By Clyde Mooney
The nation’s largest tote operator has shored up its own future through a deal with the Baillieu government to support the Victorian Racing Industry (VRI).
Gaming minister Michael O’Brien stated that they intend to award the new 12-year Wagering & Betting Licence to Tabcorp for a negotiated price of $410 million.
The announcement comes 18 months later than originally planned, as the newly-elected Victorian government attempts to make good the embarrassment of a $3 billion loss on the sale of the state’s poker machine licenses last year.
The new licence is to be a Joint Venture (JV) with the VRI that will allow on and off-course wagering and betting on thoroughbred, harness and greyhound racing and approved sporting and other events.
The 75 percent ownership Tabcorp boasted under the previous arrangement has been reduced to 50 percent, but gaming revenues are no longer included and there are significant tax cuts.
Pari-mutuel (pooled betting) tax will drop from 28.2 percent of revenue to 16.69 percent, and fixed odds tax will reduce from a flat rate of 20 percent to 13.47 percent.
However, an additional 11.51 percent of pari-mutuel revenue will be paid off the top by the joint venture, and Tabcorp must guarantee payments to the industry of $1 billion by 2015.
The licence was awarded over long-term competitor and only other bidder, Tattersalls, after Ladbrokes pulled out of the bidding in frustration at the protracted process.
In 2008 the former Labor government rattled Victoria’s gaming industry by announcing an end to the long-standing duopoly between Tabcorp and Tattersalls in August 2012, leaving shareholders uncertain about the future viability of the gaming giants.
This development sees Tabcorp, the ‘Totaliser Agency Board’, get a good grip on a future monopoly.
The complex arrangement with the Baillieu govt is designed to sustain racing industry revenue, but likely to see Tabcorp returning a reduced profit.
Tabcorp managing director and CEO, David Attenborough, admitted the new model would likely earn less money.
Tabcorp estimates the first financial year’s EBITDA (earnings before interest, taxes, depreciation, amortization) at around $120m, compared to $128m last year.
Despite this, shareholders saw a revived future in the company, trading nearly 19 million shares to push the stock price up 16c (5.16 percent) to close at $3.26.
O’Brien defended the government’s end of the deal, pointing out that the value of the licence granted has been eroded by interstate corporate bookmakers and the internet, and that the ‘monopoly’ was actually nothing of the sort.
“Some people were saying we would be lucky to get anything for this licence. This isn’t just about revenue from gambling taxes or the [upfront] premium payment; this is about ensuring we have a strong, vibrant and growing industry,”
Tabcorp has also been granted permission to set up a betting exchange for accounts-based betting, which could be bad news for the Packer-based national exchange Betfair.
They have effectively paid $34m for each year of the new licence, which although far cheaper than the $53m per year paid for their previous entitlements, no longer includes poker machines and revenue from gaming interests.
Tabcorp still believes it is owed $686m in refunds due to the cancellation of its old, as yet unexpired licenses, but litigation surrounding this won’t start until after the ruling comes into effect later next year.
In 2010 Tabcorp was recognised through the Dow Jones sustainability index as a global leader in promotion of responsible gambling, which is in keeping with Victoria’s responsible gambling principles and was required as part of the bid evaluation.