Part 2: Controls on non-casino gaming machines

Department of Internal Affairs: Effectiveness of controls on non-casino gaming machines.

In this Part, we focus on the controls on non-casino gaming machines. The rules on non-casino gaming machines are set out in the Act and subordinate legislation. The tools used to enforce these rules are the licensing and compliance interventions used by the Department.

We focus on the rules in the Act because non-casino gaming machines are highly regulated, with relatively prescriptive requirements that operators of such machines must comply with to operate lawfully. Operators need a relatively high level of business ability to fully comply with these requirements.

Gambling Act 2003

The Act is at the core of a new legislative framework for gambling. Most of the Act’s provisions came into force on 1 July 2004. There were some amendments to the Act in 2005.

The main pieces of subordinate legislation are the Gambling (Class 4 Net Proceeds) Regulations 2004, Gambling (Harm Prevention and Minimisation) Regulations 2004, and the Limits and Exclusions on Class 4 Venue Costs Notice. Several other regulations also affect or relate to non-casino gaming machine operators,1 for example by prohibiting the offer of certain prizes to gamblers.

The purposes of the Act are to:

  • control the growth of gambling;
  • prevent and minimise the harm caused by gambling, including problem gambling;
  • authorise some gambling and prohibit the rest;
  • facilitate responsible gambling;
  • ensure the integrity and fairness of games;
  • limit opportunities for crime or dishonesty associated with gambling;
  • ensure that money from gambling benefits the community; and
  • facilitate community involvement in decisions about the provision of gambling.

The Act does not identify any of its purposes as being more important than others. The Department therefore has to determine the appropriate balance between ensuring that benefits are derived from gambling and ensuring that the harm from gambling is controlled. This is a difficult balance, and there are a range of views as to how this balance should occur.

Operator’s and venue licences

The Act classifies gambling into six classes. Use of non-casino gaming machines is the only gambling activity currently in class 4.

Class 4 gambling may be conducted only by a corporate society (operator). To operate class 4 gambling, an operator must have a:

  • class 4 operator’s licence; and
  • class 4 venue licence for each venue where a gaming machine or machines are operated.

The requirements an operator has to meet to the satisfaction of the Department to obtain an operator’s licence include:

  • Their purpose is to raise money for authorised purposes.
  • They are financially viable.
  • They will maximise net proceeds and minimise operating costs.
  • They will apply or distribute net proceeds for authorised purposes.
  • They will minimise the risks of problem gambling.
  • They are a suitable applicant and have suitable key persons.

Conditions an operator has to meet to the satisfaction of the Department to obtain a venue licence include:

  • They have territorial authority consent (where required).
  • They will minimise the possibility of persons under 18 years old gaining access to the venue.
  • They will minimise the risks of problem gambling.
  • They hold a class 4 operator’s licence.
  • They have a suitable venue manager.

The Act restricts the number of gaming machines at any one venue, and enables local authorities to also impose conditions on the number of machines at a venue in certain circumstances.

Operator and venue costs

Of the total revenue generated from non-casino gaming machines, machine operators are allowed to retain some for certain operating costs and to pay venues certain costs. A Gazette Notice imposes limits and exclusions on the costs that can be paid to venues by operators. The limits are:

  • Limit A – no more than $0.60 for each gaming machine for each hour of gaming machine operation for labour, electricity, and associated management fees;
  • Limit B – no more than $75.00 for each gaming machine for each week for weekly labour machine management tasks, rent or lease payments, insurance, interest, and associated management fees;
  • Limit C – no more than $800.00 for each venue for each week for weekly labour venue tasks, security, venue development and/or enhancements and/or maintenance, and associated management fees; and
  • Limit D – no more than 16% of the turnover from all non-casino gaming machines in any 12-month period, less prizes paid in that period.

Funds for authorised purposes

The Act allows operators to raise money for authorised purposes only. These are defined as gambling for any of:

  • a charitable purpose;
  • a non-commercial purpose that benefits the whole or a section of the community; and
  • the promoting, controlling, and conducting of race meetings under the Racing Act 2003, including the payment of stakes.

The Gambling (Class 4 Net Proceeds) Regulations 2004 impose conditions on how operators can distribute funds to authorised purposes. These regulations also require operators who distribute funds to distribute a minimum of 37.12% of GST-exclusive gross proceeds to authorised purposes.

Gambling Commission

The Act established the Gambling Commission. The Commission is a Commission of Inquiry but operates as an appeals body run along judicial lines. Operators are able to appeal to the Commission against the Department’s decisions.

Under section 81 of the Act, the public are entitled to complain to the Department about the conduct of class 4 gambling. If the public are unhappy with the way the Department has handled a complaint, they are entitled to complain to the Commission. At the time of our audit, there had been no complaints specifically about the Department to the Commission from the public.

As at 19 December 2006, the Commission had published 11 decisions relating to non-casino gaming machines. Of these decisions, the Commission upheld four appeals, partially upheld and partially declined one appeal, declined three substantive appeals and two other appeals, and referred one appeal back to the Department. The Gambling Commission publishes its decisions on its website,

The Commission is independent of the Department. It considers each case afresh as if no prior judgements had been reached on the facts. The Commission’s meetings are generally held in private. The Commission is funded through the Department, and the Commission’s staff are the Department’s employees, although they work independently of the Department. The Commission is based in Auckland, and is physically separate from the Department’s Auckland office.

Our consideration of the Department’s controls

We discuss the Department’s implementation of controls on operators’ and venues’ entry to, and continued operation in, the industry (through licensing) in Part 3. Monitoring and enforcement of compliance relating to operators’ and venues’ costs is the subject of Part 4. We discuss the implementation of controls on how and what community purposes operators use gaming machine money for (through grants) in Part 5.

1: For example, the Gambling (Infringement Notices) Regulations 2004, Gambling (Electronic Monitoring Fees) Regulations 2006, Gambling (Forms) Regulations 2004, Gambling (Problem Gambling Levy) Regulations 2004, Gambling (Fees and Revocations) Regulations 2004, and Gambling (Prohibited Property) Regulations 2005. The Gambling (Class 4 Banking) Regulations 2006 were not in force at the time of our audit.

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