The cost and the time-frame of the Department of Internal Affairs proposal to move to downloadable jackpots are causing concerns in the gaming industry, KAREN PHELPS reports.

The gaming industry is fearful of the impact on venues from the Department of Internal Affairs' pending decision to move to downloadable jackpots.

"We have real concerns around the continual growth of costs for compliance," says Larry Graham, chief executive officer of Clubs New Zealand.  "Its easy for them (the DIA) to do something they say will make our jobs easier, but not consider the cost to us.  Sixty of our clubs have fewer than five machines.  The possibility of them going to the wall (with extra costs) is very real."

Charity Gaming Association chief executive officer Francis Wevers also has concerns about the cost, but thinks the transition to downloadable jackpots could be made more manageable if the phase-in period was three to four years.  That would give venues sufficient time to claim depreciation on their non-downloadable jackpot assets, he says.

"The key thing is that the change to downloadable jackpots is very expensive - up to $30,000 in a single venue.  In terms of falling revenue, high compliance costs etc, it's an additional expense.  This will have a major impact on the financial viability of some CGA members.

"A time-period of three to four years means there should be enough cash to cover the cost to replace the machine with a new piece of (downloadable jackpot) equipment when it has finished its life.  The main benefit (of downloadable jackpots) is that they avoid the need for reconciliation.  It's a significant cost to achieve this, which is why we think the cost should be spread out over a period of years.

"If the time is accelerated, it's a mandated expense, which comes off the community share from gaming.  Some societies are already struggling to meet the 37.12% because their costs haven't decreased at the same rate as their revenues have decreased."

The DIA consulted in 2008 on proposed minimum standards for class 4 jackpot systems.  The proposal sought the replacement of non-downloadable jackpot systems by July 1 of that year to coincide with the mandatory introduction of player information displays (PIDs).  However, this was rescinded because of feedback from the industry.

Tony Strollery, managing director of Fortune Corporations, says that because the DIA has strongly signalled the necessary changes to all of the industry stake-holders since 2006-07, no organisation in the class 4 gambling sector can claim this matter is new or that the regulators have not consulted adequately with the industry on it.

"I don;t think anyone in the industry can be surprised.  I don't know how much notice the DIA needs to give.  I think some people are in denial, but it's not going to go away.  The good operators have been preparing themselves for these changes and their costs for the last couple of years."

The DIA is now considering submissions on the proposed changes.  The department has indicated it would like to include a 'sunset clause', which would essentially take into account the needs and circumstances of individual societies to make the transition easier.  DIA director of gambling compliance Mike Hill expects a decision from the submission process by the end of June.

So does the cost to the industry justify the potential benefits? Says Hill: "The answer to this question will be one of the outcomes of the consulation."

Why the change? The reason is simple - non-downloadable jackpots do not comply with the Gambling Act 2004 and, in particular, the Gambling (Harm Prevention and Minimisation) Regulations 2004.  Information obtained under the Official Information Act shows that in 2008, 260,513 individual hand-pay jackpots were paid in New Zealand, adding up to $196,516,772.75.  The figure represents only the information captured by EMS and no adjustments have been made for missed, non-paid, test or other jackpot information that might be contained in the data.  This hand pay jackpot information is not currently included in the PIDs information.

According to the latest information from the DIA, the main advantage is that the introduction of mandatory downloadable jackpots will augment the information able to be provided on PIDs.  The DIA says this will improve the accuracy of the information.  Non-downloadable jackpots do not send win-information directly to gaming machines and, therefore, this information is not included in the net-wins or net-losses figure for any session of play.  The DIA's Mike Hill says there are also advantages for venues in making the running of their gaming-system operation easier: "Non-downloadable jackpot systems are currently required to connect directly to the EMS site controller because they do not communicate jackpot wins to gaming machines.  This makes the gaming machine proceeds (GMP) reconciliation process more complicated and can affect the inital accuracy and timely validation of reporting by EMS of GMP at the venue, society and national level."

The CGA's Francis Wever says the association is not adverse to the department's reasons for desiring the change, but thinks the DIA could have initially been clearer about its reasons.

"They've only put this argument over very recently.  It wasn't in the original documentation.  I think the department seems to have modified its view somewhat.  Our view is that they didn't make the case as to why the change was desirable in the first place.  It's an example of sub-optimal communication from the department that results in confusion in the sector, and then the department having to update stuff."

The proposed changes have also drawn criticism from the industry of the PIDs system.  The mandatory introduction of PIDs was required under the Gambling (Harm Prevention and Minimisation) Regulations 2004, yet Pub Charity chief executive officer Martin Cheer asserts that the proposed jackpot-machines changes achieve no tangible benefit in terms of harm minimisation.  Non-downloadable jackpots require a manual payment for a win, providing an interruption for the player through the receipt of the prize.  It also means credits from a jackpot win are not immediately available.  Downloadable jackpots do not provide either of these things.  The DIA suggested a lock-up mechanism be included in the machine specifications with a limit of $600.  Cheer is critical of the cost to industry to achieve, in this aspect, the same thing.

"For example, right now, when someone wins the jackpot on a non-downloadable machine, the winnings are paid manually.  Now the department is saying it wants to impose a $600 limit that will cause a downloadable jackpot to lock up, and staff will once again have to pay the player manually.  It doesn't make sense."

Clubs New Zealand's Larry Graham agrees: "It just means more work for our staff and more opportunities for fraud as staff will have to spend more time going to machines to cancel credits etc," he says.  Problem Gambling Foundation of New Zealand chief executive officer Graeme Ramsey says a lot of problem gambling is driven by the size of the jackpot, so the smaller the jackpot the fewer problems.  "I'd love to see it come down even further than the $600 limit."

(Source: Karen Phelps, Page 16, GamingNZ Vol 8, Issue 1, 2010)