Allocation of Electronic Gaming Machine Entitlements
Overview
In 2010 the rights, or 'entitlements', to operate electronic gaming machines (EGM) from 2012 were allocated to club and hotel venue operators.
This audit examined whether the financial outcome from the allocation of the EGM entitlements represented best value for money and whether the sale process was managed in an effective and efficient manner.
The audit found that the allocation was not value for money for taxpayers. The amount of revenue raised was only a quarter of the fair market value of the EGM entitlements. Around $3 billion in potential revenue was foregone. Large venue operators, rather than the community, were the beneficiaries of this windfall gain.
The poor financial outcome was due to a combination of factors. The most significant contributing factors were the low demand at auction and the lack of a robust basis for setting the reserve price. Since demand was low, prices did not rise significantly above the reserve. This resulted in entitlements selling for amounts that were not representative of their value based on revenue per EGM. Inadequate information and training for participants and the decision to end the auction before all bidding activity had stopped also had an adverse impact on the auction result.
A series of weaknesses in the management of the project contributed to the unsatisfactory financial outcome. Decision review points were not appropriately built into the process to take account of new information. Much of the specialist advice sought by the Department of Justice (DOJ) was conflicted, restricted in scope, based on limited expertise and not appropriately validated.
There were also serious shortcomings in DOJ's procurement practices, cost control, knowledge management and application of probity.