As the Sunday Age reported yesterday, Victorian government policies have allowed the Woolworths-Mathieson joint pokie venture, owners of the ALH and Taverner chains, to generate about $2 billion in player losses between October 2004 and June 2008.

At 30 June, 2008, the 57 Victorian ALH and Taverner venues operated 4176 of Victoria’s 26,797 operational non-casino pokies. Mathieson companies and Woolworths also have an associated interest in a further 1551 machines located at other hotels and clubs (including the Richmond, Hawthorn, Footscray and Collingwood AFL clubs). Under legislation currently before the Victorian upper house, the dominant position of the joint venture is likely to be further consolidated.

Is this a bad thing? Analysis of venue level data released by the Victorian government on Friday 6 March suggests it’s a very bad thing from the point of view of minimising harm.

In their submission to the gambling licences review in 2006, Tattersall’s pointed out that the reason Victorian pokies performed so much better than those in other states (up to twice as well, on average) was because they carefully analysed gaming machine data to optimise returns. In other words, the scale of their duopoly operation of half the state’s pokies means they can optimise the configuration and mix of pokies and venues to generate the largest returns, or to put it another way, maximise player losses.

Given that a hefty proportion of player losses (around half) come from people with gambling problems or at serious risk of such problems, this equates to maximising harm.

The Mathieson-Woolworths joint venture is in a similar position, and in the post 2012 regime, is well placed to be the dominant market player, operating up to 35% of the state’s hotel pokies (the ceiling provided in the legislation). The data demonstrate just how well the joint venture operators know their market. Of the 20 most lucrative venues in Victoria in 2007-08, Woolworths and/or Mathieson controlled 16, generating $267.8 million in player losses, and under current tax arrangements the venue keeps 25% of this — about $67 million for those 16 venues.

In a looming bonanza for those with the cash to front up for licences, the pending Victorian legislation means venue operators will no longer have to share this action with Tattersalls or Tabcorp. Applying the new tax rates contained in the legislation to the 16 “top 20” venues operated by Woolworths and Mathieson would result in an increase of about 87% in retained earnings to a total of $125 million (an increase of $58 million p.a.), providing plenty of incentive to bid up the price of licenses.

From a harm minimisation perspective, large scale pokie operations appear to be a big part of the problem. Government has done the right thing by publishing the pokie venue data, even if the cynical interpretation is that it was done to boost the value of pokie licences, which the government apparently wants to auction off later this year. The problem with this is that companies who pay a lot for a pokie licence will want to maximise the amount that licence earns them, and any incentive for real harm minimisation will disappear.

Concentration of power in any market is rarely a good thing. The proposed legislation, allowing any one operator an upper limit of 35% of the hotel pokie market, is hard to explain. So are the very generous tax rates.

We can only assume that the legislation proposes a pokie regime intended to keep big operators happy, and therefore prepared to pay big prices for licences.

Yet such a level of concentration makes a mockery of the government’s stated intention of encouraging more community level ownership and operation of pokie venues. It also means that pokie related harm probably won’t be minimised in Victoria any time soon.