As a former fraud manager I can assure you this is fraud. It’s also seriously negligent and stupid.
If a club is under reporting crowds to save money on police and security and a major incident occurs at the venue, people will end up in jail. They will be held responsible for any deaths or injuries that occur.
Here is a tip. If you deliberately underestimate crowd numbers to reduce security and police and a serious accident occurs at the ground then that’s the end of your club and your management can wave goodbye to their houses. It’s the same as playing unregistered players. It’s really dumb.
In theory, and legally, you're probably right, as ultimate the weight of the government and nsw police will crush them.
But really? Let's look at how this actually works
NSW Police can decide any number is "necessary" and the event operator is forced to pay their costs or be shut down. Obviously silly example (for now), but it's equivalent of the police rocking up to your 50th birthday party in your backyard, saying you need 4 police for the evening, and you have to pay $20,000 for their time or you'll be shut down.
In recent times, NSWPol have been massively increasing the required security and costs for events, well above and beyond what our neighbouring states are doing, despite crime trending downards and alcohol being so obscenely overpriced at most events that you couldn't get properly pissed if you were on a mission.
Is it suddenly less safe to go to a sporting event or concert than it was 5 years ago? Why does a football game in NSW require multiple times more security than one in QLD? Look up the recent article on Bluesfest threatening to jump states because the NSW Government and Police slogged them with an unprecedented enormous bill for police security despite no history of problems.
NSW Police are running a protection racket and I don't blame anyone who tries to undercut them.