Offshore operators poised to dominate new online gambling market

Foreign companies are set to dominate New Zealand's internet gambling market as the government auctions online casino licences for the first time.

Documents obtained by RNZ show local operators fear the large offshore firms will eat up their market share - and siphon money away from the community grants they distribute from gambling profits.

Unlike Lotto, the TAB, casinos or the pokies, the successful bidders for the online casino licenses will not be required to pay any money to community groups.

Internal Affairs minister Brooke van Velden, deputy leader of the Act Party, told RNZ she expected large, offshore gambling companies to win the majority of the 15 licenses auctioned off by the government.

"We don't have a huge online gambling market, so I would expect that it's mainly offshore providers."

But she said that could change over time as the licenses weren't forever.

"Somebody else could put forward their name and say, 'hey, I can do it better' and that would be up to the auctioneers and DIA (Department of Internal Affairs) to figure out who could do it better," van Velden said. "If someone is a bad operator, DIA can always revoke their license."

The online casino licenses will be issued for three years under the new regime, due to start in February 2026, which will regulate online gambling in New Zealand for the first time.

It is currently legal for New Zealanders to gamble on foreign sites but illegal to run an online casino operation from New Zealand.

The new law will ban operators who don't have a license from offering online casino gambling to New Zealanders, with fines up to $5 million.

New Zealand is one of the last developed countries to regulate online gambling.

RNZ has obtained hundreds of pages of documents about the new online casino market, using the Official Information Act.

The documents show both Sky City casino and the TAB wrote to ministers, strongly opposing government moves to open up a large market with 15 operators.

Sky City wrote to van Velden in March last year saying only five online casino licenses should be issued and they should be restricted to entities with a domestic presence.

"The safest way to ensure online casino profits are subject to New Zealand income tax is to only allow incorporated New Zealand companies to hold licenses and not permit a license to be held by a foreign company or a New Zealand branch of a foreign company."

But van Velden told RNZ the casino was looking after its own interests.

"They are looking out for themselves, right? I'm not here to look out for Sky City. I'm not here to look out for any established particular casino or their brands. I'm here to ensure that we have a fair marketplace and a fair, regulated market."

Van Velden also said tilting the playing field in favour of local operators could breach New Zealand's free trade agreements.

"I have considered whether or not it should be domestic priority or offshore priority. I think it's fair just to allow anybody to bid for one of the licenses, rather than try and say, just because you're here and you've been established for years in New Zealand, you're necessarily a better operator."

The documents show that TAB chief executive Nick Roberts wrote to Racing Minister Winston Peters saying that ten or more licenses - let alone the 15 being offered up by the government - would constitute an open market.

"An open online casinos market threatens the viability of all domestic gambling operators for the benefit of offshore multinational organisations, putting at risk established funding streams for racing and sport," the TAB told Peters.

It said 5-7 licenses should be granted to New Zealand-based entities and was scathing about offshore operators not having to make community grants.

"Settings that create an open market would allow for multinational domination over NZ's existing operators, establishing an unsustainable model for traditional gambling products, and risking our ability to appropriately fund racing and sport - all while driving gambling profits offshore and delivering worse harm outcomes for Kiwi consumers."

The TAB told Peters there would be "severe implications for TAB NZ if this fast-growing online casinos market cannibalises our existing operations by being legitimised in NZ in an open market context".

The winners of the online casino license auction will have to pay GST, a 12 percent gambling duty and the problem gambling levy but not community grants.

Martin Cheer is the managing director of Pub Charity Ltd, which has about 1700 pokie machines (known as Class 4 gambling) earning revenue of $125 million, close to 13 percent of the $1 billion pokie industry.

"Effectively, in Class 4, 100 percent all the profits have to be given away. Well, in this instance, none of it has to be given away," he told RNZ. "So instead of the local ambulance service or coast guard or the local footy team getting some money, it's going to offshore shareholders."

A November 2024 Cabinet paper on the new gambling market says forcing online casino operators to pay community grants might put them off bidding for a license.

"By adding further financial requirements on top of tax, duties and levies, New Zealand would become one of the highest taxed jurisdictions for online gambling, making licences less valuable and attractive," it said.

"Evidence from overseas has seen operators pull out of markets to protect their profits when their operating costs are increased by tax and duty changes."

The Cabinet paper concedes community funding could suffer.

"If a shift to online gambling on offshore operators results in a move away from other forms of gambling like TAB NZ or Lotto NZ, there could be a negative impact on current community funding streams."

But van Velden said she did not want community groups to become dependent on grants from the online casino operators.

"It creates a perverse incentive where we want to see gambling in our communities increase, because more money then flows back into the community, and that was not something I felt comfortable with under this law."

Pokies boss Martin Cheer hit back at that characterisation.

"You can't get any more perverse than sending your money off to some Russian-Croatian shareholder: basically never seeing the light of day in New Zealand again. That's what I call perverse," he said.

"This will send money offshore and out of the hands of the hands of community groups, and that's not how you grow an economy."

National campaigned on gaining significant revenue from online casino operators, claiming that imposing a gaming duty of 12 percent would bring in an average of $179 million a year.

But van Velden said the Crown would not get a lot of revenue from the new regime - perhaps only about $13 million extra a year in the first few years - and her main motivation was increasing the safety of online gambling.

"For me, that's less about, how do we gather tax and more about how do we get the balance right for allowing people to use a legal channel to gamble, while at the same time protecting people from the worst kinds of harm that can come from online gambling."