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
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
There were also serious shortcomings in DOJ's procurement
practices, cost control, knowledge management and application of