Gambling firm Tatts Group is suing the Victorian government for more than $490 million in compensation following the expiry of its licence to operate poker machines.
Tatts and gambling rival Tabcorp held a duopoly to operate up to 27,500 poker machines outside of Melbourne's Crown casino until August 15, 2012 when their licences expired and the rights to operate the poker machines was passed on to pubs and clubs on August 16.
Tatts said on Thursday that it was starting legal action in the Victorian Supreme Court, arguing that under an agreement made in 1995 it was entitled to compensation.
Tatts claims the compensation should be an amount equal to the lesser of the licence value, which was worth $598 million, and premium payments made by new licensees.
"Based on the results of the auction of gaming machine entitlements conducted by the former Victorian government in 2010, Tatts estimates the amount of compensation may be half of the $981 million paid for gaming machine entitlements under the auction process ($490.5 million) plus amounts paid to the state following any transfers of gaming machine entitlements prior to 16 February, 2013," Tatts said in a statement.
The legal battle comes four years after the Victorian government announced it would not pay any compensation to Tatts upon the expiry of its licence.
Tatts argues that the 1995 agreement resulted in Victoria receiving substantial licence fees from Tatts for its poker machines business that it would not have otherwise received.
"These licence fees were agreed to be paid on the basis that the state would pay compensation for the investment made in the Tatts pokies business over the 20-year licence period, if a new licence was granted to anyone other than Tatts on the expiry of its licence," Tatts said.
Tatts told shareholders last October that changes to various gambling licences in Victoria had substantially changed its source of profits.
Tatts announced earlier this week that it would move its headquarters from Melbourne to Queensland next year, saying the Queensland government had helped create an environment with long-term and secure licences for Tatts.
Victorian Premier Ted Baillieu said that should the Tatts claim succeed, schools, hospitals, police, community services and kindergartens would lose access to hundreds of millions of dollars.
"If it is matched by a potentially parallel claim (from Tabcorp) that's been talked about, then obviously these figures would be much larger," he told reporters.
Victorian Opposition Leader Daniel Andrews said he remained as convinced as he was when Labor was in power that the state is not liable to compensate Tatts Group.
Tabcorp says it is entitled to a payment from the Victorian government upon the grant of new licences (in this case, to the pubs and clubs) of an amount equal to the licence value of Tabcorp's initial licences, or the premium payment paid by the new licensee, whichever is the lesser.
Tabcorp estimates that the "licence value" will be 115 per cent of the amount paid by Tabcorp for its licences: that is, 115 per cent of $597.2 million, being $686.8 million.
At the release of its annual financial results last week, Tabcorp chief executive David Attenborough said Tabcorp had made no decision on whether it would pursue legal action.