Significant trends in Australian Gaming
by Andrew MacDonald
Over the past several years many changes have occurred within the Australian gaming markets.
A brief history to bring you up to date on the size and nature of the markets may be useful.
Legalised casino gaming began in Australia in 1973 when Wrest Point Casino opened in Hobart, Tasmania. Wrest Point was a small 40 table casino modelled on the English Clubs of the time. Hobart was at that time a city of approximately 200,000 inhabitants. The Casino had been approved to stimulate tourism, employment and economic development generally within the State. Operated by the Federal Hotels group, the casino was well regulated and controlled and turned out to be a major success for them. Federal Hotels were later successful in establishing small casinos in Darwin, Launceston and Alice Springs between 1979 and 1982. The first wave of casinos were all small table game casinos situated in outlying population centres in Australia.
The second wave of casino openings began in late 1985. Three major urban casinos opened in a two-month period. Burswood opened in Perth, Western Australia, a city with approximately 1.2 million inhabitants. The Adelaide Casino opened in Adelaide, South Australia, a city of approximately 1 million people. Conrad Jupiters opened on the Gold Coast, 83 kilometres south of Brisbane in Queensland, a city with approximately 1 million people. Both Burswood and Jupiters opened with over 100 table games and 750 gaming machines in American resort style complexes, while Adelaide opened with 100 table games in an elegantly refurbished Railway Station building.
This second wave of casinos moved away from the previous model based largely on the British Gaming Act and system and adopted the New Jersey regulatory model. This highly regulated model with very prescriptive internal control systems was adopted on the basis of ensuring that the "toughest controls in the world" were in place to eliminate any chance of corruption or criminal activity occurring in these large urban casinos. Granted monopoly licences within their States these casinos prospered and proved to be highly lucrative to both the operators and the State Governments of the time.
The next wave of casino openings began in 1994 with the major urban centres of Melbourne, Sydney and Brisbane all opening casinos in the heart of their cities within approximately a year of each other. These casinos are now some of the largest in the World. As an example, Melbourne's Crown Casino has a licence to operate 350 table games and 2,500 gaming machines. Generating AUD$750 million in revenues from its gaming operations, the complex is a true World of Entertainment, with 17 bars, 35 restaurants, 40 retail outlets, 14 screen cinema complex.
Australia now has 13 casinos operating in every State and Territory in the country.
In the first and second waves of casinos being introduced, they were established without gaming machines or in some cases with video gaming machines which offered only Video Blackjack, Draw Poker or Keno. States were initially reluctant to introduce spinning reel gaming machines due to moral and social concerns about their appeal to the lower socio-economic groups who could not afford to gamble. Casinos had been established to stimulate tourism, employment and economic development. Gaming machines were not considered politically acceptable in the 70's and 80's, except in New South Wales where a thriving poker machine industry had been established from 1956 in registered non-profit community clubs.
Government attitudes towards gaming machines changed considerably in the early 1990's as a consequence of both a nation wide recession and the positive experience with legalised, well regulated casinos. State governments pressured for funds turned to introducing gaming machines throughout their States. By the mid -1990's gaming machines were well established with most States introducing machines into clubs, pubs and hotels. The tax revenues being generated were a politically palatable form of consumption tax and the machines were eagerly accepted by the general population.
Approximately 180,000 gaming machines now operate in a country with 18 million people. At 1 machine for approximately 100 people the ratio demonstrates the phenomenal market opportunity should this ever result in the U.S.. With only 1 device for every 500 people currently, the market could grow 5 fold if all the U.S. States were to adopt the Australian market profile.
The introduction of gaming machines into venues outside of the existing casinos significantly reshaped the market. Casinos in Queensland and South Australia had existed under virtually monopoly conditions for 8 to 10 years and found it difficult initially to adapt to the new conditions. Gaming revenues dropped by 20% or greater as people were drawn to more convenient locations in the suburbs. In Adelaide the impact was most significant with the government adopting a "level playing field" approach in relation to gaming machines. Both the casino and other operators operated under the same tax regime, return to player percentages and regulatory principles. With a free market model the casino was at a significant disadvantage in relation to the pubs and hotels in the State due to the proximity and convenience benefits attached to the latter. Tax rates were initially high set at 4.2% of turnover or handle. With a maximum hold of 15% this equated to over 28% of net win in comparison to the 20% rate that had formerly applied to the Casino where the average hold was more like 10%. Thus, the new tax was considerably higher than that which had previously applied.
In Queensland by contrast the casinos were protected with differing tax regimes and product advantages. The return to player in Queensland pubs and clubs was set at 85% or as close as practical thereto. For the casinos the return was greater at 90% or higher. This meant that the product offered in the casinos was much lower in relative price from the player's perspective.
Tax rates in clubs and hotels were also set much higher and were again based on turnover. This effectively "restricted" the investment that these venues could make into their facilities and marketing promotions. Also the regulator stipulated what product went into which venue. Therefore, while there was an initial impact on Queensland casinos the public quickly returned to the casinos after trialing the new venues. This took approximately six months to realise, with the impact on business during that time causing the casinos to reshape into more "locals" oriented facilities.
In the mid-1990's competition was fierce. Gambling was readily being adopted by all State Governments and casinos were under pressure from gaming machines, lotteries, Statewide Keno and the new mega-casinos in what for some had been major feeder markets. (Melbourne had been a feeder market into South Australia and Tasmania, while Sydney had been a feeder market into Queensland).
Date Posted: 30-Nov-1999
Andrew MacDonald is a highly respected Australian expert on Casino Operations and gaming statistics. Several of his works are utilised by the University of Nevada Reno in their Executive Development Program. He is currently employed by Australia's largest casino operator, Crown Limited, as Executive General Manager, Table Games Operations and Development .
Andrew may be contacted at andrewmac@urbino.net.
