overall losses to gamblers.  This is by making the machines revenue neutral, with no proportion of money gambled going to the pubs/clubs, the Government or the machine providers. Economic argument is presented to justify a conversion of Tasmania’s present unique position whereby it has thousands of the insidious money sucking leach-like machines, to make Tasmania the Cayman Island tax Mecca equivalent for gamblers worldwide, for revenue neutral poker machine gambling and a social problem free incredible boost to the State’s tourism industry.

Introduction:  Poker machines are wonderful for the government and the machine providers, but less so for users long term.  John Lawrence, in Tasmanian Times ( HERE ),  Professor John Mangan ( HERE ),  State Treasury ( HERE ),  Anglicare ( HERE ), and others have described the present situation in Tasmania in detail. 

The Tasmanian Labor Party has recently announced its new policy to phase out poker machines (electronic gaming machines) in pubs and clubs after 2023.  2023 is a minimal date because Federal Hotels has a guaranteed monopoly in Tasmania until then, with a license to print money from its position of sole operator of electronic gambling in casinos, pubs and clubs.  The Labor party cite data showing that about 80% of Tasmanians are in favour of banning the machines, but in my view that data is pretty nebulous and opinion could change quickly with opposition to their policy by pubs and the Federal group in coming months and years.

For anyone aware of probability theory and in the know about the chance of winning on these machines, it seems amazing that they are so popular!  We know the take for the machine providers in Australia from any individual bet on poker machines is high ( HERE ).  It varies a bit state by state, but averages out at about 13%  (between 10 and 15%)  That is to say for someone betting just $1 each game (spin) then, on average only about 87 cents is returned. 

Since pokies are so incredibly fast to bet on in the sense of no waiting for the next horse race, or the next keno draw, money can be lost (or very rarely won) quickly.  10 – 20 bets per minute is common.  For a $100 kitty then, with just $1 bet each time, then, on average,  just hitting the spin button 770 times will take about an hour and all the money will be gone.

Where does the money go?  Answer:  In Tasmania no one seems to be saying exactly how much money is lost by the average poker machine punter in any session.  That is to say for each $1000 inserted into a machine, how much is eventually returned as profit.  For two up, or roulette, calculating the odds is easy, and so long as the odds are fairly high then a 10 or 15 % commission to the venue owners is not overwhelming important for a single occasional bet.  It sure is though for poker machines, with a vengeance!  Assuming about a 13% loss each bet though, from the data provided by John Lawrence ( HERE:page 15 ) in his submission to the Joint Select Committee on Future Gaming Markets ( HERE ), then:

Overall annual loss to poker machine gamblers was $114 million last year (including GST – just for pubs and clubs).  Tax to the Tasmanian Government was $36 million, Commission paid by Federal to pubs and clubs with pokies was $26 million for non Federal hotels or about $32 million if their 12 hotels with poker machines are included.  Average annual loss to gamblers is $48,000 or $130 per machine per day (for a maximum of 30 machines per venue).  There are 2375 poker machines in pubs and clubs in Tasmania.  About one quarter of hotels have poker machines.

As John Lawrence nicely sums up: (page 20 of his submission):

For every $1 lost by players, the State Government gets 30 cents, the venue gets 30 cents (but loses about half of that in paying for poker machine hire, maintenance and occasional promotions).  Federal Hotels gets 31 cents and GST is 9 cents.

Well then ... what does it cost Federal Hotels for all this hard work in maintaining and providing poker machines?

Let’s start with the cost of a poker machine?  Some indication is available online ( HERE ), suggesting a new poker machine costs in the order of A$30,000.  This would relate to an annual lease in the order of $3000 per machine for pubs.

John Lawrence cites $8.5 million per year costs to non Federal venues with 2015 poker machines for machine hire, servicing and promotions (page 23 of his submission). This equates to $4200 per machine per year.

On the face of it therefore, Federal Hotels would seem to be on a good earner, with counting their profits one of the biggest cost items?  All they do is bring in the poker machines from overseas and have someone install and maintain them.  In addition is the matter of complying with government regulations and providing accounting services.  That doesn’t seem worthy of 30% of the annual $114 million loss to machine users to me? Why would we give them another license to print money by renewing their monopoly contract beyond 2023?

Likewise the Tasmanian Government benefits handsomely from the poker machines in pubs and clubs. They exploit the weakness of vulnerable people, many on low incomes, to gouge the system in a quite unfair way.  This is because they get a disproportionate proportion of their revenue from the relatively small proportion of the population with a poker machine habit.  We all know they need revenue to provide services, but raising taxes on items more universally used by all adult Tasmanians would be much fairer.  For example raising the present nominal charge for driver’s license fees by approximately $150 per year would raise the $35 million shortfall from banning poker machines just in pubs/clubs. 

For the Tasmanian government the data indicates that the pokies in clubs and pubs provide just 0.5% of their tax revenue.  Note though that $35 million per year forfeited with Labor’s plan ( HERE ) to ban the pokies in clubs and pubs will still leave them with a large revenue hole to fill, especially after also providing compensation for loss of revenue from banning the machines ($55 million compensation package).

It is the pubs and clubs that are at the coal face with the poker machines. They do all the work really in providing staff whenever needed for payouts,  (but not very often!), they provide a room for the machines, power and lighting, furniture and landscaping.

As we have noted, they gain an income in the order of about 30% of the $48,000 income each machine each year = $430,000 for those large hotels with the maximum 30 poker machines.  They then have to deduct approximately $150,000 for leasing the machines and providing staff and facilities, leaving them with a potential income from 30 machines in the order of $280,000 per year or $800 per day gross profit.  It is obvious therefore, that for these hotels and clubs with well patronised poker machines, having them banned would be bad for business, and some minimal compensation from the Government responsible for the banning would nowhere near compensate for future financial losses.

On the face of things therefore, it is unlikely that venues with poker machines will be happy with the Labor party proposal to ban poker machines? Nor probably will even non gamblers when cash strapped pubs cut back on cheap meals, staff, live entertainment and happy hours in belt-tightening exercises after the poker machines disappear?  As the Labor policy stands it is easy to envisage a serious backlash when the general public realises how bad this policy might be for a friend or relative working in a pub.  Even dedicated habitual poker machine users might not appreciate that it is their best interest to give up on the machines.  I guess most addicts will soon realize though that online electronic gaming machines ( HERE ) are now becoming ubiquitous and will no doubt be even more so by 2023.  Then again, the pubs will also probably see benefits in installing computers where the pokies used to be, permanently on line to various internet gambling providers?  Tough luck then though as all the profits will then go overseas, to the Ukraine or wherever, where the clandestine gambling providers have their websites sited?

It really seems inevitable that the current poker machine rip-off can’t last much longer.  Faced with public outrage, online gaming competition and lack of fairness, the current system is certainly doomed, in my opinion.

Since online gaming is legal and rapidly increasing in popularity, continuing as at present seems like a head in the sand approach?  Probably as the poker machines are moved out by Labor and the Greens, new cheap computers with large screens, permanently connected to internet gaming sites will straight away take their place.  Internet gaming allegedly has a much better pay back for gambling (92 – 97 % for poker machines) relative to the Tasmanian situation, but I remain sceptical of that claim.  In any case any online gambling system based on users losing a fixed percentage each bet is doomed to result in significant gambler loss because of the high rate of game throughput.  The only fair way of betting for the future is via zero percentage take by betting hosts in my very strong opinion. 

If the Government remains intransigent on this matter (no change from present arrangement for Liberals, total banning of electronic gaming by Labor) then I will be tempted to start my own online gaming site.  I will set it up, structured for minimal payment by the hour for users, with absolutely no percentage take myself.  I will then offshore its internet base to maintain legality for Australian users. (At least something for me to do and somewhere to go when/if the Derwent Valley Council issue their final eviction notice!)

A plan to take advantage of the ubiquity of poker machines for social and economic advantage without banning them:

Let’s ditch Federal Hotels as poker machine providers ASAP.  There are plenty of qualified poker machine service personnel available and plenty of places to rent or buy poker machines.  If Federal Hotels want never-ending handouts for a service anyone could provide, then let them apply to Centrelink, the same as anyone else!  Just because they own and run casinos really has no bearing on why they should control poker machines in pubs and clubs they don’t own!  Maybe let the Tasmanian government run the gambling after 2023? Let’s convince the Tasmanian government that enticing tourists to Tasmania for free gambling will be more profitable tax revenue wise than a miserable tax on unfortunate poker machine addicts, and let’s make sure the pubs and clubs make up for loss of poker machine revenue with increased custom?

What I am saying then is: Let’s keep the existing poker machine number or even increase it.  Let’s make them revenue neutral in the sense that there is an overall 50:50 chance of winning with no % take by anyone.  It is so outrageously greedy and unfair that poker machines are so blatantly money-sucking machines as they are currently run.  Just playing a minimal bet of $1 per bet x 10 bets per minute, sucks $60 per hour from the better on average.  Bet all day, every day, for just $1 per bet, at 10 bets per minute for a month, and be 99.9% certain of losing $43,000.  Take away the 13 – 15 % take by Federal and repeat the exercise and after a month we are still exactly where we started kitty wise, apart from money spent on food and drinks!  For sure a gambler under the present system might get lucky occasionally and gain a few dollars with a minimal win to prolong the agony, but only very rarely does a big win come up with enough money to encourage the gambler to take profit and quit!

This is all due to the approximate 13% take to benefit the Federal group (mostly), the Government (almost as greedy) and the venue.

Why should we have to pay a percentage of every bet to outsiders?

It is such an absurd proposition to think that if you bought a hammer, you should pay money to Bunnings and to the Government for every nail you hammered in!  It is even more absurd to have to pay Federal and the government for you personally rearranging your finances by gambling. 

Let us get rid of this outrageous situation and make poker machines, at least in pubs and clubs, revenue neutral.  If we bet $1 that a coin toss will come up heads, then lets pay out exactly on the probability of winning.  If we want to play poker machines, then do exactly the same.  Let there be NO take as a percentage of each bet to the operators.  The only people needing money for us to manipulate our finances by betting in a hotel are the hotel proprietors for allowing us to use their poker machines.  How we bet is no one’s business but our own. 

All we simply need to do therefore to avoid inevitably losing at poker machines and causing social problems, without impacting on the hotels and clubs profitability, is pay a minimal amount to use their machines.  That is to say, in the calculations above, we concluded that a large hotel needed about $800 per day from 30 poker machines to make a reasonable return on its investment.  All that it needs to do then is charge patrons so much per hour to gamble.  I estimate that a cover charge of $20 per hour per person would match their present profit statistics.  Alternatively they could provide use of the machines for half an hour, for example, for patrons buying food or drinks totalling a value of $20?

Let’s tell the world via serious advertising that Tasmania is the new Cayman Islands tax saving equivalent for people seriously interested in gambling with the world’s best odds of winning, super fast betting and super friendly venues scattered all over the countryside.  See the Tasmanian beautiful countryside by day and gamble at night, confident that you will incur no overall loss, long term.  i.e. with no annoying 13% take bleeding you dry by greedy machine owners and governments ensuring that you end up with a serious financial loss likely to totally spoil your holiday.

Even if the government was to reimburse this cost to the pubs for the advertising appeal of no cost poker machines, it would only amount to about $10 million per year, which is only about the same as Labor is prepared to compensate them for ditching the machines anyway!

No more problems with addicted poker machine players losing all their income and pensions because the longer they bet, no matter the odds of winning, the more they will approach a no win – no lose situation.  They can gamble all day, every day, simply for the minor cost of using the poker machines for an hour or two.  No more depression and ending of relationships because of gambling, less pressure to bet on risky alternative loss making certainties like online gambling, horse racing and sports betting!

We might then have to put up with new problems like additional tourist traffic on roads, queues at restaurants and tourist events, and car parking problems at packed out pubs and clubs.  Also the Federal group will probably start complaining that pubs and clubs are enticing away their customers with super cheap no commission betting? Oh well, Tasmania is so conservative that no real chance of anything innovative and exciting like this eventuating, I suppose? Plenty of reasons not to do it, as I am sure I will soon learn?

Disclaimer: This report is a discussion paper only.  Calculations and validity of data in references has not been independently verified.  Thoughtful feedback and corrected or more up to date statistical information will be appreciated.
 
Come on please – we need a unique reason for more tourists to come to Tasmania?  I think this could be it?  Being the world’s biggest users of poison to kill native animals by agonising convulsion inducing 1080 poison is not enough! Nor is being the only place to spend $2 for every $1 we receive for cutting our forests, or having the highest opium content poppies.

*Ivo Edwards is an independent scientist and inventor from Maydena.  He is an occasional poker machine user, but has had minimal gambling success to date.  He does though, have a vibe that next time will be his successful breakthrough moment!