Tasmanian Times

The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. No price is too high for the privilege of owning yourself. ~ Friedrich Nietzsche

The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. No price is too high for the privilege of owning yourself. ~ Friedrich Nietzsche

Economy

Federal Hotels’ predicament

*Pic: From ‘Team Mulawa’ here: “Greg Farrell Jr, “Mr. Mulawa”: Greg is by nature very hands-on – activity done translates into learning and understanding – and he still applies this essential quality to the horses with ambitious zeal and earnest dedication. Greg is a natural horseman – his innate affection for and confident ease with horses is readily apparent in his daily interaction with the horses at every level. Although Greg’s primary vocational responsibility has always been Managing Director of Federal Group (the highly successful and widely respected Australian owned family business and the world’s second oldest hotel group), he always finds quality time for the horses. He remains integrally involved with all the handling and training of the Mulawa Arabians, from early breaking through the professional turn out of top level show ring performers in hand. (Pictured with ADVENT) “

Federal Hotels’ disappointing 2015 financials lodged last week with ASIC highlights its current predicament coinciding with the shock/horror realisation that its exclusive gaming license may not continue into perpetuity under existing generous terms and conditions.

Net operating profit after tax was $20 million, down from $21 million in the previous year.

The profit soon disappeared with banks grabbing $9 million and shareholders $15 million.

Notwithstanding that Federal Hotels have $100 million worth of capital expenditure projects on the drawing board including redeveloping Wrest Point and Launceston Country Club casinos plus a new hotel at Port Arthur the shareholders appetite for dividends continued unabated, a craving that has seen $162 million vanish from company coffers in the past 10 years.

We now hear that Federal Hotels will put a handbrake on investment in Tasmania if it does not get certainty over a gaming license in the State.

Such a robust declaration of self-interest conveniently ignores the fact that over the past 10 years Federal Hotels has claimed $251 million in depreciation deductions on plant equipment and buildings.

In other words $251 million of the cash surpluses generated by Federal Hotels’ operations has not been taxable.

Why should a privileged monopoly have an exclusive license extended when the Tax Act allows, and prudence dictates, that cash surpluses are, or should have been, available to fund the capital expenditure currently on the drawing board?

Quite apart from the inequity of a small group of Tasmanians, many suffering varying degrees of addiction, subsidising the operations of Federal Hotels, perpetuating an exclusive license acts to the detriment of competing accommodation providers.

If we are to be open for business, as the mantra goes, it should be a level playing field.

Federal Hotels were granted an exclusive license for nil consideration except for agreeing to spend $25 million on a 150-room resort now known as Saffire. The terms of the 2003 Deed governing the license were continually renegotiated to allow for delays and design changes, which prompted the Liberal Opposition via Leader Will Hodgman in 2008 to question the accountability and transparency of the Labor Government’s dealings with Federal Hotels.

Then Premier and Defender of the Faith, Paul Lennon came out swinging in typical style with the following, as recorded in Hansard on the 5th March 2008.

“…. Federal Hotels and the Farrell family have been good friends of Tasmania for decades and it is disappointing ….that they now engage in what appears to be a sustained attack under parliamentary privilege…….Over the past five years Federal Hotels has spent $80 million investing in Tasmania. They plan to spend a further $80 million investing in Tasmania over the ensuing five years. This includes investments in Strahan Village, Lake Gordon cruises, the Lady Jane Franklin boat, the Wilderness Railway, the Cradle Mountain Chateau, Freycinet Lodge, Kooringa Cottages, the Comfort Inn at Port Arthur and the Henry Jones Art Hotel.”

Most of the investments listed are no longer owned by Federal Hotels. A search party is still looking for Kooringa Cottages. The Port Arthur development is on hold but everything else apart from the Henry Jones Art Hotel has been either surrendered or sold.

So much for the benefits of the exclusive license helping to grow the Tasmanian tourism industry.

Where did the $251 million of cash surpluses generated over the past 10 years by depreciation deductions go?

Apart from $32 million spent on the mandated Saffire property, net expenditure on new businesses and assets over the period has only been $190 million. The largest purchase was $40 million for the 9/11 chain of bottleshops and pubs. This was notably absent from Mr Lennon’s investment roll call. Subsequently in 2011 another $33 million was paid for two NW Coast pokie pubs.

This didn’t leave much to fund upgrades to capital hungry tourism venues which in Federal Hotels’ case were depreciating faster than the amounts spent on capital improvements.

In the past four years bank borrowings have been reduced by $60 million, further exacerbating cash-flow difficulties.

Hence the need to extend the exclusive license.

Acquiring existing businesses is not investing in the strict sense. Overall tourism assets don’t increase with a change of ownership. In any event bottleshops and pokie pubs are not tourist magnets. They cater predominantly for locals.

The possibility that Federal Hotels will put a handbrake on further investments if the exclusive license is not extended has been described as blackmail by some commentators.

Federal Hotels’ financial statements however suggest that it’s not so much a threat as a reflection of reality. Federal Hotels still has borrowings of $140 million, but the lease commitments on poker machines are a further $45 million. Net operating cash is at the same level as it was 10 years ago, well below the 2008 peak, despite CPI increases of 25%. Without the MONA-inspired boost to occupancy levels in Hobart, the location of the majority of Federal Hotels’ accommodation, it would be under even more pressure from banks to reduce borrowings, which it did thanks mainly to the sale of the regional businesses following the abandonment of its State-wide tourism strategy.

The business assets of the three regional businesses were bought by RACT, with an unknown landlord purchasing the real estate. Tourism in Tasmania is no longer beholden to Federal Hotels.

Tasmania is fortunate that the clubs’ lobby is nowhere near as powerful as in NSW for instance. Furthermore Federal Hotels own 11 of the Top 20 pokie pubs. Third party pubs and clubs only end up with 6% of the overall gaming pie. The government gets 24% and 70% remains with Federal Hotels.

Any reduction in pokie proceeds resulting from a revision of the exclusive license can be shared in the existing proportions. The community as a whole will be better off, more money will circulate instead of being diverted to buy existing bottleshops and pokie pubs and siphoned off by absentee shareholders.

An historic opportunity confronts Mr Hodgman, a chance to address the shortcomings of an arrangement he accurately pinpointed in 2008, a chance to move Tasmania on from another special deal for mates no longer needed to underpin the State’s economy and a chance to loosen the choke hold on addicted players.

First published on Tasfintalk HERE

Michael Atkin, ABC 7.30: MONA founder David Walsh lashes powerful Farrell family with monopoly on Tasmania’s pokies MONA founder and professional gambler David Walsh has lashed out at one of Australia’s richest families for attempting to use him to extend its poker machine monopoly indefinitely. The Farrell family run Tasmania’s two casinos and have owned the gambling license monopoly for decades, including every poker machine in the state. The licence was extended for 20 years in 2003 following secret negotiations with the then Labor state government. The monopoly has seen the Farrell’s personal wealth skyrocket to an estimated $463 million …

EARLIER on Tasmanian Times …

All bets are off if deals lost. Greg Farrell puts heat on Libs … will they buckle … ?

Ka-Ching: pokies documentary reveals what makes the machines so addictive

Tasmania’s Farrell family moves up in Australia’s rich list

Mercury Exclusive first look: Hobart’s newest high-end hotel revealed

Whatever the truth of Garrett’s story, it’s about gambling industry politics & influence

Wilkie: A statement regarding the possible bribery of politicians

JAMES BOYCE: The Tasmanian Politician and the powerful will of Mr Farrell

• Greg James in Comments: I am calling for a new Referendum on casinos and gambling monopolies in this state. In the mid 70’s a Referendum was held to vote in the Tasmanian monopoly on gambling, it is now time to either ratify a continuance or eliminate the monopoly altogether. Since the 70’s, the world and the tourism gambling industry has altered dramatically. Every state has a casino and the Tasmanian Casinos no longer fullfil the function of a tourist attraction or of their original objectives. Indeed as described in the excellent John Lawrence analysis above very little of what Federal Hotels does relates to the tourist industry, the casinos themselves are tired and almost derelict in comparison to states with competitive gambling. The Casino industry on the mainland is tourist competitive, in Tasmania it is not. Here it now plunders the local poor …

Cassy O’Connor: Premier Refuses Monopoly Deed Public Process

8 Comments

8 Comments

  1. John Biggs

    October 26, 2015 at 11:22 am

    “Federal Hotels will put a handbrake on investment in Tasmania if it does not get certainty over a gaming license in the State.”

    That gives their whole game away. What about certainty for the poor bloody mug gamblers?

    In general capitalists’ demand for certainty is having your cake and eating it. The whole point about investing in a business is that the entrepreneur works out the business case, crosses fingers, and goes for it. The canny businessman works out that it is likely to work and reaps the rewards. If luck and poor judgement work against it, that’s the risk one takes. That’s classic capitalism.

  2. Greg James

    October 26, 2015 at 2:44 pm

    I am calling for a new Referendum on casinos and gambling monopolies in this state. In the mid 70’s a Referendum was held to vote in the Tasmanian monopoly on gambling, it is now time to either ratify a continuance or eliminate the monopoly altogether. Since the 70’s, the world and the tourism gambling industry has altered dramatically. Every state has a casino and the Tasmanian Casinos no longer fullfil the function of a tourist attraction or of their original objectives. Indeed as described in the excellent John Lawrence analysis above very little of what Federal Hotels does relates to the tourist industry, the casinos themselves are tired and almost derelict in comparison to states with competitive gambling. The Casino industry on the mainland is tourist competitive, in Tasmania it is not. Here it now plunders the local poor.

    It must be clear to everybody but the Federal Hotel management that the lack of competition has produced an unattractive, uncompetitive product. Thus the need for a monopoly to support this inefficiency. The states poor communities are subsidizing this ridiculous inequality in the hospitality industry with great social cost. Disposable income disappears into these parasitic poker machines and so do small businesses as their sales decrease. The statistical relationship to Centerlink payments and an increase in daily take in poker machine revenue is well documented.

    The continual needy bullying by the gambling monopoly is seen as a corruption of the political processes in Tasmania. Note well that not one of the recent investments in the hotel industry has mentioned the words monopoly, support, or guaranteed certainty, prior to their investment.

    The stifling of Tasmanian pub culture, music and cultural development in the 70’s and 80’s as the Casino grew in sales is only balanced by the recent decade of restaurants, MONA and the new $400 million investment boom in Hotels. All of which is correlated to the rise and fall of Casinos in Tasmania.

    Thus a call for a referendum on this matter is to give the people the right to reverse their own decision, given that almost every original benefit is now a negative, this is what time does to a monopoly, time to end it. Time for Tasmanians to shape their innovative island once again.

  3. TV Resident

    October 26, 2015 at 3:25 pm

    This is pure blatant blackmail from Federal Hotel Group, there can not possibly be any other description that fits it. David Walsh has done far more for the tourism of this state than Federals have ever done. David Walsh is a ‘giver’ whereas Federals are ‘takers’.

  4. Stephan

    October 26, 2015 at 5:10 pm

    That rattling sound you hear is not dice. The low groaning you hear is not the floor boards suffering under a lot of weight and the destitute screaming is not the un-oiled hinge.

    Ooo Halloween similes weren’t hard at all.

    Gambling is a racket even when it’s done honestly. It’s a net negative for the community as a whole and it often leaves members destitute through the human failings many of us have poor control over. I’ll be glad when all the do gooders get to gambling and ban it after sugar, salt and alcohol.

  5. Mick Kenny

    October 26, 2015 at 8:23 pm

    Logic would suggest that maximising profits for shareholders does not really coincide with making investments in speculative, tourist-related ventures, nor in acting as Tasmania’s economic saviour.

    The investment strategies in evidence suggest typical corporate self-interest, with investments focused upon the sale of alcohol and gambling. Corporations have no souls, mind.

  6. Simon Warriner

    October 26, 2015 at 10:36 pm

    Mick, the Federal Group made a number of commitments when it got the rights to run the pokies from Paul Lennon for nothing. It has failed to deliver on those commitments and yet it wants more for nothing in return for letting another operator in, an operator whose good will and generosity has netted the state, and the state government, a bloody sight more than Federal has ever delivered in nett terms and who has put the place on the worlds “to do” list in a way no one else has.

    Federals are a millstone, not a saviour and it was long past time they were treated as such.

  7. Richard Kopf

    October 27, 2015 at 12:46 am

    After watching, on the ABC last week, how the Pokey Industry creates a powerful addictive product from a few wires,lights and buttons. I now realise that those zombies who sit behind the lights and sounds, are essentially, drug addicts. This is one drug we can and should, control. Now.

  8. Nic Tomlin

    October 29, 2015 at 4:37 pm

    The Federal Group have done everything in their power (which is extreme in Tassie) to maintain an absolute stranglehold on tourism.

    The mysterious lack of tourism investment over the years (e.g. Cresent Bay + many more) is testament to this. I strongly suspect they desire to build a new Wrest Point at Macquarie Point – and that is the entire game plan behind Tasports release of the land (adjacent to cruise ships).

    Further evidence is the suspicious decision by Tasports to gift Macquarie Shed #1 on a 99 year lease – now a Federal Hotels development.

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