Talk that Woolworths may look at selling ALH has continued to bubble away. Illustration: Simon Bosch Despite her views and experience, Allan still finds herself trying her luck at the pub with 30 or so other punters – most of whom she knows because "they are here everyday". What Allan doesn't know however, and is surprised to learn, is where the $8.8 million lost in the Moreland Hotel's poker machines last financial year went. (Victoria's gambling regulator, Victorian Commission for Gambling and Liquor Regulation, maintains figures on how much money is lost at every pokie venue.) The pub is one of 330 nationwide majority-owned by Woolworths through its Australian Leisure and Hospitality Group (ALH) joint venture with the billionaire Mathieson family. "There are people who can't afford to buy food and groceries at a Woolworths grocery because they've lost their money on a Woolworths-owned poker machine," says Nick Xenophon, the South Australian senator and anti-gambling advocate.

"It's an irony that ought not be lost on the board of Woolworths." When Parliament returns, Malcolm Turnbull will need to walk a legislative tightrope in both houses. In the Senate, he will need the support of a-yet-to-be finalised crossbench to pass legislation, with the Nick Xenophon Team (NXT) likely to win three seats. In the lower house, the NXT's Rebekha Sharkie will join anti-pokie independent Andrew Wilkie and Greens MP Adam Bandt. Xenophon and Wilkie have already pledged to use their power to put gambling reform back on the agenda and the Greens have a strong and long-running anti-pokie stance. The return of pokies reform to the headlines promises to shine a light on Woolworths, the country's largest single owner of poker machines, and an arm of its business that already sits uncomfortably with some of those working in the top ranks of Australia's biggest supermarket. Not a good look

Increased protests against pokies owner Woolworths could harm their fresh food image. Credit:Rob Homer This is a company that needs to appeal to every person in Australia in order to prosper. Alphinity's Bruce Smith Gaming insiders don't expect Xenophon will be successful in his bid to introduce $1 bet limits on the machines, but the intense focus on pokies is at best problematic for Woolworths and its chief executive Brad Banducci as he strives to improve grocery sales at Australia's biggest supermarket chain and put Woolies back into the race with rivals Coles, owned by Wesfarmers, and the rapidly expanding Aldi. At worst, Woolworths' 75 per cent stake in Australian Leisure and Hospitality Group (ALH) and its 330 pubs looks like a liability for the retailer as the attention on pokies cements the link between The Fresh Food People, problem gambling and its 12,000 slot machines. Woolworths shareholder Alphinity says Woolworths' title as Australia's biggest poker machine owner could work against its investment in improving grocery sales at its supermarkets.

"This is a company that needs to appeal to every person in Australia in order to prosper," Alphinity's principal portfolio manager Bruce Smith says. "Not being the biggest pokie operator in the country would remove one big risk factor for the company. "It would take away a reason that some people might have for not shopping at Woolies." Talk that Woolworths may look at selling ALH has continued to bubble away, with one analyst pointing to what he claims is a significant shift in thinking from inside Woolworths. "The view was that they would struggle to sell ALH but the view that now seems to be coming out is that everything is on the table," the analyst says.

"And now there's talk they're actually going to float it ... there's a lot of smoke here." Retail rival Coles also risks being drawn into the debate over the 3000 machines it owns through its network of 89 pubs and hotels, the vast majority of which are in Queensland. Both Coles' and Woolworths' investment in hotels, and by extension poker machines, reflects state legislation in Queensland, which links liquor retailing with hotel ownership. Quantifying exactly how much they reap from these machines is difficult, as they both mask returns from their gambling operations by mixing them in with liquor sales figures. But Monash University academic and poker machine expert Dr Charles Livingstone has crunched the numbers using a combination of data collected by state regulators.

He found that ALH took in $1.13 billion of players' losses from its 12,182 machines, with more than half of that revenue – $680 million – coming from its 78 Victorian venues. Woolworths reported $1.5 billion in revenue from its ALH hotels last year, suggesting less than $400 million was earned from food and drinks (Woolworths declined to comment on Livingstone's analysis of the figures). "There's a fair bit of cross subsidy from [gaming machines] to food and beverage to get the folks in the door," Livingstone says, pointing to cheap beer, two-for-one meal deals and free food for children. The gaming machine tax rate of between 30 and 35 per cent whittles the earnings down to about $800 million, according to Livingstone, who has researched gaming machines for nearly 20 years. Coles has 3069 poker machines in venues in Queensland and South Australia, which Livingstone estimates took around $185 million, based on average machine revenue in those states.

Coles wouldn't comment on the figures. A spokesman said Coles was committed to best practice gaming arrangements in its hotels and would adopt any regulatory changes if new legislation was passed. Hunting season Current regulations allow machines to swallow $10 per spin and up to $1200 per hour. That revenue is in the crosshairs of Xenophon, who is set to bring two new senators and a lower house member of his Nick Xenophon Team with him into the new parliament. Wilkie says he and Xenophon are ready to "hunt as a pack" to pursue their flagship policies of limiting poker machines to $1 bets per "spin" and $120 per hour maximum loss.

Machines can currently swallow $10 per spin and up to $1200 per hour. Those measures were recommended by a 2010 Productivity Commission report but have been opposed by Labor and the Coalition, who, pokie reformers say, are fatally compromised by donations from the industry. Xenophon said he would take a "nuanced approached" to push for change, rather than use the blunt force of his Senate numbers to block government legislation. "I acknowledge we are dealing with an industry that has enormous financial and political muscle," he says. "It's an industry that politicians are either sycophantic to or scared of. So what do you do? We keep the issues on the agenda."

Xenophon says more than 2 million Australians have either experienced problem gambling themselves or know a friend, family member or colleague who has. Leveraging that people power into a grassroots campaign targeting marginal seats could be the key to twisting the major parties' arms. "In a finely balanced Parliament, a few seats could make all the difference," Xenophon says. He and Wilkie say re-establishing a joint select committee on gambling reform is an easy first step for the new Parliament to take. Another achievable goal is banning betting advertising during sports broadcasts.

"$1 maximum bets and capping the jackpot – that's a tougher nut to crack but there's very strong public support for it," says Wilkie. "I think it's going to happen sooner or later, it's just a matter of when." Relaxed and comfortable From left, Andrew Wilkie, Reverend Tim Costello of the Alliance for Gambling Reform, and Senator Nick Xenophon. Credit:Paul Jeffers The likely influence of Xenophon and Wilkie has not set off any alarms in ALH's South Yarra headquarters.

Sources close to Australia's biggest publican suggest it is confident Malcolm Turnbull will not pursue any major reform or deviate from his statement that gambling falls under the jurisdiction of the states. (Xenophon insists it can be dealt with at a federal level through a combination of corporations, consumer, telecommunications and banking laws). It's understood ALH has not shifted its strategic approach from 2012, when activist group GetUp! successfully agitated for an Extraordinary General Meeting of Woolworths shareholders to vote on a $1 bet limit on its poker machines. Shareholders voted overwhelmingly against the proposal and ALH insiders suggest there's no indication Woolworths investors have had a change of heart. ALH already has what it calls "pre-commitment technology" in almost all its hotels, which it argues helps customers gamble responsibly.

ALH chair Roger Corbett says the Mathieson family, which has a 25 per cent stake in the hotels operation as well as management rights at ALH, are "conscious of the social issues involved with the products" they're selling. Corbett says the business is an effective, profitable and socially conscious operation that makes a considerable contribution to the community in terms of taxes and employment. Punting on the status quo Deutsche Bank doesn't think a $1 bet rule is likely. Credit:Peter Braig Gaming analysts aren't factoring in a $1 bet limit on gaming machines yet either. Such a move could prove costly and deprive the states of valuable revenue; an income stream no federal government would be brave enough to turn off, according to one hospitality insider.

AAP Securities' Matthew Felsman estimates more than 60 per cent of Australia's poker machines would have to be replaced if a $1 bet limit was introduced. "The demand for gaming machine products is generally correlated with the profitability of the hospitality industry," Felsman says. "It's hard to imagine licensed venues being able to foot the bill to upgrade or replace their machines; it's estimated to cost up to $3 billion." Deutsche Bank doesn't think a $1 bet rule is likely and expects casinos would be exempt even it did become law. A bet limit would reduce gaming machine revenue by 25 per cent and hit listed Australian poker machine maker Aristocrat's earnings per share by 3.8 per cent, according to Deutsche Bank analyst Mark Wilson.

Wilson says the government is likely to consider banning gambling ads during G-rated television programs, which includes sport, helping bookmakers Tabcorp, Tatts and Spotsbet keep their dominant positions while hindering smaller agencies from growing marker share. Venture capitalist and high profile hotel investor Mark Carnegie says gaming machine reform shared a lot with tax reform in that there was a lot of talk but not a lot of action. "It's great for column inches in newspapers but nothing ever happens." Getting out stakes Keeping his cards close to his chest: Woolworths CEO Brad Banducci. Credit:Louie Douvis

ALH does a good job of side-stepping the media spotlight most of the time but in the days leading up to the federal election its newly anointed chairman did a good job of securing it wide press coverage. Former Woolworths boss and veteran retailer Roger Corbett unexpectedly quit his consultancy role at Woolworths on June 28, igniting talk the retailer planned to sell off ALH. Corbett claimed his workload as chair of Mayne Pharma had increased and he no longer had time to fulfil his consultancy work for the supermarket but analysts pounced on the fact he was being vetted for the chairmanship of ALH, a role he formally took on last month. Sources close to Corbett suggested had not seen eye to eye with chief Banducci and it fuelled talk of a sale or spin-off of the ALH operation. Analysts asked why Woolies chief Banducci was not chairing ALH, as was the case with his predecessor Grant O'Brien and shareholders were concerned the board was stacked in favour of the Mathieson family.

Within days, Woolworths announced two new board appointments, Woolworths deputy chief financial officer Colin Storrie and Woolworths chief legal officer Richard Dammery. Banducci is expected to unveil the results of his "strategic review" of the business before the retailer's full year results but he's not giving anything away – including the likelihood or otherwise of an ALH sale – or exactly what he's willing to punt on his supermarket rescue. One analyst, Bank of America Merrill Lynch's David Errington, has suggested Woolworths will segregate its corporate structure, potentially making a sale or IPO of the hotels business easier. A Woolworths spokesman says that ALH is "an important part of the Woolworths portfolio and we are committed to our hotel operations".