Perhaps this . . . . .AFR a couple of days ago headed "Pokies reform could slash Endeavour profits".
"When Barrenjoey analyst Tom Kierath revealed Endeavour Group’s dirty little secret about its excessive reliance on poker machine revenue, the company responded with a deafening silence.
This was not a huge surprise given Endeavour’s consistent refusal to be transparent about the revenue generated by 12,539 electronic gaming machines in 300 hotels. But with the possibility of cashless gaming cards being introduced in NSW after the state election in March, it is surely time for Endeavour to come clean on the risks to its pokies revenue.
Will the ASX issue the company with a query? Will the Australian Securities and Investments Commission remind Endeavour of its recent demand that boards ‘‘ensure material business risks are adequately disclosed in annual reports to better inform shareholders and prospective investors’’?
To be fair to Endeavour, its latest annual report was published before the cashless gaming proposition gained a head of steam after the publication of the NSW Crime Commission report on money laundering.
Kierath’s report on Endeavour said more than 100 per cent of the annual profits earned by its hotel business comes from electronic gaming machines that subsidise food, beverage and accommodation sales.
His report says ‘‘lower spend in a cashless gaming environment will significantly impact its profit and loss’’.
‘‘Our sensitivity analysis indicates a 20 per cent decline in EGM (poker machine) revenues equates to EBIT declines of 35 per cent in hotels and 15 per cent for the Endeavour Group,’’ Kierath says.
The report makes certain assumptions that are disputed by Endeavour. Kierath assumes the ‘‘harm minimisation’’ initiatives being adopted by the Tasmanian government in December 2024 will be rolled out in other states.
Endeavour points out the Tasmanian policy response to problem gambling includes a cashless gaming card with pre-commitments of gambling amounts and loss limits of $100 a day. It adds an inquiry into Crown Resorts in Victoria recommended phasing out the use of cash ‘‘save for gaming transactions of $1000 or less’’.
In NSW, the inquiry into Star Entertainment recommended a restriction on cash dealings, but the limit on cash wagering was $1000 a day. An inquiry in Queensland recommended that cashless gaming be implemented with the exception for transactions of $1000 or less.
But the introduction of cashless gaming in NSW supported by Premier Dominic Perrottet looks more likely despite the vehement opposition of ClubsNSW and the Australian Hotels Association.
Kierath’s report was based on a survey of 1000 poker machine players in NSW. They were asked a series of questions, including: Do you think mandatory loss limits for poker machines is a good idea? What level of loss limit would you like per day?
The key conclusion from the survey was that poker machine players think mandatory loss limits are a good idea and would like them set at $100 or lower per day.
The survey found that a small percentage of poker machine players represent a disproportionate amount of spending, potentially indicating problem gambling and/or money laundering.
The survey found that, on average, poker machine players would spend less if they couldn’t use cash to play, and players tend to understate their spending.
Kierath estimated Endeavour’s pokies generate $94,000 per machine each year, which is above the industry average of $71,000.
Some of Kierath’s findings were disturbing. Based on his survey, which was done by an independent third party, less than 1 per cent of players account for more than a quarter of the spending.
‘‘Put another way, the 18 per cent of EGM players that spend over $1000 on EGMs annually represent 80 per cent of the total spend,’’ the report says.
‘‘Further, based on the survey results, 75 per cent of the EGM spend is from those spending over 5 per cent of their gross income on EGMs, which leads us to think that problem EGM gambling is relatively high.’’
To reflect the uncertain outlook for the stock, Kierath slashed his target price to $5.60 a share, or about 20 per cent below the current price.
Jarden analyst Ben Brownette, who published a report on cashless gaming last week, claims Endeavour earned $700 million to $800 million from EGMs in fiscal 2019.
He says the introduction of cashless gaming could affect Endeavour Group beyond the 20 to 25 per cent of EBIT earned from EGMS because it may shorten the capital expenditure cycle and, therefore, lift costs.
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