Tasmania got gamed

As it happens, my first vote was in 1968 on a referendum proposal by the Tasmanian Labor government to introduce the nation’s first legal casino, on the site of Federal Hotels’ Wrest Point Hotel in Hobart. There was talk of how this would boost the state’s tourism numbers, with the promise of an influx of high rollers and Vegas-style cabaret with dancing girls. One of my university lecturers warned it might also bring the Mafia, but I thought this a stretch. As it subsequently transpired, the dangers were to be of an altogether different order.

The Reece Labor government drafted an ambiguously worded referendum proposal that induced many voters to feel they were voting in the main for a big new convention centre and the small casino would be an add-on. The government also pledged that there would be no introduction of gaming machines. The referendum passed, and Roy Grounds designed an elegant octagonal tower on the edge of the River Derwent – it remains one of Hobart’s more attractive modernist buildings. Glamorous young croupiers were installed but it was to be downhill from there. Inevitably other states introduced casinos, which the Asian high rollers preferred. The dancing girls disappeared and were replaced by poker machines. In time the Wrest Point casino became a pokies barn, more like an RSL club but without the side benefits.

How this came about and why it matters is the subject of a new book by the award-winning historian James Boyce. In Losing Streak: How Tasmania Was Gamed by the Gambling Industry (Redback; $22.99), Boyce has written an at times jaw-dropping history of poker machines in Tasmania, a 50-year saga of backdoor politics and official spin that even within the annals of a serious gambling nation presents a unique case of dereliction on the part of politicians. On the evidence presented here, they were incompetent, or worse.

At the time of the ’68 referendum, public opinion was opposed to gaming machines, and Boyce cites a number of opinion polls over several decades that indicate this opposition to have held. Despite this, successive Labor and Liberal governments agreed to their introduction not just into casinos (a second casino was built in the state’s north) but also into pubs and clubs. At no time was a competitive public tender called for any of these developments, and negotiations behind closed doors resulted in a monopoly licence being granted to Federal Hotels, later known as Federal Group. The Farrell family that owns Federal Group now owns both casinos and every poker machine in the state while paying the second-lowest gambling taxes in the country.

Losing Streak is a remarkable work, and even for the reader with no interest in gambling it offers a valuable case study of bad governance and its consequences. Between 1998 and 2000 Boyce was manager of social action and research at Anglicare Tasmania, and in that role (and later as a consultant), he observed firsthand the deleterious effects of poker-machine gambling. Just as Nick Xenophon was spurred into politics by his work as a solicitor dealing with families broken by poker-machine addiction, Boyce was galvanised by the Anglicare experience. Although clearly incensed by what he perceives as justice denied to Tasmanian taxpayers, the respected historian is no mere moralising pamphleteer. The forensic detail of his research speaks for itself and much of his case for reform is made on economic grounds. Who benefits from the current Federal Group monopoly is the question he poses, and the answer isn’t edifying.

At the end of 1968 the Labor government steamrolled casino legislation through the Tasmanian parliament in the face of stiff opposition, and a ban on poker machines was written into the legislation to appease its critics. A state election in the following year produced a hung parliament, and the Liberals combined with the leader of the newly formed Centre Party, Kevin Lyons (a former Liberal member), to govern in coalition. Lyons, son of former prime minister Joseph Lyons, became deputy premier, but not for long.

Despite his earlier opposition to the Wrest Point casino, the new Liberal premier, Angus Bethune, decided for political reasons to support the proposal for a second casino in the north of the state. Opposed to a monopoly, Bethune opened the second casino up to competing bids, and Stocks and Holdings Ltd was selected over Federal Hotels in 1971.

Soon afterwards Lyons announced that “mutual trust” between him and Bethune had broken down. Lyons resigned from the government and with its slender majority gone parliament was soon dissolved. The details of this bizarre episode are too byzantine to be outlined here, but it was alleged, among other things, that Lyons had been given illegal inducements to destabilise the Liberal government. British Tobacco, which had been granted dubious land leases by the Reece government, paid Lyons $25,000 ($250,000 in today’s money) to write his memoirs (never published). Soon after his resignation from parliament in 1972 Lyons bought expensive properties in Melbourne, and, despite no experience whatsoever in the field, set up his own public-relations company. His first client? Federal Hotels.

There were calls in Tasmania for a royal commission into what had quickly become a murky saga but instead a police report was commissioned, one that was never released for public perusal. Boyce has unearthed a copy of the report, and on his analysis the police investigation was manifestly inadequate. “Whatever the truth of the conspiracy charges,” he writes, “it is clear that Federal Hotels’ national casino monopoly was preserved through the collapse of a government that was actively promoting a competitor, and the installation of a new government with which the company had close political and personal ties.”

Dramatic as the Lyons episode had been, it was just the beginning. In 1985 Federal Hotels persuaded the then Liberal premier, Robin Gray, to introduce gaming machines. In one of the more risible arguments to emerge during the company’s public-relations campaign, managing director John Haddad informed the Mercury newspaper that the machines were no big deal, indeed were something of a public service: “the machines are designed for people who are shy, lack confidence or do not understand the rules of a game and wish to gamble away from the scrutiny of others”. Bob Brown, then a state MP, was the only member to vote against their introduction. Brown was one of the first to foresee that ecotourism, not casinos, would be the key to Tasmania’s tourist industry. He also pointed to the fact that despite all the rhetoric around casino-based tourism more than 80% of casino earnings came from Tasmanians.

To begin with, only 50 machines were introduced at the Wrest Point casino, but future increases were to be at the discretion of the responsible minister, not parliament. So much for public accountability. Before long, the number of machines rose dramatically, as did players’ losses. In 1990 Federal Hotels’ chairman and shareholder Greg Farrell purchased all remaining shares in the company; the following year he privatised it under the umbrella of the family holding company. Around this time the Commonwealth Grants Commission observed that Tasmania, the nation’s poorest state, had one of the highest levels of gambling expenditure in the country (second only to New South Wales) as well as one of the lowest levels of gambling taxation returns. Losers on both counts.

In 1992 the state’s Liberal government, led by Ray Groom, sought to extend poker machines into hotels and clubs, a move that provoked strong criticism from the police association, mainstream churches, the state’s three daily newspapers, and the hospitality and racing industries. Groom established a Committee for the Review of State Taxes and Charges, which duly recommended that the licence for poker machines be put out to competitive tender in order to get the best return for the state. This threatened Federal Group’s gambling monopoly and it successfully campaigned against the extension. Instead it proposed a big increase in the number of machines in its two casinos – it now owned the Launceston casino – along with the removal of other restrictions, in return for improved facilities at the Wrest Point casino. The outcome was the introduction of new high-intensity gaming machines designed to increase gamblers’ losses and the likelihood of addiction. (These machines, developed in the late 1980s, are designed to psychologically manipulate the player by delivering small wins in such a way as to disguise overall losses. Thousands of them had been recalled in France and the Netherlands as being too dangerous, and they remain banned in a number of countries.)

In 1993 both the Groom government and Federal Group suddenly reversed their positions. In what former Liberal leader Bob Cheek described in his memoirs as “the deal of the century”, and Boyce describes as wholesale capitulation, the Groom government granted Federal Group an exclusive licence to operate machines in pubs and clubs. Proposed safeguards against excess profits and high levels of social harm were also abandoned, and the licence period was extended to 2008 despite Treasury advisers having recommended an open tender process. In addition, and contrary to the recommendation of two government committees, Federal Group could decide which pubs and clubs would receive poker machines. Venues it refused had no avenue of appeal and, in Boyce’s words, the company “became the only licence-holder in Australia that had the power to determine the viability of a third-party operator”. (Later, many of the hotels would return their machines because their share of the profits proved to be so low.) It was an astonishing policy backflip and no satisfactory explanation for it has ever been made public. In effect, writes Boyce, a government had decided “to give away the most valuable public licence in Tasmania for free”.

In 1998 Labor took power under Jim Bacon, whose wife, Honey, had worked at the Wrest Point casino as a croupier. Early in 1999 the Bacon government abolished bet limits that had been part of the original deal to get poker-machine legislation through parliament. Federal Group’s profits subsequently soared from $596,000 in 1993 to $29 million a decade later, with the largest proportion coming from gaming machines.

This was followed in 2003 by what Boyce dubs the deal of the millennium. Federal Group was granted a further extension of its monopoly licence to, in real terms, 2023. Included in the deal were a number of favourable conditions, such as no restrictions on the company’s right to buy the most profitable poker-machine venues and then compete with neighbouring pubs on advantageous terms.

According to a study on the impact of gambling in Tasmania, conducted in 2009 by the South Australian Centre for Economic Studies, poker machines were deliberately concentrated in poor neighbourhoods, and local councils had no power to stop this.

A 2016 report by economist Saul Eslake revealed that Tasmania has “greater concentrations of social and economic disadvantage than any other State or Territory”, and gross household incomes around a third less than the national average. As if this were not problem enough, as Boyce documents, one in eight Tasmanian families has an immediate family member with a gambling problem, a figure that has doubled since poker machines were introduced. Given these figures it’s not surprising that public opinion continues to be hostile to the expansion of the machines, and a 2015 opinion poll revealed that 84% of the population believed the community had derived no benefit from them.

How, asks Boyce, has Tasmania benefited from Federal Group’s monopoly? “Because no other jurisdiction used the Tasmanian model, it is hard to predict what the pokies licence would have fetched on the open market,” he writes. “Only in Tasmania was the licence-holder free from competition and almost all capital costs. The Tasmanian licence provided the sort of recession-proof, risk-free, predictable income stream so highly regarded by bankers. It would have been highly sought after.” Boyce cites the Business Review Weekly’s 2006 ‘Rich List’ edition, which, in explaining how the Farrells became the then 18^th-richest family in Australia, concluded that Federal Group had “exploited compliant governments” and that Tasmanian politicians had “failed taxpayers on this issue”.

To those who argue that other states in Australia are just as bad, Boyce points to the unparalleled concentration of profits in Tasmania. Less than 1% of poker-machine losses go to the kind of not-for-profit clubs that are common in most other states, clubs whose argument for poker machine–subsidised community benefits has contributed to their political clout as a lobby against reform. The Tasmanian monopoly is unique.

Successive state governments have argued that Federal Group needs its monopoly in order to support continuing investment in Tasmania. Boyce produces figures to dispute this, arguing that the company has mostly taken over existing businesses that were already profitable, and its reinvestment in new projects has not lived up to expectations. Moreover, the persistent lack of disclosure makes it impossible to account for the many policy reversals made by both major parties and their disregard for the advice of their own senior bureaucrats and select committees. “The public,” Boyce concludes, “is left to wonder what motivated their MPs”. Tasmania, he writes, has developed into a culture of crony capitalism, a small polity vulnerable to a network of close relationships between government and company personnel where conflicts of interest are rationalised on a special-case basis. “Federal Hotels’ fifty years of successful risk management has shown how easy it is for obligations to be assumed, private understandings to be reached, and a sense of mutual entitlement to become embedded without any law being broken.”

Only the Greens and the independent member for the federal Hobart electorate of Denison, Andrew Wilkie, have mounted any consistent opposition. Wilkie’s stance was a significant factor in him taking one of the safest seats in the country off Labor in the 2010 federal election, though his attempt to forge a deal with Prime Minister Julia Gillard to limit machine bets to $1 was ultimately defeated. Even the watered-down measures put in place by Gillard in the National Gambling Reform Act 2012 were removed by Tony Abbott soon after he won the federal election in 2013.

In recent times, however, another player has appeared on the scene: David Walsh, owner of Hobart’s Museum of Old and New Art (MONA), now Tasmania’s single-most successful tourism attraction. A professional gambler, Walsh can hardly be accused of wowserism but he makes no secret of his dislike of poker machines. When he announced in 2015 that he was exploring the possibility of building a pokies-free casino for high rollers (to be known as Monaco) as a means of financing MONA into the future he was confronted by Federal Group’s monopoly. The government directed him to negotiate directly with the Farrells, who proposed that in return for agreeing to allow Walsh into the casino market the government grant them a further extension on their poker-machine licence. A working-class boy who remains based in the socially disadvantaged Hobart suburb he grew up in, Walsh declined on the basis that “pokies are a problem”. “If needs be, I’ll throw away Monaco, to keep my integrity.” Walsh subsequently reported his surprise at the overwhelming public support he had received when his decision became known.

It’s no secret that Australians are among the world’s inveterate gamblers, but gambling industries such as racing are not simply about winning or losing money; they can be a way of relating to the world and of finding your niche. This was tellingly demonstrated last year when the then NSW premier, Mike Baird, was forced into a humiliating reversal of his decision to ban greyhound racing. Perhaps unthinkingly, Baird had taken on a way of life, one that needed stricter regulation rather than wholesale abolition. Dogs were mistreated but dogs were also loved.

Then there’s the national love affair with the horse. In any given year at least one Australian racehorse is celebrated as an emblem of perfection unattainable by the merely human. And, for better or for worse, racing is an entire culture: the bookmakers, the touts, the scams; the flower-bedecked courses, the mercantile owners bursting out of their pinstripes beside their flamboyantly coutured wives; the louche egalitarian surface that conceals a masonic-like network of hierarchies. But the world of poker machines is robotically impersonal. The pokies arise out of no tradition; they connect to no enlivening mythology or colourful community ritual.

While the racing culture has its share of problem gamblers, the high-intensity gaming machines are deliberately designed to create addiction, to psychologically manipulate players into maximising their spending in the shortest possible time by inducing an almost catatonic state of repetitive risk-taking until the human becomes an extension of the machine. What little sense of active participation and sociability that was there in the early days has been progressively eliminated by the new machines into which it is all too easy to slide a $20 note. To quote a pensioner of my acquaintance, once a regular: “In the old days it was fun to crank the handle, queue for your change, have a chat to the girl behind the counter, or the others in the queue. Now they just want you to sit there like a dummy so they can rip you off.” Little wonder that Maurice Blackburn Lawyers and the Alliance for Gambling Reform have launched a case in the Federal Court where they seek a ruling that poker machines are so deliberately exploitative as to be in breach of Australian consumer law.

The role of governments in regard to all forms of gambling is twofold: to accept it as a legitimate recreation of its citizens while protecting them from undue exploitation; and to draw as much tax revenue from the industry as is ethically feasible so that it can be ploughed back into cash-strapped community services. Losing Streak makes it all too clear that successive Tasmanian governments have failed on both counts, that other states could do more to protect problem gamblers and that federal leadership is overdue. Meanwhile, in response to so-called realists who argue that the pokies lobby is too entrenched to be taken on, Boyce cites the case of Western Australia, where bipartisan support for a responsible regulatory package has confined gaming machines to the casino at Burswood in Perth and banned high-intensity machines altogether. To quote former WA premier Geoff Gallop on the subject, “Nothing is inevitable – politics do matter.”

How much they matter in Tasmania remains to be seen over the coming months when Will Hodgman’s Liberal government conducts an overdue inquiry into Federal Group’s monopoly. A joint select committee began its hearings on 7 February and the state treasurer, Peter Gutwein, is on record as saying he favours putting the gaming-machine licence to the market. Sceptics point out that we’ve heard this before and state governments have a record of caving in to Federal Group, but that was before the phenomenon of David Walsh materialised. It may be that Walsh’s intervention will finally bring about change and one gambler will finesse another. But after reading Boyce’s magisterial account you wouldn’t bet on it.