Submission on Site Rental Review

24 October 2003
Email:   kate.reid@dia.govt.nz

Kate Reid
Manager - Gaming Operational Policy
Department of Internal Affairs
PO Box 805
WELLINGTON

Dear Kate

Thank you for the opportunity to make a submission on the Second Discussion Paper on Gaming Machine Site Payments.   Attached are our submissions on the discussion paper.

I also wish to strongly support the approach by GMANZ to co-ordinate an industry representative group to work through the detail of both the discussion paper and the submissions to it, with a view to agreeing a regime which is fair and reasonable to site operators, and consistent with the Act.   The Hospitality Association believe it is time to put the divisiveness within the gaming sector and between the DIA and the gaming sector, behind us and use the new Act as a basis for a new beginning of consensual co-operation and agreement.

To that end, the Association supports the GMANZ initiative and will encourage and facilitate where practical all industry players to participate and co-operate in achieving constructive, consistent and workable outcomes for everyone.

My preference would be to meet with you as part of a wider representative group to discuss the detail of the Association's point of view.   As always, I am happy to meet with you at any time to discuss issues that impact upon site operators.   I look forward to discussing the attached paper with you, hopefully as a group.

Yours sincerely

Bruce H Robertson
Chief Executive

Submission on the Department of Internal Affairs' Second Discussion Paper on Gaming Machine Site Payments

Introduction
The Hospitality Association strongly supports the principle of site operators being remunerated on an actual, reasonable and necessary basis.   It supports the principle of simplicity, clarity and transparency.

The Association believes that the remuneration of costs to the site operator should reflect the costs necessary for a gaming trust to site their machines at a particular venue, and operate the facility in such a way that the trust is able to optimise the return to the community.   As in all issues, there is a need for balance.   If site remuneration is insufficient, site operators will choose to use the site for other more rewarding activities, or not treat gaming machines as a priority which will impact on turnover.   The operation of the gaming machines should be seen as equally important as other operations.   The operators decision as to whether they serve a customer drinks, or a meal, or do a hopper refill, will be a reflection of whether they believe they are fairly remunerated for their gaming operations.  The fairness and reasonableness of the remuneration system will impact on the level of funds generated for the community.

Floor area calculation
The suggested floor area calculation of 2 square metres is completely impracticable and unreasonable.   Gaming machines are about providing entertainment and fund raising.   For fund raising to occur, gaming machine players need to be accommodated in a space and environment in which they feel comfortable.   Many operators, in order to meet the needs of their patrons, provide a dedicated gaming room with ancillary services such as coffee, coin-changers etc, which are only available to gaming machine patrons.

Gaming machine patrons are often there only to use the gaming machine facilities but as a consequence, also utilise other services which include toilets, car parks, telephones etc.   Operators must be fairly reimbursed for the use gaming patrons make of these facilities.

The sense from the Department's paper is that every site operator has this space sitting idle at a zero value.   That is simply not the case.   In the absence of gaming machines, space currently being occupied for gaming machines would be used for other income-generating activities.   This issue is not about operators profiting, but gaming trusts paying fair market value to have gaming site operators allow the trust to utilise their space for gaming machines, doing the work, and raising funds for the community.

The Association believes that a formula must reflect the above factors.

Reimbursement payments
While a formula for payments that is simple and transparent is appropriate, the Association does not accept the notion proposed by the Department of Internal Affairs that the site operator may not be reimbursed for the costs associated with gaming machine operations which would have occurred without the presence of gaming machines on the site.   The Association believes that the gaming operations must carry their fair and equitable share of the overall operational costs.   If the gaming machines were not present, those costs would be shared across whatever other activity replaced it.   It is accepted that this has to be fair and equitable.   This is the same argument which applies to toilets.   Gaming machine patrons, like other patrons, utilise the toilet facilities and should make a commensurate contribution to the cost of those toilets, whether it be floor area, whether it be cleaning, whether it be plumbing repairs, whether it be hand-drying or whether it be toilet paper.  

A value must also apply to the risks for the site operator in running gaming machines.

The site operator has to carry the risk of carrying the float and of any theft by staff.   In a normal commercial venture that risk cost would be included in the profit.   Given that site operators can't profit from gaming machines, the Association  believes that the cost of risk needs to be quantified and included in the reimbursement formula.

Simply put, the gaming machine operation should not be subsidised by other parts of the site operators business.   The Association accepts that any such payments must be spelt out and included as part of the formula and agreement with the site operator.

Labour costs
There are two issues of concern to the Association with respect to labour costs.  Firstly is the feedback from members is that the time suggested by the Department is simply inadequate to undertake the tasks and responsibilities required of them by the gaming trusts.   Secondly, the discussion paper does not recognise that the labour cost is not the same as the cost of labour.   For all businesses charging out labour, there is a premium over the wage component to cover costs such as management of the labour, holiday pay, sick pay, bereavement leave, payroll costs etc.   If it is to be a fair reimbursement of actual cost then the labour remuneration needs to be in excess of the cost of wages.   It may be that this is best expressed as an agreed formula.   For example, the cost of labour equals to 1.5 times the hourly rate.

The Association notes that you have suggested a log book approach may be acceptable.   The Association believes that based on an accurate log book and an agreed cost of labour amount, this issue can satisfactorily be resolved.

Electricity
The Association has some concerns about the limit of $3 per machine per week and whether that is a reasonable actual reimbursement of the electricity costs which are reflected in the actual running of the gaming machines and the gaming machine operation.   As per the arguments already used, the gaming operation must be reimbursed for the share of electricity costs which apply to the business as a whole.   It is noted that the Department has acknowledged that societies can utilise different formulae where the cost can be demonstrated.

Insurance
As per our former discussion, there is both a general and a specific insurance cost in which the gaming machine operation must take its share.  

Cleaning
Provided reimbursement of cleaning costs reflects the actual cost with labour cost being reflected appropriately, a reasonable formula can be arrived at.

Miscellaneous
The Association believes it is reasonable to arrive at a formula based on some reasonable record-keeping which provides for on-going miscellaneous recovery.

Conclusion
The Association believes that a formula or process can be worked through, based on the above, which fairly reflects the costs which need to be paid by the gaming trusts to ensure the effective raising of funds on any given site.   The Association would appreciate the opportunity to discuss the above points with you, either as an entity or preferably as part of a representative grouping.

Bruce H Robertson
Chief Executive
Hospitality Association of NZ
PO Box 503
WELLINGTON
Phone:  04 385 1369
Fax: 04 384 8044
Email: nsc@hanz.org.nz
Web: www.hanz.org.nz