Venue Payments, Time for a Re-think, Not En Masse Expensive Time in Motion Studies

Jarrod True specialises in advising Trusts and Clubs who are involved in the gaming industry.  Jarrod’s article discusses the problem of licence delays due to venue payment issues and the proposal that all venues be required to undertake a time in motion study.

Venue Payments will be a hot issue for 2008.  Any society that has recently applied for a class 4 operator’s licence would have experienced considerable delays while the Department seeks evidence to justify every single cent claimed in the venue payment.

It is important that the venue payment system be unambiguous and well policed.  It is not productive for societies to compete for venues by pushing the boundaries of the venue payment limits and attempting to attract new venues by offering unjustifiably high venue payments.

It is also important that the monitoring and licensing system is reasonable and enables societies to adhere to their duty to minimise their costs and maximise their return to the community.  Delays during licensing which results in a venue being unable to operate the gaming machines installed leads to a society incurring fixed costs with no return.

Delays in licence processing are unacceptable.  The Department’s policy of requiring detailed, historical venue payment information at time of licensing is questionable.  When a new venue is established detailed records of previous insurance, rent, rates, wage slips etc are simply not available to be provided.  This is also often the case when the business has changed hands and the previous owner is reluctant to part with detailed financial information regarding the way they operated the business previously.  Further, historic costs are not necessarily a true reflection of future costs.

Some costs cannot be quantified.  Frequently the venue owner will undertake the banking duties and be ultimately responsible for harm minimisation and the issuing of exclusion orders.  Venue owners do not typically pay themselves a fixed hourly rate but rather are reimbursed from the general profits of the business.

Once the Department is finally satisfied that the outgoings claimed (eg rates, rent, insurance and wage rates) are actual, reasonable and necessary the recent trend has been to then challenge the number of labour hours claimed.  The challenge is made despite the Department having approved an identical venue payment for the venue in the past.  Although the hours claimed are detailed in the venue payment claim and are signed by the venue operator as true and correct, the Department has taken the view that the hours claimed are excessive.  This view is taken by the Department staff who do not have any experience in operating venues and simply on the grounds of an assumption that the hours claimed are too high.

The deadlock is then broken by the Department offering to grant the venue licence if the society agrees to a licence condition being imposed requiring the venue to undertake a time in motion study within three months.  Societies are then forced to “agree” to this condition or face further indefinite delays in having the licence issued.

The time in motion study requirement is problematic.  If the time in motion study is done by the venue operator the study is in effect no different to the venue payment schedule which is completed and signed by a venue operator having regard to their experience in operating the machines at the venue.  The Department is likely to dismiss any such self-reporting and require an independent person to undertake a full time study over several weeks.  Such a study is likely to cost in excess of $10,000.00 per venue.  With approximately 1,600 venues operating gaming machines in New Zealand millions of dollars could be spent on time in motion studies rather than being returned to the community.  Given the cost involved in undertaking such studies it is likely that the Gambling Commission would deem such a licence condition to be unreasonable and uphold any challenge made to this condition being imposed.

The issue of licence delays, costs, and the establishment of a fair venue payment system can be easy resolved by a general assessment being undertaken and guideline cost bands being established.  For example if a venue applies for a 9 machine licence and has a history of banking $10,000.00 per week a venue payment in the range of $1,260.00 to $1,440.00 per week should be promptly licensed without the need to undertaken an expensive time in motion study.  This is similar to the old system which worked well until it was challenged in the High Court and was deemed to be an illegal commission based payment.  Such a system could however be legalised by an amendment being included in the Gambling Act Amendment Bill which is currently before parliament.

Further, if a venue is simply transferring between societies and is receiving the same or less venue payment from the new society there should be no audit of the venue payment at all during the licensing process.

Venue payments would still be policed by way of random audit during the normal audit process.  This will ensure that the costs claimed are actual, reasonable and necessary and fall within the Gazette Notice limits, but avoids licensing delays and numerous costly time in motion studies being undertaken.

Such a change to the Gambling Act has not yet been proposed.  The Department is however looking to amend the current Gazette Notice within the next few months.  The Department appears to have accepted from the labour surveys done to date that the labour costs which may be claimed under Limit “A”, hourly operating costs, are too low and need to be increased.  The Department appears also to have accepted that the limits should be adjusted each year in accordance with the Consumers Price Index.  Such tinkering will still however leave the industry with an unnecessarily complicated and ambiguous system which will inevitably lead to the less scrupulous continuously pushing the boundaries, while licensing delay and considerable monitoring costs are imposed on the industry as a whole.