Gaming Machine Number Limits - New Calculation Method - Action Required

16 April 2021

Following an April 2021 Gambling Commission decision, clubs will need to change the way they add and remove machines on their venue licences in order to avoid accidentally losing the ability to operate machines.

Any club that is currently operating less than its permitted maximum number of machines, needs to promptly have additional machines listed on the venue licence schedule in order to retain its maximum machine entitlement.

Summary of Action Required/Change Required

The following action/change in procedures is required:

• Clubs should check their venue licence to see if the licence has fewer machines listed on the schedule than the maximum the club is permitted to operate. A licence amendment application should then be immediately made to increase the number of machines on the schedule, so it matches or exceeds the maximum permitted number of machines. There is no requirement to install or operate these machines. Additional machine licensing fees will, however, be incurred.
• Any club that has a gaming licence, but has been allowed to remain inactive (been permitted to not operate gaming for an extended period), should check its gaming licence. If the machines on the venue licence have been removed (removal is common as it reduces licensing fees), a licence amendment application should promptly be made to increase the number of machines on the schedule, so it matches or exceeds the maximum permitted number of machines.
• Clubs should cease the practice of reducing the number of machines listed on an inactive venue licence.
• Machine changes should be done in two stages to avoid the risk of an accidental reduction in the number of machines listed in the schedule. If a club wishes to replace 2 machines, an application should be made to add the additional machines, making the total listed 20 (in the case of an 18-machine venue). Once the licence is received showing the 20 machines, a second application should then be made to remove the 2 older machines.
• When filing the above applications, a request should be made for the amended licence to be backdated to the date of application (there may be some delay in having the amended licence issued due to the Department needing to update its systems).

Practical Issues

There may be some practical issues with both the Department and Intralot in listing more than the permitted number of machines on a licence as part of a machine change. This is for the Department and Intralot to address and remedy. In the meantime, clubs should request that any practical issue be addressed by the additional machines being included in the jackpot section of the venue licence (like cash redemption terminals are) or by the additional machines being added to the licence manually.

Facts: Matata Hotel – Pub Charity Limited decision re Matata Hotel GC03/21

The above changes are necessary as a result of the decision Pub Charity Limited re Matata Hotel GC03/21. A copy of the decision can be found at:

http://www.gamblinglaw.co.nz/download/DecisionGC0321.pdf

The facts of that case were as follows.

Pub Charity entered into a venue agreement with the intended purchaser of the Matata Hotel on 9 March 2020, prior to the Covid-19 restrictions. Settlement of the hotel was due to take place on 31 March 2020 but was delayed due to the Covid-19 level 3 and 4 lockdowns. Shortly after returning to level 2, the hotel purchase was settled, and possession taken. The owner then undertook renovation work at the hotel, including constructing a new gaming room. Difficulties were experienced in having the renovation work completed promptly due to tradespersons having a backlog of work following the level 3 and 4 lockdowns.

A venue licence application was filed within six months of the prior licence being surrendered. However, the lockdowns, and delays in completing the renovation work, meant that the venue was not ready for a licence to be issued until after the six-month period had passed.

There were some issues with the licence documentation, with the venue agreement and machine serial numbers being provided only after the expiry of the six-month period.

In order to retain the right to operate 14 gaming machines, the new licence needed to be backdated to a date within the six-month period.

The Department declined to backdate the venue licence, being unsympathetic to the fact that delays were caused by the level 3 and 4 lockdowns and the difficulties in obtaining tradespersons immediately after full lockdown. Pub Charity appealed.

The appeal was successful. The Gambling Commission directed that the licence be backdated to 11 June 2020 (one day before the lapse of the six-month period), with the ability to operate up to 14 machines (the prior maximum).

The Commission found that the Department did not correctly take into account the full effect of the lockdowns, including the delays experienced in undertaking the renovation work at level 2. The Commission also said that its prior comments in Air Rescue Services Limited decision GC26/10 could have been read as giving an expectation that renovation delays were valid grounds for backdating.

The Matata Hotel’s previous venue licence provided that it could operate up to 14 gaming machines. This was the number operating on the notification date. The Matata Hotel had, however, only operated 5 gaming machines, and had only 5 gaming machines listed on its venue licence. Pub Charity wished to operate 12 gaming machines. Territorial authority consent is required to increase the number of machines that a venue may operate. The Commission held that the number of machines listed on the schedule is the maximum number of machines that may be operated, and that the increase from 5 to 12 would require territorial authority consent. The Commission accepted that this was, however, a departure from industry practice and gave Pub Charity the opportunity to restore its 14-machine entitlement by now listing 14 machines on the schedule, despite the intention to only operate 12.

The Commission has given other gaming societies, including clubs, a similar opportunity to restore their machine entitlements.

Machine Number Limit

The Commission found that the way the Department (and the industry) has interpreted when territorial authority consent is needed has been incorrect. This has major consequences for the Department and clubs. Some clubs will need to take prompt action to protect their machine number entitlements and all clubs should change the way they do machine changes in order to avoid accidentally losing the ability to operate machines. The practice of reducing the number of machines listed in the schedule during inactivity periods, to reduce the Department’s licensing fees, now needs to cease.

Venue licences include two conditions that refer to machine numbers. The first condition refers to the maximum number of machines that may be operated (typically 9 or 18). The second condition includes a list of machines (providing details such as serial numbers) that may be operated at the venue.

The Department has historically calculated the machine number limit only on the first condition. If a venue had a licence to operate up to 18 machines, but only had 16 machines installed and listed in the schedule, the Department would allow the venue to install a further 2 machines without the need to obtain territorial authority consent.

The Commission has found that the number of machines that may be operated is now impacted if the number of machines in the schedule is reduced below the maximum permitted. If a club that would normally be entitled to operate 18 gaming machines voluntarily reduces its machine numbers to 16, and in doing so removes 2 machines from the schedule so only 16 machines are listed, the club will now need territorial authority consent to increase its machines back to 18. Obtaining territorial authority consent to operate an additional 2 machines will not be possible in areas that have a sinking lid or restrictive cap.

The decision means that if a club now wishes to reduce the number of machines below the maximum listed on the licence, it can still do so, but the club must now ensure that the number of machines listed in the schedule remains at, or above, the overall maximum allowed. For example, if the licence provides that the club may operate 18 machines, but the club only wants to operate 16, the club must provide serial numbers for 18 machines (the 16 operational machines and 2 ghost machines).

The requirement to obtain territorial authority consent to increase the number of machines listed in the schedule is a departure from the standard practice that has been in place. The Commission has acknowledged that its April 2021 decision clarifying when territorial authority consent is required has the potential to cause serious consequences. The Commission therefore held that gaming societies, including clubs, may restore their machine number entitlements. This can be done by filing a licence amendment to add additional machines to the schedule, in order for the number in the schedule to match or exceed the maximum number condition. The Commission has indicated that such an amendment should be filed before the club’s next licence renewal. The Commission noted that if, after receiving notice of the need to align the number of machines in the schedule with the maximum number condition, clubs elected not to do so (whether to save fees or otherwise), they can expect to lose their ability to increase the number of machines in the future without first obtaining territorial authority consent.

The key points/implications are:

• Venues that held a licence on 17 October 2001 may continue to operate up to 18 gaming machines, provided that they are not unlicensed for a period of six months or more, and provided the venue licence schedule has always listed 18 or more gaming machines.
• If a venue licence is amended to reduce the number of machines listed on the schedule (for example, as a result of a voluntary reduction in the number of machines operated), territorial authority consent is subsequently required to increase the machines back to the 9 or 18 maximums.
• There is no statutory obligation for a club to operate all of the machines that are listed on the venue licence schedule.
• There is no statutory requirement to remove from the venue licence schedule details of machines that may be operated (approved machines that are owned by the club) but are not presently in operation. The schedule may contain details of machines that are not located at the venue.
• There is no statutory requirement to remove from the schedule details of machines as soon as they are removed from the venue and before substituting their details with those of the replacement machines.
• The schedule may list more machines than the 9 or 18 maximums permitted.
• Care needs to be taken to ensure that machine changes do not temporarily reduce the total number of machines in the schedule below the maximum permitted. If a club wished to change all 18 machines operated, it should first apply to have the new machines listed on the licence, making the total 36; then subsequently apply to remove the 18 older machines. Alternatively, the club could ensure that its venue licence has at least 18 machines listed on the schedule at all times, by having 18 machines that it owns, but are in storage, permanently listed on the licence. As detailed above, there is no requirement for such “ghost” machines to be installed at the venue; the only requirement is that they be owned by the club and have the necessary minimum standard approvals. Listing a large number of machines would, however, result in additional machine fees being incurred.
• Prior to April 2021, there was an established practice of filing a licence amendment to reduce the number of gaming machines listed on the licence when a venue was inactive, to reduce the machine licensing fees payable. Following the Commission’s ruling, such action should not be taken. Removing the machines from the schedule would result in the need to obtain territorial authority consent to restore the machines.

Machine Licensing Fees

The fee concession for small clubs and the EMS fees are based on the number of machines operated. An “operated” machine requires a change in the machine’s turnover meter. No EMS fees are therefore payable for machines listed on the licence, which are not in use at the venue.

However, the annual machine fees are not based on the number of machines operated, but on the number of machines included in the licence.

Clause 9 of the Gambling Fees Regulations 2015 provides that the calculation of fees is based on “the number of gaming machines specified in the licence”.

Clause 10 of the Gambling Fees Regulations 2015 provides:

An additional amount of class 4 venue annual fee is payable if, during the term of a class 4 venue licence, the licence is amended to include additional gaming machines.

The listing of additional machines in the venue licence schedule will result in additional machine fees being incurred. The annual fee per machine is $736.92 plus GST. If additional machines are going to be added and not used, the club needs to consider whether the incurring of the additional fees is a breach of the requirement to ensure all costs are actual, reasonable, and necessary.

The Commission noted the Department’s “basis for charging fees may be based in the erroneous assumption that the licence requires only the machines actually in use to be listed”. The Commission stated that the Department “may wish to consider revising the present basis for machine charges”. The Commission suggested that fees could be charged on operating machines and provision be made for recording in the venue licence both permitted machines and operating machines. Clubs New Zealand will be advocating for this change.

Jarrod True
True Legal Limited
027 452 7763
Jarrod.True@truelegal.co.nz
15 April 2021

Additional information can be found at chapter 24 and 31 on the online version of the New Zealand Gambling Law Guide – www.gamblinglaw.co.nz.