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First stone

David Walsh

Posted on Monday 14 September 2015

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Constant access to gaming facilitates problem gambling and, it seems to me, is an invitation to addiction. The US and Chinese model, perhaps inadvertently, places casinos out of harm's way. Vacationers periodically visit Vegas or Macau for a few days, and drink and shag and gamble their allotted entertainment budget away, and then they go home and save up for next year. I think people should have to travel to gamble.
—Me, A Bone of Fact
A Tasmanian politician, Andrew Wilkie, has launched a bit of a crusade against poker machines. I think he’s right. Poker machines allow the punter to control the frequency of the gamble, push a button, get stimulation. Experiments on animal models show that direct stimulation to areas of the brain associated with the anticipation of pleasure cause animals to ignore sex and food in favour of more stimulation. It’s contentious, but predominantly accepted, that similar processing occurs in the human brain. I don’t think gambling is inherently immoral but I agree with Mr Wilkie that pokies are a social evil.
—Me, A Bone of Fact

Our casino would be poker machine-free. As I mentioned before, I think they are a moral outrage. Of course, there are those that think all gambling is a moral outrage. Anyway, it would be table games only, high minimums and maximums, and it would be targeted at rich international patrons of the arts. Our casino would need a name, of course, and a Mona name must be an acronym. The leading candidate at the moment is Monaco, a notorious casino destination, and an only slightly contrived distillation of Mona CasinO.
—Me, A Bone of Fact

Walsh has said he wants to build a pokies-free casino for high rollers. While that is the intention, it must be acknowledged visions change, finances change and, importantly in the gambling industry, technology changes.
When a referendum was held here in 1968 about whether to permit Wrest Point Casino, it was described as a pokies-free, high-roller, tourist-attracting proposal. Today, along with the Country Club Casino in Launceston, it has become a poker machine barn with 1185 machines spread between the two venues.
—Meg Webb (Anglicare), The Mercury

Every hand's a winner, and every hand's a loser.
—Kenny Rogers, The Gambler

Recently I proposed establishing a casino at Mona to shore up Mona's financial position, despite an existing monopoly held by the operator of Tasmania's two casinos, the Federal Group. In the last week or so opinions have been voiced on my proposal in parliament, in the press, and on air. Some commentators pointed out that I may be inadvertently complicit in an extension of the existing monopoly, a scenario that is particularly unappealing in relation to poker machines. This blog expresses my position with respect to these matters, which seem to be of sufficient import to warrant public deliberation.

In the spirit of my proposed new venture let me lay my cards on the table:

1. Yes, I want to build a casino at Mona.

2. No, Mona will not shut down if I can't, or choose not to.

3. 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.

Expanding on 1. I want to build a casino with the following limitations: no Tasmanian gamblers; 12 tables and no poker machines; high minimums and maximums; and did I say no pokies? All revenue would go to Mona and related projects; if Mona becomes profitable then casino revenue would fuel expansion, acquisitions, social programs and anything else we can think of. All of this is contained within my proposal and would be enshrined within legislation. I also plan to build a 160-room hotel, a function centre, and a thousand-seat theatre based on the largesse of Monaco. Each of these will be smaller if Monaco doesn't eventuate. Beyond that, we are planning a gallery expansion. And before that, we are going to build (assuming planning permission is forthcoming) a wing to house a number of James Turrell works and a new restaurant/function room/bar facility. All up, we are looking to spend more than $200 million.

All that looked to be a winning hand. The plan: take a risk to get some cash from outside of Tasmania. Spend it on Mona. Grow Mona and tourism. Exploit the Mona effect. And although locals wouldn't have access to the casino facility while gambling was taking place, in the daytime we would have another gallery to tour. Along the lines of Kenny's ‘daytime friends and nighttime lovers’, the two groups should only suspect each other's existence. And, of course, Tasmanians would have access to other new facilities generated on the back of Monaco.

But, as is becoming clear, it may not be a winning hand at all. I'll get back to that in a moment.

I know full well that Wrest Point started out with no pokies and is now a pokie palace. I despise poker machines (see the quote from my book, above) and deplore this transformation. That's why I suggested the motto for Monaco could be: No pokies, and no porkies. If my casino is permitted and then proves to be unsuccessful, it will be utilised as a Mona facility. We are confident our design will be worthwhile whatever happens within it (just quietly, our preliminary plans are shit hot). And, anyway, I am a gambler – I'm unafraid of loss, and I am empowered by risk.

When I applied for a casino licence I was aware that the government would have to negotiate with Federal Hotels to vary their monopoly (although it is far from certain that that monopoly is legally sound). I specified that I would not support an increase in the number of poker machines in the community. I did not anticipate, unfortunately, that Federal might link their acquiescence to a Mona Casino licence to an extension of their monopoly. The government has not confirmed this is so, and it may not be, but since someone (Andrew Wilkie?) suggested it, the absence of denial looks a lot like confirmation by default.

So Federal may have played their cards very well indeed. And since I could not support an extension of their poker machine monopoly, it looks like I have played my hand like a novice. I have lead into their strong suit.

That Greg Farrell, the boss of Federal, would want an extension to their monopoly is obvious, in hindsight. This is the status quo; they are accustomed to this enormously beneficial position. I've met Greg a few times, our interactions were convivial, and he is very charming. Federal even supports ‘24 Carrot’, Mona's school garden project, by paying for the garden of one of our schools (Springfield Gardens Primary). He is, however, unlikely to see any harm that pokies might be effecting – he has skin in the game.

When I first opened Mona I wasn't concerned about it surviving in perpetuity. I thought I'd see how it went, and if people bothered to come it might be worth keeping open until I lost interest or capacity. I knew that museums take on new directions when the founder dies, and I saw little reason to plan for my vision being abandoned (this period after my demise, in deference to the Christian calendar, would be known as Mona Anno Domini, or MAD). Then a strange thing happened. People started calling it 'our museum', expressing community ownership and pride. A lady, who told me her name was Kirsten, while thanking me for Mona and the Mofos, eloquently précised the community zeitgeist when she said, 'You gambled and we all won'. This stuff, plus a splash of national and international recognition, and the clear economic benefit that Mona has generated, got me thinking about how to keep Mona open during the MAD period. Monaco is part of my attempt to fulfil that emerging desire.

I want to operate Monaco. But I won't open it (before 2023 when the cooling down period of the present monopoly could end) if my opening it enshrines Federal's poker machine monopoly. So I would ask Greg Farrell to continue to support Monaco being granted a licence, even without a monopoly extension. Monaco, in my opinion, would not affect Federal's business (but if Wrest Point were to establish a bit of a high roller sideline, it's reasonable to expect that Monaco punters might wander down the river for a look). So support it, and ask for nothing in return. As a favour to me, and the community. Or if you need to accrue a benefit to satisfy your board or your business brain, request a reduction in the licence fee, or some other more palatable outcome.

As I've said a number of times, I find poker machines antisocial, unsightly, and insidious. But, unfortunately, they are now a significant source of revenue to the government and our legislators are, therefore, conflicted. That means it's up to those of us who think pokies are a problem (apparently 80 per cent of us) to give a clear indication of the direction we want. Since I'm the idiot that inadvertently started this process, I should lead it now, even if I'm the loss leader.

With no change to the existing regime Monaco could be operational in 2023, although waiting till 2023 is complicated by the fact that the chosen site will be inaccessible after we build the hotel. In 2023 it would also be possible for poker machines to be put to tender, and the winning bidder would not necessarily need to be the highest bidder, in the event of an enlightened government. Social criteria could include: a lower total number of machines (who knows, if my finances are going well I might bid and nominate zero machines); lower individual take-outs; and one-dollar maximums (which, anecdotally, seems to be an idea with wide support).

I have a non-regulatory idea that might be able to put pressure on commercial operators of poker machines. It may prove to be tricky to explain, but I'm going to have a go:

Operators of exchange betting sites, like Betfair, aggregate bets from punters who nominate a price they are interested in having a bet at (on, for example, a horse race). They can nominate a bet that the horse wins, or they can bet that it loses, in which case, if the price is right, they can be matched with each other. An example might serve clarity here: I want to have a bet on Social Cohesion, and I choose to request a price of 4.10 (return for $1, including stake). The highest price presently available is 4, so my bet sits in a queue, awaiting a match. Someone (or many people) comes along and thinks Social Cohesion is an unlikely winner. They offer the requisite 4.10, after all the 4 available is taken. The long-term effect of all this is to force margins on both sides down. In liquid markets the disadvantage is often much less than one per cent. Compare this to the legislative guarantee in Victoria that poker machine must pay at least 87 per cent, and thus profit a potential 13 per cent of turnover (I don't know the figures for Tasmanian casinos and hotels. Do you? If so, post a comment, including your source please). One can easily see that a regime like Betfair operating on pokies could apply tremendous downward pressures on loss rates and, perhaps, make the operation of traditional poker machines unviable.

Could this be done? I think the answer is yes, and at various times I've thought about applying for a patent on my technique for achieving it. I haven't done it, and so that no one else gets a patent, I'll establish prior art by outlining my strategy for achieving this.

On electronic poker machines, a number of payout structures would be available to the punter, and he or she could choose which one to bet into. These payouts (a payout includes, in a poker example, how much to pay on two pairs, or a royal flush) would have a particular disadvantage to the punter that would be calculated and displayed – the punter could choose the lowest disadvantage stream, or maybe a slightly higher disadvantage for bigger maximum payoffs (there is a consistent public preference for high payouts called, in the literature, ‘longshot bias’ – that's why people will buy lottery tickets that only return 50 cents in the dollar).

On the other side, larger operators would be able to offer payout streams. The punter would nominate a payout stream and the machine would calculate the advantage (or disadvantage) that those offered payouts would give the player. They would need to have enough money in their account to cover the largest payoff on a given gamble, but it's attractive to these guys to do this, because they can build in a slight edge (since we know punters will take a big disadvantage, but competition will force the edge down on this side). The upshot of all this: I predict that poker machines could operate at less than a one per cent disadvantage to the player (in fact I have many colleagues who would offer that game). To be competitive, holders of commercial poker machine licences would have to offer similar low margin games. They probably wouldn't be able to, and thus might be forced out of business. Another possibility: in 2023, if the poker machine licence comes up for tender, I wonder if the community could form a consortium to buy it? I don't know exactly how profitable pokies are to the operators, but say they net $20m a year. That suggests at least $200m would be required to buy the licence, and the conversion, for example, to one dollar bet maximums would massively decrease that value after the purchase, but with the accompanying effect of a huge reduction in harm to the community. It might not be an efficient way to do good, but it would certainly do some good. Compensation might need to be paid to some of the smaller poker machine operators for the loss of their honestly entered business model.

In most areas where financial 'services' are provided, we have recently seen the internet disrupt traditional models with lower overhead cost models. Web brokers have reduced transaction costs for share transactions, and we are starting to see on-line art brokers peddling art with a very small cut. I expect this trend to continue – it will move to the gaming machine markets. So even if the scheme outlined above doesn't come to fruition, the days of operators reaping the rewards of high margin machines are numbered (unless those operators are protected by legislation).

Writing this missive reduces my chances of building Monaco in two ways. Both Federal and the government may now have good reason to oppose it. The government, in particular, had every right to expect me to maintain a studied silence until the licensing was independently reviewed, and I apologise for my precipitate intervention. I have no reason to think the process is anything but completely appropriate, and my dealings with Treasury on this matter have been reassuringly professional. It may well be that the reviewer's advice would have been to not support a monopoly extension. Or a monopoly extension might never have been contemplated. But, in the event that the monopoly was to be extended, I would have had to pull out at a much later stage, when community funds and time had been committed. And, this way, the poker machine issue is on the table, with plenty of time to satisfy all interested parties, if satisfaction is possible.

And in the meantime, I'll follow Kenny's sage advice:

Every gambler knows
That the secret to survivin'
Is knowin' what to throw away
And knowin' what to keep.

If needs be, I'll throw away Monaco, to keep my integrity.


Since I wrote this on Saturday, August 29, there have been a few interesting developments, so my blog is becoming a diary. On Monday, August 31, James Boyce had a few interesting things to say, although he said them with an overabundance of self-certain sanctimony, perhaps. He contends that the government can issue Monaco a licence without too much fear of statuary risk, and he is probably right. I don't foresee any government taking this position, however. Incumbents see risk in a very different way than commentators. It's possible a pretender could use this as an electoral device to become the incumbent, however...

Also on Monday I sent an email to Greg Farrell of Federal, and the Treasurer, Peter Gutwein, to inform them of my intention to blog. That precipitated a meeting with the Treasurer and a phone conversation with Mr Farrell. The Treasurer reinforced my notion, not supported by most pundits, that he was taking and would be very likely to follow independent advice (from Deloitte) that would be forthcoming in a couple of weeks. From the government's point of view, this is the appropriate course of action and I have no issue with this process. However, if Deloitte determines that, on balance, a Monaco licence plus an extension of the Federal monopoly is good for the community (which, it seems to me, is essentially the thing they have been briefed to resolve), then the government might feel compelled to chart that course. However, that doesn't mean that a Monaco licence and the termination of Federal's monopoly wouldn't be better for the community, although I acknowledge that achieving that before 2023 is unlikely.

Mr Farrell confirmed that Federal is seeking an extension to its monopoly. He pointed out (claimed) that ‘only’ 0.5 per cent of poker machine players in Tasmania are problem gamblers (the Tasmanian Council of Social Services research suggests that there are 2,500 problem gamblers in Tasmania; that is 0.5 per cent of the population, but there are many people who don't gamble, so 2,500 represents a higher percentage of participants. And 2,500, in any case, is a large pool of suffering individuals). He also revealed a planned capital investment in Wrest Point and other assets if the monopoly is extended, a strategy similar to the commitment to Saffire made when securing the 2003 monopoly; a strategy criticised by James Boyce in The Mercury earlier the same day.


I received this letter from the Treasurer:

Letter from the Tasmanian state government treasurer in regards to the MONA casino proposal.

While I have to quibble on one point – I didn't meet with Mr Farrell, we spoke on the phone – this exemplifies my contention that the Treasurer is handling this matter appropriately. I followed up again with Federal, but as will be made obvious in my reply to the Treasurer (below), we were unable to reach agreement. Federal seem to be planning a spending spree in an attempt to convince the Government that a monopoly extension is a good idea.

The Treasurer,
Yesterday I made the following proposal to the Federal Group, in relation to my attempt to secure a licence for the proposed casino at Mona (Monaco).
As you know, I can't support an extension of your licence monopoly, even though I acknowledge that you might secure it anyway. I do not believe that Monaco affects Federal's business model (except, possibly, the hotel which I will build anyway).
Here I propose an alternative.
If you withdraw your application for a monopoly until after I am granted a licence, and if I am granted a licence by 31/12/16, I will:
Warrant not to attempt to secure, for myself or any agents, a licence to operate poker machines and compete with Federal in 2023. As I've outlined I believe there is a low-cost model that can undercut existing business models, while massively reducing costs to the punter.
Not attempt to secure a general casino licence that allows Tasmanian customers in 2023.
Pay Federal $500,000 upon approval of my licence.
Support Federal if they apply for a reduction in the licence fees paid to the Government annually, to an amount of not more than $250,000 pa.
After some thought my present position is that I will build my casino whether or not I have secured a licence. The waterfront placement is problematic, and after I build the hotel I will not have access to the site. I believe it is quite possible that, with a groundswell of community support, that a political party (and thus a potential component of government) could go to an election with a Monaco licence as part of their platform, and thus engage the statutory risk that breaking Federal's monopoly entails. High level legal opinion suggests this is not particularly fraught, since parliament cannot be bound by its own monopoly, and since the broader business community will see Mona/Monaco as a special case.
If this proposal could meet with Federal's approval I'm happy to meet with you later today (Wednesday 9/9/15) or tomorrow.
Thanks for your attention,
David Walsh
This morning (Thursday 10/9/15) Mr Farrell called to discuss my proposal. He asserted that a proposal for expansion of Federal Group's tourism facilities was in play prior to our proposal for Monaco, and that a monopoly extension was to be sought with or without the Federal Group's acquiescence to Monaco. He had no appetite for acceding to a Monaco licence without a monopoly extension. For this reason, and in response to your request, I wish to withdraw my formal application for a casino licence (unless it can be contemplated outside of the existing monopoly legislation).
As outlined in my note to Mr Farrell, I intend to seek approval to build the structure that would have housed the casino, in any case. I intend to ascertain if the political will exists to attempt to overturn the existing monopoly, and in the event that abrogating the monopoly legislation proves not to be feasible, to seek a licence in 2018 for 2023. I note that, in the event of the Federal Group receiving a monopoly extension, an application for a licence in the future will face the same obstacles as the present application, and I request that the government consider this while processing Federal's application.
Thank you for your attention (and for your goodwill),
David Walsh
Further, I ask permission to publish, as a component of an explanatory blog, your letter addressed to me. Thank you.

So I have arrived at a place that looks like the place that I departed from. 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. As I stated before, there are at least 2,500 problem gamblers in Tasmania, and for the vast majority that problem is with poker machines. I am not the one who can afford to cast the first stone. But now, for the first time in a long time, our community is within a stone’s throw of having the opportunity to mitigate the stagnant status quo.

A few years ago I read a report concerning a Médicins San Frontiéres intervention in East Timor. With relentless honesty the author, who was an MSF executive, concluded that their attempts to provide medical aid made them complicit in the interventionist Indonesian regime, by making bad look good. I almost made the same mistake. But at least I've got Kenny in the background chiding me to learn from my errors:

If you're gonna play the game, boy
You gotta learn to play it right.