Tabcorp's rivals may have hope yet in new betting environment Media Man Int

Tabcorp's rivals may have hope yet in new betting environment - 19th November 2017

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Victoria could present an opportunity for the corporate bookmakers regarding the looming point of consumption betting tax. Justin McManus

by John Stensholt

There were a few eyebrows raised when respected online bookmaker Dean Shannon recently established Neds, adding another name to an already crowded and intensely competitive wagering industry.

Yet under the stewardship of Shannon, the former local boss of Labrokes, Neds is understood to have had a profitable first couple of months in business during the Victorian spring racing carnival.

Given many race favourites got beaten, the carnival is said to have been a bumper one for Tabcorp's TAB and its Northern Territory-domiciled corporate bookmakers like Sportsbet, CrownBet, Bet365, William Hill and Ladbrokes.

The question is though, whether it is the last dance for the corporates who it seems almost certainly will soon have to cope with a merged giant in a combined Tabcorp and Tatts Group, less advertising during live sports on television to promote their wares and the dreaded point of consumption tax about to sweep across the nation.

It remains to be seen whether the corporate regulator or CrownBet will have one last attempt to stymie the Tabcorp and Tatts merger after the Australian Competition Tribunal on Wednesday releases its reasons for decision for giving the deal the green light.

The other hurdle is the Tatts shareholder vote on the deal on November 30. While activist shareholder Sandon Capital has been a voluble opponent of the deal, arguing Tabcorp is getting a very good asset in the Tatts lotteries business, there are enough big shareholders who own stock in both companies that are in favour of the transaction to make a favourable vote likely.

So if and when Tabcorp and Tatts combine, a company with retail betting shop licences across every state and territory and substantial digital wagering business will be created. It will be one with, including lotteries, annual revenue of $5 billion and pre-tax earnings of about $1 billion.

If that is not imposing enough for the corporate bookies – who have made great inroads into Tabcorp and Tatts' market share in the past decade – then there is the looming issue of the point of consumption tax to deal with.

South Australia has already introduced a 15 per cent tax on wagering by its citizens, and Western Australia will introduce the same measure on January 1. SportsBet has said the WA tax would cut its profits by $12 million as the state accounts for 11 per cent of its business.

It looks likely other states will follow suit with a meeting of the Council on Federal Financial Relations in late October ending with an agreement for them to work on harmonisation of the tax across the country.

But having the states working on the point of consumption tax could provide the corporates with an opportunity, given each jurisdiction will have to consider their own interests, which could result in different levels of the tax in different states.

Take Victoria, where the racing industry is primarily funded via a joint venture arrangement with Tabcorp. But the corporate bookies are also an increasingly important source of revenue. Lobbying is taking place there for it to impose a different tax rate than others.

Racing Victoria's 2017 financial report, lodged with the corporate regulator on October 31, showed the state received $186 million in 2017 from the joint venture, down from $192 million in the previous year. Race fields fees, derived from charging online bookmakers a combination of either a percentage of turnover or of gross revenue, was $157 million in 2017 compared with $139 million the year before and $85 million in 2014.

In other words, Victoria's revenue it gets from corporate bookies is surging, and funding from Tabcorp, which flows from traditional parimutuel or tote betting, is declining.

The large race fields fees increase helped Racing Victoria to distribute substantially more to its race clubs in 2017 than the previous year on the way to a $9.2 million profit and have enough money in the bank to get $60 million set aside to be managed by Evans & Partners in a "future fund".

Therefore, it could be argued if Victoria introduces a point of consumption tax that wipes out all of the profit of the corporates it would be putting a huge amount of revenue at risk – unless it suddenly gets a big increase from its joint venture arrangement with Tabcorp.

Yet the joint venture does not expire until 2025, so it is not so surprising chairman Brian Kruger has said he wants to extend the licence early – remember, Tatts will not be a Tabcorp bidding competitor if the two merge – and hopefully tweak the conditions.

But the point of consumption tax the state introduces will also be crucial. It could be low enough for the corporates to keep making decent profits, sending money to the racing industry and stay competitive with Tabcorp in the process.

(The Australian Financial Review)