it is war as brumby breaks pokies hold

http://www.theage.com.au/news/national/pokie-giants-declare-war/2008/04/10/1207420591288.html

It's war, as Brumby breaks pokies hold

David Rood and Cameron Houston
April 11, 2008


GAMING giants Tabcorp and Tatts have declared war on the State Government, threatening to sue for hundreds of millions of dollars in compensation after the Government stripped them of their lucrative stranglehold on poker machine licences.

In a dramatic overhaul of gaming that caught the industry off-guard, clubs and hotels will be able to own and operate poker machines from 2012, ending the Tabcorp-Tatts Group duopoly.

The change will deliver a windfall to clubs and hotels, which now will have access to millions of dollars in gambling revenue previously taken by the two gaming companies.

But it brought a furious reaction from the gaming companies, with Tabcorp sources suggesting the company was considering whether to move its Melbourne headquarters, taking hundreds of jobs interstate.

It also forced Tabcorp and Tatts to halt trading on the stock exchange, and their shares are expected to take a battering when trading resumes either this morning or on Monday.

Tatts and Tabcorp are strongly represented in many superannuation portfolios.

The Government expects to earn almost $1 billion from poker machine taxes this financial year and Premier John Brumby said that would remain unchanged under the new plan.

Clubs and hotels welcomed the overhaul but problem-gambling groups were concerned it could spread access to poker machines and give powerful hotel operators a "free kick".

The changes include:

■Clubs and pubs can bid at auction for tradeable 10-year licences to operate the 27,500 poker machines outside Crown Casino.

■No one venue operator will be able to own more than 35% of the 13,750 poker machines available to hotels. Crown, which has 2500 machines, cannot bid for the licences.

■There will be no reduction in the number of poker machines, which remain split evenly between clubs and hotels.

■Keno operations, currently run by Tatts Group and Tabcorp, will be offered as a stand-alone licence.

■A single licence will also be offered for wagering, currently run by Tabcorp, but the Victorian racing industry will not be able to bid for the licence.

Tabcorp chairman John Story said he was disappointed with the Government's refusal to refund the company's original licence fee. The Tatts Group also announced it was considering a legal challenge. Tatts chief executive Dick McIlwain said the Government had agreed to more than $500 million in compensation if the company was not awarded a licence, to recognise its work building the industry.

But the Premier said the Government had decided no compensation was payable, issuing the challenge that "if companies have a different view they can test that".

Mr Brumby said gaming changes would deliver greater competition and diversity of ownership, predicting that dozens of operators would own poker machine licences.

He said a progressive poker machine tax rate, which charged a lower rate for low-earning machines and a greater rate for higher-earning machines, would help smaller clubs and hotels win licences.

"I suspect they (Tatts and Tabcorp) won't like the arrangements," Mr Brumby said. "But it's fair for them, they've got licences going until 2012 … they can bid for the wagering licence."

Clubs and hotels will be able to bid for the licences in an interactive auction, with the allocation to take place in 2010.

Gaming Minister Tony Robinson said the new system would provide greater certainty to clubs and hotels. At present, Tabcorp and Tatts could move pokies between venues.

Mr Robinson said the Government would be better able to deliver problem gambling measures by dealing with venues directly, and conceded that Tattersall's and Tabcorp were likely to buy into the hotel market as a result of the changes.

Problem-gambling groups welcomed the break-up of the duopoly and the halving of the length of poker machine licences to 10 years.

Mark Zirnsak of the Victorian InterChurch Gambling Taskforce said Tabcorp and Tatts had extracted excessive profits at the community's expense and expressed concern that the 35% ownership cap was too high. Dr Zirnsak said safeguards around problem gambling must be included in the bidding criteria.

"Responsible gambling needs to be the highest priority in awarding these licences and revenue must be a secondary consideration," he said.

Monash University gaming expert Charles Livingstone said the price of licences would be "astronomical" and could be pushed up by big hotel operators such as Bruce Mathieson, who owns about 100 venues.

"From a harm minimisation point of view this could be a disaster, because it means that many venues will be forced to pay over the odds and will then need to recoup that investment from the gamblers," he said.

Mr Livingstone said Victoria's AFL clubs were among the other big winners from the overhaul, with the league making no secret of its push into gaming. AFL broadcasting and commercial operations head Gillon McLachlan did not return calls yesterday.
Bruce Mathieson hailed the decision as a "great opportunity" for Victorian hotels. "I've always said it's better to own your own home and this gives us the chance to run our own machines," he said.

About one in six of Victoria's 1500 hotels has gaming machines.

Clubs Victoria said the decision to open the gaming market placed more control with community clubs. But executive director Margaret Kearney expressed concern that a bidding system would disadvantage smaller community clubs. "We want to make sure they don't get outbid purely on price," she said.

State Opposition gaming spokesman Michael O'Brien said the changes would consolidate the gaming market rather than provide more competition.

"Conceivably you can have Tattersall's, Tabcorp and Bruce Mathieson owning every pub with a poker machine in Victoria," he said.
THE NEW DEAL
WINNERS

Clubs and hotels, who can now bid to own and operate the 27,500 Victorian poker machines located outside of Crown Casino. The gaming licences will be tradeable and will run for 10 years after the current arrangements expire in 2012.
LOSERS

Tabcorp and Tatts Group, who have lost their duopoly over the state's $2.5 billion gaming industry. The companies have also lost their joint control over Keno, and Tabcorp has lost control of wagering and will now have to compete for a post-2012 stand-alone wagering licence.

END OF AN ERA: BREAKING THE DUOPOLY

POKIES 30,000 machines (2500 at Crown Casino)

TATTS 13,386 machines each making $263 profit a day*

TABCORP 13,750 machines each making $279 profit a day*

TAX TAKE $983m Victorian Government's share in 2007-08

*Profits shared by club and company, taxed by State Government.