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Oct 11, 2016

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In a world of declining ad sales, media outlets have grabbed for a share of the only real growth area in advertiser spending: gambling.

Last night’s Media Watch noted the massive growth in gambling ads in recent years in the Australian media. Gambling companies have gone from spending $96 million in 2011 to $236 million in 2015. That money is fuelling the revenues of media companies, which are in turn upping their exposure to the industry through investments in all types of betting directly. But the societal cost is that the more money consumers lose on gambling, the less they spend in other areas. That is in turn hitting media companies through lower ad sales elsewhere. Australians lose $23 billion a year on gambling, with much of that coming from poker machines. Media companies all wash their hands of poker machines and say they have the situation under control. They don’t; they are desperate, revenue-poor companies chasing a greater share of the only real growth area in advertising.

Media Watch could have noted the expansion of gambling at News Corp — Crikey yesterday pointing out News Corp’s undeclared financial interest in greyhound racing, amid a vehement campaign against the greyhound racing ban imposed (and this morning dropped) by the Baird Liberal government in New South Wales.

News Corp’s exposure to gambling is global — The Sun in the UK has an online gambling operation in partnership with Australia’s Tabcorp. All News Corp papers run fantasy football competitions, such as The New York Post. The tabloids in Australia, led by the Herald Sun in Melbourne and Sydney’s Daily Telegraph, also run fantasy football competitions, which are a form of gambling.

It’s not News Corp’s only investment in the sector. Among the AFL grand final ads on Seven was one for a new fantasy football business in which the supposedly family-friendly Seven Network will get into bed with CrownBet and the News Corp-owned Fox Sports in the existing fantasy football competition called Draftstars, currently owned by CrownBet and Fox Sports. An announcement from Seven last month said:

“Seven West Media … today announced its investment in Draftstars, Australia’s leading daily fantasy start-up. Draftstars is a joint venture between Seven West Media, CrownBet and Fox Sports, and is the official daily fantasy sports partner of the Australian Football League. Seven West Media has secured a 33 per cent shareholding and will provide media support, product development and investment to further drive brand awareness and usage in an integrated media campaign across all Seven’s leading content brands.”

That release quoted Tim Worner, the CEO of Seven West Media, saying:

“We are delighted to partner with CrownBet and FoxSports in Draftstars. Our investment builds on our strategy of leveraging the power of our media assets to scale early stage businesses. Draftstars is an exciting investment for our company and we look forward to working with them and our investment partners in driving brand awareness and engagement.”

Which can be contrasted with Worner’s comments reported last night by Media Watch on the issue of gambling ads:

”I have children myself and I am not blind to the concerns … We already have extensive restrictions in place to ensure community standards are met.”

Restrictions are in place for ads from the likes of CrownBet, Sportsbet and William Hill. But Seven says it will be offering to  “provide media support” through “an integrated media campaign across all Seven’s leading content brands”. That sounds like flogging Draftstars to as big an audience as possible, including children through every channel and brand.

Comments & corrections

Sep 22, 2014

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How can states raise revenue?

John Falconer writes: Re. “Can states wean themselves off gambling, mining and property revenue?” (Thursday). States have obligations to provide a raft of services to the communities: health, education, police, infrastructure and many, many other services. Just how does Crikey intend to fund these obligations. Bring back state income tax. Increase the GST substantially?

What does weaning off these three industries exactly mean? Stop mining. Stop gambling. Free land transfers for home buyers and developers. But of course not. Ken Henry  didn’t  want to do away with these taxes. He just wants them to be taxed differently.

All governments when dealing with any and all taxes need to deal with the pleadings of the poor taxpayer. Yes, in recent times there has been some shocking travesties brought upon NSW by the likes of Obeid and Tripodi. Jail them. Confiscate their ill-gotten gains. Have more transparency. Give ICAC more power. But let us not throw out the baby with the bath water.

Over the millennia, governments in one form or another have relied on property taxes to fund their obligations. It ain’t going to stop. It’s an easy (if economically inefficient) tax to collect if you need the title deeds to your property. I have sympathy for the proposal to ban gambling, but it isn’t going to happen. And if there were no mining and no mining taxes in their many and varied forms, Australia would be an economic basket case.

Finally, maybe the federal government can wean itself off income tax and GST.

Mission accomplished?

John Highfield writes: Re. “Front page of the day” (Thursday). Reckon the Telegraph ( which is not on my reading list) came  closest with Horatio Morrison. After all, the original was also one-eyed!

Terror threats

Brendan Abrams writes: Re. “Key issues around security laws likely to get lost in the terror noise” (Thursday). The current desperate attempt by Abbott and Co. to hype the threat to Australia from the bunch of mediaeval thugs on the other side of the world reminds me of being in Japan after 9/11 and for a few years after. I enjoyed travelling to the sticks and out of the way places, and was always amused to find on some remote island bus, or lonely mountain cablecar, a notice that “anti-terror measures are currently in place”, as if al-Qaeda had evil designs on the creaking infrastructure of dwindling communities of octogenarians in the Japanese backwaters.

Australia

Sep 18, 2014

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As Crikey has revealed, Australia’s states and territories collected roughly 13% of their overall revenue from property, mining and gambling taxes over the past five years. Relying on such a narrow tax base has long raised suspicions that cash-strapped states and territories are in the pocket of developers. Senator Larissa Waters, mining spokesperson for the Greens, told Crikey today that “clearly the amount of revenue that state governments raise, particularly from mining, illustrates why they are always so willing to approve everything. There’s barely been a mine rejected in living memory.”

“The mining industry holds great sway over politicians of both persuasions,” Waters said. “The ‘roll out the red carpet’ approach, particularly in Queensland, where I’m from, means governments are wilfully blind to the damage that the mining industry can do to other industries like the tourism industry and agriculture.”

Waters says the Greens would “certainly not” argue the mining industry should pay less tax and would not be drawn on whether revenue-raising should be separated from regulatory responsibility, saying only it was a “valid question”.

But in the case of major mining projects, Waters says, figures revealed by Crikey show “why you need that federal involvement in regulation, that is one step removed from the revenue stream”.

“States have a clear incentive to approve, which is why you should not be putting them in sole control of that decision, which is what Tony Abbott is proposing to do with his hand-off of powers.”

It is fiendishly difficult to separate revenue-raising from the other roles and functions of government.

Former head of the revenue group at Treasury Greg Smith, who was a member of the Henry Tax Review and is adjunct professor of economic and social policy at the Australian Catholic University, does not agree with the view that the collection of taxes generates an unfortunate impact on regulatory activity.

“I don’t think that government political decision making is greatly influenced one way or the other by the fact that revenue is also collected in the economy in any sector. I don’t think there’s much force in de-linking revenue raising from the other functions of government.”

Former NSW premier Nick Greiner, whose government established the Independent Commission Against Corruption and who is now a prominent company director, argues the states are more likely to come under pressure because they take more discretionary decisions with significant economic consequences for specific projects and companies.

“The truth is the states are closer to the ground,” Greiner said, “so there is an easier potential [for corruption] in terms of planning decisions and allocation of mining rights and indeed with gambling. They are qualitatively different from the Commonwealth, which is removed from real-world economic decisions.

“The fact the states have those responsibilities may well be a reason to be why you might expect to find more corruption in those areas, but it’s more a relationship to the constitutional responsibility, which flows through to the revenue base.”

But Greiner challenges the assumption that states approve projects too readily. “You want the state to have an incentive to approve things, as long as there’s due process. The alternative proposition, that you’d want the states to approve things less, is a recipe for much less economic growth. The question is getting the process right — avoiding what we’ve seen in NSW, particularly with Eddie Obeid and John Maitland, where I’m not sure there was much wrong with the process, it was the way the process was applied.”

Smith, too, questions whether reliance on the taxes and royalties made jurisdictions more prone to corruption. “Corruption comes from the right to do something, it doesn’t tend to come from the price of ownership.”

He argues states and territories would have an economic incentive to promote development regardless, as economic growth would increase GST revenue, for example.

Smith says mining royalties are not taxes, which are properly defined as a compulsory unrequited transfer. Royalties, by contrast, are “a price … a payment to the sovereign owner of those resources for the right to exploit it. Why would you not charge someone to take what you own?”

While aware of arguments that gambling taxes have created an incentive for states to oversupply gambling venues, resulting in more casino tables and poker machines than there would otherwise be, Smith counters the argument ignores that gambling venues pay company tax and GST as well as state taxes, and the tax system as a whole falls more heavily on gambling than it does on food, say.

“The argument states have an incentive to over-approve pokies pretty much relies on a mindset that gambling is a bad thing. It’s a moral position that governments approve more gambling outlets than they should.”

On land taxes, Smith says there is a counter-argument that one of the things that causes land values to rise — and therefore increase the tax revenues — is refusing development. “You could equally argue that development restrictions raise property values more than permissions.”

 

Australia

Sep 18, 2014

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Australia’s states and territories collected $137 billion in property, mining and gambling taxes over the past five years — or roughly 13% of their overall revenue — raising the question of whether they are too reliant on these three industries, and whether they are able to regulate them impartially.

Figures compiled by Crikey from state and territory budget papers show property taxes, including land tax and stamp duties, accounted for the biggest share over the five years to 2013-14 at $67 billion (7%), followed by mining royalties of $41 billion (4%) and gambling taxes of $27 billion (3%).

State government revenue by industry

The figures show Western Australia has by far the greatest reliance on revenues from the three industries at 28%, twice the national average and markedly higher than the 23% level of five years ago. Victoria (15%) and South Australia (14%) are next most heavily reliant on these industries.

Percentage of state revenue from gambling, property and resources combined

Western Australia, which has been the most vocal critic of the formula used to allocate GST revenues among the states, is an outlier, with substantial growth coming from volatile mining royalties — a massive $21 billion over five years, rising from 10% of state revenues in 2009-10 to 17% last year. In almost every other jurisdiction the overall figures have been remarkably stable despite the ups and downs of the property cycle and commodities prices.

While the overall revenue from property, mining and gambling makes up only 13% of total state and territory revenues, which include GST and tied and untied Commonwealth grants, it would comprise a much higher proportion of the revenue streams that are controlled by the jurisdictions themselves. Going by the most recent ABS figures for 2012-13, for example, revenue from property, mining and gambling combined made up 25% of state revenues including from sale of goods and services, interest and other income, and 38% of revenues just counting taxes and royalties. This gives state and territory governments a direct financial incentive to approve projects that would increase the revenue base, whether through property development, mining or gambling venues such as casinos and pokies.

The federal government is handing back extra responsibility for environment and planning to the states and territories, and preparing separate white papers on tax and the reform of the federation. Last Friday Prime Minister Tony Abbott released an issues paper on the federation that flagged that the revenue base of states and territories would be considered in an effort to tackle the long-standing problem of “vertical fiscal imbalance”, in which states raise insufficient revenues from their own sources to finance their spending responsibilities.

The issues paper noted both Commonwealth and states had fallen into structural deficit since the global financial crisis, with the states not expected to rebound to surplus in aggregate until 2016-17. The paper blamed rising infrastructure spending and lower post-GFC revenues for the slump into debt, and flagged other sources of revenue would need to be considered, “such as user-charges or co-payments from people who use publicly subsided services and can afford to make a greater private contribution to their cost”.

In 2009 the review of Australia’s Future Tax System led by former Treasury secretary Dr Ken Henry found that “although the states currently have access to significant taxes, there are problems with either the quality of these taxes or the way they are levied”.

The Henry Tax Review proposed reforming inefficient states taxes including land transfer or stamp duties in favour of broader-based land taxes, suggested a profits-based mining tax instead of volume or gross sales-based mining royalties, and called for options for “reducing conflicts in policy-making between regulation and revenue-raising” as regards gambling taxes.

The property and gambling industries have long featured prominently on lists of political donors and at national and state level. Retired academic Norman Thompson, who compiled the democracy4sale.org website, told Crikey that in the decade to 2009, when donations laws in NSW were reformed, the property industry donated almost $19 million to all parties, while hotels, clubs and gaming donated $7 million. The mining industry donated less — just under $700,000 over the period.

Recent hearings of the NSW Independent Commission Against Corruption have exposed corrupt deals between politicians and proponents of new property, infrastructure and mining projects, ranging from Cascade Coal chairman Travers Duncan’s Mt Penny tenement in the Bylong Valley, to Buildev Group part-owner Nathan Tinkler’s coal loader at Newcastle, to Nabil Gazal’s shopping centre rezoning at Orange Grove in Western Sydney.

Also in NSW, there has been controversy over billionaire James Packer’s Crown Ltd, which is developing a new casino at Sydney’s Barangaroo and received highly favourable treatment from the O’Farrell government after a novel “unsolicited proposal” process. On Monday Four Corners raised serious questions about the fastest-ever probity checks of Crown’s new casino by the state regulator the Independent Liquor and Gaming Authority, despite concerns about connections to organised crime. Also this week a cosy deal between the Victorian government and Crown, including compensation for any future regulatory changes to deal with problem gambling, caused an uproar.

NSW collected $27 billion from the three industries over the last five years, including $12 billion in property taxes, $9 billion in gambling taxes and $6 billion in mining royalties, although this made up a below-average proportion of total revenue at 9%, which was stable over the period.

*Read what analysts say about the potential for a conflict of interest here.

 

Federal

Jun 22, 2011

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Much of Australia’s $22 billion gambling addiction has been well documented, poker machines, table games and wagering are all hugely popular with the punters. But what about online casinos? Untaxed, unregulated and under the radar, this so-called “unofficial” sector of gambling is increasing in popularity.

According to the Productivity Commission, the wild west of unregulated online gambling could be worth as much as $800 million annually. Industry experts recently pegged the number as high as $968 million — with a third of that funneling into online poker.

Dr Sally Gainsbury, a lecturer at the Centre for Gambling Education & Research, Southern Cross University, is currently undertaking a survey into online gambling, with the results set to be presented later this year.

As part of her research, Gainsbury has studied the growth of online casinos and their popularity with Australian gamblers.

“At the moment participation compared with other forms of gambling seems low, but it appears to be growing,” she told Crikey. “The thing about these offshore sites is that many are easily accessible to younger people and problem gamblers. There is also a lack of consumer protection.”

Under the Interactive Gambling Act passed in 2001, it is illegal for online casinos to accept bets from or advertise to Australian players.

But that does not seem to have to have stopped the growth of casinos. According to Gainsbury’s calculations, there were 2319 virtual casinos open for business in May this year — “although that changes all the time” — with 90% of operators offering play to Australian players.

One of the big operators is 888.com, who commanded revenues of $US221.7 million last year and profits of $US12.4 million (down from $US31.9 in 2009). Listed on the London Stock Exchange, its headquarters are based in the small English colony of Gibraltar — a popular location for online casinos.

At the time of her count, Gainsbury found Gibraltar had 291 online casinos operating in its jurisdiction. Gainsbury says the reasons for Gibraltar’s popularity could be due to its proximity to Europe and also its stringent regulatory body (a must for the legitimate operators).

There is also the small matter of tax, which at 1% of gambling income in Gibraltar is far more attractive than the 15% taken from the pot of operators in the UK.

Unsurprisingly, low taxes are a common theme among countries with the highest number of online casinos. English channel island Alderney charges 0% tax (only a license fee is required) and has 104 operators.

Tiny island republic Malta leads the way with 460 casinos and has an attractive tax rate of 0.5% gross amounts of bets. In Costa Rica — a country Gainsbury says doesn’t command many legitimate operators because of its lax regulation — online casinos are treated as call centres and face attractive offers also.

As well as an attractive tax rate, Gainsbury says suitable online casino locations need a good legal framework, an availability of workers that speak the required language and a decent telecommunications set up.

Aside from all that, the country also needs to sit in a compatible time zone.

But despite an explosion in the number of casinos competing for gambler’s dollars, the sector is not impervious to the odd economic shock.

According to figures recently released by gambling industry market research consultants H2 Gambling Capital, online gambling forecasts will amount to 23.66 billion euros this year, which amounts to a downgrade of year-on-year growth rates to 4.4%.

H2 attributes the recent FBI crackdown on online poker giants, PokerStars, Full Tilt Poker and Absolute Poker (which the industry dubbed “Black Friday”) as one of the reasons for the drop in revenue.

Other key factors include slower than expected regulation, the Japanese earthquake and the economic slowdown in the US and Europe.

North America is still the major market for online casinos, however the Black Friday crackdown may see its importance dip. Gainsbury says Asia is being eyed off as a potential online casino goldmine, but only if they liberalise gambling laws.

With so many casinos on the market, things can get competitive. Online casinos offer myriad of bonuses to get punters to sign up. Inducements include “welcome bonuses”, which are usually the doubling (or sometimes tripling) of a player’s deposit.

Gainsbury says there are 200 different forms of payment at the online casinos she looked at. These options ranged from traditional credit car billing to PayPal to specialised casino deposit services.

But despite the illegality of offering play to Australians, there has yet to be a prosecution of a single operator. Gainsbury says she is surprised no action has been taken.

“Despite the Interactive Gambling Act strictly prohibiting these casinos offering play to Australians, there have been no prosecutions,” she said. “To me it seems odd. I know there have been complaints, but no action has been taken.”

Perhaps, with so many potential tax dollars flowing out of the country to overseas operators, the regulators will look to act. Presumably letting our gambling revenue go offshore may not sit well with the states. After all, in 2009-10, they took in $5.2 billion of tax dollars from gambling.