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How one family used pokies and politics to extract a fortune from Tasmanians

A new book tells a detailed story of how policy decisions about pokies are actually made. AAP/Mick Tsikas

How one family used pokies and politics to extract a fortune from Tasmanians

A new book tells a detailed story of how policy decisions about pokies are actually made. AAP/Mick Tsikas

James Boyce’s new book Losing Streak charts the story of how Federal Hotels gained an exclusive licence to operate all of Tasmania’s 3,500 poker machines for free. The company’s owners, the Farrell family, amassed a fortune of A$463 million in the process.

The book provides a detailed account of the cosy and conflicted relationships between a gambling corporation and decision-makers that has gifted a public licence worth around $30 million per year to Federal for 30 years. Boyce tells a detailed story of how policy decisions about pokies are actually made.

In Tasmania’s case, a changing cast of actors has colluded to grant extreme riches to a single family, extracted in large part from the state’s most disadvantaged citizens. The book’s publication is beautifully timed, poised to enliven the debate surrounding the current parliamentary inquiry that threatens to end Federal’s monopoly after 2023.

The author is by no means a neutral observer of these events. Boyce has been an advocate for pokie reform in Tasmania for close to two decades. However, he is also an acclaimed historian – and his meticulous referencing to sources in the Tasmanian Archive and Heritage Office and the Tasmanian Parliamentary Library ensures his claims are open to verification.

Casinos and allegations of corruption

Boyce’s primary task is to narrate the history of pokie legalisation in Tasmania, and explain how Federal gained its extraordinary monopoly on their ownership. He begins his account in 1967 with the proposal for Australia’s first casino, at Wrest Point in Hobart.

The process was marked by secret negotiations, overblown claims of public benefit from economic development, and an ultimately broken pledge that the casino would not contain pokies. Today, Wrest Point is little more than a hotel attached to a run-down “pokies barn”. It makes 86% of its gambling revenue from high-intensity pokies.

To observers today, this story will sound familiar.

Most startling, Boyce describes – in a chapter titled “Was the deputy premier bribed?” – the little-known allegations of corruption that surrounded the licensing of a second casino in Launceston. These allegations surrounded the deputy premier, Kevin Lyons, who held the balance of power in a Liberal minority government, abruptly and unexpectedly quitting the Coalition in 1972. His departure brought down a government that was poised to introduce competition into the casino market.

Boyce makes the convincing argument that Lyons appeared to have been bribed by Federal Hotels, a Hobart-based bookmaker, and British Tobacco. Federal’s motive is suggested to be the protection of its casino monopoly.

Boyce documents a payment to Lyons of the equivalent of $250,000 in today’s dollars as an advance for his memoirs – a manuscript that was never written. Lyons was also gifted a “loan” worth $10,500 today from Federal, which also took out a lucrative contract with the business he established upon his retirement from politics.

Lyons, it seems, had planned his departure several months in advance, taking advice from a shadow cabinet member.

Boyce documents a subsequent police investigation that he argues was deeply flawed, and not released at the time to public or parliamentary scrutiny.

Federal ultimately won the Launceston casino licence.

Monopoly licence

A subsequent string of bizarre government decisions – which have been hugely profitable for Federal – have had a much greater negative impact on Tasmanians than the two casinos. Most crucial of these was the 1993 decision to allow pokies into hotels and clubs. While Tasmania was hardly alone in introducing pokies at this time, the nature of the licence was extraordinary.

The model proposed by the government was to allow a single monopoly operator to own all of Tasmania’s pokies. The idea was that various parties would regularly tender for this privilege. This market-based mechanism was designed to stop operators from being able to reap excessive profits.

Federal was vehemently opposed to any competition. It prepared a well-funded campaign against the proposal.

Amid political deadlock, the Groom government suddenly changed its plan. A rapidly negotiated agreement gave Federal an exclusive licence to own every poker machine in Tasmania.

Instead of this licence going to tender it was given to Federal for free – a gift worth around $30 million per year. As a bonus, the tax rate was lowered, and pokies were also allowed in Federal’s two casinos.

The Groom government’s motivations have never been adequately explained. For Boyce:

The only conceivable reason for the dramatic policy shift was to win over Federal Hotels … [whose] power was such that only with the company’s support would the legislation to allow poker machines in pubs and clubs pass through parliament.

In 2002, the licence was extended to 2023 – with no public debate and few concessions to the public interest.

Consequences

Black Inc

Since the introduction of pokies in 1997, Federal has effectively acted as a private taxman in Tasmania. Its monopoly has made the Farrell family fabulously wealthy. Their fortune was gained not by innovation or business acumen, but by gaining control of a lucrative government licence on extraordinarily favourable terms.

With the introduction of poker machines, Federal’s annual profits went from $600,000 in 1993 to $29 million in 2003. Little of the revenue goes to pubs or clubs or finds its way into government coffers.

Even after tax, Boyce calculates, Federal retains 68 cents of every dollar lost on poker machines. Nor have pokies been good for the Tasmania economy at large: employment in the pubs and clubs sector has fallen 14% since the introduction of pokies.

Industry tactics

According to Boyce, Federal would wait for “trigger points” before initiating secret negotiations with the government on key issues like licence renewals. Such trigger points occurred when the government needed something from Federal, and at a time of low political risk, many years out from an election – so the possibility of democratic deliberation could be limited.

All negotiations would occur behind closed doors. The results were presented as fait accompli signed contracts – even when these deals required legislative approval.

But why would so many governments from across the political spectrum and over 40 years be complicit in this? Boyce, in agreement with much of the academic literature, cites the ability of Federal to create conflicts of interest among key stakeholders, from politicians to industry bodies to civil society actors.

Influence is mostly wielded by small political donations and in-kind support to politicians and civil society actors. Key to this is face-to-face, first-name-terms relationships with politicians in which informal obligations can be exchanged and private understandings reached.

An exceptional case?

These tactics are business as usual for the gambling industries. Although Boyce’s book focuses on Tasmania, the case is unexceptional.

  • Federal’s actions to secure a monopoly over a revenue stream is mirrored by pokie proprietors throughout Australia.

  • An array of former politicians deliver the gambling industries the face-to-face access they require to gain and retain favourable licence conditions and delay public health reforms.

  • The Australian gambling industry’s relatively modest political donations – $1.3 million in 2015-16, or just 0.006% of total gambling revenue – appear to go hand-in-hand with successive governments’ creation of favourable business conditions for proprietors.

It is now abundantly clear that the super-profits generated by pokies and other “addiction industries” have the potential to stymie policymaking in the public interest in liberal democracies. The repetition of these outcomes across jurisdictions and over time make it clear this is a systemic problem, and not just a case of a few individuals behaving badly.

Pokie licences have consistently transferred wealth from the worst-off of Australia’s citizens to a small cohort of wealthy individuals. The great value of Boyce’s work is in his meticulous chronicling of the interactions between Tasmanian political and business elites in all their tragic and tawdry detail.