Are SAPPs driving NZ pokie revenue?

An increase in spending on pokies in New Zealand’s clubs and bars, despite a shrinking number of venues, has baffled industry regulators.

The government commissioned independent research to look into various factors that might be influencing the trend and though the results were far from clear cut, one takeout appears to be the introduction of Stand Alone Progressive Prize (SAPP) machines.

These were introduced into New Zealand from 2010 and now make up 40 percent of the gaming machines in the non-casino sector.

An SAPP gaming machine has games that contribute to incrementally increasing prizes, similar to a jackpot, which can only be won on that gaming machine.

Official data shows spending on non casino pokie machines in New Zealand pubs and clubs has been increasing slowly since 2013, and has now stabilized, after nearly a decade of decline.

Gaming machine proceeds (GMP) for the year ended 30 June 2017 rose 3.1 percent over the previous year from $843.4 million (US$624.12 million) to $869.9 million, (US$643.7 million) according to figures from the Department of Internal Affairs. This was the same rate of increase as the preceding year.

The recent increases occurred despite a continued decline in the number of gaming machines and venues. In the year to June 2017, the number of venues fell by 3 percent from 1,220 to 1,180, and the number of gaming machines also fell by 2.3 percent from 16,238 to 15,858.

Following the introduction in 2003 of stricter controls on venues and the number of machines allowed, GMP had been declining until 2013 when it started increasing again.

The Department of Internal Affairs, which monitors and regulates the gaming industry commissioned Business and Economic Research Ltd. (BERL) to analyze possible influences on expenditure between 2007 and 2016.

Some of BERL’s findings were surprising and perhaps counter-intuitive. For instance, it found that there was no evidence macro-economic factors had any effect on GMP. “A number of variables that might be expected to have a positive relationship with expenditure actually have a negative relationship,” the report says.

“Expenditure might be expected to increase as GDP, population, employment, earnings, consumer confidence and the number of international visitors increase, but the opposite appears to be true.”

However, BERL concluded, “taking mid-2007 to the end of 2016 as a whole, GMP has decreased as GDP has increased. This is contrary to the expectation that, other things being equal, GMP would increase as GDP increased.”

Likewise, with population: GMP has decreased as population has increased. The same is true with employment, weekly earnings, and consumer confidence. As jobs, wages and consumer confidence have increased, GMP has fallen.

One positive correlation of the factors examined was between the number of venues and GMP. “This might imply that, for many people, playing (pokies) is a casual activity that is engaged in on an unplanned basis when the opportunity presents itself.”

While SAPPs were thought to be a driver for growth, the results from the analysis were not clear cut.

BERL’s analysis suggests “SAPPs appear to have lifted expenditure per machine in the majority of regions (of New Zealand).”

“When we looked at expenditure per machine and the SAPP machine, there was a strong relationship, but taking into account other factors, the relationship became “cloudy,” said Mark Cox, senior economist with BERL.

Cox said that there was no empirical evidence from gamers themselves that they found the SAPP machines more attractive or interesting to play, but this belief was “received wisdom” from the regulator and the gaming industry representatives on the working party, which supervised the research report.

Despite recent increases in GMP the report finds “there is a positive relationship between expenditure and the number of venues.

This means that, overall, the reduction in venues has contributed to reduced GMP. In 2007/08 there were 1552 venues which produced $938.3 million in GMP, while in 2016/17 1180 venues produced $869.9 million. This results in an increase in the average GMP per venue from $604 574 per year to $737 203 per year.

Unsurprisingly, the analysis shows that expenditure on gaming machines “falls as expenditure on other forms of gambling increases,” and the relationship is “fairly strong.”  Lotto, casinos and betting on horses and dog are good substitutes for each other, BERL believes.

If the changes in GMP could not be explained by any one of the variables alone, could the changes be explained by a combination of factors, BERL asked?

Noting that “Our univariate analysis indicates that the introduction of SAPP machines may have caused a sufficient shift in gambling behaviour to undo the downward trend in GMP in periods before 2011 (when SAPPS were introduced), BERL went on to examine the impact of SAPPs when other factors were also taken into account.

BERL’s multivariate analysis concluded that, “there is no evidence that introducing SAPP machines changed the structure of the relationship between GMP spend and macroeconomic variables.”

Introducing SAPPs did increase spending on pokie machines at a time when pokie spending relative to other forms of gambling was declining. But this may have simply been gamblers switching where they invested their money.

It says evidence suggests “that the introduction of SAPPs changed gambling behaviour.

“Given our findings on the impotence of macroeconomic variables to explain GMP spend we think it would be more fruitful to examine the influences of gamblers’ attributes on GMP.”

In New Zealand at least, this is a largely unresearched area. However, Cox thought that “the large majority of gamers (in pubs and clubs) play on a casual basis, and just pop a few dollars into machines when they feel so inclined.”