Australian Productivity Commission Draft Report on Gambling: What Does it Mean for the Gambling Industry?

United Kingdom

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

Background

The Australian Productivity Commission ("Commission") recently released its Draft Report on Gambling (1). The Draft Report represents a significant milestone in Australian gambling regulation and precedes a Final Report to be released in February 2010.

The Commission was requested by the Commonwealth Government to report on various matters relating to the gambling industry including:

  • the effects of the existing regulatory structures – including licensing arrangements, entry and advertising restrictions, application of the mutuality principle and differing taxation arrangements – governing the gambling industries, including the implications of differing approaches for industry development and consumers;
  • the implications of new technologies (such as the internet), including the effect of traditional government controls on the gambling industries;
  • the social impact of the gambling industries;
  • the impact that the introduction of harm minimisation measures at gambling venues has had on the prevalence of problem gambling and on those at risk; and
  • the effectiveness and success of harm minimisation measures.

This review represents the second review of the gambling sector conducted by the Commission, the first being in 1999.

This article summarises the Commission’s findings in connection with electronic gaming machines ("EGMs"), wagering and online gaming.

Key Recommendations

Some of the recommendations in the Draft Report would result in a fundamental change in the manner in which the Australian gambling sector is regulated. These have implications for many other jurisdictions.

Of particular note are:

EGMs

  • the maximum bet limit should be reduced to $1.00;
  • the maximum credit stored on an EGM should be $20;
  • there should be universal pre-commitment and self-exclusion systems; and
  • consideration should be given to a statutory cause of action where gambling operators act in a manner that is in gross disregard of the player.

Wagering

  • national legislation should be introduced to provide a national funding model for the racing sector under which wagering operators pay a single race fields levy;
  • any race fields levy should be calculated on the basis of gross revenue, not turnover; and
  • the race fields levy should be set by a national body that consults with, but is independent of, key stakeholders, like the racing industry.

Online Gaming

  • the policy of prohibition in the Interactive Gambling Act has not worked and does not discourage recreational gamblers from participating;
  • the best regulatory option is one of managed liberalisation; and
  • a national licensing system should be implemented which provides for strict probity standards and high standards of harm minimisation for licensees.

Each of the recommendations needs to be considered by reference to the background findings in the Draft Report.

Draft Findings

EGMs

This sector was reviewed most closely by the Commission, as it is responsible for almost 60% of expenditure and is the focus of most public concern.

The Commission found that many gamblers have difficulty controlling the time and/or money spent on gambling. Features of EGMs make it difficult for genuinely informed choices to be made.

Pre-commitment systems provide the best means of obtaining informed consent from gamblers. For gamblers who cannot control their behaviour, a simpler self-exclusion system is necessary.

The Commission found that the current bet limits (the amount of money that can be bet on a single spin (2)) are too high. Moreover, recreational gamblers typically bet at quite low levels and would not be adversely affected by a decrease in the bet limits. The Commission also considered that the limits on the maximum amount of money that could be inserted into an EGM is too high (given the low amounts bet by most gamblers per spin).

Also, the Commission considered that EGM manufacturers receive insufficient guidance from regulators about whether particular features are likely to obtain regulatory approval.

Further, the Commission considers that the current regulatory environment has limited effectiveness in minimising harm. This occurs due to confusing, overlapping and inconsistent regulations. Burdens have been imposed unnecessarily on venues and suppliers.

Wagering

Currently, regulations exist at the State/Territory level and require wagering operators licensed in the relevant jurisdiction to pay taxes. Similarly, all States have in place legislation which requires a wagering operator to obtain authorisation before using race fields. The Australian Capital Territory has now announced that it will introduce a race fields regime, while the Northern Territory has not yet announced whether a race fields regime will be introduced.

The Betfair case confirmed the existence of a national wagering market in Australia.(3)

Under the previous system, a Gentleman’s Agreement had existed which allowed each state based monopoly totalisator to bet on racing events taking place in other jurisdictions without paying any fee for the use of information relating to that race. This information, commonly referred to as a “race field”, includes the names of horses or greyhounds, their positions, weights and other race-related data. However, as the number of corporate bookmakers and the amounts bet with them increased, racing bodies became increasingly concerned at the “free riding” taking place through the use of race fields by these betting operators without the payment of an appropriate fee to the industry and race fields legislation was introduced.

Race fields legislation requires wagering operators to obtain authorisation to use race fields, subject to various conditions, including the payment of a fee in return for this use. Some jurisdictions calculate the fee on the basis of turnover (the amount bet with the wagering operator by punters) while others calculate the fee on the basis of gross profits (turnover less winnings paid to punters).

The Commission found that “free-riding” must be prevented in order to:

  • ensure the long term viability of the racing industry;
  • prevent detrimental effects to the communities where racing plays a key role; and
  • prevent adverse impacts on the consumers of wagering and racing products.

However, while the grant of monopolies and race fields legislation addresses the “free riding” problems, these solutions are anti-competitive, and have led to undue costs to wagering operators in a market that is now national.

Online Gaming

Currently, the Interactive Gambling Act 2001 (Cth) (IGA) prohibits the provision of online gaming (but not online wagering on races or sports betting) to Australian residents. 

The Commission examined whether the IGA had achieved its objectives which included:

  • limiting the development of the online gaming industry and, thereby, minimising the scope for problem gambling amongst Australians; and
  • balancing the protection of Australians with a sensible and enforceable regulatory regime.

The Commission reached the view that, although the IGA has had the desired effect in limiting the development of the online gaming industry, there has been and continues to be considerable access by Australians to international sites. The prohibitionist approach of the IGA has therefore had limited effectiveness.

This means that Australians participating in online gaming do so using offshore online gaming sites which may not have appropriate harm minimisation processes in place and may operate with unscrupulous business practices. In other words, there is no means for an Australian wishing to engage in online gaming activity to participate through a service licensed by an Australian jurisdiction having regard to Australian harm minimisation principles.

In a similar conclusion to the findings in its 1998 report, the Commission considers that regulated access to online gaming, rather than prohibition, is preferable.

Although the Commission’s draft findings apply predominantly to online gaming, they are equally relevant to gaming that can be conducted using other technologies such as mobile phones and broadcasting.

Conclusion

The Draft Report is a significant milestone in the regulation of gambling in Australia. The recommendations of the Commission are of considerable importance both for the Australian gambling industry (and other mature gambling markets) as it suggests that material changes to the characteristics of EGM’s are required to address problem gambling.

The recommendations relating to the wagering and online gaming sectors are equally significant – if implemented, they will represent fundamental changes to the Australian gambling landscape.

The Commission is now engaged in public hearings which are due to complete on 15 December 2009. The final report is due to be completed in late February 2010.

For more information, please contact:

Jamie Nettleton, Partner
Addisons

Telephone:   +61 2 8915 1030
Facsimile: +61 2 8916 2030
Email: jamie.nettleton@addisonslawyers.com.au
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(1) See http://www.pc.gov.au/projects/inquiry/gambling-2009. Draft report released on 21 October 2009.

(2) Current EGMs are complex devices which may feature numerous rows or “lines”. A gambler can bet varying amounts on each line. A “spin” refers to the outcome across all lines after the gambler has placed their bets.

(3) For further information on changes in the Australian wagering sector, see Addisons FocusPapers entitled: What does the IceTV Decision Mean for the Racing Sector? Race Fields Legislation - Will the New South Wales Legislation withstand a Constitutional Challenge?