The Department of Internal Affairs

Te Tari Taiwhenua | Department of Internal Affairs

Building a safe, prosperous and respected nation



 

Regulatory system information: Gambling

Description of the regulatory system

Provided by the Regulatory Services Group of the Department of Internal Affairs

System objectives/purposes

Context

Each year, 7 out of 10 adult New Zealanders participate in gambling. In 2019/20 they spent $2.25 billion on Lotto NZ products, pokies at gaming societies/clubs/TAB NZ, and gaming machines at casinos. At the same time, $0.71 billion was returned to communities. About 13% of New Zealanders play electronic gaming machines (EGMs or pokies) in entertainment venues or casinos.[1]

The Department places considerable focus on regulating gaming machines. Their users are considered to have the highest risk of gambling related problems, and in 2016 49% of monthly users reported experiencing some harm from that gambling[2].

Objectives

Gambling operators are authorised by government through the regulatory system, including through establishment of entities, licensing, rule-setting, participation process, public health promotion, and compliance and enforcement.

The gambling regulatory system puts measures in place to ensure the amount of gambling is understood, can be controlled by government and communities, and gives a financial benefit to the community. The system also ensures gambling happens in fair and controlled environments away from criminal activity and in ways that limit harm to individuals and communities.

The purposes set out in the Gambling Act 2003 are:

  • Control the growth of gambling
  • Prevent and minimise harm from gambling, including problem gambling
  • Authorise some gambling and prohibit the rest
  • Facilitate responsible gambling
  • Ensure fairness and integrity of games
  • Limit opportunities for crime or dishonesty associated with gambling and the conduct of gambling
  • Ensure money from gambling benefits communities 
  • Facilitate community involvement in decisions about the provision of gambling 

Out of scope of this assessment

Wagering on horse and greyhound racing, together with sports betting, is regulated under the Racing Industry Act 2020.

Key statutes

Gambling Act 2003

Racing Industry Act 2020

Key regulations

Gambling (Harm Prevention and Minimisation) Regulations 2004

Gambling (Class 4 Net Proceeds) Regulations 2004

Brief description of what the system does

Regulation is achieved through licensing gambling operators, setting requirements on them, and compliance and enforcement activities. Requirements include minimum games standards, game rules, returning a specified percentage of gambling proceeds to the community and/or employment and economic development, implementing harm minimisation policies, and cooperating with monitoring and auditing including through technology.

For effective and efficient regulation, the Act segments allowed gambling into classes, based on the mode of gambling, amount of money spent, and the risk of problem gambling. The classes are:

Class 1 and 2

Low-stake, low-risk gambling such as school raffles or prize competitions where the total prize pool is less than $5,000.

Class 3

Larger-scale lotteries such as National Heart Foundation Lottery, housie, instant games and other forms of gambling with prizes totalling over $5,000.

Class 4

Gaming machines/pokies outside a casino. In 2020 there were 12,214 gaming machines. These are highly regulated due to high financial turnover and the harmful nature of this form of gambling.

Casinos

There are six casinos in New Zealand operating 3,076 EGMs and 239 table games.

Lotteries

As run by Lotto New Zealand.

Private gambling

At a private residence for primarily social and non-profit purposes.

Sales promotions

Where the supplier of goods and services use prizes to encourage sales.

For clarity, all other gambling is prohibited in New Zealand.

Agencies involved in the gambling regulatory system

  • The Department of Internal Affairs (the Department) has policy and delivery (including compliance) responsibilities under the gambling regulatory system.  The Department ensures New Zealanders can enjoy safe and fair gambling that efficiently and equitably contributes to community wellbeing.  The Department regulates, audits and investigates all class 1-4 gambling along with casino gambling and issues certificates of approval for casino employees and non-casino gambling licenses.
  • The Ministry of Health is required to develop a strategy to prevent and minimise gambling harm. This includes funding gambling harm prevention and minimisation services (including problem gambling treatment providers), and research and evaluation. The Ministry works closely in partnership with the Department and the Gambling Commission to deliver this strategy. The Department works in partnership with the Health Promotion Agency and the Ministry of Health on initiatives[3] to support staff working in gambling venues in their host responsibility role.  The focus of these efforts is largely on mitigating harm and specifically that associated with problem gambling. 
  • Territorial Authorities set local policies that shape the growth of gambling by determining the availability and location of non-casino gaming machines in their localities. The Department provides territorial authorities with information and advice to understand the nature of gambling in their district (and its social impact) when developing local gambling venue and relocation policies. This includes an online statistics dashboard. [4]
  • The Health Promotion Agency provides information and education services that work aims to support New Zealand communities to prevent and respond to harmful gambling.
  • The Gambling Commission is an independent statutory decision-making body established under the Gambling Act 2003. The Commission hears casino licensing applications and appeals on licensing and enforcement decisions made by the Secretary of Internal Affairs in relation to gaming machines and other non-casino gambling activities. The Gambling Commission has the powers of a Commission of Inquiry.
  • The New Zealand Lotteries Commission (Lotto New Zealand) is an autonomous crown entity which operates Lotto and related games. The Treasury Commercial Performance Group monitors the Crown’s interests as the owner of Lotto New Zealand.
  • TAB New Zealand is a statutory body established through the Racing Industry Act 2020 which provides betting products under the Racing Act and operates non-casino gaming machines under the Gambling Act.

The Department’s view is that there generally are good working relationships and regular contact between agencies involved in the system. Processes in place that foster collaboration between these agencies include:

  • Regular engagement meetings with:
    • the Ministry of Health
    • the Gambling Commission
    • the Lotteries Commission
    • local government representatives and individual Territorial Authorities which are undertaking gambling policy reviews.
  • The Department is also a member of the Combined Law Agency Group. This is a national information, intelligence and resource sharing entity, made up of 16 regional groups, comprising 19 law enforcement and intelligence agencies.  It operates under a Charter signed by member Chief Executive Officers and is under the oversight of the ODESC Subcommittee Concerning the Oversight of OFCANZ. 

Regulated parties and non-government stakeholders

Regulated parties and other relevant stakeholder groups include:

  • Gambling operators including both societies and venues
  • Gamblers
  • Manufacturers of gambling equipment
  • Gaming Machine Association of New Zealand
  • Clubs New Zealand
  • Hospitality New Zealand
  • Problem Gambling Foundation of New Zealand and a range of problem gambling treatment providers
  • Recipients of grants from gambling societies

Engagement between system agencies and regulated parties

Processes in place that foster collaboration with these various stakeholders include regular relationship meetings with:

  • Clubs New Zealand
  • TAB New Zealand
  • individual casino operators
  • Class 4 operators and their representatives (both societies and venue operators)

Results from a 2017 stakeholder survey indicate that the sector considers our regular newsletters (Gambits) and the material on the Departmental website to be useful and effective at providing good quality information in a timely way.

Areas suggested for improvement included how we engage through sector forums, and follow-up work on this is planned.

Some stakeholders who are opposed to gaming machines outside casinos (class 4) have expressed frustration with compliance penalties imposed, and the speed at which operators resolve a breach.

The recent focus has been on providing prompt operational updates that anticipated operators’ needs as the country moved through COVID alert levels, including how to interpret requirements from other departments, such as Worksafe.

The Department intends to repeat this survey in 2021/22.

Fitness-for-purpose assessment

Reviews/assessments of the gambling regulatory system

There has not been a review in recent years that took in the entire scope of the regulatory system from policy through to operations, and the legislative components of the system have remained relatively static.

A review of regulations for gaming machines (class 4 and casino) is underway to investigate further harm reduction opportunities available within the current legislative framework. This may reveal whether a more first principles examination of the regulatory system is now needed to respond to changes in the environment, or roles and responsibilities of system players.

Notwithstanding the above, there are questions about whether the durability of the system is sufficient for the current environment, as the digital world and COVID19 restrictions are putting pressure on the regulatory assumptions of the past. In the last 12 months the Department has been able to create flexibilities within the current system to an extent, but more substantial adaptability may be needed in the system.

Review/assessment findings

Effectiveness

The extent to which the system delivers the intended outcomes and impacts

Objectives and understanding

The department believes that the system is meeting the high-level objectives articulated in section 3 of the Act. In particular, there is good understanding of the gaming machine and casino sectors which are considered to be the highest risk sectors in terms of their potential for harm and criminal connections. Operators are well informed of their obligations and have been for some time.

Compliance/monitoring

The Department is continuing to build a stronger evidence base for assessing the scope and scale of gambling non-compliance in all sectors.

Enforcement

The Department has access to a range of enforcement tools (or interventions). These can be used in combination, separately or for particular types of events in order to achieve the most appropriate outcome. The Department will use the full range of measures available in its ‘toolbox’ (including working with other regulators) in order to deliver community well-being by reducing gambling-related harms in the most efficient and cost-effective manner. In the last year an assessment of the effectiveness of the Mystery Shopper programme was carried out, and there are periodic audits particularly of various casino operations.

Future

There are opportunities to improve the Department’s understanding and measurement of how the extent of community benefits and the extent of community harms balance each other, nationally and locally, particularly for gaming machines (class 4). As this balance is not discussed in detail in legislation, the work to establish evidence, and a view on equitable/desirable outcomes will have some complexity. Quantifying the harms and benefits will be partly supported by current investments in better data collection and analytics.

There is also an opportunity to increase the evidence base around harm in instant lotteries and housie (class 3) and to assess whether there are any risks that are being compounded by mobile technologies.

 

Efficiency

The extent to which the system minimises unintended consequences and undue costs and burdens

Current

A systematic assessment of costs and unintended consequences has not recently been completed. However, issues have been identified in the last year.

Currently compliance efforts are focused primarily on licensing. This focus, coupled with the legislation, supports good compliance outcomes by licensing only fit-for-purpose organisations. However, a reliance on licensing also creates inefficiencies such as relatively small changes to a gambling operation being deemed to require an application be made for a change in licence.

Future

The Department is working on a new licensing and reporting system called Kotare and is updating the Electronic Monitoring System that sends operating and compliance information to the Department from every gaming machine in the country. These are opportunities to reduce transaction costs for the Department and for gambling operators. In the case of the Department this will allow for an increase in audit and monitoring activity, that will in turn improve compliance. Estimating undue costs that could be saved will be part of the work of these two projects.

 

Durability and resilience

How well the system copes with variation, change and pressures

Mechanisms to allow for unanticipated events

The COVID-19 alert levels gave shocks to the revenue of gambling operators while they were still obliged to be making community grants, creating liquidity challenges. The Department was able to undertake interim and temporary measures to relieve operators, however this revealed unintended consequences of regulatory settings assuming a steady-state and not supporting response to crisis. Class 4 operators have been allowed to retain a portion of gaming machines proceeds to support their balance sheets and ensure their financial viability.

SkyCity’s lease on its Queenstown wharf site is due to expire in 2021 and currently the Act will not allow them to move location. SkyCity has also requested legislative change to enable them to adapt to changing markets such as online gambling and decreasing demand for playing tables versus gaming machines.

Recent adaptation

The Gambling Act 2003 did not anticipate online gambling. Overseas gambling websites are not prohibited from offering services to New Zealanders. Those who gamble online overseas are 80% more likely to be at-risk gamblers compared to other gamblers.[5]  Overseas websites may or may not have robust harm minimisation practices in place, and they do not return any of their revenue to the New Zealand community. The Department is currently considering how we might regulate online gambling. Consultation on four proposed options was conducted during August and September in 2019.

We regularly review our regulatory practice and have made changes to our practice in response to changes in the environment. For example, the meaning of ‘remote interactive gambling’ has been reconsidered, which has simplified compliance from both a Departmental and gambling operator perspective.

Lotto NZ is aiming to grow participation in their online products in order to reduce the amount of overseas online gambling, as well as to reduce costs and increase returns to the community. The harm minimisation tools that Lotto NZ can implement online are likely to be far superior to overseas websites.

Pressures that may be threatening durability

As the gambling ecosystem evolves, operators are seeking to have multiple forms of gambling on their sites as well as using electronic methods beyond their physical site. As the regulatory system is currently based on discrete licensed operators and discrete sites this trend is likely to complicate enforcement, compliance costs, relationships with territorial authorities and the ability to understand harm effectively. What implications this trend may have for roles and responsibilities of DIA – including DIA’s responsibilities under anti-money-laundering legislation – and for roles and responsibilities of other system players will need to be subject to investigation.

As the design of gambling machines is starting to converge with the experience of computer gaming[6], the risk profile of gambling is likely to be changing, potentially to a younger demographic and towards much longer gambling sessions. Whether the Act is flexible enough to match harm minimisation to this changing risk profile is not yet clear.

In considering possible changes to the regulatory framework, casinos and gaming machines generate polarised views which can make community or political consensus hard to achieve, potentially increasing the pressure on the less durable parts of the system.

 

Fairness and accountability

How well the system respects rights and delivers good process


Licensing and enforcement decisions made by the Secretary of Internal Affairs can be appealed to an independent Gambling Commission.The Department enforces compliance with the Act. Compliance action is proportionate to the nature and level of the breach and potential harm, and the circumstances of the entity concerned. Formal compliance action is communicated to the sector and our enforcement and compliance approach is published on our website.

Future

A compliance and enforcement strategy is under consideration to improve the strategic basis of decision-making and to be more transparent.

 

Plans for regulatory and operational improvements

Key regulatory changes planned for 2020/21

As discussed above there are several pressures that are threatening the durability of the system.

In addition to those, there are other trends and pressures being worked on:

  • DIA is continuing the shift from a reactive regime regulator focused on individual modes of gambling and their associated issues to a proactive outcomes-based system regulator.
  • Consideration being given to the competing objectives put on gaming machine operators  outside casinos (class 4) to be ‘not-for-profit’ with a strong local community focus and yet operate their machines in a commercial environment with all the attendant commercial imperatives and consequences, including difficulty planning capital investment given there are conflicting signals about the future of Class 4.
  • As systems converge there is an opportunity to re-evaluate and improve. For example, improved technologies and the use of systems that better limit the amount that can be gambled on more harmful forms of gambling, or the time gambled allied with improved registration systems and improved reporting will better support harm prevention and minimisation strategies.

Significant work is now underway to meet the above challenges and to better understand the current and future regulatory operating environment. This work will ensure that the Department is well positioned to respond to, and maximise, the accompanying opportunities and challenges, and maintain and continue to build its capability as a modern regulator. Work includes the following:

  • The Department is currently considering how we might regulate online gambling.[7]. This consultation has highlighted the need to consider the system in totality rather than the current approach of segmenting modes of gambling.
  • The Department has commissioned the development of a general approach to assessing the costs and benefits of any of the four main gambling modes. One objective is to explore whether, and to what extent, it might be possible, within the confines of the Act, to shift the cost – benefit balance in favour of benefits.

Informed by our experiences through COVID 19, work is underway to understand the current and future regulatory operating environment for the Department. This will ensure that we are well positioned to respond to, and maximise, the accompanying opportunities and challenges, and maintain and build our capability as a modern, responsive, risk-based regulator.

The Gambling System Group Strategic Direction project is developing one-year (detailed) and three-year (high level) work programmes setting out how the operating model will be implemented, and the key activities required to build the necessary capability.

Key service design and operational changes planned for 2020/21

The Department is currently developing a programme of work aimed at future proofing the regulatory settings and the future of gambling technologies including:

Kotare

The Kotare project is replacing the core gambling regulatory business system, the Integrated Gambling Platform (IGP), which is coming to the end of its contract. The replacement system will provide a new, flexible technology that can be configured for future needs and will provide a platform from which we can continuously improve our licensing and compliance processes. The new system will be introduced in late 2020 and will enable us to work more efficiently as a regulator and make it easier for regulated parties to interact with the Department online.

Electronic Monitoring System (EMS)

Work has started on exploring options for the future of the electronic monitoring of gaming machines in New Zealand, as our current contract comes up for renewal in 2022. EMS is the system which links all the Class 4 gambling machines in each venue to a site controller and sends the information daily to a centralised system in Wellington. It is a critical system for maintaining integrity in the gambling system, and our current contract arrangements are legislated for and in place until 2022.

Financial Viability Assessment review

Specific regulatory changes have been made to address perceived inconsistencies relating to the timing of the distribution of gaming machine profits and meeting financial viability assessments of Class 4 operators.  Resolving this issue will result in a class 4 sector that has greater financial viability and is more sustainable.

Fees review

The regulatory system is largely funded by fees and manage through a Memorandum Account. Current fees were set in 2015 and a review is underway to ascertain whether they are set at appropriate levels to ensure that over-recovery or under-recovery of costs is minimised. This will be completed during the 2020/21 financial year).

 

[5] Those who gambled online overseas were 80% more likely to be at-risk gamblers compared to other gamblers; after adjusting for gender, age and ethnicity (Health Promotion Agency/ Te Hiringa Hauora, 2019).

[6]This includes the rise of loot boxes in games, which are a consumable virtual item which can be redeemed to receive a randomized selection of further virtual items, ranging from simple customization options for a player's character to game-changing equipment. Players can buy the boxes directly or receiving the boxes during play and later buy a "keys" with which to open them.

[7] Currently LOTTO NZ and TAB NZ are the only two state-authorised providers of online gambling. According to figures provided by LOTTO NZ however, there was an 84% growth in online gambling (excluding LOTTO NZ and TAB NZ) between 2015 and 2017. Online gambling spend in that time increased from $132 million to $243 million. Sky City recently set up on online casino in Malta which is only available to New Zealanders, despite Sky City not being able to advertise here.