Australia's largest gaming companies, Tabcorp Holdings Ltd and Tatts Group Ltd, are likely to seek compensation after the Victorian government announced an end to their duopoly over the state's 27,500 poker machines.
Victorian Premier John Brumby said that venues would be able to own and operate their own gaming machines under 10-year licences after 2012, when permits held by Tabcorp and Tatts expired.
Tabcorp chairman John Story said the company was disappointed by the decision to end the duopoly and would review all available options to gain a refund on its $597 million licence fee.
The Victorian government said that neither Tatts or Tabcorp were entitled to compensation as a result of the restructure.
"We are both surprised and deeply disappointed by the government's statement that it disputes its obligation to refund the licence fee," Mr Story said in a statement.
"This is a commitment confirmed in the prospectus issued at the time of the float of the company," Mr Story said.
"Tabcorp's 216,000 shareholders, including 60,000 in Victoria, are relying on the government to honour its commitment."
Tabcorp said the gaming business was an important contributor to the company's revenue, adding $118.7 million in earnings before interest and tax in the first half of 2008.
Tatts labelled the government announcement that neither Tatts or Tabcorp were entitled to compensation as an "ambit claim" and said it would take "all necessary actions to protect its shareholder interests".
Both companies said they would adjust their business models to maximise profits from their poker machines over the next four years.
Tatts plans to discontinue capital expenditure by as much as $40 million annually for its Tatts Pokies business and gradually reduce operating expenses to lift the available profits in the four years left under the current licence.
"It is fair to say that the (Victorian government) announcement is not good news for either Tabcorp or Tatts," Shaw Stockbroking analyst Greg Fraser told AAP.
"It effectively ends their business in the gaming machine industry in Victoria, unless they decided to buy properties and the licences that go with those properties."
The Victorian government said it would maintain the total number of poker machines at 27,500 in Victoria and enforce a cap on ownership so that no one venue operator could own more than 35 per cent of the machines available to hotels.
Crown Casino operates under a different licensing arrangement and will not be able to seek permits outside its venue.
Mr Brumby said the gaming industry had matured in Victoria and the time was right to empower local venue operators to make local decisions about their gaming operations.
"Over the past 15 years the gambling industry has matured - what was right for the industry 15 years ago, will not be right for Victoria post 2012," Mr Brumby said in a statement.
Racing Victoria Ltd chief executive Bernard Saundry said there was "serious ramifications" from the restructure that the racing industry needed to consider.
The ending of the duopoly means the Victorian racing industry will no longer receive about 25 per cent of Tabcorp's gaming machine profits after 2012.
However, the Victorian government said it would put in place funding arrangements "no less favourable" to the racing industry than before.
Mr Brumby said he expected "dozens" of operators to hold poker machine licences.
The state's 27,500 machines will remain split evenly between clubs and pubs.
Crown Casino, with a further 2,500 machines, operates under a different licence, which expires in 2033. The casino will not be allowed to bid for machines in other venues.
The government collects close to $1 billion a year in tax from pokies losses, about $125 million from wagering and $2 million from Keno.
Mr Brumby said tax taken under the new arrangements would be roughly the same.
"In aggregate terms, the total amount of tax taken by the government will be around the same in real terms," he told parliament.
However, the government plans to offer a lower tax rate to smaller venues.
"That will benefit clubs, particularly in some of our regional and rural areas," Mr Brumby said.
Opposition gaming spokesman Michael O'Brien said larger clubs would outbid smaller clubs, and the 35 per cent ownership cap was too high.
"If you're going to be serious about having more competition, you need to make sure you have a guarantee of more operators than just two or three," Mr O'Brien said.
Victorian Inter Church Gambling Taskforce chairman Mark Zirnsak was pleased the new licences would be for 10 years instead of the previous 20 years and the 35 per cent cap was concerning.
"We're going to see a shorter licence, which will give the community more control about making decisions around gambling into the future," Dr Zirnsak said.
Clubs Victoria executive director Margaret Kearney said the change would give community clubs more control.
"Probably a purely price-based bidding system doesn't really favour the smaller community clubs, but we'll work through those issues with the government," she said.
Australian Hotels Association Victorian chief Brian Kearney said he was "surprised but very excited" by the move.
Hotels would want a bigger return from gaming to pay for increased costs through the bidding process, he said.
About 250 Victorian pubs have gaming machines, including most of the 100 or so owned by ALH Group, he said.
"It's my understanding that they (ALH) do currently exceed the 35 per cent," Mr Kearney said.
Comment is being sought from Tabcorp.
