Huge gaming profits versus a minuscule return to the community. Vaulting pay for their executives and billions for the NSW Government. These are the findings of the most in-depth investigation into top NSW club finances to date. They pay next to no tax either but many are on a pokies-fuelled spree empire-building. Michael West reports the first of a series of stories on the biggest community pokies dens in the world.

The poker machine business of registered clubs in New South Wales is big business. Poker machine profits sponsor the vast employment of the clubs’ industry and the many good things which clubs do, such as sports and social activities. Clubs bring people together and generally benefit society. The poker machine business of NSW clubs may be a necessary evil to finance all this but, with light-touch regulation, it is also a sewer of greed and misery.

Clubs face menacing economic headwinds because online betting increasingly attracts the patronage of social gamblers and puts pressure on poker machine profits. They have responded by seeking to extract more dollars from their poker machine players.

They have resorted to a range of incentives – tricks and scams – to keep players in action at poker machines for as long as possible so that the inevitable occurs; players lose and the club wins. Among these “incentives” are reward points, complimentary drinks and food, and longer trading hours in the early morning when external scrutiny is non-existent.

Despite their rhetoric of community goodwill, the brutal truth is that clubs are in the business of turning their poker machine patrons into problem gamblers – rather than preventing them from becoming problem gamblers.

The enormous profits wrought from poker machines sustain the economic model of the clubs, and poker machine taxes sustain the budget position of the NSW government. Both the clubs and the government therefore are hopelessly conflicted to deal with the social costs of problem gambling and poker machine addiction.

Both are in denial. The NSW government’s recent Faustian pact with the clubs (to not increase regulation) is a betrayal of the thousands of gamblers and their families who have suffered at the hands of a predatory poker machine industry.

It effectively allows clubs to grow poker machine profits any which way they can provided a small fraction of the profits is donated back to the community. And it is small, surprisingly small.

The philosophical position of the government of Gladys Berejiklian in NSW, if it is defined at all, would appear to be impossible to justify. How could community donations of two per cent of club poker machine profits – that is what this investigation has found – bring more happiness to more people relative to the unhappiness of those whose lives are destroyed by problem gambling?

The NSW government is perhaps the State’s most addicted player in this deadly game because they are hooked on the cash-flow of taxes from poker machine profits.

How the numbers stack up

An investigation by michaelwest.com.au found the poker machine profits of the top 25 clubs in NSW exceeded $11.5 billion over the period 2008 to 2017.

Table 1 (below) is compiled from disclosures in the clubs’ audited financial reports and shows poker machine profits, donations and Key Management Personnel (KMP) compensation.

Notes to Table 1

Clubs marked with * do not separately disclose their revenue from poker machines or gaming. In these cases, poker machine profits have been estimated using revenue from rendering of services.

Clubs marked with ^ do not separately disclose donations or community support. In these cases, estimates have been made using other unaudited information in the annual report or website of the club.

The financial reports used in this investigation were paid for by the Alliance for Gambling Reform.

Table 1 shows the five big dogs in NSW clubland for poker machine profits are Mounties, Wests Newcastle, Penrith Rugby League, Canterbury Leagues and Bankstown Sports – each with profits in excess of $700 million apiece over the ten year period. These five clubs are predominantly located in suburbs which have low average household income.

This means that the poker machine profits and taxes are extracted from areas, and people, which can least afford to lose. The Sheriff of Nottingham would have been proud to oversee such a state of affairs.

Coming in at number six for poker machine profits is Cabra-Vale Diggers. Sources say that this club is renowned for making it as convenient as possible to put large amounts of money onto a poker machine card and then cash it out after play.

Cabra-Vale hit the press in 2012 when its then chief executive reportedly sent messages from his phone to the then HR manager and others which included derogatory comments about aborigines and images of bestiality and necrophilia.

Charity begins at home

They say that charity begins at home and that certainly appears to be the case with the management of NSW clubs.

Based on the poker machine profits shown in Table 1, the NSW government has helped itself to approximately $2.9 billion (25 per cent) of the top 25 clubs’ pokies profits.

In stark contrast, the clubs’ community-based donations equal $0.2 billion (2.2 per cent).

And how good is the Sutherland District Trade Union Club in the electorate of the Prime Minister Scott Morrison? This club made $668 per member in poker machine profits and benevolently donated $9 per member (1.3 per cent) to community-based organisations.

The donations to community ratio is particularly telling, especially as poker machine profits are spread more thickly to the few people occupying managerial positions at the clubs.

There are only a few of them but they get a bigger slice. Table 1 shows the compensation paid to the key management personnel (KMP support) is $332 million or $81 million more than their community-based support of $251 million.

The disparity between the community support and club management compensation numbers should be a moral challenge, at least, for the Catholic clubs and the workers clubs.

In Table 1, the KMP support dollars of Bankstown Sports and Penrith Rugby League stand out. The key management personnel of each club took home an average of $3.4 million for FY2017. Although this is typically lower than corporate executive pay, the job of handling all that easy money coming out of machines is hardly challenging.

Further, KMP compensation and poker machine profits appear joined at the hip. KMP compensation paid to management of the wealthiest NSW clubs has been on a roll since 2010.

Compensation for 2017 is significantly higher for the biggest club in the state, Mounties, at $1.9 million (up 57 per cent). Mounties – despite the clubland “community” rhetoric – has expanded from Western Sydney into the community of the leafy Northern Beaches by taking over the Harbord Diggers.

After Mounties come Wests Newcastle $2.8 million (up 155 per cent), Penrith Rugby League $3.4 million (up 230 per cent), and Bankstown Sports $3.4 million (up 52 per cent). This rampant escalation in pay corroborates the view that clubs are corporatising, and enriching their own management, rather than holding fast to community service principles.

The current governance arrangements with the top 25 clubs will no doubt continue to incentivise risk-taking by management to increase poker machine profits so that they can continue to increase their own compensation.

NSW Clubs are increasingly about empire building at the expense of their customers and community, rather than serving their communities as they claim. The stories linked above describe ambitious building programs and property development projects financed by the losses of poker machine players, the majority of whose losses arise from addicted gamblers.

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This investigation and accompanying corporate search charges have been funded by the Alliance for Gambling Reform. This is the first report in a series. The analysis has been conducted in league with an accounting specialist.