a red toned background with two grey cutout hands hovering over slot machines and little icons of coins and money notes in the background
Councils are regulating gaming machines more strictly – but New Zealanders still lost $1bn to the machines in the last year (Image: The Spinoff)

SocietyJune 25, 2024

Sinking lids and rising profits: The problem with pokies

a red toned background with two grey cutout hands hovering over slot machines and little icons of coins and money notes in the background
Councils are regulating gaming machines more strictly – but New Zealanders still lost $1bn to the machines in the last year (Image: The Spinoff)

There are fewer pokie machines in Aotearoa than ever, but they still rake in more than $1bn a year. So are strict council policies working – and do the community funding arguments stack up? Shanti Mathias investigates.

‘Gambling affects your relationships – you feel pressured to conceal losses from your partner. It means you default on loans, it incentivises you to engage in fraud or theft to make up your losses.” 

Geoff Hayward, a Porirua councillor, can list the impacts of gambling briskly and efficiently. But in his city, the impacts of gaming machines outside casinos – known as “class four gambling” to the industry, and “pokies” to everyone else – is more personal. In the first three months of this year, Porirua’s 156 pokie machines made more than $23,000 each, more than in any other council area around the country. That’s nearly $100,000 a year. “How many people in Porirua are making that kind of money?” he asks. Glittering machines tucked into rooms in pubs; people playing during the day, more trickling in at night. While the machines compel users to play, as they’re designed to do, they swallow money. By design, much of it doesn’t get spat out again.

To Hayward, supporting Porirua to continue its sinking lid policy when the council consulted on its gambling rules last year was an obvious decision – especially because he used to work for the Problem Gambling Foundation, seeing the impact of pokies first-hand. The 2003 Gambling Act placed limits on how many machines a single venue could host, along with other regulations. But it also allows councils to apply stricter policies if they want: an absolute cap on pokie machine numbers, a per-capita ratio or the “sinking lid”, a rule that means when a venue closes, the overall number of licences in the council area decreases. Even if a business moves, the licences aren’t allowed to relocate. Overall, this creates a gradual reduction in the number of pokie machines and their associated social harms over time. 

a man with light brown skin, a gingham red shirt, glasses, a big ponaumu and a smile in front of a plain background
Porirua city councillor Geoff Hayward has seen first-hand how gambling machines affect his community (Photo: Supplied)

In fact, Hayward wanted the Porirua City Council to go even further and apply an ethical standard, meaning the council wouldn’t apply for funding from organisations distributing the proceeds of pokie machines, but the measure wasn’t adopted. “I abide with the council’s decision, but I think it was wrong,” he says now. “We have a responsibility as a council to reduce gambling harm, and if we take the proceeds from that harm, we’re not doing our duty.” 

His conundrum represents a double bind for councils around the country trying to respond to the impact of pokie machines in pubs, which take far more of people’s money than any other form of gambling in New Zealand. Not far away from the shimmering screens of the machines are dozens of community projects funded by their profits, stamped with the logos of the charities that distribute that money. In Porirua, that money goes to the council’s annual Matariki celebration, events celebrating local businesses and sports awards; around the rest of the country, sports teams, community centres, disability support and much more are funded by gambling. 

And the pool that funding comes from is deep. In the last 12 months for which data is available, pokie machines made more than a billion dollars in gross profit – though gambling spend in the January-March 2024 quarter was lower than in previous quarters. The year ending March 2023 was the first time pokie machine profits had surpassed $1 billion in 20 years

It’s worth remembering that the gross profit doesn't include the returns to players, which are required to be set between 78% and 92% of all the money that goes in – which makes the billion dollars a fraction of the overall money handed over. These statistics are laid out on Te Whatu Ora’s Safer Gambling website: if you put one dollar in and spin it five times, a 92% return rate will leave you with just 66 cents. 

So where does that billion-dollar profit go? Gaming machines are operated by community trusts, and 40% of their profits must be allocated to authorised community purposesparticularly sports. Of the remainder, 1.5% goes to ring-fenced funding for measures combatting problem gambling, including the Problem Gambling Foundation, while the rest of the money goes to venue fees and taxes.  Venues that host the machines, mostly pubs and clubs, receive a maximum of 16% of the payments. “It’s not our money – it’s community money,” says Paul Hayes, a communications manager at the Lion Foundation, one of the biggest community gaming trusts.

Dozens of councils, including Porirua, Wellington, Auckland, Gisborne and Christchurch, have used a sinking lid policy. The concept seems clear in principle: the number of machines gradually decreases, meaning no venue, charity or community group is immediately defunded. Instead, there’s time to adapt. “It’s a long-term strategy – we can’t get rid [of pokie machines] overnight,” says Tamatha Paul, the Green MP representing Wellington Central. She was a Wellington councillor in 2021 when the authority voted to put a sinking lid on pokie machines. “We want to minimise the presence of the temptation [to gamble].” But do fewer machines mean less money gets spent overall – or just that more money goes into the same machines? After all, in spite of the sinking lid, Porirua’s pokies are making more money than ever.

Gail Pacheco, an AUT professor who has researched the effect of gambling machine regulation, says the sinking lid is a unique policy; some jurisdictions around the world (including Western Australia) have blanket bans on pokie machines, while other places regulate the venues that host the machines. Meanwhile, in New South Wales – where 89,000 pokie machines rake in more than AU$7bn a year – sweeping reforms are placing limits on individual gambling spend and making machines cashless. 

Does this unique policy work? Pacheco’s research found a 13% drop in gambling expenditure in regions with sinking lids in the year they were implemented compared to regions that had no stricter policies in place, and this decline held steady for at least two years. Her research team found this net per-capita number by using administrative data, rather than less-reliable self-reported losses. 

A 13% drop sounds good, but whether sinking lids have any effect on the most severe consequences of problem gambling is harder to determine. When Pacheco and her team looked at the number of people declaring bankruptcy in areas with sinking lids, for example, they found no clear connection between the numbers.

a brown skinned man with lon, straight dark hair looks directly at the camera
Professor Gail Pacheco has researched the impact of sinking lid policies (Photo: Supplied)

Another unknown is whether that money is just being directed to other forms of gambling. Hayes, from the Lion Foundation, is sceptical; the foundation regularly submits against sinking lid policies when councils review their gambling regulation every three years. “We think they’re a blunt instrument, they reduce funding for community groups… and we believe the rationale for the [sinking lids] is unsupported.” He points out that online, gambling is abundant and largely unmonitored. Laptop and phone screens replicate the exact mechanism of pokie machines, except that the money lost goes to offshore casinos, not New Zealand communities.

The in-person machines are “heavily regulated”: venues do strict age checks, people can ban themselves from venues, machines are out of sight of the street, ATMs aren’t allowed to be in the same space as the machines and the maximum currency they accept is $20. Online, those rules don’t apply. The government doesn’t gather data about online casino use, so it’s difficult to know whether decreasing pokie machine numbers means people gamble online instead. 

Hayward doesn’t buy this argument. “That’s like saying that since we can’t get rid of cigarettes, we might as well put filters on them,” he says. Instead of accepting the inevitability of gambling, he’d prefer to see the 2003 Gambling Act updated more comprehensively to take into account changes in technology – like the accessibility of online gambling and widespread use of cards rather than cash. New Zealand could work closely with Australia in adapting machines to be less alluring. “We can’t let this legislation sit on the sidelines as the world moves on for another 20 years,” he says. In 2003, for what it’s worth, 25% of adults smoked regularly; now that number is 6.8% (although 9.7% of people have adopted the new technology of vaping). 

“We maintain that what we do supports communities,” Hayes says. “A minimum of 40% [of pokie profits] go back into the community – that’s more than Lotto, more than TAB and a hell of a lot more than online casinos.” Hayes has worked in fundraising for charities in the past, and seen what a hard slog it is for organisations to get even a small amount of money to make a difference. Right now, the gaming machine revenue the Lions Foundation is able to distribute is down about 5% in the last year – and yet, Hayes says, the demand for grants is only growing. 

But there’s a counter argument to the undoubted fact that many wonderful community organisations are funded by gambling profits: these aren’t distributed evenly. “The funds might go back to the community, but the community is wealthy people playing soccer,” Paul says. “These machines just transfer wealth from poorer to wealthier people.” Research from consultancy BERL backs this up: the richest half of the community provides 26% of sales revenue for pokies, but receives 88% of grants.  

Māori, Pasifika, Asian, young people and people on low incomes are “disproportionately affected by gambling harm”, according to the Ministry of Health. Anecdotally, more deprived areas use gambling machines more, but as data is delivered at the council level, it’s difficult to determine more granular differences within cities or council areas. 

Hayes feels that councils are inconsistent when it comes to policy around pokies. “They install a sinking lid policy with one arm, and the other arm wants money for a new community centre,” Hayes says. In Tauranga, for instance, there’s a sinking lid and strong population growth, meaning number of people per pokie machine has increased significantly; the Lion Foundation has just contributed to a new state-of-the-art skatepark there. “We have machines in Tauranga, and we were happy to contribute to that project. But we get more requests than we can keep up with,” Hayes says. 

A research paper from the Problem Gambling Foundation, Salvation Army, Hāpai Te Hauora and Oasis in 2020 laid out a plan for how community groups could stop being dependent on pokies – although it acknowledged that government grants would need to fill the gap. “In the current climate, many organisations can’t wait for central government funding,” Hayes says. Hamilton and the Hutt City Councils have had ethical policies against taking gambling money, as Hayward wanted for Porirua, but few others have considered following. As a sign of how difficult it is to make community projects happen without gambling funding, Hamilton City Council backtracked on its ethical policy last year and started accepting pokies money for community initiatives again. 

Venues and trusts could choose to operate differently, too, without waiting for policy to catch up. “They also have the power to source pokie machines that allow lower betting amounts, don’t disguise losses as wins – like when a pokie machine makes a lot of noise and animations despite the fact that the player won less than they bet – or limit the hours they allow access to pokie rooms,” Pacheco says. 

“The trusts could make changes voluntarily, and they would if they thought the government was going to be harder [on them],” Hayward says. 

What happens in the rooms filled with pokie machines might seem like something isolated and private, individuals choosing to take part in a widespread activity and common form of entertainment. But beyond the doors of the pub is the context and the consequence: families with bare cupboards. Children being driven to a sports tournament funded by pokies proceeds. Aunties fretting at the budgeting service, wishing the money hadn’t disappeared into the maw of the machine. An amateur theatre company glad not to worry about funding for this season’s production. Pubs closing their doors and surrendering their gambling machine licences, so patrons just come for the sport on big screens and not the pokies. Big billboards advertising the TAB; articles in the newspaper about rich people and a big Lotto draw. 

In it all, Hayward tries to remember that there could be alternatives – even if sinking lids will be slow to change the pokie machines embedded in his community. “I don’t want to sound heartless or cruel: it is a big challenge for communities to find funds,” he says. “But it’s absolute hypocrisy to pull a holier-than-thou attitude as if you’re providing a community service – when you’re just getting people addicted.”

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