The secret deals that allowed Tasmania’s pokies profits to go to one family for decades
Steve Cannane |ABC Investigations | 11 September 2021
Kelly Johnson* knew she’d reached rock bottom with her poker machine addiction when she didn’t have the money to feed her four children.
“I spent all of my husband’s wages in a day. For a fortnight that left us with no money for food and we had all the kids at home. It’s not something I am proud of.”
The Tasmanian estimates she lost over $100,000 on the pokies and says she played the machines as a way of coping with bipolar.
“I am not a gambler of any other sort. There’s something in the lights and the music of the machines that works with the wiring of the brain,” she says.
“It’s almost like they put you into a trance. It’s really hard to describe the impact it has on your mind. When things are really tough for me, that’s the only thing that shuts my mind down and gets me away from my head. They can put a spell on you.”
Rob Kreshl Sr knows exactly what Johnson’s talking about. He lost his home, his wife and his kids through his addiction. Now a volunteer for St Vincent de Paul, where he helps feed the homeless, Kreshl says he used poker machines to block out the pain from a debilitating knee injury.
“It numbs your conscience. Once I was in front of a machine nothing else mattered. Whatever is troubling you disappears.”
As the Tasmanian parliament prepares to debate a controversial new gaming machine bill, both Johnson and Kreshl want politicians to understand the damage the pokies cause to individuals, families and communities.
“They are in absolute denial about the harm they do. They justify that poker machines provide jobs and I say, hang on a second, the Colombian drug lords provide jobs too,” Kreshl says.
“The pubs are happy for problem gamblers to come into the pokie rooms because that’s how they make their coin,” Johnson adds.
The Gutwein government is hoping to push its Future Gaming Market legislation through Tasmania’s parliament in the coming months. It will be the first time, since Labor negotiated a secret deal in 2003 with one of Tasmania’s most powerful businessmen, that the monopoly licence to run poker machines in the state will be broken up and distributed to venue owners.
But a licence to run poker machines and the millions that flow from them is not all that’s at stake. Advocates for consumer protection measures, such as maximum $1 bets or slowing down the spin rates, argue that this is Tasmania’s last big chance to reduce harm from the machines.
Despite a range of submissions from welfare groups such as Anglicare and the Tasmanian Council of Social Service, from independent MPs like Andrew Wilkie and Meg Webb, and from the Glenorchy City Council, the draft legislation does not contain any measures that make the machines less addictive or harmful.
Kreshl has a desperate message for his state’s politicians before they consider the new bill.
“I wish there were no poker machines. But if we have to have them, they should have $1 limits for each bet, no jackpots and big graphic warning stickers on the machines, like we have had with plain packaging for cigarettes.”
But the reality is that people like Kreshl and Johnson who have experienced gambling addiction are rarely listened to when it comes to poker machine policy. In Tasmania, there’s a decades-long history of deals done behind closed doors between business, lobbyists and successive Labor and Liberal governments, and it’s normally the gambling industry that wins big.
And the recent evidence suggests that not much has changed. Last month it was revealed the Tasmanian Premier had cut a secret deal with the state’s casino licensee for a tax cut worth $119 million and then hid those details from the electorate in the lead-up to the state election in May.
The beneficiaries
In 1993, a 34-year-old businessman, who would go on to become one of Tasmania’s most powerful figures, made a stark warning about the social damage that would be caused if gaming machines were introduced into pubs and clubs in Australia’s poorest state.
In a submission to a Legislative Council inquiry, he said, “direct access to gaming machines in pubs and clubs would have a disastrous effect on the social and special culture of Tasmania”.
That man was Greg Farrell, and he signed the submission on behalf of Federal Hotels, later to be renamed the Federal Group. At the time he was trying to protect the monopoly his family’s company had over gaming machines which were then only allowed in their casinos.
Within six months Farrell was able to put those concerns to one side. Federals had by then been given the licence to run all gaming machines in pubs, clubs and casinos in Tasmania for free, without any tendering process. In the end Farrell and his four siblings would make hundreds of millions of dollars out of the licence.
Tasmanian economist John Lawrence has estimated that since 1997, the Federal Group paid around $280 million in dividends to the five Farrell siblings — around 67 per cent of the company’s after-tax profits. The family company had enough cash left over to acquire 12 of the most lucrative pubs in Tasmania and a chain of bottle shops. According to company records, four of the five siblings live in Sydney, including former Tasmanian of the year Greg Farrell, who resides alongside his Arabian horse stud near Berowra Waters.
Federals is the only private company in Australia that has ever been given a monopoly to run poker machines in pubs, clubs and casinos in any one state without a tender.
Pokies: A solution to Tasmania’s cashflow crisis
Like many Australian states, Tasmania entered the 1990s in debt and in desperate need of a new revenue source. The Liberal government led by Ray Groom decided to allow gaming machines into pubs and clubs and reap the taxes that would bring.
In March 1993, then-treasurer Tony Rundle took a proposal to Cabinet that “a new statutory authority be established and appointed as the sole gaming machine operator”. Cabinet endorsed the proposal but within months, the licence was instead given to Federals. Neither Groom nor Rundle would comment when ABC Investigations asked them why the government went back on its original decision.
In return for the licence, Federals agreed to undertake up to $25 million in investment in new developments. Treasury secretary Don Challen later admitted that the agreement was so lacking in clarity that Federals could have “spent nothing and fully complied”.
Tasmanian historian James Boyce, who wrote Losing Streak – How Tasmania was Gamed by the Gambling Industry, says the decision to give Federals the licence raises serious questions.
“The release of the cabinet papers has confirmed that the government’s policy reversal was not based on any policy paper, modelling or advice. The decision has never been investigated by a parliamentary committee or any other body.”
The beneficiaries of this mysterious decision were the five Farrell siblings, Greg, Jane, John, Julia and Deborah, and their family company Mulawa Holdings Pty Ltd, which is the holding company for Federals based in Sydney. When the Farrells first made the BRW Rich List in 2006, the publication noted that its profits had soared after it was given the gaming machine licence, from $596,000 in 1993, to $32.7 million in 2004/5. By 2019, the Australian Financial Review’s Rich List estimated the family’s net worth was $745 million.
Much of the family’s wealth has been generated from some of the poorest parts of Tasmania. Anglicare has calculated that the working class community of Glenorchy, north of Hobart, has the highest level of poker machines losses in the state.
The charity says that over $20 million is lost from the community each year, or around $560 per adult — over twice the state average. Local independent MP Kristie Johnston told ABC Investigations she saw constant reminders of the impact poker machines are having in her community.
“At my local primary school you would see parents drop kids off in the morning and they would walk straight to the pub. They would still be there playing the pokies at 3:00pm. Sometimes their kids would not have even had breakfast or lunch.”
Captain Jeff Milkins, from the Salvation Army in Glenorchy, says poker machines are ruining lives.
“I’ve had guys tell me how the machines left them eating out of bins. A lot of them are abused, or damaged and had a bad start to life. You don’t seem to find as many poker machine venues in the wealthier areas. It’s in the poorer areas where people need hope, and the lure of winning sucks them in.”
The pub with the highest poker machine losses in the state is the Federals-owned Elwick Hotel in Glenorchy. Its poker machine room is open from 8:00am until 4:00am.
Greg Farrell would not be interviewed for this story. In a statement Dr Daniel Hanna from the Federal Group said:
“Federal Group is proud of the way we have managed Tasmania’s gaming industry as the exclusive licence holder for almost 50 years, and we take our commitment to responsibly manage the industry extremely seriously.
“We have worked proactively with regulators to contribute to the establishment of some of the most stringent harm-minimisation measures in Australia; which have consistently resulted in Tasmania recording among the country’s lowest levels of problem gambling.”
Another secret deal
Ten years after his first big pokies win, Greg Farrell hit the jackpot again, courtesy of Jim Bacon’s government. The gaming machine licence was not on the agenda during the 2002 election campaign, but after Labor won, it began secret negotiations with Federals six years before the licence was due to expire.
Bacon and his deputy Paul Lennon had been regular visitors to Wrest Point casino over the years. The premier had met his second wife Honey when she worked as a croupier there, Lennon was the Minister for Gaming for four years and later became a lobbyist for Federals after leaving politics. When Federals told the government their bankers wanted more long-term certainty on the licence, Labor was happy to oblige.
A deed was signed without telling the public or parliament. Bacon didn’t even consult with his Cabinet over the new licence. A former Labor minister has told ABC Investigations the premier brought the signed deed to cabinet without notice, breaching the convention that all cabinet submissions should be lodged with the Cabinet Office at least 10 working days before the date on which they were to be considered.
In his first term in parliament, Peter Gutwein, a Liberal MP who would later become premier, expressed his outrage about the deal. “It was a deed signed in secret, sat on for 30 days, and then released to the parliament as a done deal … I just think it is absolutely scandalous,” he said at the time.
As part of the deal, there was a cap placed on machines and Federals agreed to invest at least $25 million in a resort it had already announced it would build near Coles Bay. The poker machine licence was meant to be for 15 years, but in reality it was for even longer. A rolling clause in the Act allowed for an extension to 20 years. The licence would be in the hands of Federals until 2023.
Analysts estimated the 15-year licence could have been worth between $130-300 million if it was put out to tender. It was money that could have gone into schools and hospitals in Australia’s poorest state.
Blow up the Pokies Deal
David Walsh is a professional gambler who turned his winnings into one of the world’s most original public art galleries, the Museum of Old and New Art (MONA) in Glenorchy. One of the pieces of art he had commissioned is called the Cloaca Professional — a machine that replicates the human digestive system, complete with a turd delivered like clockwork at 4:30pm each day.
When Walsh approached the Tasmanian government about getting a licence to open his own pokie-free high-roller casino called Monaco, he noticed a stink not dissimilar to one of the daily deposits from the artwork. And just like with his infamous “poo machine” he decided to put it on public display.
Walsh hoped that a boutique casino, which had the proposed motto “no pokies, and no porkies”, could help subsidise the growth of MONA. The then-treasurer Peter Gutwein suggested he meet with Greg Farrell and ask if the Federals boss would give up his exclusive deal to run casinos in Tasmania under certain conditions. Farrell and Walsh ended up speaking over the phone.
Federals was willing to compromise and potentially allow Walsh to have his casino licence if the government extended its exclusive licence over poker machines. Once again deals on the future of gaming in Tasmania were being done in secret.
By September 2015, the government was close to announcing a new deal, but Walsh’s conscience got the better of him. The professional gambler says he despises the pokies, and considers them “antisocial, unsightly and insidious”. He decided he didn’t want to be part of any deal that extended the Federals monopoly, and exposed the secret negotiations via his blog.
Walsh wrote: “I won’t build the casino if its licence is conditional on the Federal Group being able to operate poker machines without any new restrictions, and with a monopoly extension.”
Tasmanians now had an insight into how secret deals over gaming machine policy were done in their state. And according to the feedback Walsh received, the people didn’t like it. He told ABC’s 7.30: “I’ve not had any negative feedback, everyone’s saying, ‘Go you good thing, this is great, the pokies have been bringing down Tassie for too long, it’s nice to see someone taking a stance’, buying me a beer, offering me lifts.”
The Liberal government, led by premier Will Hodgman, was under pressure to end the secret deals and have a licensing process that was open and transparent. In March 2016, then-treasurer Peter Gutwein told parliament the government wanted to end the process where the licence was given away for free.
“In hotels and clubs, our policy position is that the rights to operate these machines post-2023 will be allocated and priced by a market-based mechanism, such as a tender,” he said.
He told parliament there would be public consultation over poker machine policy and that the days of secret deals were over.
“The processes that led to the development of the earlier Deeds caused concern in the community and cast a shadow over the appropriateness of structural arrangements. The government does not want a repeat of this outcome,” he said.
In the spirit of openness and consultation the premier set up a parliamentary committee that would scrutinise the best way ahead for poker machine policy in Tasmania.
It looked like the days of Federals cutting lucrative deals behind closed doors might be over.
The Federals and THA deal
For six months in 2017, the Joint Select Committee on Future Gaming Markets held public hearings. The committee heard from charities, churches, hoteliers, think tanks, economists, gambling addicts and industry groups. All up it received 149 submissions.
As the committee gathered for its final day of hearings at Parliament House in Hobart, a surprise submission landed in the committee’s inbox.
The Federal Group had teamed up with industry lobbyists the Tasmanian Hospitality Association (THA) to put in a last-minute proposal for a new licence deal.
Independent MP and chair of the committee Mike Gaffney says the timing of the submission made it difficult for the committee to properly scrutinise the proposal.
“Because the committee was under a deadline to have its report in within the month there was no way we had time to analyse and utilise the information that was presented to us,” he says.
The Federal Group knew its days of being granted a monopoly were over, but it was pushing back against the Hodgman government’s plan for a tender process. It knew that if the licence was put out to market for the first time, it could lose in one of two ways. If it won the bid, the licence could cost hundreds of millions of dollars. If it lost, the rivers of gold would start flowing somewhere else.
The joint submission proposed that the monopoly be ended and that licences be handed directly to the pubs and clubs that have poker machines. It also proposed that the gaming tax on poker machines at casinos be cut from 25 per cent to 10 per cent.
Federals would ultimately be worse off from losing the monopoly, but under its submission it could claw a proportion of the money back in two ways. It would get a massive tax break on its two casinos and it would benefit from securing the licences on 12 of the biggest pokie pubs it owned in Tasmania, including a capital gain on the value of those hotels that was worth tens of millions of dollars. Economist John Lawrence has estimated that Federals’ pubs will get 26 per cent of total venue profits across the state under the new system.
In December that year, Labor dropped a bombshell. Its leader Rebecca White announced her party would remove all poker machines from pubs and clubs if they won the next election. A driving force behind the policy was Labor frontbencher Scott Bacon, whose father had pushed through the last licence deal in 2003.
The following month the Hodgman government had its own shock in store. It announced it would adopt a poker machine policy that was virtually a carbon copy of the Federals/THA proposal, with a small fee per machine added, well below market price.
The government had abandoned the proposal for a market tender for the licence, a policy that the premier and the treasurer had been arguing in favour of for nearly two years.
It was an extraordinary backflip. Perhaps the premier had learned the harsh lessons from a decade earlier, that it can be perilous for a Tasmanian politician to stand up to Federals.
In 2008, when Hodgman was Opposition leader, he questioned then-premier Paul Lennon about whether Federals had broken the pokies licence deed by downgrading a planned tourism investment near Coles Bay. Farrell took out full page advertisements in the three Tasmanian dailies accusing Hodgman of “blatant misrepresentations” that had “damaged the good name of the Federal Group” and accused the Liberals of embarking “on this course of action without seeking a briefing from me”.
A crucial election
After the premier announced his new policy, and in the lead-up to the 2018 election, money flooded into the Tasmanian Liberal party coffers from the gambling industry, including from Federals and the THA. The pokies industry across the country was worried if machines were removed from pubs and clubs in Tasmania it could happen elsewhere.
Losing Streak author James Boyce has estimated that thanks to Tasmania’s weak electoral laws less than 20 per cent of the $4 million-plus donated to the Liberal Party in that election year was disclosed. He says 80 per cent of the donations that were traceable came from the gambling industry.
On March 3, 2018 Will Hodgman became only the second Liberal leader to win back-to-back majority government in Tasmania. Within a year Labor dropped its policy of removing poker machines from pubs and clubs. The Hodgman government remained committed to its new licensing policy but it was in no rush to introduce the bill to parliament.
Peter Hoult, the former chair of the Tasmanian Liquor and Gaming Commission, described its new policy as an “industry-written proposal … less of a policy than a skeleton of a plan, looking like it was drafted on the back of a beer coaster.”
In January 2020, ABC Investigations put in a right to information request to the Tasmanian Department of Treasury for any modelling done into the economic or social impact of the proposed poker machine licence changes.
Eventually 34 documents were identified, but the Department of Treasury refused to release any of the documents. Twenty months after the first request went in, ABC Investigations is still waiting for the Office of the Ombudsman to finalise its appeal.
Meanwhile the secret deals with the poker machine industry continue.
After Peter Gutwein replaced Will Hodgman as Premier he called an early election for May 2021. The Premier went to the campaign refusing to disclose whether he had struck a deal with Federals for the gaming tax rate it wanted on poker machines in the casino.
Two months after winning the election the Premier announced that tax rates on poker machines in Federals’ casinos would drop from 25.88 per cent to 10.91 per cent (plus an extra 3 per cent community support levy.)
Documents released to Independent MP Meg Webb through right to information laws show that Federals knew six months before the election what tax rates the government intended to introduce when the bill went before parliament — the Premier had written to Federals in December 2020 saying it planned to set the rate at 10.91 per cent.
The anti-pokies MP believes the Premier should have disclosed this before the election.
“By his omission, he misled, deceived and manipulated both the media and Tasmanian voters,” she said.
When asked about it at a press conference last month, Gutwein said it was legitimate to withhold the information from the electorate because it hadn’t been passed by cabinet.
“I told them (Federals) what my intention was, if you read the letter. I explained what my intention was but ultimately, cabinet had to make its final decision.”
According to economic analysis commissioned by Webb, the tax cut to casinos that the premier agreed to would save the Federal group $119 million over the period of the new licence compared with previous casino tax rates.
But even with the tax cut, Federals would still take a hit after losing its monopoly licence. The Tasmanian government has estimated that under the proposed new system, Federals’ annual revenue will drop from $109 million a year to $84 million a year.
In a statement Dr Hanna from the Federal Group said:
“It is indisputable that Federal Group will be impacted by the proposed draft legislation, which would significantly reshape Tasmania’s gaming industry.
“If the proposed arrangements were applied to gaming activity that took place in the 2018-19 financial year, Federal Group would have been $20 million worse off in that year. This is after taking into consideration any of the increases Federal Group pubs would receive in the proposed model.”
“Over the term of a new licence, this would transfer $400 million to the Tasmanian Government and pubs and clubs; at the sole expense of Federal Group.”
Labor, meanwhile, had done its own secret deal with the industry, signing a memorandum of understanding with the THA, the lobby group that campaigned against them so vigorously at the 2018 election.
Part of the deal, which was made public only when it was leaked to the media, was that Labor declared it supported the rights of pubs and clubs to operate poker machines.
What Labor does next will decide whether the new legislation will be amended to include harm-minimisation measures. The Liberals have the numbers to pass it through the lower house without any new forms of consumer protection. But Labor, with the support of independents in the upper house, could change the legislation or refer it to committee.
Rob Kreshl says things have to change to reduce the harm from poker machines. He says he is disgusted that the Farrell family has been able to profit from some of the poorest people in Australia’s poorest state over the past three decades. He believes the new licence deal will see the same people lose out.
“It’s obscene. It’s a few individuals reaping the dollars off the people who can’t afford it. Those machines target people. They have been strategically designed to give out the false sense you are winning when you are actually losing.”
Kelly Johnson agrees: “They take money from the poorest of the poor, from the loneliest of the lonely, from the sickest of the sick.That’s how they feather their nest.”
*Name has been changed
