Much talk has been made over many months of the cost of reforms for poker machines. The industry has placed a price tag of more than $3 billion on both mandatory pre-commitment and $1 maximum bets; this figure ultimately comes from the Gaming Technologies Association (GTA), and is horribly, demonstrably wrong.
The GTA (in their own words) are a “not-for-profit company limited by guarantee”. Their members include Ainsworth, Aristocrat, IGT and Konami, to name a few… in fact, all of Australia’s poker machine manufacturers and suppliers belong to the GTA.
It is the GTA that concocted the outrageous cost estimate of implementing poker machine reform. Most recently, they used their submission to the Federal Senate’s Joint Select Committee on Gambling Reform inquiry into problem gambling prevention and treatment to reinforce this fiction.
In their submission, the GTA asserts that:
“The cost of upgrading machines for pre-commitment would exceed $3 billion for gaming machines alone.”
“Whether for a $1 Maximum Bet or for Mandatory Pre-Commitment, the costs of changing gaming machine software are about the same.”
These statements summarise the GTA position on modifying poker machines for either pre-commitment or $1 maximum bets. They are based on faulty logic and incorrect assumptions and should be summarily dismissed.
The fundamental error in the GTA’s figures is that they assume that all of Australia’s poker machines will be reconfigured immediately. In their submission, they discuss the cost of upgrading poker machines in NSW and Queensland, and conclude:
“The cost of an immediate reconfiguration of this inventory would exceed $2.5 billion.”
Additionally, in their media release dated 9/11/2011, the GTA asserted that the total cost to change Australian poker machines to $1 maximum bets was in the vicinity of $3.25 billion.
This conclusion ignores that fact that any legislative changes regarding poker machines, whether they be for pre-commitment or $1 maximum bets, would not take effect until (at this stage) at least 2017. That means that over the next 4 years, any new poker machines could conceivably be designed to support pre-commitment or $1 maximum bets, with NO conversion costs. Indeed, this was the approach taken recently when Victoria passed legislation that lowered the maximum bet from $10 to $5.
This conclusion also ignores the natural replacement cycle for poker machines in Australia. In their submission to the Productivity Commission, dated 18/12/2009, the GTA spoke of the time-frame for the routine replacement of poker machines in Australia. They stated:
“Almost all gaming machines in Australian states and territories are routinely replaced over a 10 year cycle.”
It therefore stands to reason that approximately 10% of Australia’s poker machines are routinely replaced every year. It also stands to reason that these would be the oldest machines, for the GTA’s statement to be true.
Applying this premise to the GTA’s calculations yields some interesting results. Rather than use the figures from their submission to this inquiry (which were only for NSW and Queensland), I will use the figures from their 9/11/2011 media release.
In that media release, the GTA stated:
Australian gaming machines –
Cost to change to $1 bet limits/$500 payout limits
a) 25% (50,000 gaming machines) less than 3 years old = around $5,000 per machine ($250 million)
b) 25% (50,000 gaming machines) 3-5years old = $10,000 per machine ($500 million)
c) 50% (100,000 gaming machines 5+ years old = $25,000 per machine ($2.5 billion)
Total cost = $3.25 billion
Using the GTA’s own stipulation of a 10 year routine replacement cycle, by January 1 2017 approximately 40% of Australia’s current poker machines will have been replaced. Again, it is expected that these will be the oldest poker machines.
If poker machine manufacturers begin incorporating legislative changes into their machines from January 1 2013, then by January 1 2017 we would have the following scenario:
• 40% (80,000 gaming machines) configured to support pre-commitment / $1 maximum bets. No conversion costs ($0).
• 25% (50,000 gaming machines) requiring software changes only. Conversion costs of $5,000 per machine ($250 million).
• 25% (50,000 gaming machines) requiring software/hardware changes. Conversion costs of $10,000 per machine ($500 million).
• 10% (20,000 gaming machines) requiring replacement. Replacement costs of $25,000 per machine ($500 million).
Total cost = $1.25 billion
Even without challenging the GTA’s figures for software and hardware changes, it can be seen that their estimate for conversion is inflated by $2 billion.