The decision of the Victorian Commission for Gambling Regulation is set aside. In lieu of that decision, the tribunal approves the amendment of the licence of the Ocean Grove Bowling Club Inc in respect of premises at 18 The Terrace, Ocean Grove to vary the number of gaming machines at the approved premises from forty-five (45) to sixty (60).

Mr N Tweedie of counsel instructed by Bazzani Brand Lawyers

1 The Ocean Grove Bowling Club Inc ("the club") operates club premises at 18 The Terrace, Ocean Grove. Currently the club has a venue operator's licence pursuant to the Gambling Regulation Act 2003 ("the Act") which permits it to operate 45 gaming machines. The club seeks to amend its licence so as to permit it to operate 60 machines. The Victorian Commission of Gaming Regulation ("the Commission") has refused this application. The club now seeks to have the Commission's decision reviewed by the tribunal.

2 Ocean Grove is within the municipal district of the City of Greater Geelong. The council of that city ("the council") opposes the amendment of the licence as it is concerned with the extent and impact of problem gambling within its municipal district.

3 Last December I published a decision in Branbeau Pty Ltd v Victorian Commission of Gambling Regulation,[1] which was the first case which had come before the tribunal under legislation which requires the approval of premises for gaming. In my reasons for decision I set out an overview of Victoria's gaming machine industry, which provides an important backdrop in the making of decisions about gaming machines. I also set out the relevant legislation, the nature of a review before the tribunal, and the relevant test that must be applied in determining applications for gaming machines under the Act. Although the present case involves an amendment to an existing licence to increase the number of machines that may be operated - whereas the Branbeau case involved a new venue - the applicable principles are substantially the same. In the Branbeau case I also discussed the fundamental dilemma that arises when it comes to the control of gambling: that is, gambling opportunities at one and the same time have positive and negative impacts. In view of the detail in which I set these matters out in Branbeau it is unnecessary that I do more than adopt what I said in that case. I should add that no party in the present proceeding challenged the reasoning in the Branbeau case.

4 The Ocean Grove Bowling Club is a successful club with a primary focus on the sport of bowls. The club is located on the southern side of The Terrace, approximately 400 metres to the west of the main shopping strip in Ocean Grove. The club has been successful over its 50 year history and has expanded its facilities and its landholdings. The club has premises which include a bistro that seats about 100 persons, a lounge, a gaming lounge, a TAB and bar and bowling club events administration areas. When the members' lounge is opened up to form part of the bistro, the total area can seat up to 200 people.

5 The club provides the venue for the operation of 45 gaming machines, which are sourced from Tabcorp Holdings Limited ("Tabcorp"). It proposes that the additional 15 machines will also be sourced from Tabcorp.

6 In 2004 Ocean Grove had a permanent population of 10,645 persons. Barwon Heads, which is an adjacent settlement, had a population of just under 3,000 persons. Further, there are many holiday homes in Ocean Grove and Barwon Heads: which means that the population of the area during summer months swells considerably.

7 The Commission held an inquiry into the application in November 2005; and on 19 December 2005 decided to refuse the application. The Commission considered gaming and other statistics relevant to the application. It observed that there were 26 gaming venues within the City of Greater Geelong, with a total of 1,358 gaming machines. It observed that the density of gaming machines per 1,000 adults in the municipality was 8.63, which is almost 23% higher than the State average. Ultimately this became an important consideration in the Commission's decision.

8 The Commission also considered various benefits which were said to flow from the approval of an increase in the number of gaming machines at the club. These included a greater propensity for community donations and an enhancement of the physical facilities provided by the club. The Commission found that there were many matters about which the club should be commended, including the attitude that its present management displayed towards problem gambling. However the Commission was not ultimately satisfied that the development plans of the club had been sufficiently and clearly articulated to demonstrate the nature of the benefits that would accrue, both to members of the club and the wider community, if the application was approved. Hence, influenced by the statistics as to the propensity of gaming machines within the City of Greater Geelong, the Commission refused the application on the basis that it was not satisfied that the increase in the number of machines would not result in net detriment to the residents of the municipal district.

9 The applicant relied upon the following witnesses in support of its application for review:

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Mr Barry West, the general manager of the club, who outlined the history of the club, the nature of its facilities and programmes, its management practices, its attitude towards responsible gambling and its future plans.

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Mr David Ridley, a commercial analyst at Tabcorp, who gave estimates as to the likely additional expenditure that would occur if the club was permitted to operate 15 additional machines. He also gave evidence in relation to the source of such expenditure.

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Ms Colleen Peterson, a town planner, who gave evidence about the club, gaming expenditure at the club, the social and economic character of the municipality and like matters, including the social and economic effects of the proposal.

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Mr Leigh Barrett, who is the manager of responsible gaming with Tabcorp. Mr Barrett gave evidence about responsible gaming practices and how the club performed in this respect.

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Mr Ivan Martin, an accountant, who gave evidence that he had prepared a business plan for the club. His evidence explained the content of that plan.

Much of the evidence presented to the tribunal was the same as that presented to the Commission. Importantly, though, the tribunal had the benefit of more detailed evidence concerning the future business plan of the club. This is significant as the lack of such evidence was a significant factor leading the Commission to refuse the application.[2]

10 The council contended that the number of gaming machines within the Greater Geelong municipal district was already too high and should not be further increased. In support of this position the council relied upon evidence from its mayor, Cr Peter McMullin. Further the council relied upon a recently adopted gaming policy which sought to rationally regulate the provision of gaming machines within the municipal district.

11 The commission did not support or oppose the application for review. Nevertheless the tribunal has carefully considered the reasons given by the Commission in refusing the application and the extent to which new factors have emerged since that making of that decision.

12 I accept the evidence given by Mr Ridley that the additional gaming expenditure that will be generated by the additional 15 machines is likely to be in the order of $552,812 per annum (or $101 per machine per week).[3] This is less than the weekly earning rate of the existing machines ($218). However a lower earning rate is explicable by the fact that 45 machines are likely to accommodate demand in non-peak periods.

13 The additional earnings from gaming will generate additional gross gaming commissions for the club of about $170,000 per annum. Mr Martin gave evidence that the additional net gaming profits to the club will be in the order of $100,000. He also gave evidence that the club is likely to generate additional revenue from food and liquor operations, as a result of the increased gaming attraction, which would produce additional net profits of another $70,000 per annum. I accept this evidence.

14 As the club will have a stronger revenue stream if the additional gaming machines are approved, several consequences are likely. The increased revenue will allow the club to contribute more to the community by way of donations. The club will be in a stronger position to borrow, and thus fund substantial, physical improvements to the club facilities. The club has several projects in mind, including an indoor bowling facility. The council contended that the provision of an indoor bowling facility would not be of significant community benefit. I do not agree. Such a facility will promote the playing of lawn bowls in all weather conditions, particularly those cold, wet and windy days that Ocean Grove experiences during winter. Further, it is important to acknowledge that the club itself is in a good position to assess what additional facilities its members and visitors would enjoy. I find that the community (which includes members and visitors to the club) will benefit from the additional facilities that will be able to be financed by the club's improved financial circumstances.

15 The council was concerned that the future expansion plans for the club would be at the expense of the on-going operation of the Green Valley Caravan Park, which is owned by the club. The caravan park has 41 sites and a peak capacity of 200 visitors. The council maintained that the caravan park was a valuable community asset. Although I accept this, I would not regard the loss of the caravan park as a decisive consideration. The use of land will always be strongly influenced by economic consideration - the notion of the "highest and best use" - and it is necessary to respect the decision of the owner of the land as to which use is more valuable. Certainly I am not persuaded that a caravan park is any more valuable as a community asset than the facilities provided by a bowling club, such as bowling rinks, club buildings and car parking.

16 The addition of another 15 gaming machines at the club will also improve the accessibility of gambling opportunities during peak demand periods. As I explained in Branbeau, this could be regarded as both good and bad. However to the extent that it provides a better opportunity for recreational gamblers to exercise their own free choice to gamble, I would regard this as a benefit: an objective of the Act is to accommodate those who gamble without harming themselves or others.

17 There are other possible benefits that may accrue from the approval of the additional machines. I discussed a number of these in Branbeau: such as increased taxation to fund community spending, greater convenience to patrons, less travel to accommodate the choice to gamble and the generation of economic activity within the municipality. In the scheme of things these benefits are modest in this case; but they contribute towards the cumulation of benefits.

18 It is now necessary to make findings about the source of the additional gaming revenue, as this may be relevant to the issue of problem gaming. I find it likely that:

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70% of the additional gaming expenditure will be from persons residing in the Bellarine Peninsular, particularly in Ocean Grove and Barwon Heads;

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10% of the additional gaming expenditure will be from persons residing in the balance of the City of Greater Geelong, particularly in Geelong itself; and

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20% of the additional gaming expenditure will be from persons residing outside of the City of Greater Geelong.

These findings are based on the results of surveys conducted at the club as to the location of users of gaming machines and the bistro. In making these findings I am conscious of the fact that the additional gaming machines are most likely to be used during peak periods (that is, summer months and weekends), when there is greater use of the club's facilities by persons residing outside the local area.

19 I find that it is likely that a significant proportion of the additional gaming expenditure resulting from the approval of 15 more gaming machines at the club will be transferred from other gaming venues. I estimate this to be about 50% of the additional gaming expenditure; and I think it likely that it will be drawn from a large number of existing gaming venues throughout Victoria, although most of the transferred spending will be from venues in the City of Greater Geelong and the Borough of Queenscliffe.

20 As the evidence of all the parties on the question of transferred gaming expenditure was unsatisfactory, it is important that I explain the basis of this finding.

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The gaming machine market in Victoria can now be described as a mature market. The number of machines has been virtually constant for many years. By contrast, the number of machines per adult Victorian has been modestly declining, due to population growth. Total gaming expenditure is now in a relatively stable pattern, having peaked in 2001-02.

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Gaming machines, and gaming machine venues, are homogenous, with no real basis for product differentiation. Thus the use of a newly available machine is very likely to be a substitute for the use of an existing machine if (as is the case here) machines are currently available to persons likely to use the new machine.

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Experience with shopping centres shows that new users of an enlarged centre transfer their custom from (a very wide range of) existing centres. New revenue is not created out of thin air. There appears to be no basis to take a radically different view with gaming venues operating in a mature market.

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Empirical analyses, such as those presented in the Branbeau case concerning new gaming machines at Chelsea Heights, Werribee and Seaford, support the conclusion that the use of newly available machines will be at the expense of existing machines to a substantial extent.

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The reduction in the number of gaming machines in South Australia from 14,026 (earning $749.2m ) in 2004-05 to 12,598 (earning $751m) in 2005-06 suggests that a change in the number of machines results in a transfer of gaming spending to other machines. There is no logical reason to think that, in a mature market, this would not equally apply to an increase in the number of machines as to a reduction in the number of machines.

21 Hence I specifically find that half of the additional gaming spending is likely to be transferred from existing venues, mainly within the City of Greater Geelong. Thus the additional gaming spending from within the City of Greater Geelong is likely to be about $221,124. The question then becomes: to what extent is this amount, and source of this additional gaming spending, likely to exacerbate problem gambling among Greater Geelong residents?

22 In Branbeau I commented that:

I am unaware of specific evidence as to the impact of a new gaming venue on problem gambling when residents of the area concerned already have good access to gaming opportunities.[4]

That is still the case. Intuitively, it seems probable that persons with an existing gambling problem will be more likely to seek out and find a gambling opportunity than persons without such a problem. Hence it may be that the main risk of adding gaming machines to an area already well served with machines is that it will attract new players, a small proportion of whom may become problem gamblers. In turn this is likely to be influenced by the socio-economic circumstances of the area from which the additional gaming expenditure is likely to be sourced.

23 I now wish to make findings about the capacity of different parts of the municipality to absorb this additional gaming expenditure; or, to put it another way, the likelihood of the additional expenditure causing problem gaming. Table 1 sets out the SEIFA score for different areas of the Greater Geelong municipal district.[5] The SEIFA score[6] is a useful measure of socio-economic disadvantage (or advantage), in which 1000 represents an Australian mean. The areas in the table are the same as those used in the council's gaming policy (to which I will refer subsequently).

24 It will be observed that Area 10 (Ocean Grove and Barwon Heads) - from which I find about half the additional gaming spending is likely to be drawn - has a SEIFA of 1033.9, which indicates a better than average socio-economic standing. Further, SEIFA for the Bellarine Peninsular, if weighted by population, also shows a better than average socio-economic standing.

25 At this stage I wish to comment on the council's gaming policy. The policy identifies ten areas within the municipality and shades the areas in a colour - from red to blue - on the basis of the ability of the area to accommodate additional gaming machines. The council does not support additional machines in red, pink and yellow areas; but in green and blue areas additional machines may be supported in limited circumstances. Area 10 is shaded blue. In respect of Area 10 the policy states:

After appropriate assessment, allow any machines to be transferred into this area from areas shaded red and pink, but only to the extent that the transfers do not have the effect of changing the relative weight of the category from blue to yellow or pink or red as determined by this policy.

This policy seems to be based on the socio-economic characteristics of each area and upon the existing density of gaming machines within each area. (How else could the transfer of machines from one area to another change the colour of an area?) However Cr McMullin explained at the hearing that the shading of each area was only based upon the SEIFA score for each area. Hence the reason why Area 2 (Corio) is shaded red is that it has a low SEIFA score; whereas the reason why Area 10 (Ocean Grove/Barwon Heads) is shaded blue is that it has an above average SEIFA score.

26 For a municipality as large and diverse as Greater Geelong, I commend the approach taken by the council of dividing the municipality into various areas. But it is a pity that the policy does not take account of existing gaming machine densities. At the risk of doing the council's work for them, I think the original idea of taking account of machine density has merit. Indeed, for the reasons I explain in the next paragraph, this idea has more merit if further adjusted to take into account likely gaming expenditure, bearing in mind that we know that machines in hotels generally earn twice that earned by machines in clubs.

27 In its decision, the Commission emphasised that the City of Greater Geelong has 8.48 machines per 1,000 adults, which is 22.37% higher than the State average. This was an important element in the Commission's decision. It worth noting that the municipality's gaming machine spending per adult of at $683 is only 8.39% higher than the State average. There is a reason for this: Geelong has more gaming machines in club venues than in hotel venues (where a machine typically generates twice the revenue). If we are concerned with the impact of a concentration of machines on problem gambling, then it is appropriate to take this factor into account. Hence a more useful statistic for the number of machines per 1,000 adults will be generated if hotel machines are weighted at 1.3333 and club machines are weighted at 0.6666.

28 Table 2 sets out data as to machines (both club and hotel) and adult population, thus also enabling figures to be generated for machines per 1000 adults.

29 Table 3 adjusts the total number of machines per area to reflect that machines in hotels generally earn twice that of machines in clubs. By making this adjustment, the totals better reflect the spending that might typically be expected (on average) to be received in the various areas.

30 The figures in bold in the table represent areas which have a relatively high number of machines and, at the same time, have a relatively low SEIFA score. Having regard to the analysis in Branbeau, this would suggest that machines should be removed, not added, to these areas. By contrast, the figures in italics in the table represent areas which have a relatively low number of machines and, at the same time, have an above average SEIFA score. In these areas there is likely to be fewer adverse social implications by the introduction of additional machines.

31 Having regard to the findings set out above, I am satisfied that the net economic and social impact of the amendment of the approval to allow the number of machines at the club to be increased to 60 machines will not be detrimental to the well-being of the community of the municipal district of Greater Geelong. I have outlined a number of benefits to the community if the amendment is approved. These benefits need to be balanced against an increased propensity for the occurrence of problem gambling, with the community problems this creates. However the extent of the latter is amorphous; and the socio-economic circumstances of the Ocean Grove area are likely to mitigate the problem to some extent. Hence it seems clear to me that this case is not one which fails at the threshold test.

32 Although I am satisfied as to the specified matters in section 3.4.20(1) of the Act, there remains a discretion to refuse an application, or to grant the application with conditions,[9] having regard to other factors which are relevant under the Act. Hence the final decision on an approval may be influenced by broader policy considerations, drawn from the content and objectives of the Act as a whole. In the present case, the question of conditions is particularly important.

33 In Branbeau I commented:

Recent legislative and government policy concerning the location of gaming in Victoria seems to be based on two theories. First, problem gambling is more likely if an area has a high number of gaming machines per adult person. Second, problem gambling is more likely if an area is relatively poor. Certainly these theories form the foundation of the regional limits on gaming machines provided for in section 3.2.4 of the Act.[10]

In the absence of better evidence, I would also adopt that theory. It seems inherently plausible that problem gambling is more likely to occur if the gambler has few assets and a low income, compared to the case where the gambler has many assets and a high income. It is also a theory that is consistent with the legislative and governmental lead in relation to regional limits on gaming machines. What this means is that the Commission (and, on review, the tribunal) must be wary of any proposal that is put before it that would increase the overall level of gaming expenditure in lower socio-economic areas of Victoria.[11]

34 In considering a proposal to locate gaming machines in an area of above average socio-economic status, it may be appropriate to require that the source of those machines be venues in areas of low socio-economic status. In this way the available discretion might be used to achieve policy objectives, drawn from the Act, to reduce the incidence of problem gambling by shifting gaming machines from less affluent areas to more affluent areas. As this could be done using a general discretion (and not in assessing whether a threshold test had been met) the exercise would not be constrained by municipal boundaries.

35 In the present case I was informed that the 15 additional machines would be supplied by Tabcorp from machines "in store", rather than from any particular venue. At 15 July 2006 Tabcorp has 31 "Club" machines that are currently in store and available. Although it would still be possible to grant approval subject to a condition that 15 machines be removed from an area of low socio-economic status, it is responsible to examine the pattern of machine movement for Tabcorp "Club" machines over the last two years to identify the source of the machines that are "in store" and available for the Ocean Grove Bowling Club.

36 Table 4 shows the reduction and approval of Tabcorp machines in club venues over the last two financial years. As such it only represents part of the total picture; but it is the relevant picture for present purposes.

The table shows that, in net terms, 16 machines have been taken out of venues and placed "in store", without being re-allocated. Significantly, the reduction in Greater Geelong of 30 machines - which resulted from the surrender of machines at the Geelong Golf Club - contributed to this outcome. It is also significant that the Geelong Golf Club was located within part of the Greater Geelong municipal district that is shaded yellow in the council's gaming policy (Area 3, having a SEIFA index of 935.6) and is in an area that was well-endowed with gaming machines. Thus it is reasonable to regard the additional machines to be allocated to the Ocean Grove Bowling Club as having, as their source, the Geelong Golf Club. This being so the effective movement of 15 of these machines from Geelong to Ocean Grove is consistent with the broad objective of reducing the concentration of gaming in lower socio-economic areas. Thus it is unnecessary to impose any particular condition in this case designed to achieve general policy objectives of ensuring the appropriate spatial distribution of gaming machines.

37 Before concluding this matter, I wish to reiterate what I said in Branbeau about problem gambling.

When it comes to problem gambling there is a risk that too much faith can be placed in decisions to approve particular venues as suitable for gaming, on the theory that such decisions will have a substantial impact on the incidence and seriousness of the problem. I am sure that it will never be possible to eliminate problem gambling - unless gambling itself is eliminated. The task of minimising problem gambling requires a multi-dimensional approach. It goes well beyond the approval of venues or the regulation of the number of gaming machines. It is likely to include education, venue architecture, control over operating hours, the availability of electronic teller machines, the method of paying prizes, the provision of support services, community partnerships, advertising control and government advertising designed to discourage problem gambling.[12]

38 This case once again highlights shortcomings in the information available to regulators. In my opinion, it is important that information be publicly available which shows the spatial pattern of gaming machine use for all venues in Victoria. This would require the public release of data in respect of all gaming venues in the State. It would also require each venue (or machine operator) to be responsible for conducting in-centre surveys of venues, on a regular basis. At the moment there is too much information hiding behind the coat-tails of confidentiality. Although I was tempted to impose conditions on the approval in this case to try and address the information shortcomings, I have resisted the temptation. Clearly this issue needs to be addressed on a State-wide basis: either by legislation, Ministerial order or by the Commission.

[1] [2005] VCAT 2606.

[2] This highlights an important aspect of review on the merits. Often the body charged with conducting such review will be presented with additional or different evidence than the body which made the primary decision. This means that if the reviewing body takes a different view than the primary decision maker it does not mean that the primary decision maker was "wrong"; or even that the reviewing body takes a different view on the evidence that was before the primary decision maker.

[3] For convenience, my findings are expressed in precise dollar terms. In truth, it is impossible to be so definite. Further, the evidence discloses that such predictions can never be precisely accurate. The findings ought be understood in this context.

[4] [2005] VCAT 2606 at [89].

[5] The Borough of Queenscliffe, which forms a natural part of the Greater Geelong community, is included in the table to produce more meaningful results.

[6] The SEIFA Index of Relative Socio Economic Disadvantage is produced by the Australian Bureau of Statistics. The index is created by combining numerous measures of disadvantage, for example, the proportion of persons in a municipal district who have low educational attainment, level of high unemployment, percentage of families with combined incomes of less than $15,600 and level of population in unskilled occupations. A higher index score means an area is less disadvantaged. The index score is standardised to achieve a mean of 1,000 for all collector districts within Australia with a standard deviation of 100. This means that 95% of all index scores for all collector districts within Australia fall within the range of 800 to 1,200.