Had a flutter on the pokies recently? Ever wondered where the proceeds go? Nicola Fallow follows the money.
Gamblers lost $15.2 million in Invercargill's pokie machines in the year to March 31. That's about $41,650 lost every day while the punters chase the jackpot.
It all went somewhere but, if you try to track down where, it takes a while for the numbers, rules and inconsistencies to stop spinning like the symbols on the machines themselves.
It's little wonder that some proceeds from city machines wound up being distributed further north - not just because the rules allow that, but also because we haven't stuck our hands out for them.
Meanwhile, the city's foremost pokie society, the ILT Foundation, can fairly point to Department of Internal Affairs' reports commending the proportions it returns to the community.
However, the ILT Foundation has been keeping grants up, in part, by whittling down reserves that had built up to an extent that had raised the eyebrows of the department.
In any case, those reserves are just about gone and the foundation is likely to have less money to hand out in coming years. Regular grants are looking OK but one-off projects are more likely to miss out.
Pokies activity is captured by Internal Affairs using an electronic monitoring system connected to non-casino gaming machines nationwide.
Depending on the mathematical design of the game, the machines must give a return to the player of between 78 and 92 per cent of the total of all bets made over the lifetime of the machine - usually millions upon millions of "plays" - the rest, players' losses, is referred to as gaming machine proceeds or expenditure.
This means on a game designed with a theoretical return to player of 92 per cent, players will lose, on average, around eight cents from each dollar wagered.
However, since the theoretical return to player percentage represents the expected return from such a large volume of game play, individual results can vary widely and some players may never win, while others might continue to bet any wins until they have been lost.
Internal Affairs breakdowns of Invercargill's gaming machine proceeds show about 90 per cent, or about $13.7 million, was spent in machines operated by public societies set up to raise funds for the community - including the ILT Foundation and The New Zealand Community Trust.
That's 247 machines at 18 commercial venues as at March 31.
The rest was spent in machines operated by clubs at their own premises - 51 machines at four clubs, including the Invercargill Working Men's Club and Club Southland.
From these amounts The Southland Times estimates about 35 per cent went to taxes and a problem gambling levy, while about 24 per cent went to society expenses and venue costs - which are required to be minimised. The rest is referred to as net proceeds and must be returned to the community.
Public societies and clubs must distribute net proceeds of at least 37.12 per cent of the total, excluding GST, they generate from gamblers' losses for that financial year.
This equates to 32.28 per cent of their GST-inclusive total.
All or nearly all of their reported net proceeds must be distributed at least every quarter and societies that mainly distribute to the wider community must also have distributed any remainder within three months after the end of their financial year.
If a society with machines in Southland also has others further north the minimum percentage applies to its combined total.
There is no obligation for societies to return this amount to the same community it came from, although many choose to, but distributions must be for authorised purposes only.
These can include charitable, philanthropic, or cultural activities, something that provides a benefit to a significant portion of the community in a non- commercial sense, or promoting, controlling, and conducting race meetings under the Racing Act 2003 - including the payment of stakes.
Altogether, the public societies distributed about $6.6 million to recipients, mainly from the Invercargill City Council (ICC) area during the 12 months to March 31.
However, there was no easily available collective picture showing where that money went.
While the DIA has produced four reports since 1996, describing the allocation of non-casino gaming machine profits to community organisations in New Zealand, it has focused on the picture at a national rather than a territorial local authority level.
So The Southland Times has produced its own analysis based on the grants lists published by public societies for the period and the classification system used by the department for its latest report.
Most of the funding we analysed went to culture, sport and recreation groups, and social and community services (the social services, education, health, and development and housing categories).
Sport took out the single largest share: 58 per cent, or about $3.8 million.
From that category, the Southland Indoor Leisure Centre Charitable Trust received the largest individual grant of $500,000, and received $750,000 in total.
Meanwhile, organisations involved in social and community services walked away with more than 28 per cent, or about $1.87 million, and Enrich@ILT received the single largest grant for the category of $270,000.
While clubs sometimes distribute a small amount to the wider community, they mostly apply net proceeds to their own authorised purposes, usually their club operating costs.
How much this amounted to for the period is hard to work out because the self-reported figures are drawn from each club's financial reporting year, and these differ from club to club.
However, from these imperfectly synced snapshots, the DIA reports an average rate of return for the 2012 calendar year of 39.8 per cent.
Using this average The Southland Times estimates for the year to March 31, clubs spent about $370,000 on operating costs, after taxes and a problem gambling levy, and applied net proceeds of nearly $579,000 to their own authorised purposes.
Of the about $9 million, after taxes and a problem gambling levy, gathered by public societies, the ILT Foundation says its share was about $7.03 million, the Southern Trust says its was about $950,000, Internal Affairs breakdowns show the New Zealand Racing Board's share would have been about $470,000, and the New Zealand Community Trust's figures show its share would have been about $140,000.
This indicates a combined share of about $400,000 for The Lion Foundation (2008) and The Trusts Community Foundation.
The ILT Foundation says it reported, and distributed, net proceeds of about $4.65 million from the total gaming funds it raised.
Which means, after taxes and a problem gambling levy, about $2.38 million went to its other operating expenses.
A further more than $1.3 million - part of the net proceeds held from prior years - was also distributed, as well as a small amount of refunded grants which were required to be redistributed.
Before the foundation was formed, gaming machines at Invercargill Licensing Trust venues were operated by the trust's Charitable Trust and its Sports Foundation.
These two societies had been able to hold on to net proceeds, with general approval from the DIA, under the legislation in force prior to the Gambling Act 2003, Invercargill Licensing Trust general manager Greg Mulvey says.
"Our trusts were able to accumulate funds, and this was an important factor that enabled large donations to be made to a specific community project. One of the best examples was the accumulation of funds to help build and fund the original Stadium Southland."
When the two societies were wound up in 2006, they had accumulated net proceeds of more than $7.7 million which were transferred to the newly created ILT Foundation, again with the DIA's approval, Mulvey says.
However, when asked to confirm this, Internal Affairs said prior to the current requirements coming into force - from the Gambling Act 2003 and the Gambling (Class 4 Net Proceeds) Regulations 2004 - societies were required by licence condition to apply and distribute all gaming machine funds, less expenses, to the authorised purposes shown on the face of their licence, regularly and frequently, so there was no accumulation of funds.
In the department's past two reports following its audits of the ILT Foundation - for the periods April 1, 2010, to March 31, 2011, and April 1, 2007, to March 31, 2008, it has commented on the large amounts of undistributed net proceeds inherited and, in the latter, required a change to the way the foundation accounted for them and its grants.
This led to the one-off transfer, showing in the foundation's 2012 annual report, of about $1.87 million from equity to undistributed net proceeds - a current liability.
And its donations expense now comprises the full amount of net proceeds, with the undistributed portion then added to the current liability.
As at March 31, the foundation's total undistributed net proceeds were about $183,000.
Even so, last year Internal Affairs highlighted the ILT Foundation for being, proportionately, the highest returner of all gaming societies. It noted several facilities the foundation had supported, including Stadium Southland and the then-ILT Velodrome, along with the foundation's equitable spread of grants to about 300 community organisations annually.
Internal Affairs also recognised the foundation for several of its gambling harm minimisation practices, including its self- exclusion programme, which covers all venues in the city, even those operated by other societies, and its venue policy of paying all jackpot winnings in $50 notes, which are not accepted by gaming machines.
ILT Foundation manager Ann Eustace says having a lean management and staff structure, along with machines located exclusively at Invercargill Licensing Trust venues within a tight geographical region, rather than spread over a large part of New Zealand, enabled efficiencies.
"We also have the benefit of using ILT facilities and services, at cost, and the economies of scale we achieve from that," Eustace says.
The foundation is also governed by the publicly elected Invercargill Licensing Trust board members who are directly accountable to the community for their actions and performance.
"The model that ILT created when it formed the ILT Foundation is, in our view, the very best that there is," Eustace says.
For the year ahead the foundation is budgeting on less gaming revenue and a return of about $4.19 million.
This, and its much reduced undistributed net proceeds balance, means it's likely the overall amount the foundation will be able to distribute during the year will be the smallest since its commencement in 2006.
However, it will still be a substantial amount, and the foundation says it does not expect cuts to the grant amounts currently provided to organisations.
"It is the one-off grants for projects that may have to be scaled back.
"It is difficult to say at this point - there is no set policy to cut grants across the board but rather we will look at each application on its merits," Eustace says.
The Southern Trust, which is based in Dunedin and operates gaming machines across the country, says it spent nearly $429,000 on operating expenses, after taxes and a problem gambling levy, from its share of the amount gamblers lost in Invercargill, and reported net proceeds of almost $526,000.
At the same time it distributed about $377,000 to grant recipients within the ICC area - including about $28,000 which was part of the net proceeds from the previous period - while more than $26,000 was distributed through its national fund.
Southern Trust chief executive officer Karen Shea says the remaining more than $150,000 of net proceeds was "ring fenced for that area".
The New Zealand Racing Board operates gaming machines at TAB agencies and branches nationwide, and says it reported net proceeds of approximately 40 per cent, or about $289,000, from its share of the amount gamblers lost in Invercargill.
This means it would have spent about $184,000, after taxes and a problem gambling levy, on its other operating expenses.
Net proceeds from all the board's venues were pooled before about 90 per cent was set aside for its own racing authorised purpose, general manager governance and regulatory affairs Michael Wemyss says.
The rest was available for distribution to the wider community under its sports authorised purpose.
Under the board's racing authorised purpose, it has provided funding directly to the three codes - thoroughbred, harness, and greyhound racing - which have used those funds across meetings throughout New Zealand, including Invercargill and Southland, Wemyss says.
During the board's financial year to July 31, 2012, it set aside about $1.1 million for distributing under its sports authorised purpose.
This amount has since been handed out but none of it went to recipients within the Invercargill City Council area.
Wemyss says the board has not received any applications from sporting organisations in Invercargill or Southland to date.
However, it has only been operating the gaming machines in its venues since August 2011.
Before which the machines were operated by either the Lion Foundation or The Trusts Community Foundation.
The Lion Foundation (2008), a sister trust to The Lion Foundation established by Lion Nathan in 1985, and The Trusts Community Foundation, are each based in Auckland and operate gaming machines throughout the country.
Both societies decline to provide details of their share of the funds gathered in Invercargill or the net proceeds they reported from these amounts.
However, The Lion Foundation (2008) says nationally it reported net proceeds of 40 per cent from the total gaming funds, excluding GST, it has raised.
And the Trusts Community Foundation says for the year to March 31, 2012, it reported net proceeds of $17.98 million, about 48.63 per cent, from the total gaming funds, excluding GST, it raised nationally.
These percentages give the two societies a 44.31 per cent average rate of return.
Based on this, with the breakdowns from Internal Affairs and the figures provided by the other public societies, The Southland Times estimates the two societies reported net proceeds of about $235,000 between them.
This means they would have spent a combined total of about $164,000, after taxes and a problem gambling levy, on their other operating expenses.
Using territorial local authority boundaries, The Lion Foundation (2008) says it aims to return 90 per cent of net proceeds to their community of origin, with the rest going to national organisations like Plunket, NZ Blue Light, and Paralympics NZ.
Grants lists provided by the foundation show it distributed about $52,000 within the ICC area for the period to March 31.
The Trusts Community Foundation says it returned 98 per cent of its net proceeds to the regions where the money was raised, with the rest going to regional and national projects.
Its grants lists show it distributed about $55,000 within the Southland region during this time.
Given the percentages, the two societies say they distribute to regional or national projects, The Southland Times estimates this accounts for about $14,000 between them.
This leaves them with an estimated about $113,000 in undistributed net proceeds from the period.
The NZ Community Trust, which is based in Wellington and operates gaming machines nationwide, says it reported net proceeds of more than $65,000 during the period to March 31, which means it would have spent nearly $77,000, after taxes and a problem gambling levy, on its other operating expenses.
Its grants list shows it distributed $66,000 within the ICC area, including a small amount of redistributed grant refunds.
While the trust's policy is to return net proceeds to the area where they were raised, as it has here, it also funds several national organisations, including Outward Bound and Special Olympics, which it believes offer benefits to communities throughout the country.
In future it's likely a minimum proportion of the net proceeds raised from pokies gambling in Invercargill will have to be returned here.
The change is one of several on the cards due to a new regulation-making power being introduced through Maori Party MP Te Ururoa Flavell's Gambling Harm Reduction Bill.
Flavell's bill originally sought to make significant changes, including requiring at least 80 per cent of all the funds raised from gamblers' losses to be distributed for authorised purposes within the same community where the gambling occurred.
Instead, the commerce select committee completely rewrote the bill in June and created the power to set three as-yet unspecified constraints - the minimum proportion of net proceeds that must be returned locally, the maximum that may go further afield, and rules for any left over.
The bill now also enables new regulations to be created for harm minimisation, including the prescription of player pre- commitment and tracking measures.
And, when local authorities allow them to relocate a venue, the bill permits societies to keep the same number of machines.
The Invercargill City Council's gambling venues policy, due for review in December 2014, allows for up to nine gaming machines to be transferred to a new venue if it's being operated by the same corporate society.
Meanwhile Internal Affairs Minister Chris Tremain has announced plans to introduce further legislation and regulations later this year.
"These reforms will focus on improving the transparency of grants to community groups, increasing the amount of funding that goes back to the community and reducing unnecessary compliance costs for Class 4 [non-casino] operators," Tremain says.
- © Fairfax NZ News