Wager war on Farrell family’s Tasmanian poker machine reign

One family has had a monopoly on gambling in Tasmania for 50 years. That’s about to change.

Wrest Point Casino in Hobart’s Sandy Bay. Picture: Mathew Farrell

Tasmania is set to reshuffle the deck on its gambling regime, but the question is: Are the cards already marked?

For decades, the island state’s gambling laws have favoured one family. The Farrells, through their family company Federal Group, have had a monopoly on gaming in the state for 50 years.

Remarkably, Federal owns all 3485 poker machines in the state — not only those in its own two casinos and 12 pubs but also those in another 85 pubs and clubs.

Favoured by state governments of both stripes, this exclusivity deal has been condemned as anti-competitive; as giving one family company “a licence to print money”, with pubs and clubs forced to rent the machines from the Federal middleman.

It has seen the Farrells become one of Australia’s richest families, partly at the expense of some of Tasmania’s poorest and most vulnerable; those with gambling addictions in battler suburbs where pokies losses — about $170m a year, statewide — are highest.

The Farrells are often described as the owners of Tasmania, yet the family spends a lot of their time and money in and around Sydney.

Mulawa Holdings, the family company, is registered in Chatswood on Sydney’s north shore, not far from their homes in the suburbs of Wahroonga and Dural and a lucrative Arabian horse stud in Berowra, about 40km north of the central business district.

Greg Farrell Sr came to Tasmania in 1968 as chairman of the Federal Group, which soon would own the state’s first casino and have a controlling stake in the second. In 1993, Federal Hotels was granted the monopoly licence for Tasmania’s poker machines. After Farrell died his five children took over the family company, with Greg Jr in charge today.

Federal Group managing director Greg Farrell, left, wife Julie and sister Jane Farrell, a director of the family company. Picture: www.mulawaarabians.com.au

Monopoly over

However, the deal underpinning Tasmania’s one-horse race expires in 2023 and the family’s much-derided monopoly is slated to end.

Debate over what should happen next has already influenced the outcome of a state election, and more political careers may be on the line when the Liberal government’s full hand is revealed early next year.

The Labor opposition, under leader Rebecca White, took a bold policy to last year’s state election to remove pokies from pubs and clubs post-2023.

Labor’s subsequent election loss was widely blamed on the unprecedented barrage of attack ads, funded by gaming interests, that dominated the campaign.

The Liberal policy, by contrast, largely slipped under the radar but is now set to form the basis of legislation early in the new year.

It will replace Federal’s monopoly with a system handing pokie licences directly to venues.

Federal will retain the licence to operate the state’s two existing casinos in Hobart and Launceston, but the government will issue two new licences for high-roller casinos.

Tasmanian Premier Will Hodgman has promised one of these will go to David Walsh, the famous professional gambler whose fortune funded Hobart’s much-loved Museum of Old and New Art.

MONA founder and owner, David Walsh. Picture: Mathew Farrell

However, it’s the detail of these new house rules that will determine who the real winners and losers are, and the extent to which taxpayers are cut in to the deal. Some believe the fix is already in.

The Liberal policy suggests venues wanting to continue to operate the machines will not have to bid or tender for the licences.

Instead, it appears these lic­ences will essentially be handed to those venues, in exchange for an annual fee — of between $1000 and $2500 a machine — and a hefty tax on the revenue generated via punter losses.

Some experts say this amounts to “giving away” licences at the expense of taxpayers, who might reap hundreds of millions of dollars from a competitive tender were one held.

Licence auction urged

Charles Livingstone, a gambling expert at Monash University, says when Victoria broke up its pokies duopoly in 2012, it held an auction for the licences, and Tasmania should do the same.

“Otherwise they are essentially gifting these licences to people who are already in the market,” Livingstone argues. “Why would you do that?

“If you’re going to throw all the cards up in the air and reshuffle the business, why wouldn’t you let people who don’t currently have licences bid for them?

“These are really substantial assets. Even the average machine makes $50,000 a year, which if you have 10 machines means half a million bucks. These are major public goods.

“If you’re going to keep the damn things you might as well get the value for them. You can still charge a small amount every year, plus a tax, and get an upfront impost on them.”

Cash-strapped Tassie, with a failing health system and limited revenue base, could do with the $250m or more he estimates an auction could deliver.

Back in 2016, it seemed the government itself agreed. Hodgman publicly committed the government to what he called a “market-based mechanism, such as a tender” to allocate the pokies licences.

This promise, however, evaporated and was not reflected in the Liberals’ election policy last year.

Tasmanian author and historian James Boyce, whose recent book Losing Streak examines the Federal monopoly, says the public is being short-changed.

“These licences are a licence to print money, effectively, and if you don’t develop a market mechanism then effectively what you have is a public subsidy,” Boyce argues.

So why was the tender dropped?

Author and historian James Boyce outside Wrest Point Casino. Picture: Matthew Newton

Sometime in 2017, Federal — whose chief lobbyist is former Labor premier Paul Lennon — got together with the peak pubs and clubs body, the Tasmanian Hospitality Association, to head off a split over what the new regime should look like.

Boyce argues pubs and clubs are “ripped off” under the existing system, gaining less than 10 per cent of pokies losses, with Federal reaping the lion’s share. The industry suggests pubs and clubs get closer to 30 per cent.

Either way, the post-2023 landscape was likely to turn the tables, potentially leaving Federal out in the cold.

Election ‘bankrolled’

A joint position between Federal and the THA was hammered out in the closing days of a parliamentary inquiry into the sector.

It would give pubs and clubs their direct pokies licences, adding an estimated $1.5m on average to each venue’s capital value.

Federal, in turn, would be compensated for relinquishing ownership of the pokies, via a cut to the state tax on machines in the two casinos, from the current 25.88 per cent tax to 10.9 per cent.

The tax would be a lot higher for pubs and clubs — up from 25.88 per cent to 35 per cent, but these venues still would be better off, receiving about 50 per cent of the overall pokies take.

While less explicit, the policy ultimately adopted by the Liberals bears striking similarities to this joint industry position.

“The Libs abandoned their core principle of reform in favour of the industry proposal, giving up potentially hundreds of millions in revenue, and the industry then bankrolled their election campaign,” Boyce says.

Gambling and hospitality interests donated at least $404,000 to the Liberal Party’s Tasmanian division in 2017-18; half the declared donations.

The Liberal policy, which the government tells The Australian will be closely reflected in the legislation to be introduced in autumn next year, does not specify the tax rates for pokies in casinos.

However, it endorses the Federal position that the rate for its Hobart Wrest Point and Launceston Country Club casinos should be similar to “comparable casino operations interstate”.

Federals argues this benchmark should be the Townsville and Cairns casinos, which pay 10.9 per cent state tax on pokies revenue, rather than the 20 per cent levied on the Gold Coast or up to the 31 per cent in Adelaide.

Boyce sees this as a cheap card trick. “There is absolutely no reason why casino poker machine taxes should be any different to the hotel poker machine taxes,” he argues. “We’ve never had a difference in Tasmania before.

“In fact, if anything, casino poker machine taxes should be higher because the profits are higher in casinos.”

The late Greg Farrell Sr, left, with then prime minister Bob Hawke at Villawood in Sydney in 1986.

Federal defence

Federal sees it differently. “Wrest Point and Country Club are the two most marginally profitable casinos in Australia,” says Daniel Hanna, the group’s corporate and regulatory affairs chief.

“This is because they currently face a triple whammy of high tax rates, a very high regulatory burden, and small local customer bases … The tax rates on EGMs (electric gaming machines) are lower in casinos across the board (in other jurisdictions) for a range of reasons, especially the high levels of investment that casinos make in responsible gambling, compliance and community and tourism infrastructure.”

Hanna says even under the joint-industry model, Federal will suffer an estimated $10m hit to earnings each year, while THA chief executive Steve Old also insists the model is fair.

“Pubs and clubs help play a crucial role in Tasmania’s social fabric, particularly in regional areas, and the new arrangements will help to secure their ongoing viability,” Old says.

“Given this was such a big issue in the election campaign, we expect the government, and the parliament, to deliver a policy which fully reflects the government’s election commitments.

“Claims about the so-called gifting of licences are fallacious propaganda. The government policy outlines a higher licensing and taxation regime which means that instead of an upfront cost, pubs and clubs will pay for their licences over the full period of 20 years.”

The government is keeping its cards close to its chest on exact tax rates and won’t comment directly on the apparent abandonment of a tender, saying only that it is “working through the detail”.

“We are confident of a good outcome for the taxpayer, the community, the industry and the broader economy,” a government spokesman says.

The new regime would ensure “both venues and the government, representing the community, capture a greater share of the returns”.

“This will facilitate greater investment in pubs and clubs, lifting economic activity and employment, and also enable the government to increase harm minimisation and investment in essential services,” the spokesman says.

The government has promised a competitive process to award the other lucrative right up for grabs: the provision of a network service to monitor and collect data on pokies in pubs and clubs.

It is a valuable business currently held by Federal, which — given its experience — is expected to be in the box seat in any tender.

The government has promised to double a levy used to fund harm minimisation but, once again, casinos will pay a lower rate than pubs and clubs. It also trumpets a new cap on pokies in pubs and clubs at 2350. This is 150 machines fewer than the current cap, but 50 more than the current actual number.

Labor has yet to reveal its hand, having dumped its doomed election policy faster than a losing lotto ticket. “Labor is waiting to see the legislation that comes to the parliament (but) … our objective is to minimise the harm caused by poker machines,” a spokeswoman says.

The state’s independent-dominated and increasingly “progressive” upper house is likely to push a multitude of amendments.

This could include lowering the current $5 single bet limit on pokies, a higher tax rate for those machines that generate the highest punter losses, and lowering the spin rate to slow down the speed of losses.

Concessions may even be needed in the lower house to secure the support of independent Madeleine Ogilvie and Speaker Sue Hickey.

Ogilvie tells The Australian she would like to see a voluntary “buyback scheme” to compensate pubs willing to surrender their pokies, while Hickey is on record as backing further harm minimisation.

Big players clash

The plan for two new pokies-free “high-roller” casinos is producing less heat, perhaps due to the high regard with which Tasmanians hold Walsh.

The famous art collector has clashed with the Farrells, describing pokies as “granny-raping machines”, while defending high-roller casinos, whose punters can afford their addictions.

Walsh wants such a top-end casino as a key component of a $400m hotel development planned for MONA. He sees the new complex, in Hobart’s north, as a means of funding the museum’s survival after his death.

Even so, some believe both high-roller licences should go to public tender, including that promised to Walsh, who declined to comment.

“This is one of the blights of Tasmanian gambling policy: the tendency to deals behind closed doors,” argues Livingstone.

“Given the capacity for corruption and things to go wrong — money laundering and everything else — these things need to be as transparent as possible.

“If Walshy’s got a good business plan and he can persuade whoever is reviewing tenders that this is the best way forward, then good on him and he’ll get it. But if he can’t, then whoever is able to … should get it.”

Some cards may be marked, some dice loaded, but the high-stakes game to shape gambling in Tasmania is far from over.