Simon Liddle takes a look at the major issues concerning gaming operators in Australia

IN 2010, Australia’s casino gaming market is estimated to have been worth around US$2.7bn. PricewaterhouseCoopers predicts that this year, this figure will rise to over $2.8bn before breaking the $3bn barrier in 2013 but this rate of growth will be dwarfed by that seen in Macau, Singapore and elsewhere in the Asia-Pacific region.

There are 13 casinos in Australia employing approximately 20,000 people and contributing AUS$1.2bn - 30 per cent of revenues - in taxes. These range from large integrated casino resorts that draw international visitors to smaller regional properties that rely on domestic players.

According to the Australian Casino Association, the country’s casinos account for only six per cent of the total number of electronic poker machines in operation and just 6.9 per cent of all gambling expenditure.

The big boys

The opening of two integrated casino resorts in Singapore and the continued expansion of gaming in Macau and elsewhere in Asia has been cited by many as one of the key challenges facing Australia’s tourism and destination casino industries. In November last year, James Packer, executive chairman of Crown, warned that Australia risks losing out to these countries in the future and called for the government and the tourism industry to work closer together to capture a greater share of the growing Asian market.

“The growth in mid to high value Asian tourism is being driven by a new wave of integrated resorts throughout Asia,” he said. “Increasingly Asian governments are recognising the significance of integrated resorts to grow international tourism.

“Singapore has led the way most recently with two new resorts opening this year - Marina Bay Sands and Resort World Sentosa - at a combined development cost of around AUS$12bn. In Macau, a number of high quality integrated resorts have been developed at a total cost of more than AUS$17bn.

“Japan, the Philippines, Malaysia, Thailand, Taiwan and Vietnam are also planning major integrated resort developments, principally targeting tourism out of China.”

The company’s financial figures for the six months to December 31 suggested his fears were not misplaced, as VIP progamme play turnover at Crown’s Australian casinos fell eight per cent due to the impact of the opening of Singapore’s new resorts.

Both Crown and Tabcorp, which recently rebranded its casino business as Echo Entertainment, are planning major development works to bring their properties closer to those now open elsewhere.

Crown’s Burswood property is to be expanded to include additional machine and table space, and a host of non-gaming facilities are to be opened to ensure it is better placed to compete with integrated resorts in Asia. Tabcorp, meanwhile, announced at the end of last year that it will invest AUS$625m in its Queensland casinos in order to create world-class entertainment destinations.

These steps will surely go a long way to re-establishing Australia as one of the region’s major tourism destinations but, following Singapore’s entry into the market, it may have to accept that competition for the Asian gaming dollar is now wide open.

Regional differences

Richard Porter is executive manager of marketing at Reef Casino in Queensland, a casino and hotel property jointly owned by Casinos Austria International and Accor Casino Investments. He believes that one of the biggest challenges facing regional casinos such as his own is the strength of the country’s currency.

“The strong Australian dollar means more Australians are choosing international travel over domestic travel, which negatively affects our visitor levels,” he said.

However, the growth in casino gaming in Macau and Singapore, which is already taking its toll on Australia’s major casino resorts, is unlikely to be felt by Reef and other smaller operations.

“We are a smaller casino without any significant exposure to the high roller market, therefore the effect on our business will not be as great as some of the larger casinos in this country,” said Porter.

The industry as a whole is undoubtedly part of the wider tourism industry and as such it is still impacted by fluctuations in the number of both international and domestic visitors. Having enjoyed revenues of AUS$23.4m in 2009, last year saw revenues slip to AUS$18m. This year, said Porter, could prove testing.

“The new year will be challenging with natural disasters affecting the business in the first quarter - the flooding in Australia and the cyclone in Queensland combined with the earthquake in New Zealand and the earthquake and tsunami in Japan all having repercussions on the domestic and international visitor market.”

Reef Casino is one of four casinos in Queensland, but the distances between mean that competition is more likely to come from other entertainment options, such as clubs and pubs offering poker machines, than from each other. There is little appetite from either the state or federal governments for more casinos but there continue to be calls for tougher legislation concerning gaming machines.

“Potential changes to government legislation and taxation levels are always of concern,” said Porter.

Committed to pre-commitment?

One potential change on the horizon is the concept of pre-commitment and how it can be applied to slot machines. In September last year, the Australian Senate asked a joint select committee on gambling reform to investigate the possibility of introducing a pre-commitment scheme, whereby players must enter their expenditure or playing time limits ahead of playing a slot machine. A report into gambling by the Productivity Commission found that pre-commitment is a “strong, practicable and ultimately cost-effective option for harm minimisation” and recommended a phased implementation of pre-commitment on all machines by 2016.

There have long been debates over the prevalence of poker machines across Australia and their impact upon society. According to legal expert Jamie Nettleton, partner at Addisons, this issue has come to the fore now because the last election resulted in a hung parliament.

“The Labour party - the centre-left - is dependent on the support of various independents in the house of representatives,” he explained. “One of these is Andrew Wilkie, who entered into a formal agreement with the prime minister, Julia Gillard, under which they agreed to proceed with an inquiry into the issue in the current term.”

Wilkie has given the government until May next year to deliver the promised gambling reform or risk losing his support.     

“That’s his pressure, whether or not the government will heed that warning, I don’t know,” added Nettleton. “Certainly there’s a lot of resistance to measures of this type being brought in at the state level, which is where they’ll need to be brought to be effective. This is an issue principally directed at the pubs and clubs that operate a lot of gaming machines.”

Nevertheless, such measures would no doubt be implemented in casinos should they be introduced. In January, the ACA submitted its own opinion on the pre-commitment proposals to the committee, outlining its support for a pre-commitment system that is compulsory for operators to provide but voluntary for players to use. It stated that pre-commitment should only be viewed as one of a number of tools to assist gamblers to make informed decisions.

However, the organisation warned that the government’s timeline for introducing a full pre-commitment scheme ignores the PC’s recommendation of a phased implementation and does not take into account the cost, which is estimated to be in the region of AUS$2bn.

Instead, the ACA called for a system that does not inconvenience recreational gamblers, is flexible and simple to implement and does not impose a substantial burden on the industry. It should also recognise that the country’s casinos, which are primarily destination venues, are different to other venues that offer gaming machines.

No online casinos…yet

Unlike many developed countries around the world, Australia has not been forced to deal with the fallout of the global economic downturn. Where some countries are exploring the possibility of both the expansion of bricks and mortar gaming and online gambling to generate much-needed tax revenues, there is no real economic pressure for Australia to follow suit.  

Online gaming - casino games via the internet, rather than wagering and sports betting - has been prohibited in Australia since 2001 under the Interactive Gambling Act.

In its gambling report released in June last year, the PC recommended that there be a review of the current situation and the issue of market liberalisation initially in connection with online poker. However, the federal government announced that it was not inclined to accept that recommendation.

Nettleton suggests that the legalisation of online gaming services may not be a reality for some time. “Like anywhere,” he said. “It is very difficult to get votes in favour of opening up more gambling opportunities and certainly in Australia, which doesn’t have the same economic imperative as other countries, it would need a change in federal government policy for there to be a change in the law.”