New Zealand's Community Funding Gambling Model Under Threat from Regulator's Bold Plan to Go 100% Cashless

8 May 2019

New Zealand is incredibly fortunate to have a gambling framework that is focused on raising funds for community purposes. Approximately $2.3 billion is spent each year in New Zealand on gambling. The largest share of this, approximately $895 million, is the money spent on gaming machines located outside of New Zealand’s six casinos (gaming machines in pubs and clubs).

All the profits from the non-casino gaming machines are used for community purposes. Every year, grants totalling approximately $300 million are made. In addition to the external grants, clubs such as RSAs and Workingmen’s Clubs receive approximately $50 million each year in gaming proceeds to assist with meeting the clubs’ operating costs.

We are also fortunate in New Zealand to have a very low problem gambling rate by international standards. The most recent New Zealand National Gambling Study found the problem gambling rate was only 0.2% of people aged 18 years and over.

The future of the non-casino gaming machine sector is, however, in jeopardy. The sector has been in natural decline since 2003. In June 2003, New Zealand had 25,221 non-casino gaming machines. In December 2018, there were only 15,257 machines, a 39.5% decrease. The sector faces fierce competition from offshore-based online gambling providers, who are able to offer higher prizes and unregulated inducements to gamble. The online gambling market is so lucrative that New Zealand’s main casino operator, SkyCity, recently announced that it too would launch an offshore-based online casino.

The community fundraising model now faces a further threat to its existence, which is more serious than the other external market forces. Earlier this year, the regulator, the Department of Internal Affairs, announced its desire to impose a compulsory cashless system on all non-casino gaming machines. The system would be entirely cashless, with players putting credit on their machines via a card, and having winnings credited back to a card. The machines would have no ability whatsoever to accept notes or coins.

The prohibition on using cash was advanced as being desirable for harm minimisation reasons. The requirement for players to identify themselves as part of the credit transfer process would, in theory, prevent play by persons who have excluded themselves from gambling, and would enable players to set a predetermined maximum spend amount. In practice, excluded players and persons who wish to spend above a predetermined limit, would gamble using multiple cards registered in the names of family and friends. Further, given the already extremely low problem gambling rate, there is simply no justification, on a cost/benefit basis, to introduce an additional, elaborate harm minimisation measure.

Going 100% cashless was also advocated as a way of reducing the risk of armed robbery. The risk of armed robbery can, however, already be significantly reduced by installing a system that pays prizes via a ticket, which is then cashed at a secure redemption terminal.

The third main reason given for overhauling the sector was a desire to reduce money laundering. New Zealand’s non-casino gaming machines have a maximum bet limit of only $2.50 and a maximum prize offering of a mere $1,000.00. Given these very low limits, the likelihood that money laundering is occurring at non-casino gaming venues is extremely low; and if it is occurring, the sums are so small that the problem is negligible.

The proposal to go cashless is fraught with a raft of difficulties. First and foremost, the technology currently does not exist to implement such a system. No other country in the world has a completely cashless system.

The costs of developing and implementing the system for such a small market would be astronomical. These costs would directly impact on the amount of money that can be given out in community grants.

The benefits of the system are also highly questionable. As detailed above, any harm minimisation benefit will quickly be eliminated by players using multiple cards registered in different names. The risk of armed robbery can be addressed via much simpler and more economical means. The amount of money laundering that would be prevented would be miniscule.

The major problem with going cashless is that it will significantly reduce play by purely recreational gamblers, who may only play the machines once or twice a year. These players are unlikely to go through a laborious registration process and wait for staff to issue them with a card, in order to have a brief flutter. Imposing such a significant barrier to player access is likely to see gaming revenue drop by up to 50%.

The increased costs of going cashless, coupled with the drop in revenue, will destroy the community fundraising model, all but eliminating community grants, and will further accelerate the migration of the gambling spend to offshore-based online providers.

If the regulator does push forward with its bold and untested cashless model, the only way the community fundraising model could survive is if the introduction of cashless gaming was packaged with other concessions. In order to remove the barrier to entry, the cashless system would need to allow players to place credit onto their machine directly at the machine via their existing bank cards or via a digital wallet service such as Apple Pay. In order to compensate for the inconvenience of not being able to use cash, larger prize and bet limits would need to be introduced, including large national jackpots. Further, to enable the community fundraising sector to benefit from the increase in online gambling that will follow, the sector would need to be permitted to have its own online gambling offering and be permitted to advertise/promote its online product.

Given that there is unlikely to be any political will for legislative change that enables credit card spending directly on a gaming machine; the regulator should consider other changes that are tested, economical, and known not to deter recreational players. The use of cash at gaming venues could be reduced and handled more securely by permitting non-casino gaming machines to accept credit via a ticket and make payment to players via a ticket. Ticket-in/ticket-out systems are standard in all the major casinos around the world, but not currently allowed to be operated on New Zealand’s non-casino gaming machines. Implementing ticket-in/ticket-out would be a far more sensible option than jeopardising our valuable community fundraising model by pioneering a world-first 100% cashless system.

Jarrod True
April 2019

Jarrod is New Zealand’s leading expert on gambling law. His firm, True Legal (truelgeal.co.nz) acts for a large number of New Zealand’s gambling operators. Jarrod is the author of the New Zealand Gambling Law Guide (www.gamblinglaw.co.nz), and the author of Gambling Law (a Thomson Reuters publication).

Jarrod’s article discusses the proposal to make all of New Zealand’s non-casino gaming machines cashless. Jarrod notes that the increased costs of going cashless, coupled with the drop in revenue, will destroy the community fundraising model, all but eliminating community grants, and will further accelerate the migration of the gambling spend to offshore-based online providers.

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