Losing Streak: How Tasmania was Gamed by the Gambling Industry

Published by Redback,

an imprint of Schwartz Publishing Pty Ltd

Level 1, 221 Drummond Street

Carlton VIC 3053, Australia

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Copyright © James Boyce 2017

James Boyce asserts his right to be known as the author of this work.

ALL RIGHTS RESERVED.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means electronic, mechanical, photocopying, recording or otherwise without the prior consent of the publishers.

National Library of Australia Cataloguing-in-Publication entry:

Boyce, James, author.

Losing streak: how Tasmania was gamed by the gambling industry /

James Boyce.

9781863959100 (paperback)

9781925435528 (ebook)

Slot machines–Licences–Tasmania.

Gambling–Social aspects–Tasmania.

Gambling–Economic aspects–Tasmania.

Gambling–Government policy–Tasmania.

Political corruption–Tasmania.

Democracy–Tasmania.

Cover design by Peter Long

Cover photographs: Shutterstock and Olaf Kowalzik/Alamy

Typesetting by Tristan Main

CONTENTS

Author’s Note

Foreword

CHAPTER 1

The Fight for the First Casino

CHAPTER 2

Monopoly Lost? The Bethune Government and the Northern Casino

CHAPTER 3

Was the Deputy Premier Bribed?

CHAPTER 4

Monopoly Won

CHAPTER 5

The Pokies Push

CHAPTER 6

The Deal of the Century

CHAPTER 7

Bringing Home the Bacon, 1998–2003

CHAPTER 8

The Deal of the Millennium

CHAPTER 9

Federal Invests, 2004–08

CHAPTER 10

‘Not Fit to Be Premier’

CHAPTER 11

Winner and Losers

CHAPTER 12

Mates in Crisis, 2008–14

CHAPTER 13

The David Walsh Wild Card

CHAPTER 14

Conflicts of Interest

CHAPTER 15

Hope in a Cynical World

Epilogue: Back to the Future

Notes

AUTHOR’S NOTE

Losing Streak relies almost solely on publicly available documents. I have avoided seeking meetings with participants because of the difficulty of verifying claims and the bias that is associated with interviewing some people but not others. The book is based on information that can be checked by anyone, with the guidance of the professional staff of the Tasmanian Archive and Heritage Office and the Tasmanian Parliamentary Library.

The only exception is when I refer to meetings or correspondence that relate to my own role in the history of pokies in Tasmania. Between 1998 and 2000, I was the manager of social action and research at Anglicare Tasmania, where I was responsible for gambling research and advocacy. I did some consultancy work on the poker machine issue for seven years after this. Since finishing all paid work in this field, I have continued to be intermittently involved as a concerned citizen, prone to penning the occasional letter, essay or opinion piece – especially in relation to the 2003 pokies contract.

It should be noted that researching this history was made more difficult by the fact that Tasmania did not have a Hansard until 1979. As a substitute, the Hobart-based daily newspaper the Mercury was contracted to produce a summary of the previous day’s parliamentary proceedings. These are referenced as Mercury Reprints.

Readers should also be aware that the raft of gambling entities owned by the Farrell family as part of their private company, Mulawa Holdings, has been known by different names over the past fifty years. Tasmanians most often call the company Federal Hotels. To refer separately to all the different arms of Mulawa Holdings, and to keep up with every name change, would cause confusion. I therefore usually stay with the term favoured in the community. The company currently calls itself the Federal Group.

Another potential source of misunderstanding is that the two members of the Farrell family who were most involved in running the company had the same name. Unless clarity demands using the cumbersome ‘senior’ and ‘junior’, references to Greg Farrell up to the early 1990s relate to the father and subsequently to his son.

Responsibility for the creation and contents of this book is mine alone. I am, however, grateful to Lindsay Tuffin, the founder and editor of Tasmanian Times, who published my first pieces on the subject, and to four wise and generous readers who commented on an early draft of the book with care and insight. Like all Tasmanians, I also owe a debt to John Lawrence, whose financial analysis has contributed so much to public debate.

The editing of this work was undertaken by Chris Feik and Rebecca Bauert. This brilliant duo from Black Inc. not only turned an over-blown manuscript into a book but provided solidarity along the way. My hope is that Losing Streak will become another example of how their fine publishing house’s commitment to resourcing the national conversation is helping create a more compassionate country.

James Boyce

Hobart, November 2016

FOREWORD

On almost every index, Tasmania is the most disadvantaged state in Australia. The economist Saul Eslake has recently established that Tasmanians are ‘older, sicker, affected more by disability, less likely to have a job, earning less (if employed) and having less by way of real or financial assets than other Australians’. His Tasmania Report found that the island state has ‘greater concentrations of social and economic disadvantage than any other State or Territory’, with gross household incomes about a third less than the national average.¹

Among the poorest of its poor are the more than 8000 people whose gambling is causing ‘adverse consequences’ to them and their families.² A decentralised population of only half a million people means that Tasmanians also enjoy unusually strong community ties; every second person knows someone with a gambling problem, and one in eight has an immediate family member who is directly affected.³

About 85 per cent of all the money lost by ‘problem gamblers’ is through addiction to the world’s most dangerous form of poker machine.⁴ Industry whistleblowers have confirmed that these high-intensity machines are designed to ‘capture’ vulnerable people through ‘special features’ and encourage them to gamble compulsively.⁵ By this measure, the machines have been a great success. Research commissioned by the Tasmanian government found that the majority of people in a pokies lounge at any time are likely to be clinically defined problem gamblers, and that people experiencing negative impacts from their gambling account for about half of poker machine expenditure.⁶ In other words, pokie addicts are not just customers of Tasmania’s gambling industry; they are its core business.

The state’s treasurer, Peter Gutwein, has claimed that the most recent government-commissioned study ‘found that the rate of problem gambling in Tasmania has fallen by over 25 per cent’. He suggested that this evidence should ‘temper emotions flaring in the debate around poker machines’.⁷ But the report he cited specifically warns against using its figures to claim that problem-gambling has decreased. What the researchers concluded was, ‘The proportion of Tasmanian adults experiencing the most acute problems associated with gambling is unchanged [my emphasis].’⁸

Problem-gambling statistics are not like the impersonal economic indices that all treasurers are inclined to interpret in the best possible light. Every person with a gambling problem is an individual in pain. After decades of research, there is no longer any doubt that poker machine addicts are more likely to commit crime, suffer depression, anxiety and other mental-health problems, encounter relationship difficulties, become homeless, lose contact with loved ones, and endure financial hardship. Their partners, parents and children are locked in lives of desperation because of their addiction. Significant numbers of these constituents have been brave enough to tell their heart-wrenching stories to MPs. There is no evidence that Peter Gutwein is a habitual liar or heartless cynic. Why, then, would he mislead the community about the extent of this suffering?

The most obvious answer is that his line supports the government’s entrenched policy. Tasmania is the only state with a single pokies licence, and the contract is due to expire in 2018. The treasurer – even before a parliamentary inquiry began looking into this issue – has announced that there will be no change to the number and location of poker machines.

What is not so easy to explain is why the government is so resistant to change. Every poker machine in Tasmania is owned by Federal Hotels, a Sydney-based company fully owned by one family (who have become, on the back of this monopoly, one of the richest in the nation). This means that no other state has so few losers and so many potential winners from pursuing reform. Beneficiaries would include the majority of hotels and clubs. Nor is this a state government that is ‘addicted’ to pokies revenue. The terms of the remarkably generous pokies contract with Federal Hotels mean that not even the harshest critic could claim that gambling policy has been driven by a commitment to maximise financial return.⁹

This once-in-a-generation opportunity to remove poker machines from the community also enjoys overwhelming popular support. When the Tasmanian parliament moved to legalise poker machines in hotels in 1993, opposition was so high that even Tattersalls, after conducting polling, became nervous about returning to the state where it was founded. Numerous polls have confirmed that public opinion has not changed since.¹⁰

Peter Gutwein’s position on poker machines is not in the interests of the Liberal Party, its small business heartland or the Treasury. The policy defies political and economic logic, not to speak of its callous indifference to harm.

To understand the treasurer’s rhetoric, it is necessary to recognise that for nearly fifty years almost every minister in charge of gambling policy, regardless of political allegiance, has misrepresented data to defend the industry. The latest propaganda is less an expression of an individual politician’s views than of the ingrained assumptions of a political class. Their trenchant support of the status quo is not due to self-interest, but to a conflict of interest that permeates the political establishment.¹¹

Only Tasmanian history can explain Peter Gutwein’s spin and the determination of both major political parties to block substantial poker machine reform. This history did not begin with the arrival of pokies in the 1990s, but with a gambling licence issued in the 1960s. It began with the machinations behind the development of Australia’s first casino.

CHAPTER 1

THE FIGHT FOR THE FIRST CASINO

Federal Hotels makes the unlikely claim to be the ‘second-oldest’ hotel group in the world.¹ It traces its origins to 1888 and the opening of the Federal Coffee Palace Company, which coincided with the famous Centennial Exhibition in ‘Marvellous Melbourne’. It was not until 1947 that the company purchased what became the Wrest Point Riviera Hotel, a new development on the banks of the River Derwent in the leafy southern Hobart suburb of Sandy Bay.

Its long-time former managing director John Haddad gave the company’s version of how this suburban hotel metamorphosed into Australia’s first casino:

I think the vision of Federal at that time was extraordinary, there were no casinos in Australia and the only information we had about casinos was always Las Vegas. The Chairman decided we should try for a casino and suggested that I should go overseas to carefully study the operations in various countries. I went overseas. I had to become an expert in six weeks, although in truth it is impossible to fully understand the complex casino operation in that period.

On his return from his fact-finding mission in 1967, Haddad recalls that he met ‘the then Tasmanian Premier, Mr Eric Reece, the Deputy Premier, the late Roy Fagan, and the Attorney-General, the late Mervyn Everett. That was the time I had to show that they believed in me and my company. I left that meeting feeling very comfortable. They said they would run with us, but that we had to prepare the way, convince everybody it would work and take all the risks.’ The ‘driving force’ behind the proposal, he readily acknowledged, was the company’s hands-on chairman, Greg Farrell.²

It is not surprising that Haddad’s account emphasises entrepreneurial vision and drive. What he ignores is how the company achieved the political support to obtain such a controversial licence in such a socially conservative state. How likely is it that the company alone drove the vision for a casino?³

It is not surprising that Federal Hotels seems to have had a political partner before Haddad embarked on his study tour.⁴ This was not Premier Eric Reece but Merv Everett, the Labor member for Denison, the electorate which included Wrest Point.

Everett was an able and intelligent lawyer elected to parliament in 1964. He had a big vision for Tasmania, and made no secret of his desire for an economic development portfolio to transform the Tasmanian economy. Reece sought to control his high-profile MP by making Everett the minister for health immediately after the election, a job that Everett was openly frustrated by. It is not surprising that Haddad’s memory failed him in recalling Everett’s place in the cabinet (he was not made the attorney-general until 1972). Everett sat on the cabinet’s casino committee not as part of his portfolio but because he was the principal and most powerful political proponent of the development.

In 1969 the wily old premier was facing another election. Reece knew that after thirty-five years of continuous Labor rule, the last eleven with him as leader, it would not be an easy one to win. Both the Liberal Opposition and younger members of his party were calling for a more open and accountable style of government. The casino proposal had the potential to capture the mood for change, as well as to maintain the rollout of high-profile development projects that had defined Labor’s rule in the post-war decades.

Unlike most large investment projects, the casino also seemed to be cost-free for the government. The Labor development agenda had come with a high price tag. By 1968, Tasmanian public sector debt had risen in twenty years from $85 million (or $310 per person) to $535 million ($1422 a head). This was the greatest per capita debt in the country – more than twice the national average, in a state with the most limited revenue stream. It was no coincidence that both of the big development projects announced in 1968 – the first woodchip mill and the first casino – did not require further capital investment from the state, and held out the promise of increased tax and royalty receipts (even while the Hydro-Electric Commission accumulated further debt as it proceeded with the planned flooding of Lake Pedder).

Reece’s social views were influenced by his non-conformist background (a religious tradition which was notoriously opposed to gambling). He was well aware that while the casino represented continuity with his popular big-project economic agenda, it also represented contentious social change. The political risks were real and Haddad’s account of the premier wanting the company to test the waters and bear the risk rings true.

While Federal Hotels marketed its project to the public, Everett worked equally hard to win over his Labor colleagues. In the winter and early spring of 1968, a bill was developed, in cooperation with the company, to take to parliament.⁵Although the Liberal Party opposed the casino, and the proposed legislation was backed by cabinet, both major parties dealt with their internal divisions by agreeing to a conscience vote on the Wrest Point Casino Licence and Development Bill.

The principal public relations strategy was to emphasise that this was a hotel development. The focus was never on the casino, but on the way an international hotel would transform tourism in the state. Indeed, so downplayed was the gambling dimension that in public discourse the casino was confined to a single room within a vast new resort. Hobart’s daily newspaper, the Mercury, consistently adopted the company’s preferred terminology, noting that the proposed legislation provided ‘for a world-class gambling room at Wrest Point as part of a $5,500,000 redevelopment program’.⁶

Everett said that Tasmanian tourism could not rely forever on the ‘crumbling façade of Port Arthur’ and believed that it was a mistake to rely on the natural environment, as tourists had ‘beaches, surf, and scenery like Tasmania’s at home’.⁷ One enthusiastic Labor MP claimed that the plans for the new resort were so exciting that tourist operators on the Gold Coast were worried they would ‘lose their golden crown’. The area around Wrest Point, he suggested, would become Australia’s ‘Golden Tourist Mile’.⁸

Despite a vigorous campaign, the Casino Bill faced considerable opposition when it was introduced to parliament on 4 October 1968. A fortnight later, the Mercury reported that the bill to authorise the ‘extensions to Hobart’s Wrest Point Hotel’ was likely to be lost by one or two votes in the House of Assembly. The debate was being watched by the ‘biggest crowd in years’ in the public gallery. One Liberal MP said he had been sent between 800 and 900 letters opposing the casino, as much mail as ‘he had received on other matters in the whole of his parliamentary term’.⁹

Most of the casino’s critics were not, as later mythology would claim, wowsers expressing ludicrous fears. It is true that Kevin Lyons, the Centre Party MP for Braddon, forecasted that ‘a call-girl racket, white slavery and drug peddling could follow the casino’, but his view that the area around Wrest Point could become the new ‘Kings Cross’ was no more fanciful than those who suggested that it was set to be the new ‘Surfers Paradise’.¹⁰

Serious debate focused on the social harm that would result from a casino. Federal Hotels’ claim that the majority of patrons would be high-rolling tourists was questioned on the basis that once the casino was established, gambling targeted at locals would be difficult to control. The Liberal leader, Angus Bethune, believed it was probable that ‘the granting of a licence would be followed by a wholesale liberalisation of gaming laws’ and noted ‘that although Federal Hotels Ltd were opposed to poker machines, inevitably the relaxation would make it easier to introduce these games’.¹¹ Several other MPs made similar points.¹²

Doubts were also raised about the company’s capacity to raise sufficient capital to construct the new development. Critics argued that Federal Hotels was in financial trouble and could not fulfil the promises it was making. At this time, Federal Hotels was still a publicly listed company and its profit slump during 1967 was on the public record.¹³ Those who pointed this out in parliament were attacked, using words that would feature in the company’s PR for decades to come,