2.1. Gaming machines in clubs and hotels in NSW 7

2.3. Regulation of gaming machines in NSW 16

2.4. About the audit 19

3. Administration of licensing for gaming machines 20

3.1. Decision-making for applications to operate gaming machines 20

3.2. Impact of gaming machine licensing on harm minimisation 22

4. Regulation of gaming machines in clubs and hotels 28

4.1. Strategic approach to regulation 28

4.2. Compliance and enforcement activities 31

4.3. Compliance and enforcement outcomes 33

Section 2 – Appendices

Appendix 1 – Responses from audited entities 37

Appendix 2 – About the audit 41

Appendix 3 – Performance auditing 43

Appendix 4 – Report snapshot 45

1. Executive Summary

Gambling is a recreational activity that contributes to employment and tax revenue in NSW. It is regulated because it has the potential to cause harm to individuals,
including financial loss and psychological distress. Gambling can also have negative social and economic consequences for the broader community. The NSW Government
defines gambling harm as any negative consequence of gambling that affects the wellbeing of a person gambling or their loved ones.

Gaming machines are one of the most common forms of gambling in NSW. In 2023–24, there were 87,749 gaming machines in NSW, operating across more than 2,000 clubs and hotels.
Gambling on authorised gaming machines is a legal form of entertainment and registered clubs and hotels in NSW provide community-focused services and activities.
However, research has shown that gaming machines can cause significant harm. Profit from gaming machines, which is the best available measure of losses to patrons,
totalled more than $8.4 billion in 2023–24. Gaming machines and losses are disproportionately concentrated in lower socio-economic areas of Greater Sydney.

The Gaming Machines Act 2001 (the Act) provides for the regulation, control and management of gaming machines in clubs and hotels in NSW. The Act has five objectives:

1. to minimise harm associated with the misuse and abuse of gambling activities

2. to foster responsible conduct in relation to gambling
3. to facilitate the balanced development, in the public interest, of the gaming industry

4. to ensure the integrity of the gaming industry

5. to provide for an ongoing reduction in the number of gaming machines in the State by means of the tradeable gaming machine entitlement scheme.

Section 3 of the Act states that when exercising any functions under the Act, ‘due regard is to be had to the need for gambling harm minimisation and the fostering of responsible conduct in relation to
gambling’. It also states that, ‘in particular, due regard is to be had to the need for gambling harm minimisation when considering for the purposes of this Act what is or is not in the public interest’.

To operate gaming machines, a venue must hold a liquor licence and be granted a specific number of gaming machine ‘entitlements’. Venue licences can include conditions such as limitations on
operating hours and the minimum number of staff that must supervise gaming machine operations. There are also a range of legislative requirements that apply to all venues with gaming machines,
including mandatory training for staff working in gaming rooms, restrictions on the location and visibility of gaming machines and the display of information about gambling support services.

The Independent Liquor and Gaming Authority (ILGA) and the Department of Creative Industries, Tourism, Hospitality and Sport (the Department) share responsibility for regulating gaming machines in NSW.
ILGA is an independent statutory authority with responsibilities that include determining applications to operate gaming machines. ILGA has a Board with seven members who have a mixture of
public and private sector experience and a staff agency with 13 staff. ILGA board members are appointed by the Governor on the recommendation of the Minister for Gaming and Racing.

The Department develops policies and regulatory strategies for gambling and conducts associated compliance and enforcement activities. It also provides information and administrative services to ILGA to support its licensing decision-making and makes some licensing decisions under delegation from ILGA.

Many factors can contribute to gambling harm levels, including policy settings and social and economic factors. While effective regulation alone cannot deliver harm minimisation outcomes, the Department and ILGA have a clear responsibility for implementing legislative objectives relating to harm minimisation.
The Department states the purpose of gambling regulation is to ‘promote a culture of responsible gambling and protect people from problems associated with excessive gambling’.

Audit objective

The objective of the audit is to assess the effectiveness of the Department and ILGA’s regulation of gaming machines in clubs and hotels, with a focus on harm minimisation requirements. This includes assessing the effectiveness of the administration of applications to operate gaming machines and the approach to the compliance and enforcement of harm minimisation requirements.

Conclusion

The Department and ILGA regulate gaming machines in a structured and consistent manner but are not supporting harm minimisation outcomes effectively.

The Department has developed a regulatory strategy that sets out its priorities clearly and has communicated this to stakeholders. However, the strategy does not have a sufficient focus on the areas that are considered high-risk for gambling harm and does not set any targets for reducing harm associated with gaming machines. Gaming machine losses and the social costs of gambling harm continue to be disproportionately concentrated in socio-economically disadvantaged communities.

Compliance and enforcement activities have largely focused on recent legislative changes relating to the layout of and signage for gaming machine rooms. The Department does relatively little to assess the actions taken by venue managers and staff to identify and prevent harmful gambling activities.

There is a risk that this approach creates incentives for venues to focus on complying with specific regulatory requirements rather than taking meaningful actions to prevent observed examples of harmful gambling in their premises.

ILGA and the Department have clear processes for assessing applications to operate gaming machines. ILGA has focused on reducing the post-midnight operation of gaming machines when assessing recent applications for new or altered gaming machine operations. This is based on research showing that this is the time period most closely associated with harmful gambling.

However, ILGA does not proactively review licence conditions after they are granted. This means many venues have not had their licence conditions reviewed in recent years and are operating gaming machines with licence conditions that may not be consistent with contemporary approaches to harm minimisation. Of the 20 clubs with the largest number of gaming machines, only two have applied for a change in their gaming machine operations since 2019–20.

The Gaming Machines Act 2001 (the Act) establishes a tradeable gaming machine entitlement scheme that has a stated goal of reducing the number of gaming machines in NSW. The scheme has contributed to a decrease in the number of gaming machine entitlements, though this reduction has been gradual and there has been an increase in the number of gaming machines in NSW since

2021–22.

Key findings

NSW has 87,749 gaming machines, significantly more than all other Australian jurisdictions, despite legislative provisions that aim to reduce the number of machines

NSW has more than half of all of the gaming machines in Australia and has significantly more gaming machines as a proportion of the population than all other Australian states and territories. NSW has almost triple the number of gaming machines per 1,000 adults than Victoria, the next largest state by population. If the number of gaming machines in NSW was at the same level as the national per capita average, there would be 33,000 fewer gaming machines in NSW.

One of the objectives of the Act is to provide for an ongoing reduction in the number of gaming machines in the State. At the time the Act was introduced, there were more than 100,000 gaming machines operating in clubs and hotels in NSW. This number has reduced by 13,758 since 2001–02, which is an average of 598 machines per year. At this rate, it will take more than 55 years for NSW to reach parity with the national average for gaming machines per 1,000 adults.

The Act introduced a scheme designed to reduce the number of gaming machines in NSW. The scheme requires the compulsory forfeiture of some gaming machine entitlements when they are transferred between venues. There have been 3,546 machine entitlements forfeited under this scheme since 2011–12, an average of 273 machines per year. This is just over half the total reduction in gaming machines operating during this period. Multiple exemptions have been added to the scheme since its introduction, which has limited the number of machine entitlements forfeited.

The NSW Government lowered the legislative cap on gaming machine entitlements from 99,000 to 95,739 in December 2024. The legislative cap on gaming machine entitlements is higher than the number of machines that are actually operating; NSW had 87,749 gaming machines in operation in clubs and hotels at June 2024. This means the total number of machines operating in clubs and hotels could increase by almost 8,000 and remain within the current legislative cap. The total number of gaming machines operating in clubs and hotels has increased in each of the last two financial years, by a total of 958 machines. This followed large decreases in 2019–20 and 2020–21 (1,143 and 3,066 respectively) which occurred during the years when COVID-19 pandemic restrictions were in place.

The Department’s strategy for regulating gaming machines is communicated to key stakeholders, but it does not articulate desired harm minimisation outcomes

The Department has developed a strategy that sets out its approach to regulating gambling in NSW, including gaming machines. A series of strategy and policy documents have been produced within the last two years. They provide a clear overview of regulatory priorities and planned compliance activities. The regulatory priorities were developed using available data and stakeholder feedback, although weaknesses in data on compliance and enforcement activities (discussed below) mean there is considerable scope for improvement in the use of data to inform regulatory strategy. The Department is transparent about its approach to regulation, publishing key documents on its website and proactively promoting its approach through regular industry forums.

However, the Department’s strategy for regulating gaming machines is not based on a clear understanding of current levels of gambling harm and it does not set any targets for reducing harm associated with gaming machines. The progress of programs under the Department’s delivery plan is tracked and reported through internal governance processes and monthly reports to ILGA. This reporting has focused on whether activities were delivered as planned. The Department does not have benchmarks, targets or other performance measures in place to assess outcomes against key measures of harm minimisation. There have been no evaluations of its compliance programs to measure their impact on harm minimisation outcomes. As a result, the Department does not know whether its regulatory strategy is effective in minimising gambling harm.

The Department and ILGA are required to have due regard to the need for harm minimisation and fostering the responsible conduct of gambling when exercising their functions under gaming machine legislation. Several sources indicate gambling harm levels are not falling. For example, calls to the GambleAware Helpline increased by 8.5% in 2023–24 and gaming machine losses have increased in each of the last three years. The results of the 2024 NSW Gambling Survey did not indicate a reduction in the level of gambling harm in NSW.

The Department has an active compliance program, although this is strongly focused on Greater Sydney

The Department’s compliance and enforcement activities are aligned with its stated regulatory priorities. The number of compliance campaigns conducted has increased over the last two years as the Department prioritised the delivery of proactive compliance campaigns relating to new and upcoming legislative changes. Gaming machine inspectors conduct regular visits to licensed venues, although the scale of these operations is limited by staff resources. There are 12 gaming machine venue inspectors, all of whom are based in Greater Sydney.

The Department has a regional inspection program but has not conducted frequent inspections of regional venues. The majority of gaming machines and gaming machine losses are in the Greater Sydney region but there is also a high risk of gambling harm in some regional and rural areas.

According to NSW Office of Responsible Gambling reporting, nine of the ten suburbs with the highest number of people accessing GambleAware services in 2023–24 were located outside Greater Sydney.

Most of the Department’s regulatory activities for gaming machines focus on compliance with recent changes to legislative requirements

Recent regulatory activities have focused on educating venues and testing compliance with recent and upcoming harm minimisation reforms. These include the banning of external signs advertising gaming machines, the location of ATMs within venues, and the requirement for venues to have Gaming Plans of Management and assigned Responsible Gambling Officers. The Department’s recent compliance campaigns found very high levels of compliance with these new requirements.

The actions of venue staff are important for the success of harm minimisation measures because they have direct contact with people at risk of harmful gambling. The Department assesses the knowledge that venue staff have of mandatory training courses they have completed but does not test whether staff apply this in practice. The Department conducts a small number of covert inspections of venues but does not have a clear strategy for assessing requirements that relate to the venue culture or the actions of staff.

The Department’s approach focuses on engagement with industry to encourage voluntary compliance. The use of ‘harder’ regulatory approaches, such as fines and prosecutions, is reserved for serious and repeat breaches. However, it has not conducted any analysis to test the effectiveness of this approach.

Responsible Conduct of Gambling training is not effective in minimising gambling harm

All staff who work in venues that operate gaming machines are legally required to complete Responsible Conduct of Gambling (RCG) training. The Department administers RCG training programs by overseeing the development of course content and appointing providers to deliver the training.

An external review conducted in 2020 found that RCG training had little positive impact on harm prevention or reduction. The review found that staff who had completed the training often observed signs of harmful gambling in patrons but rarely approached patrons to offer assistance or referrals to support services. The Department updated its RCG training in 2023 in response to the 2020 review. The development of the course materials received funding from ClubsNSW and the Bankstown Sports Club (the club with the largest number of gaming machines in NSW).

The revised course content does not encourage venue staff to proactively address potentially harmful gambling behaviour. Formal guidance included in the training only requires staff to speak to a patron directly about their gambling or to offer referrals to gambling counselling services if extreme gambling behaviour is observed. Only two per cent of people accessing the NSW Government’s counselling service were referred by venues in 2023–24.

The Department does not have a structured approach to monitoring the quality of RCG training, despite this being a key harm minimisation measure under the Act. It relies on feedback from training participants or complaints about the quality of the courses.

Information about gaming machine numbers and profits is published regularly, but there are known data quality issues with the Department’s data on its compliance activities which limit its ability to measure regulatory impact

The Department has published detailed data on the gaming industry since 2017. These reports provide transparency on the number of gaming machines and profits generated across local government areas. The Department also publishes data on venues and their licence status. Transparency could be improved further if the Department published this information in a consolidated format that is more accessible to the public.

The Department has not collected compliance and enforcement data in a way that can be used to accurately report on the number and types of activities undertaken. Compliance and enforcement data is stored in a legacy case management system with known data quality issues and limited reporting capabilities. The weaknesses in this data limits the Department’s ability to track its activities and measure its impact. It also reduces the quality of the information the Department can provide to support decision-making about applications for gaming machine entitlements, because data on the compliance history of venues is unreliable. The Department is progressing work to improve this, including replacing the legacy system by June 2025 and finalising a data strategy to improve data analytics capabilities.

The Department has only recently begun to use data it holds in other systems strategically to monitor and enforce compliance with harm minimisation measures. For example, Department systems collect data on when gaming machines are operating, but this data was not used systematically to monitor and enforce compliance with mandatory shutdown periods prior to 2023.

There are consistent processes for assessing applications for gaming machine entitlements

ILGA has documented processes for the assessment and determination of applications to operate gaming machines. The Department supports ILGA’s administration of gaming machine applications, including making decisions under delegation for specified types of applications and providing material required for ILGA’s assessments and decision-making. Governance arrangements between ILGA and the Department are defined under a Memorandum of Understanding and delegation manual.

ILGA and the Department have policies and procedures in place to support consistent assessments of gaming machine applications. ILGA Board papers, to which the Department contributes information, use a template to provide consistent information for each gaming machine application. This supports the ILGA Board’s assessment of the risks of gambling harm and informs decisions about which licence conditions should be imposed. ILGA has drawn on contemporary evidence regarding gambling harm to inform its gaming machine licensing decisions, such as recent research on the link between post- midnight gaming and gambling harm.

However, there are some gaps in the data used for decision-making. For example, ILGA is not always able to consider the compliance history of venues making applications because many venues have not been inspected recently and the Department’s data on its compliance activities is flawed (as discussed above). ILGA and the Department have commenced work to improve the collection and use of data to further improve the evidence base for decision-making on gaming machine entitlements and licence conditions.

ILGA engages proactively with stakeholders about its approach to decision-making, but has not consistently published reasons for its decisions

ILGA publishes the guidelines it uses to inform its decisions under gaming and liquor legislation and has updated these in response to changes in the regulatory environment. ILGA conducts regular stakeholder forums in Sydney and regional NSW to explain its role and regulatory approach to members of the gambling industry and other stakeholders.

In most cases, there is no legal requirement for ILGA to provide reasons for its decisions on specific gaming machine applications. However, ILGA’s guidelines state that it will provide reasons when asked, or if it judges that the matter is of significant concern to the community or industry. Previous statements of reasons published by ILGA indicate that decisions to refuse applications for gaming machines have been based on harm minimisation grounds after consideration of socio-economic factors and rates of gambling in the local area. However, these statements of reasons do not provide applicants with a detailed rationale for the decision.

Some industry stakeholders have argued that the reasons for ILGA’s decisions on gaming machines are not transparent and are causing uncertainty for venues with gaming machines. The limited detail provided in its formal statements of reasons for ILGA’s decisions may have contributed to this. In 2024, ILGA cleared a backlog of more than 100 statements of reasons from the previous four years. ILGA has increased the number of statements of reasons on gaming machine applications recently. This indicates it is seeking to take a more proactive approach to communicating the reasons for its key decisions.

ILGA does not proactively review licence conditions relating to gaming machines to ensure consistency with contemporary approaches to gambling harm minimisation

ILGA only reviews licence conditions for venues with gaming machines when a venue makes an application to change its gaming machine operations. ILGA has the power to impose conditions on venues with a licence to operate gaming machines at any time, but most of the venues that have the largest number of gaming machines have not had their licence conditions reviewed for at least the past five years because they have not applied for changes to their gaming machine operations.

Many venues have current licence conditions relating to gaming machines that may not be consistent with contemporary approaches to harm minimisation. Of the ten clubs with the highest profits from gaming machines, six are located in areas considered high-risk for gambling harm. All of these clubs have permission to conduct late-night gaming and none have any additional harm minimisation conditions on their licences. Around 20% of venues with gaming machines have exemptions that allow them to operate during the legislatively mandated shutdown period of 4 am to 10 am. In addition, 36 venues have ‘hardship’ provisions in their licences that give them exemptions from harm minimisation measures. These were granted more than 20 years ago and have not been reviewed since.

Recommendations

By June 2026, the Department of Creative Industries, Tourism, Hospitality and Sport should:

1. 1. Increase the focus of its regulatory strategy on improving harm minimisation outcomes by:

a) establishing baselines and targets for improvements relating to gambling harm minimisation

b) increasing its focus on enforcing regulatory requirements that have the most direct impact on harm minimisation outcomes, including staff compliance with responsible conduct of gaming requirements and the operations of venues with late-night opening hours for gaming machines

c) evaluating and reporting publicly on its activities with a focus on outcomes achieved, in addition to activities or outputs.

2. Review the operation of the gaming machine forfeiture scheme to ensure it is achieving the legislative objective of reducing the number of gaming machines in NSW. This should include:

a) reviewing all current exemptions to the scheme and removing exemptions that are not clearly justified by evidence

b) proposing additional measures for clubs and hotels to forfeit gaming machine entitlements voluntarily, with a focus on clubs and hotels in locations classified as at higher risk of harmful gambling.

By June 2026, the Independent Liquor and Gaming Authority should:

3. Commence periodic reviews of licence conditions for venues operating gaming machines in the highest risk locations and make amendments to these where required to ensure that licence conditions align with current evidence on gambling harm minimisation.

4. Increase clarity about its decision-making for gaming machine applications to industry and other stakeholders by:

a) ensuring statements of reasons for decisions are published in a timely manner

b) providing venues whose applications are refused with a detailed rationale for the decision.