The below is a few ideas on the grant making ecosystem. Its based on some previous thinking, with a new concept thrown in to freshen it up. I have flicked it off to the Minister, so lets see if some fairly robust reform is on the agenda.
Background
In 2023 Class 4 pokies granted New Zealand NFPs around $335m. Central Government take was around an additional $300m in duties and the like.
As at December 31 2023 we have 32 Non club operators managing 828 venues. Ten years ago there look to have been 39 operators, managing 1033 venues. There have been a few changes in pokie operators, many driven by uncovered system abuse. Bluegrass Holdings Ltd is one such example but we have not seen the industry consolidation one may expect.
In 2023 there were over 35k grant applications made to around 9,700 entities by the 32 Class 4 entities.
There are concerns over how risks are managed in grant processes through less than scrupulous actors in the grant making space. Specifically:
The impact to charities from these risks is profound: that money has gone from the grant ecosystem into individual pockets.
https://www.stuff.co.nz/nz-news/350354021/mysterious-charity-no-accounts-website-or-physical-presence-under-investigation
https://www.stuff.co.nz/national/crime/130928581/the-1-million-library-that-never-really-opened-appears-to-close-for-good
https://businessdesk.co.nz/article/charities/supreme-sikh-council-under-scrutiny-over-crematorium-pokie-grants
These sorts of issues create image issues for charities and gaming trusts alike. Some seem to create fake or cost heavy charities to channel funds. Others conduct questionable activity within valid organisations.
Grant Money
We can look at where Grant money ends up in one of three camps.
Ideally we want to optimise the Good, minimise the Bad and eliminate the Ugly.
We also have issues around funding flowing away from where it was generated.The Hauraki District Council has identified its missing around $1m of the $2.4 potential grants in the area. Similarly I looked at Rotorua and identified a missing $4m. Of course this does not take the grants to regional or national bodies into account, but it appears some pokies are better than others at supporting local interests.
Current Ecosystem
Even without the issues around potential fraud, the current system by default drives a high cost to serve. The grant seeker applies to multiple organisations. People in those organisations read the same information and make funding allocation decisions over "their" money.
This is replicated in the many other grant seeking agencies throughout New Zealand creating a high cost process around getting grants into the community. I've estimated that it costs NZ Inc around $260m for the grant ecosystem. It should be noted that pokie grants are very good in terms of cost to serve so we don't want to mess with that. The grant cost to serve will be lower than others (Councils, Community Trusts, Lotteries etc) due to the relatively low assessment bar and the fact that cost to serve is largely managed by legislation.
Background
In 2023 Class 4 pokies granted New Zealand NFPs around $335m. Central Government take was around an additional $300m in duties and the like.
As at December 31 2023 we have 32 Non club operators managing 828 venues. Ten years ago there look to have been 39 operators, managing 1033 venues. There have been a few changes in pokie operators, many driven by uncovered system abuse. Bluegrass Holdings Ltd is one such example but we have not seen the industry consolidation one may expect.
In 2023 there were over 35k grant applications made to around 9,700 entities by the 32 Class 4 entities.
There are concerns over how risks are managed in grant processes through less than scrupulous actors in the grant making space. Specifically:
- That a venue may influence where a grant goes. To be clear this is illegal under the legislation.
- That a venue may demand a kick back from NFPs.
- That a NFP may pad invoices such as rent and salaries
- That sport clubs skirt around the amateur rules by employing top players in token roles.
- A for purpose Class 4 entity may not put the grant requests through adequate rigour
The impact to charities from these risks is profound: that money has gone from the grant ecosystem into individual pockets.
https://www.stuff.co.nz/nz-news/350354021/mysterious-charity-no-accounts-website-or-physical-presence-under-investigation
https://www.stuff.co.nz/national/crime/130928581/the-1-million-library-that-never-really-opened-appears-to-close-for-good
https://businessdesk.co.nz/article/charities/supreme-sikh-council-under-scrutiny-over-crematorium-pokie-grants
These sorts of issues create image issues for charities and gaming trusts alike. Some seem to create fake or cost heavy charities to channel funds. Others conduct questionable activity within valid organisations.
Grant Money
We can look at where Grant money ends up in one of three camps.
- The Good. Grant money going to NFPs which add real value to their communities.
- The Bad. Grant money going to NFPs which arguably do little with that funding. This may include Football Clubs, banned from paying their players by NZF rules, yet with roles within the club. It may also include some of the For Purpose Class 4 monies which flows through to private businesses.
- The Ugly. Grant money being diverted via padded invoices, fake jobs etc.
Ideally we want to optimise the Good, minimise the Bad and eliminate the Ugly.
We also have issues around funding flowing away from where it was generated.The Hauraki District Council has identified its missing around $1m of the $2.4 potential grants in the area. Similarly I looked at Rotorua and identified a missing $4m. Of course this does not take the grants to regional or national bodies into account, but it appears some pokies are better than others at supporting local interests.
Current Ecosystem
Even without the issues around potential fraud, the current system by default drives a high cost to serve. The grant seeker applies to multiple organisations. People in those organisations read the same information and make funding allocation decisions over "their" money.
This is replicated in the many other grant seeking agencies throughout New Zealand creating a high cost process around getting grants into the community. I've estimated that it costs NZ Inc around $260m for the grant ecosystem. It should be noted that pokie grants are very good in terms of cost to serve so we don't want to mess with that. The grant cost to serve will be lower than others (Councils, Community Trusts, Lotteries etc) due to the relatively low assessment bar and the fact that cost to serve is largely managed by legislation.
Enforcement around system abuse
Enforcement seems exception based. It appears that DIA and Charities Services react to complaints rather than proactive monitoring. Cases can take a long time to investigate too: I have several outstanding complaints with the regulator, the oldest two years old, the newest August 2024. Meanwhile the behaviours of those principals seems to continue unabated. Humans will always look to exploit systems, and, when others get away with that behaviour, more will pile in.
Suggested Solution
I am making the assumption that the current government wishes the Class 4 system to continue. Given the huge reliance by the NFP sector on that source of funding it seems to fill a need, although there are some issues around its long term viability and displacement with online gambling.
Based on this assumption we can look at how to minimise the risks AND improve productivity. These risks are primarily around distribution of grant funding. I suggest that the decision making function be moved to local government, perhaps at a regional level to better facilitate infrastructure discussions.
Pokies continue to provide and manage the machines and the venue relationships.
The money available for grants is centralised to a new entity (Newco), and then divvied up based on the amounts generated via each Local Government area, LESS an allocation for national requests (perhaps based on a % of current national requests). Those national grants are made by the central body. The central body runs the administrative side of the grant making system: receiving the requests, making assessments (but not decisions), making payments and managing accountability.
Grant seekers then request once or twice a year to the central fund based on their budgeting.
The central body assesses the organisation on several parameters but is not a decision making body.It looks at each requesting organisation through the following sorts of assessment.
The output of each assessment is online and transparent: think TripAdvisor.
The money to run this is taken from the pokies who currently are funded through the model to run a grant making body. Here is a schematic showing the various entities and the flow between them. The introduction of Newco and Local Authorities centralises the administrative grant making functions while decentralising the decision making function.
Enforcement seems exception based. It appears that DIA and Charities Services react to complaints rather than proactive monitoring. Cases can take a long time to investigate too: I have several outstanding complaints with the regulator, the oldest two years old, the newest August 2024. Meanwhile the behaviours of those principals seems to continue unabated. Humans will always look to exploit systems, and, when others get away with that behaviour, more will pile in.
Suggested Solution
I am making the assumption that the current government wishes the Class 4 system to continue. Given the huge reliance by the NFP sector on that source of funding it seems to fill a need, although there are some issues around its long term viability and displacement with online gambling.
Based on this assumption we can look at how to minimise the risks AND improve productivity. These risks are primarily around distribution of grant funding. I suggest that the decision making function be moved to local government, perhaps at a regional level to better facilitate infrastructure discussions.
Pokies continue to provide and manage the machines and the venue relationships.
The money available for grants is centralised to a new entity (Newco), and then divvied up based on the amounts generated via each Local Government area, LESS an allocation for national requests (perhaps based on a % of current national requests). Those national grants are made by the central body. The central body runs the administrative side of the grant making system: receiving the requests, making assessments (but not decisions), making payments and managing accountability.
Grant seekers then request once or twice a year to the central fund based on their budgeting.
The central body assesses the organisation on several parameters but is not a decision making body.It looks at each requesting organisation through the following sorts of assessment.
- What does the entity do?
- How are they funded?
- How cost effective is each programme area?
- How robust is the evidence behind the programme?
- How well is each programme implemented?
- How do they compare to others?
- Does the charity need additional funds?
The output of each assessment is online and transparent: think TripAdvisor.
The money to run this is taken from the pokies who currently are funded through the model to run a grant making body. Here is a schematic showing the various entities and the flow between them. The introduction of Newco and Local Authorities centralises the administrative grant making functions while decentralising the decision making function.
The high level tasks each entity does is sketched out below.
|
Venue |
Class 4 Operator |
Newco |
Territorial Authority |
Grant Seeker |
|
Ensures player welfare Rental income from hosting the gaming machines |
Manages assets and vendor relationships Distributes grant money monthly to Newco |
Determines National Percentage Allocates grant funding to T/A Assesses grant applications Based on T/A decisions distributes funds to grant seeker Manages accountability Decision maker for National entities (could be Lotteries) |
Makes local decisions on (say) bi-monthly basis |
Applies to Newco for funding Receives monies from Newco Completes accountability to Newco |
This model exists to some extent in Invercargill where the ILT runs the system.The decision makers are voted on at local election time.
Benefits
Increase of grant money to good organisations. Taking this function away from the pokie will reduce the ability for organisations to game the system.
Improved cost structure.With the risk of bad actors reduced mitigating compliance costs can likely reduce. Newco could be funded by moving the grant side of the funding to Newco, and some DIA funding to that entity as well. Perhaps Newco could have some of the better industry participants as shareholders: indeed there are processes used by some at the moment that could be scaled up. At worst this would be cost neutral. However the costs for the NFPs would be enormously improved: with only one body to apply to, rather than the current system, application costs would come down and the NFP can realise productivity improvements.
Money reinvested back into communities where it came from. Using this system there would be less chance of siphoning funds off to favoured groups outside the region where the funds were generated. Local government are likely to be highly supportive given further funds to manage locally. There may need to be some funding to them to help with that decision making, but given the assessment and administration are centrally managed this is likely minimal.
Issues
Loss of funding for some groups.This is likely to have a negative effect particularly on those for purpose class 4 entities. This includes Mainland Foundation (Canterbury Rugby), TAB, Air Rescue Services Ltd (Canterbury West Coast Air Rescue Trust) and Youthtown (Youthtown). The charities noted here receive significant preference funding from the Class 4 operator. In the above scenario the charities are likely to have to compete with others and would likely have reduced funding.
Change of funding models. Some codes, such as football or rugby, are highly reliant on pokie money to subsidise the high level sports. Its unlikely that such organisations would get favoured status under this model as decisions are more likely to be around participation. This would require the peak entity to address systemic funding issues.
Class 4 entity push back. The granting of funds for some is a big reason why they exist. This proposal would strip the grant making function from these entities to one of machine and vendor management. This would also strip some revenue from them as the grant making side is sectioned off to the new national entity. That said they would be able to restructure their business accordingly.It would likely lead to industry consolidation which seems a good thing.
Summary
Class 4 gaming reform is fraught with challenges. Many do not like the model, however it provides much needed community funding. Every time that reform is proposed, community groups are asked to oppose. This proposed solution achieves two objectives:
By moving the decision making to democratically elected local representatives who better understand the nuances of their communities we could get improved funding outcomes: eliminate the ugly, minimise the bad and maximise the good. We could also improve the cost to serve and radically improve the productivity of a sector which is stuck in the past around process.
Thoughts? Or is this the crazed ramblings of a woman a little obsessed? I will open comments but they are likely to attract scammers so be warned.
Benefits
Increase of grant money to good organisations. Taking this function away from the pokie will reduce the ability for organisations to game the system.
Improved cost structure.With the risk of bad actors reduced mitigating compliance costs can likely reduce. Newco could be funded by moving the grant side of the funding to Newco, and some DIA funding to that entity as well. Perhaps Newco could have some of the better industry participants as shareholders: indeed there are processes used by some at the moment that could be scaled up. At worst this would be cost neutral. However the costs for the NFPs would be enormously improved: with only one body to apply to, rather than the current system, application costs would come down and the NFP can realise productivity improvements.
Money reinvested back into communities where it came from. Using this system there would be less chance of siphoning funds off to favoured groups outside the region where the funds were generated. Local government are likely to be highly supportive given further funds to manage locally. There may need to be some funding to them to help with that decision making, but given the assessment and administration are centrally managed this is likely minimal.
Issues
Loss of funding for some groups.This is likely to have a negative effect particularly on those for purpose class 4 entities. This includes Mainland Foundation (Canterbury Rugby), TAB, Air Rescue Services Ltd (Canterbury West Coast Air Rescue Trust) and Youthtown (Youthtown). The charities noted here receive significant preference funding from the Class 4 operator. In the above scenario the charities are likely to have to compete with others and would likely have reduced funding.
Change of funding models. Some codes, such as football or rugby, are highly reliant on pokie money to subsidise the high level sports. Its unlikely that such organisations would get favoured status under this model as decisions are more likely to be around participation. This would require the peak entity to address systemic funding issues.
Class 4 entity push back. The granting of funds for some is a big reason why they exist. This proposal would strip the grant making function from these entities to one of machine and vendor management. This would also strip some revenue from them as the grant making side is sectioned off to the new national entity. That said they would be able to restructure their business accordingly.It would likely lead to industry consolidation which seems a good thing.
Summary
Class 4 gaming reform is fraught with challenges. Many do not like the model, however it provides much needed community funding. Every time that reform is proposed, community groups are asked to oppose. This proposed solution achieves two objectives:
- improve the allocation of that funding.
- improves cost to serve
By moving the decision making to democratically elected local representatives who better understand the nuances of their communities we could get improved funding outcomes: eliminate the ugly, minimise the bad and maximise the good. We could also improve the cost to serve and radically improve the productivity of a sector which is stuck in the past around process.
Thoughts? Or is this the crazed ramblings of a woman a little obsessed? I will open comments but they are likely to attract scammers so be warned.
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