South Australian hotels hit as pokie machines lose their lustre

Peterborough Hotel owner Geoff Tester has been trying to sell his pub so he can retire. Photo: Sam Wundke.

THE value of poker machines has crashed to an all-time low as South Australian hotels struggle to sell their entitlements in the face of falling gaming revenue and increasing costs.

The price collapse has seen the value of poker machine entitlements fall by $20,000 in the past two years to $35,643.

The crash, coupled with a lack of buyers, has brought into question State Government efforts to reduce machine numbers.

Since the 2010-11 financial year net gaming revenue has been on the decline, down from $745.47 million to $730 million in 2012-13.

The Australian Hotels Association says tough trading conditions, low levels of gaming revenue, and the system to trade machines is to blame for gaming machine prices bottoming out.

AHA government relations and public policy manager Wendy Bevan said many small operators could not get buyers because there was no market for the machines.

“That’s reflective of potential buyers looking at them and saying am I going to get a commercial return that’s appropriate?,” she said.

“Net gaming revenue continues to decline and the return on the sale of entitlements continue to decline.

“The last trading round saw only seven entitlements sold at all-time low prices, reflecting the terrible trading conditions and low levels of net gaming revenue, in comparison to ever increasing business costs.”

An entitlement is, in essence, a licence to install a poker machine in a venue. Venues pay for an entitlement and then must also pay for the machine.

“2014 is the eleventh year of the trading system and only around 100 entitlements in total have been withdrawn.”

In 2005, the Government set a target to reduce poker machine numbers by 3000.

In 2011 it introduced a market-based trading scheme, which replaced a fixed price scheme, to try and accelerate the amount of gaming entitlements traded.

Under the approved trading system, buyers nominate a maximum price they will pay for a gaming machine entitlement while vendors specify a minimum price they will accept for each entitlement.

Every fourth poker machine sold by commercial businesses in a trading round is cancelled, and every fourth gaming machine entitlement sold by community clubs is transferred to Club One.

But the number of numbers traded has effectively stalled.

There were seven offers to buy entitlements in last month’s trading round with nine machines sold.

Last year there were 36 offers with 32 entitlements purchased.

Ms Bevan said the AHA did not believe the current system was an effective tool for members to sell poker machines or as a mechanism to reduce the overall number in SA.

“There is certain perception that every hotel is a huge poker baron but what we do know is that the revenue is coming down,” she said. When you walk through the gaming rooms there are often a lot of empty machines.

“They (pubs) may have 10 machines but only two might be played at all times.

“The other thing is the tax, if you look at the local hotel he will pay 65c in every dollar and GST on every (gaming) dollar.”

Darren Steele, director of Steele and Associates Hotel Brokers, said a flatness in statewide gaming revenue may be the reason for a recent decline in offers to purchase gaming entitlements.

“Perhaps those who are looking to add more to their venues are looking at the overall returns and deciding that further investment at the moment isn’t necessary,” Mr Steele said. “I don’t think you can draw a conclusion that pubs aren’t making money from gaming machines because there are so few wanting to buy more.

“I think it’s just a sign of the general economy more than anything and I think as well any purchase of anything that any business makes generally has to be funded by a bank.” Mr Steele said the gaming revenue statistics show there hasn’t been growth in gaming for years.

Mr Steele said not many business owners who would buy poker machines out of cash flows.

“So there is probably some sort of link between perhaps financial institutions reluctance to extend credit to business to purchase new assets if there is not a strong case for growth.”

“So operators have to sit back and make a business case, do they need more machines? Because it is not a cheap thing to go and buy an entitlement, you have then got to spend $20,000 or $30,000 putting in machines there, if you are buying a new one,” he said.

“Bear in mind while they are only selling for about $35, 000 some had to pay nearly $50,000 to buy it and then they had to put another $20,000 or $30,000 on to put a new machine there.”

The approved trading scheme results reveal the price of entitlements plummeted nearly $20,000 since the trading rounds for the current market based scheme, which replaced the fixed price scheme in 2011, started.

Business Services and Consumers Minister Gail Gago said the Government recognised that structural change in the industry is needed to reduce supplies and help small operators “divest themselves of entitlements at fair prices”.

“An increase of entitlements for the Adelaide Casino in January has created more demand and will assist those trying to sell to leave the market,” she said.

South Australian Independent Senator Nick Xenophon labelled the approved trading system “broken”.

Family First MLC Robert Brokenshire said the Government said for years that they would reduce poker machines by 3000 and they were still 800 short.

“Some publicans want to do the right thing and be pokies free but they are being hamstrung by a system that is biased to the big end of town,” he said.

“Family First calls for the machine entitlements to go on the open market, as they do in New South Wales and as happens at the moment with hotel licences. Let the market decide what the entitlements are worth and let the private agents handle the sales,” he said.

“This Labor Government’s market intervention is stalling an important process and embarrassment for Labor because there are still 800 machines in the system that simply should not be there.”

PETERBOROUGH Hotel publican Geoff Tester, 71, said he wanted to to sell the entitlements to his 16 poker machines so he can retire.

But the problem is, nobody is interested. He has tried twice to use the State Government trading system to shift his entitlements but he’s had no takers.

“I’ve had a triple heart bypass and knee replacement just before last Christmas,’’ he said. “Now I just want to retire.’’

Mr Tester has had the hotel on the market for $865,000 for about four years but there have been no buyers.

“Ask any publican, anywhere if they are doing well and if they say ‘yes’, they’re lying,’’ he said. “Hotels aren’t selling and the banks aren’t lending money to buy them.’’

And, critically, he says, the depressed economy means poker machines have lost their allure with punters, too.

Mr Tester said he bought the Mid North pub 12 years ago with the intention it would be his superannuation nest egg.

“But the pub’s not worth virtually anything now,” he said.

The hotel’s 16 machines were valued at almost $1 million last year but Mr Tester downgraded his prices in this latest trade period for poker machines.

He has priced half the machines at $30,000 each and half at $40,000 each.

“The politicians in SA have made it so bloody hard to sell them now,’’ he said.

“At the last round of sales (in April) there were 230 entitlements and only nine were sold,” Mr Tester said.

“At this rate, it’ll take decades to sell all those machines the State Government promised to remove.’’

He said even if he sold his 16 machines now, the proceeds would barely pay off his bank debt.