19 September 2015
by James Boyce

David Walsh's MONA casino a political gamble


David Walsh at MONA.

With MONA, David Walsh reinvigorated Tasmania’s economy and culture. A decision to take on the family who owns the state’s poker machines could see him remake it politically as well.

In Tasmania, the power of the Farrell family is more pervasive than that of the infamous Gunns Limited at the height of the woodchipping mania. They were given the first casino licence in Australia, at Wrest Point, and for nearly 20 years have owned every single poker machine in the state. So intertwined is the family with the political establishment that it has been generally assumed they would enjoy this monopoly for life.

In 1993, a Liberal government introduced the peculiarly named Gaming Control Act, which abolished restrictions on the type and location of electronic gaming machines. The five siblings who had inherited their father’s gambling business were given the exclusive right to place poker machines in any pub or club willing to pay for them. The turnover of the family company, Mulawa Holdings, trebled on the back of the pokies licence, with profits soaring from $596,000 in 1993 to $29 million a decade later.

Concerned social welfare groups were told that nothing could change before the pokies contract expired in 2008. In the 2002 state election, the government emphasised that the market was now mature – there was one poker machine for about every 80 Tasmanians of gambling age – and pokies would not spread much further. No mention was made of extending the contract.

However, within weeks of the conclusion of the election, secret negotiations to extend the contract began. The terms of the new contract became public in March 2003. It was extended to 2018, with a further five-year extension clause beyond that. Taxes were marginally increased and a supposed cap, set higher even than the existing level of machines, put in place. But the company continued to retain about 70 per cent of the more than $200 million lost on poker machines in Tasmania each year.

Promises were made to parliament that in return for the business certainty generated by the deal, 180 jobs would be created in a previously announced resort to be built on the east coast. In job-hungry Tasmania, the assurance was gold and it was hammered hard. This was nearly as many jobs as would be promised by the later pulp mill. The legislation was duly passed. The resort was eventually built, five years after the timeline promised in the deed, with fewer than 50 jobs delivered. Nevertheless, the successful boutique hotel now called Saffire has become critical to the family’s public face. It is the only new hotel they have ever constructed.

The deal did receive two days of scrutiny by the Public Accounts Committee. The report of the PAC is comically incomplete even by the standards of Tasmanian governance. The committee concluded that it could make no judgement on the financial quality of the deal because it did not have enough information, but that the legislation should nevertheless be passed. The government had not provided any market modelling on the value of the licence, or even done a simple interstate taxation comparison. Such an analysis, it was explained, would have been like comparing “apples” with “oranges”.

Hansard records that the committee did note a report that had appeared in Hobart’s The Mercury during its brief hearings. Two gaming industry analysts, one from ABN AMRO and the other from Citigroup, valued the pokies licence for the state’s hotels at between $130 million and $160 million. If the casino pokies had also been included, these figures would have doubled. The committee response is recorded as “laughter”. On leaving parliament, committee chairman Tony Fletcher became a professional lobbyist for Gunns, with the responsibility to ensure that the legislative council did not delay the fast-tracking of the pulp mill through unwanted scrutiny.

The PAC report was useless but its question to the man known to the MPs simply as “Greg” proved to be revealing. Greg Farrell is managing director of the Mulawa Holdings’ company Federal Group, which operates Tasmania’s two casinos. Farrell observed that the chance his family would not have their pokies licence automatically renewed was “extraordinarily remote”.

This observation was undoubtedly correct but it is not so clear why this was so. Tasmania has not been characterised by the old-fashioned brown-paper-bag-style corruption familiar in New South Wales. There is no suggestion that Greg Farrell breaks the law. While the Greens emphasise the significant donations that the family makes to both major parties, this does not fully explain the political establishment’s genuine sense of gratitude. Somewhere in this is a state truism: Tasmanian history has been defined by wealthy people treating public licences as their private entitlement.

Walsh's casino proposal
During the past 10 years, the Farrells have taken an average of 75 per cent of after-tax profits out of Mulawa Holdings as dividends rather than reinvesting earnings. In 2013 the dividend was 100 per cent of profits. The debt that Tasmanian politicians think they owe to the Farrells is not built on the family’s investments. It is more personal than that. It is about human relationships forged in a small and traditionally subservient community with an impoverished media, whose civil society has been consumed with trying to save the island’s extraordinary environment from other similarly exploitative deals.

So it is a sign of the change occurring in Tasmania that the public subsidy flowing to what was by 2014 the 30th richest family in Australia is now reasonably well known. The treasury secretary was so concerned for his reputation that he made it known that he had recommended an open tender for the state’s gambling licence. In 2008, the then opposition leader, Will Hodgman, even pointed out the company had not fulfilled its promises to parliament. In response, Greg Farrell took out full-page advertisements in Tasmania’s three daily newspapers and announced that the Liberal Party was not fit to govern the state. Hodgman has not criticised Mulawa Holdings’ deal since.

The Tamar Valley pulp mill debacle also ensured wide recognition of the high costs of the old ways of doing business. And the genuinely entrepreneurial investors driving Tasmania’s burgeoning tourism and fine food industries were not so easily persuaded of the virtues of special treatment for favoured individuals and companies.

Into this environment stepped David Walsh, gambler and founder of the Museum of Old and New Art, who expressed a desire to build a boutique, pokies-free casino aimed at overseas high rollers, to be called “Monaco”, to provide a sustainable source of long-term funding for MONA. What followed destroyed hope of change in how business in the state is done.

Despite the fact that MONA has driven the rapid growth in Tasmania’s tourism industry, and has never received nor sought government funding, no one in government would sit down with Walsh to work his proposal through. Instead the treasurer, Peter Gutwein, advised Walsh to negotiate with Farrell as the monopoly casino licence holder.

It seems that Farrell saw an opportunity in Walsh’s request, to use the good name and wide community support for MONA to secure for Federal Group another pokies licence extension with the minimum of public debate. Federal would request an extension in return for Walsh being permitted to enter the casino market.

By last week the negotiations had been concluded. The pokies licence was to be extended and the media strategy was in place. The treasurer had already labelled its critics “anti-MONA”. Walsh’s gallery had been co-opted into the old political establishment. From being a dynamic force at the forefront of a cultural and economic renaissance, Walsh was to be a partner in a deal that Farrell’s spokesperson labelled a “win-win”.

Game changer
But on Monday evening Walsh made an extraordinary announcement. He withdrew from the arrangement precisely because it was being used to extend the pokies licence, and la
unched an eloquent tirade against the harm done by the pokies and a “stagnant status quo”.
Walsh made public copies of correspondence and details of meetings on his website. He reached out directly to his support base, the Tasmanian community. Walsh contended that, “it’s up to us who think that pokies are a problem (apparently 80 per cent of us) to give a clear indication of the direction we want”. He continued: “Since I’m the idiot that inadvertently started this process, I should lead it now, even if I’m the loss leader… If needs be, I’ll throw away Monaco, to keep my integrity.”

The Farrells have tried to pretend that nothing has changed. They have stated that without a pokies contract extension, the family will not be able to invest about $100 million in an overdue refurbishment of their two casinos and in building a new resort at Port Arthur. But this investment pales into insignificance compared with what Walsh has put on the table – a 160-room hotel, a function centre, a thousand-seat theatre and gallery expansion, worth more than $200 million. All of this will need to be scaled back without the 12-table high-roller casino.

Walsh has remained polite with the government but he has made it clear to the Farrells that he will consider making his own bid to operate poker machines, one designed to reduce community harm, if they continue to put their own interests first. The treasurer has announced that the current process has now come to an end and that the government needs time to work out how best to proceed. The most obvious solution seems to be the one that has never before been tried: a proper and transparent public policy process. More likely, the Farrells will get their contract extension and the government will separately licence MONA.

But Walsh’s public rebuke could prove to be one of the most influential political testaments in Tasmanian history. Everyone recognises MONA’s contribution to culture and jobs. But on Monday evening Walsh gave what is his most surprising gift yet to the Tasmanian people – real hope that the corridors of power and vested interest might be broken open.

“So I have arrived at a place that looks like the place that I departed from,” Walsh wrote this week. “On the other hand, although I hold no malice for them, I do hope that the Federal Group is further from their desired destination than ever.”