Woolworths Pokies

Woolworths Group has been under serious scrutiny in the public eye and behind the door of shareholder meetings for more than a few months. The company and its pokies have been the target of much consternation, most notably Woolworths’s ties to the Australian Leisure and Hospitality Group (ALH).

Costello noted that Woolworth’s announcement will see the Mathieson family’s influence significantly reduced, saying: “It is good to see Woolworths regularise the corporate structure of its pokies empire, diluting the power currently held by billionaire joint venture partner Bruce Mathieson, who owns 25 per cent of the current ALH joint venture but has management control through his son, ALH CEO Bruce Mathieson Junior. Woolworths is a massive Australian company which prides itself on being socially responsible, and this doesn't sit well with that.' ' Woolworths owns or operates 6 per cent of the country's electronic gaming machines through the ALH Group, in which it is the major shareholder. This makes Woolworths the largest operator of pokies in Australia. Woolworths’ historical share price performance. The departure of the pokies will see Woolies emerge as much more of a “clean’’ retailing company and potentially enlarge the pool of investors to include those here and overseas who might have ethical issues with investing in gambling. Woolworths new pokies king. A silly, poorly conceived anti-pokies campaign against Woolworths from ‘social activist’ group GetUp! Finished with a resounding fizzle yesterday – but not before.

Woolworths Group Investigation

Internal investigations have been ongoing since 2018. That’s when a whistleblower alleged that staff at Woolworths supermarkets across nearly two dozen locations had been offering special service, including free drinks to gambling customers in order to keep them at the slot machines longer.

ALH Group, the company that operates tens of thousands of pokies and of which Woolworths owns 75%, admitted to mismanagement. Some employees were fired, others were disciplined, and new training was offered to all staff.

But it wasn’t enough.

One of Woolworths’ primary shareholders, Perpetual Investments, pressured the company to remove all pokies from Woolworths-associated establishments. The investment firm called the pokies a threat to Woolworths’ entire brand and reputation.

Another investigation ensued due to complaints stemming from 2017. The New South Wales Independent Liquor and Gaming Authority subsequently stepped in to conduct its own investigation. It was a far-reaching and comprehensive one that inquired about pokies at numerous venues.

Big Woolworths Group Decision

The pressure did work.

Reuters reported last week that Woolworths will combine its drinks and pubs units as a spin-off and focus more intently on its core business.

In what it is calling a demerger, the company will offer a standalone operator called Endeavor Group for investment that will operate 1,500 liquor stores and 327 pubs. That figure represents approximately 30% of its business. The worth of that business will be approximately A$10 billion. The purpose is to reduce Woolworths’ reliance on slot machine revenue, resorting back to the family-focussed brand it once was.

The company also has the option to pursue a “value accretive alternative,” such as a trade sale, which would happen – if pursued – sometime in 2020.Woolworths CEO Brad Banducci said:

“We did it to unlock potential, not to avoid issues.” He added that the intention is to simplify both businesses to better compete with competition from internet retailers. “There will be more simplicity, which will lead to more agility”.

Banducci claims the move has nothing to do with investor concerns over gambling. Or the NSW Liquor and Gaming Authority investigation, for that matter. He says those issues have been and continue to be addressed responsibly and within the inner workings of the business.

Woolworths Cookies

Problem Not Solved?

Many analysts do not believe the move is enough. They also believe investors will not respond in the way Woolworths is likely hoping they will. Clime Asset Management Portfolio Manager David Walker noted: “A significant proportion of the world’s funds under management that would invest in this stock is concerned about its ownership of hotels and poker machines. Whether that’s the intention or not, it just removes a hurdle”.

ABC News reported that the move is a start in the eyes of the Alliance for Gambling Reform. This is one of the primary organizations pushing for changes at Woolworths. Spokesperson Stephen Mayne, who is also a shareholder activist, said: “This is a globally significant development for the gambling divestment movement, not until Rio Tinto getting out of coal.”

Mayne pointed to statistics that show Australians as the world’s biggest gamblers. They reportedly lose $24 billion each year in various forms of gambling. He said Woolworths “is responsible for about $1.5 billion of this through its 12,000 gaming machines in 286 hotels across Australia.”

Market Approves

The Australian Securities Exchange tells a different story than wary investors. Stock prices have gone up consistently, especially so after the news of the demerger.

The price dipped as low as $28.35 in February, before briefly climbing up to $34.82 in May. However, Woolworths Group Limited jumped from $32.92 to $34.03 upon this announcement. Since July 2, it has not dipped below $33.90.

It is unclear as to how much longer the NSW Liquor and Gaming Authority will continue its investigation. When and if it releases its results, this may prompt more action from Woolworths. Still, the demerger might be enough to satisfy most investors and much of the general public.

If the stock market response is any indication, Woolworths made a smart move. It should thus keep its pokies and groceries separate and apart going forward.

In the great tradition of taking a dump when no-one is looking, the NSW government released this scathing 113-page report about Woolworths and its pokies division late on Friday afternoon.

News Corp, as you would expect given its big interest in the gambling industry and history of kowtowing to major advertisers, didn’t report a word of it, but The Age and SMH managed to produce this story on Friday night, which ran as the page two lead in Saturday’s SMH. Nothing appeared in print in The Age.

The NSW Independent Liquor and Gaming Authority (ILGA) report is the most tangible regulatory attack on Woolworths that we’ve seen since 2004, when it decided to become the biggest Australian pokies operator through a $1.4 billion joint venture takeover bid with billionaire Bruce Mathieson for the former Foster’s pub division ALH.

Ever since then Bruce Mathieson and his son Bruce Jr have been left to run the ALH division out of their South Yarra office in Melbourne, despite only owning a minority 25% stake in the joint venture.

As for the Woolworths board and management team, they’ve all been sitting in Sydney largely oblivious to what has been going on inside the pubs they supposedly control.

Woolworths Owns Pokies

Yet when asked at various AGMs over the years, the seven Woolworths chairs and CEOs since 2004 (Roger Corbett, Gordon Cairns, Brad Banducci, the late Michael Luscombe, the late James Strong, Ralph Waters and Grant O’Brien) have all sworn black and blue that Woolworths is a responsible company and there is no better operator of poker machines than Australia’s biggest food and liquor retailer.

Here is a sample, drawn from this 89-page transcript, of what the current Woolworths chairman Gordon Cairns said at the 2019 AGM in Sydney just eight months ago:

We are not the most irresponsible [operator]. In fact, the opposite is the case … irrespective of whether Woolworths owned 100% of ALH or whether Woolworths ultimately divests its drinks and hotel business, we are committed to the highest standards of responsible gaming in Australia.

Contrast that with what is in the ILGA’s report, showing how Woolworths wantonly broke NSW law by demanding their staff deliver free alcohol to big gamblers in their pokies rooms.

As the Nine papers explained, ILGA chairman Phillip Crawford attacked the company for displaying “absolutely no contrition” about its behaviour, which has led to fines, costs and suspensions of poker machine trading in two pubs which in total will cost shareholders close to $400,000.

ILGA has also banned ALH’s Queensland operations manager Morgan Bensley from the NSW hotel industry for the next five years, but based on his LinkedIn profile he still appears to be on the ALH books across the Tweed in Queensland. Where is the accountability?

Bruce Mathieson became a billionaire by being Australia’s most aggressive operator of poker machines, whether it be maximising trading hours, donating heavily to pro-pokies politicians and parties, pushing hard on loyalty schemes, marketing to children with free birthday parties, poorly designed venues, publicly attacking critics, litigating councils, buying venues in the poorest areas or plying gamblers with free drinks.

Woolworths Pokies Pics

However, after 15 years of this, Woolworths got sick of all the bad publicity and proposed a two-stage demerger that first saw Mathieson parlay his 25% stake in ALH into a smaller 14.6% stake in the bigger Endeavour Group, which included the entire Woolworths retail liquor business.

Woolworths Pokies Revenue

Mathieson was only promised one seat on the Endeavour Group board after the demerger, but once COVID-19 hit it was postponed until 2021 at the earliest. As of today, Mathieson has three of the seven seats on the Endeavour board and his son retains operational control of the pubs as ALH CEO.

In light of the comments by ILGA chairman that Woolworths showed no contrition for its blatant breaches, it really is time the Mathiesons were relieved of their operational influence so that less combative and more responsible Woolworths people can take charge of Australia’s biggest pokies empire.