National significance – Why a single tote matters so much for Tabcorp and Gillon McLachlan

There may be matters of greater commercial importance to Tabcorp chief executive Gillon McLachlan but there are none so symbolically salient as achieving a national tote pool.

When Gillon McLachlan got his feet under the desk at Tabcorp in early August, after seven weeks as an observer, the waft of “the trash” being taken out must have been still in the building.

What confronted him was a one-time corporate behemoth in need of a major tune-up.

But in crisis, there was opportunity.

The most significant of which, at least symbolically, would be uniting Australia once again under the one tote, the asset which had underwritten so much of the company’s value over the years, but which was withering on the vine.

A few weeks after McLachlan took charge, the difficult financial state of the company was laid bare, as Tabcorp published in its annual earnings announcement.

It confirmed a $1.36 billion loss, driven by a $1.38 billion impairment primarily relating to the issues with its businesses in NSW and South Australia.

Within a week, Tabcorp’s share price had crashed from 56 cents to 38 cents and its market capitalisation below $1 billion. “We require change” was the message from the new man at the top.

That seismically bad annual result strategically allowed Tabcorp and its new boss, a clear reset point. To quote ’80s pop star Yazz, “The Only Way is Up”.

It gave McLachlan the mandate he needed to rebuild his executive team, but more importantly, put all the bad news in one bundle. The financial trash was out the door, and although the odour was hard to deal with for a time, under the new captain, the good ship Tabcorp set sail for better days.

Last week, Tabcorp announced increased revenue and profitability at its half-year results. Group revenue grew 10 per cent in the first half of 2024/25 compared to the same time last year to be $1.33 billion, while EBITDA was up 12 per cent, in comparison, to $190 million.

The results were described as “pleasing” by McLachlan, and an example of Tabcorp getting fitter, a phrase he has leaned back on repeatedly during his time in charge. He doubled down on his commitment to turn Tabcorp’s dad bod into a six-pack by confirming op-ex savings of $30 million, driven in part by a well-publicised headcount reduction.

The announcement of those numbers delivered a bump in Tabcorp’s share price from 65 cents to 70 cents. It had settled back to 66 cents by the close last Friday.

Those not convinced by Tabcorp’s fitness kick pointed to a couple of key questions in the detail. Tabcorp reported a 14 per cent growth in digital revenue, but digital turnover fell 8 per cent over the period, while it is clear that the new Victorian deal is doing all the heavy lifting when it comes to EBITDA numbers, contributing $36.4 million.

The precise value of that deal, signed under the previous management, is still not clear.

Initially, Tabcorp said a similar deal in the last financial year would have yielded an additional $140 million. The impact was revised down to $115 million for the current financial year in August due to changing trading conditions.

A simple four-and-half-month run rate calculation (the new deal started on August 15) on the $36 million reported last week would indicate it may be less than that. That’s not to say that Tabcorp won’t reach its intended figure, just that it is a fluid market and that it is hard to predict exactly where the upside might land.

This brings us to what could commercially be the most crucial aspect on McLachlan’s to-do list. A new deal in NSW.

The current retail deal expires in 2033 (the long-term licence goes until 2097!) but is under review by the state government. There is even more at stake than the upside in profitability delivered by the revised deals in Victoria and Queensland.

As previously discussed, there are two key pieces of NSW legislation which act as a corporate blocker for Tabcorp. They prevent one party from holding more than 10 per cent ownership of the ASX-listed company.

Asked about the NSW deal during an earnings call last week, McLachlan said it was a complex process.

“Reform in New South Wales is a huge priority,” he said.

“It’s difficult. It’s a long-term deal, but for the company, reform is critical. It’s a licence that was constructed in the ’90s and a lot has changed in the market through that period and I think that context everyone knows.”

The new CEO has said the company has been pursuing that deal “assertively”.

“I can’t comment too much about the process, but we are involved in a process with the New South Wales government,” he said.

“There is a submission as part of that process in front of Treasury and that we are actively engaged with all three codes involved in New South Wales racing and I think we’re involved in constructive discussions with them, speaking regularly and they are looped into that reform process.”

NSW treasurer Daniel Mookhey initially said the review would be done by the end of 2024, but with that deadline now passed, a timeline for a resolution is unclear.

Then there is the other holy grail for McLachlan and his new executive team, a national tote.

HKJC executive Michael Fitzsimons has yet to begin in his role as chief wagering officer, but undoubtedly the logistical and political challenges of combining all three Tabcorp-operated tote pools into one will be high up on his agenda once he starts.

There are obvious upsides in establishing a national tote, namely increased liquidity which will prompt greater confidence and greater pools as well as integration internationally, plus technological efficiencies, but arguably of greater importance is the symbolic aspect of it.

There are few effective national mechanisms in racing, and for Tabcorp to put the tote up as a unifying force would be a massive feather in the cap of McLachlan and his new regime.

It is something he is acutely aware of.

“I am committed to creating a national Tote. We’re working closely with all states to make this a reality,” he said last week.

“It’s a complicated journey and will take time, but the opportunities to increase liquidity and create more global pools and new products are significant with a national tote, and it has to be done.

Asked further about the strategy, McLachlan said it involved three aspects.

“There are regulatory, stakeholder and technology things we’re working through. They are being done in parallel,” he said.

“There’s a whole series of details in terms of things to get there around take-out rates being unified, a whole series of complicated things that need to be worked through.

“But the vision is then we get to utilise that for product innovation to benefit the customer, and we can play it through our assets and play that out internationally.”

The tone in McLachlan’s voice when he talks about the national tote indicates how important it is. It is more than just the outcome, it is what it says about the new regime’s ambition and competence.

The challenge is likely to be made slightly more difficult by the pending departure of Racing Queensland CEO Jason Scott, a fierce advocate for merged tote pools.

Will it be a panacea for a punting public, who are enduring increasing margins and are reducing their spend accordingly? That is yet to be proven. But given how core it seems to the new CEO’s strategy, Tabcorp’s success or failure to implement a national tote will likely define the early success of the McLachlan era at the wagering giant.

National significance – Why a single tote matters so much for Tabcorp and Gillon McLachlan

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