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Profit from pain: how our most corrupt industry really works.

When the Tasmanian government announced the nation’s first pre-commitment system to limit harmful betting on poker machines, there was unrestrained fury from the pokie lobby.

“Lies, lies and more lies,” seethed a hyperventilating Steve Old, head of the Tasmanian Hospitality Association.

“Tasmanians entrusted the Liberal government at the 2018 election with their vote because they supported freedom and choice,” he told reporters. “Freedom and choice have been sacrificed by the Rockliff Liberal cabinet at the expense of a fair go.”

There’s a back-story here.

Just before the 2018 state election, the opposition Labor leader, Rebecca White, promised to phase out pokies from pubs and clubs. The Greens supported the policy but the Liberals said they’d keep the machines where they were.

The anti-Labor campaign ... massive funding
The pokies industry was given plenty of time to prepare a campaign against Labor and the Greens, and supporting the Liberals. The Hospitality Association alone gave $270,000 to the Liberal Party and another $620,000 to the lobby’s own campaign. Further money came from the Federal Group, which at that time held a monopoly on the licenses of all poker machines in the state, including those in pubs and clubs.

All up, well over a million dollars was spent to defeat Labor. In that election, the ALP’s funding was overmatched almost four-to-one by their opponents. According to the Australian Electoral Commission, donations to the Liberals amounted to $4,168,930, compared with $1,128,447 for Labor.

The Liberals won in that election in a landslide.

But if the gambling industry thought they’d bought a government forever, they were wrong. Two Premiers later, the nation’s first effective harm-minimisation measures were announced, suddenly and unexpectedly.

The Liberals may have been bought – but they didn’t stay bought.

WHY THE POKIES BARONS REALLY  NEED PROBLEM GAMBLERS

The gambling industry has habitually denied that problem gambling was of any significance to their profits. A “fact sheet” from Clubs Australia, the peak body, claims “Australia now has one of the lowest problem gambling rates in the world, averaging less than 0.5% of the adult population.”

The evidence tells a very different story.

The standard internationally measure of gambling-related harm is the Problem Gambling Severity Index, or PGSI. It’s based on a standardised questionnaire and rates people according to a points score:

  • Non-problem gambler - Score: 0
  • Low-risk gambler - Score: 1–2
  • Moderate-risk gambler - Score: 3–7
  • Problem (or pathological) gambler - Score: 8 or above.

Analysis of the most recent data from the Australian Institute of Health and Welfare shows that in 2018, half of all Australians who gamble during a typical month fell into either moderate or problem categories – that is, above 3 on the PGSI scale. The AIHW found that in 2018 about 7.2% of the adult population, or 1.33 million people, were classified as being at some risk of experiencing gambling-related problems.

Those 1.33 million people judged to be at significant or major risk of harm (3 or above on the PGSI scale) account for half of all gamblers.

The gaming industry consistently claims that their business models do not rely on risky or pathological gamblers. But they do.

According to the Productivity Commission, “around 85% of problem gamblers spent most of their money on gaming machines – consistent with this being the problematic gambling form for them”.

A 2014 Victorian government study showed that people playing gaming machines were massively more likely to have serious problems than for any other type of gambling. The chart below shows how, in contrast to lotteries and other types of gambling, pokie venues profit disproportionately from gambling addiction. Lotteries, for example, derive most of their income from low- and no-risk patrons; for pokies, it’s the reverse.

The same study showed EFTPOS withdrawals were solidly associated with a gambler’s risk profile.

And problem gamblers play pokies far more often, and for longer, than those with no or less risk.

Perhaps the most cogent indication of the value of risky and problem (or pathological) gamblers to gaming machine operators comes from coordinated studies in Quebec, France and Germany. In each of these territories, the average annual spend by pathological gamblers was between 23 times (Germany) and 49 times (Quebec) that of non-problem gamblers.



 In these three jurisdictions, about one-third of profits come from people with a significant or severe gambling problem. Although these people form a relatively small minority of all gamblers, restricting or denying access to gambling would jeopardise the viability of many gaming venues.

And these figures are for all gambling, not just for pokies. And as we have seen, the results for gaming machines are likely to be significantly higher, and the impact of restrictions on profits would be amplified.


 TARGETING THE POOR

The poorer people are, the more likely they are to gamble – particularly on pokies. Concentration of gaming machines in poorer areas is a global phenomenon. It’s highly profitable and extraordinarily damaging.

The Gini co-efficient is a measure of economic inequality. A figure of zero describes perfect equality; in a country in which one person held all the wealth, it would be 1.

So the poorer someone is, compared to their nation’s average, the higher their Gini co-efficient number will be. In the three-country study above, gamblers are shown to come solidly from the lower-income sections of society. Quebec, for instance, has an overall Gini figure of 0.28 but for gamblers it’s 0.84.

With pokies, the problems increase dramatically. British research, published this year in the Journal of International Gambling Studies, showed that poorer people were both likely to spend more and to have a gambling problem. People in the moderate-to-problematic categories (with a PGSI score of 3 and above) accounted for 84% of spending on pokies during a session.

The social impact of the concentration of pokie venues in lower-income communities can be seen in Glenorchy, a working-class suburb of Hobart. In a submission to a parliamentary committee on gaming in 2016, the Glenorchy City Council said this:

“There are around 1,380 people in the City of Glenorchy who have some form of addiction to poker machines. These are fathers, mothers, sons and daughters – people whose addictions result in dire consequences for their families, friends, loved ones and the community.

“This is money not spent on much-needed food, medicine, mortgages, house rent, children’s education and other necessary supplies.

“The millions of dollars filtering out of our community through poker machines also has a huge negative impact on our local economy.

“Crime levels are directly linked to poverty, parental neglect, family disruption, low self-esteem, depression and drug/alcohol abuse. Addiction to gambling and increased use of poker machines are direct contributors to these base causes of crime. Therefore, poker machines can be direct contributors to increased crime levels.”

HOW POKIES CREATE GAMBLING ADDICTION

Dopamine is a key neurotransmitter – a brain chemical that allows messages to move between brain cells. It’s the main regulator of the brain’s response to incentive and reward. And it’s the principal mechanism by which people can become physically addicted to gambling, in a very similar way that people become addicted to drugs.

“A gambling addiction progresses in a similar way to an alcohol or drug addiction,” explains one US-based gambling treatment organisation, Algamus.

“The gambler develops a tolerance to gambling, becomes dependent on it, and when they try to quit, they can experience serious withdrawal.

“These feel-good chemicals [dopamine and endorphins, the body’s opioid-like substance]  encourage the individual to continue gambling, and gamble more often. As the gambler starts to build up a tolerance, they must take bigger risks in order to experience that feel-good rush.

“What happens during active addiction is the brain becomes overwhelmed by the overabundance of these feel-good neurochemicals and it reduces its natural production to compensate.”

Designers of gaming machines have intensively studied the pathology of addiction and are expert in exploiting it. The machines are highly-sophisticated computers that adapt to players’ patterns of use. They use many techniques to stimulate a sense of reward when payouts are made – and, paradoxically, when they are not.

Livingston ... clever, tricky design
“Melodies for EGMs are typically composed for purpose and will vary to reflect the scale of the reward,” says Dr Charles Livingston in a report for the Australian Gambling Research Centre.

“A large reward will be accompanied by a lengthy melody, aligned with the game’s theme. However, even small rewards are accompanied by a melody.

“Typically, game melodies are upbeat, use major chords, and conclude on a rising chord structure,” “Lighting effects can be very spectacular and typically include flashing coloured lights on or around the periphery of the screen, waves of colour traversing the screen and so on.

“Some games employ sounds such as animals galloping, engines revving, tyres screeching, simulations of coins dropping into a tray, railway engine whistles or horns, or some other sound effect associated with the theme of the game. These sounds are triggered by rewards occurring in the game, including the awarding of “features” (usually “free” spins) that characterise many games.”

Unpredictability of reward is a key design feature. Researchers at universities in Belgium and the United States have found that for problem gamblers, dopamine release is greater when losing than when winning.

“The finding that dopamine release,” they wrote in the journal Frontiers in Behavioural Neuroscience, “is higher in problem gamblers losing money than in winning money is consistent with the evidence that ‘near misses’ enhance the motivation to gamble and recruit the brain reward circuit more than ‘big wins’.”

The Productivity Commission found the machine designers had succeeded in creating a disassociated state in high-risk pokie gamblers, in which people’s normal conscious behaviour control is suspended. They commonly report losing track of reality, playing in a trance, losing track of time and feeling that someone else is in control of them.

THE MONEY WASHERS

Both of Australia’s big-two casino operators, Crown and Star, have been found in several states to be corrupt and unsuitable to hold casino licences. The main reason for these findings has been their failure to control – or their culpability in – money laundering by organised crime syndicates.

Money laundering is highly profitable for gambling venues. The casinos’ laxity earned them many millions of dollars.

Despite the well-deserved attention on casinos, money launderers have many other outlets for their activities. One of the most attractive, and least controlled, are poker machines in the hundreds of pubs and clubs around the country.

Xenophon ... bill went nowhere
A decade ago Senator Nick Xenophon introduced a private members’ bill to crack down on money laundering in pokie venues.

“The most common way to launder money through a poker machine is to load up the machine with a large amount of cash (up to $10,000), play a few games and then cash out the remaining credits,” he said.

Like similar attempts before and since, the bill went nowhere. Meanwhile, the problem grew.

The Australian Federal Police, AUSTRAC and other authorities arrest and prosecute some of the offenders but most are never caught. And the people putting dirty money into the machines are the low, unimportant patsies of big-time criminals who are seldom caught.

Last year, the NSW Independent Liquor and Gaming Authority identified  “suspect transactions” across 180 venues in Sydney worth $5.5 million. The number was growing at about $1 million a week.

“I would endeavour to say it could be easily double that, and over an annual period, I'd suggest it's in the hundreds of millions,” ILGA director of investigations David Byrne told the ABC.

In September this year, Australian Federal Police charged three people with money laundering at a pokie venue in Springvale, in suburban Melbourne. Jackpot winners had been approached by members of a criminal syndicate and offered substantial sums in cash in return for their winnings. The police said the scheme laundered $4.7 million from the proceeds of crime.

Just as the casinos profited greatly from lax control and blind eyes, so do the pokie operators. But they don’t like to acknowledge the problem. And the really don’t like people who talk about it.

Clubs NSW, perhaps the most powerful and aggressive of all the nation’s lobby organisations, has launched a private criminal prosecution against a whistleblower who exposed the scale of money laundering in pubs and clubs. The fact that the man, Troy Stolz, is dying of cancer did not deter them.

Independent MP Andrew Wilkie, using information from Mr Stolz, told parliament that as many as 95% of clubs in NSW were operating illegally by not complying with anti-money laundering and counter-terrorism financing laws.

Stolz ... whistleblower
Because transactions above $10,000 have to be reported to AUSTRAC, money launderers work just below that threshold, Mr Stolz, the former head of anti-money laundering and counter-terrorism finance at Clubs NSW, told the ABC.

Clubs are “untouched” by authorities compared to the banks, he said.

“To clean the money from your drug sales, you send out someone – a uni student – working for you, in a day and give them 50 or 100 different venues to do. And you've got a team of 10. It's quite easy to clean a lot of that money.

“The gaming machines are a perfect opportunity for launderers to get into venues — you're relying on staff to be diligent, trained and the systems [to be] in place to pick up any abnormal behaviour.”

In 2019, according to the data firm Statista, there were 2,924 hotels and around 1,850 clubs in Australia with electronic gaming machines – and just 12 casinos. The opportunities for criminals are enormous.

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