Changing times make WA TAB a hard sell

Analysis: Should the WA TAB be pulled off the market for a third time in the coming months, it would be no great surprise. Buyer enthusiasm for Australia’s last state-owned TAB has taken a major hit thanks to the various headwinds impacting the wagering industry both locally and globally.

After Tabcorp walked away last month, saying the terms of the deal didn’t add up, the other most likely suitors, Entain and Sportsbet, look increasingly unlikely to chance their hand given their circumstances, plus the broader sentiment of the Australian market.

Entain’s global challenges, which include a 2023 financial result featuring a £842 million ($AU1.6 billion) pre-tax loss, are likely to prove an impediment to any further major investment in Australia.

That result included a £190 million ($AU368 million) impairment on its Australian business as increased taxes and declining wagering turnover clipped the wings of growth which has marked the pandemic era for the parent company of Ladbrokes and Neds.

It was even reported in the aftermath of those results that Entain had commissioned consultancy firm Moelis to look at which of its international operations may be best placed to be sold off.

The Australian business has been mentioned in dispatches, but leaving that aside, it shows Entain in selling rather than acquiring mindset as the global business still searches for a new chief executive.

The last one, Jette Nygaard-Andersen, was heavily criticised for being too focussed on mergers and acquisitions.

Entain’s message from its global results announcement was clear. It sees its New Zealand TAB deal, struck in May last year, as key to the future prosperity of its Australasian business. It does not appear in the type of mood to take a leap of faith with the WA TAB, which doesn’t have the market protections achieved in the NZ deal.

It’s interesting how quickly times have changed. Entain was willing to still deal on the WA TAB in late 2022 when a deal with BetR fell over at the last moment.

It wasn’t willing to match the reported $1 billion that BetR put on the table but would have made a considerable investment if the WA government was amenable. It wasn’t and BetR walked away from the process.

Had that progressed, you wonder if Entain would have then backed up with its 25-year-deal in New Zealand, which was valued at around the same amount. But NZ got the deal done, unlike WA, and that relationship is seen as a key part of the strategy moving forward.

Sportsbet has been an on-again, off-again suitor for WA TAB, but a move at the current market valuation appears off the cards, with parent company Flutter seemingly having enough on its plate on a global level.

It has recently been listed on the New York Stock Exchange pointing towards an American-focussed strategy. It grew its revenue in the United States, where it owns brands such as Fanduel, by 38 per cent in 2023, while the Australian business shrunk by eight per cent (three per cent when accounting for currency) in the same period.

There is still plenty of faith from Flutter in Sportsbet, which has around 48 per cent of market share, and it recently announced a multi-year sponsorship deal with South Australian racing.

Acquiring the WA TAB business would yield some value but there is a question over what the upside would be in terms of customer acquisition given their dominant position in the market.

A couple of smaller players have been listed as possible suitors, namely Pointsbet, which holds around five per cent of the market. However, it would be unlikely to be fishing in that market, and that price range, given it has just exited from America and is talking about increasing the yield from the businesses it has in Australia and Canada.

The other factor in terms of investment from smaller companies is their ability to get the money together to get the deal done. Credit is no longer cheap and the risk appetite of lenders is nowhere near as strong as it was two years ago.

You can’t blame them either. Australian wagering has undergone a 10-12 per cent decline over the past 12-18 months, while the likelihood of increased regulation, especially around marketing and promotions from the federal government makes it unsteady ground to try to build a business case on.

A marriage of inconvenience: Will the WA TAB find its wagering soulmate?

Reports that Tabcorp has gone cold on a possible bid for the WA TAB are just the latest twist in a decade-long saga, but one that could open up a huge opportunity for Entain in the Australian market, writes Bren O’Brien.

The StraightBren O’Brien

Could Tabcorp come back into reckoning? That was no chance a month ago, but it has had a rather public change of leadership in the past week, with the departure of chief executive Adam Rytenskild.

Strategically, it would make most sense for Tabcorp to complete its retail and parimutuel monopoly, but it is set to fork out $600 million for the Victorian deal it struck in December. Given the scrutiny on the company from investors, finding enough down the back of the couch to get WA on the ‘green team’ seems a long shot.

It appears if the WA TAB is sold off on this occasion, it will have to be at a very enticing price.  

The mythical $1 billion valuation from the BetR deal is long gone and the only way Barrenjoey, which is co-ordinating the deal on behalf of the WA government, will get a deal done is to make the terms much more favourable to any buyer. Selling in a sliding market is perilous politics, especially for a relatively new premier who is facing an election next year,  

The New Zealand/Entain deal shows how important sentiment is for these types of arrangements. Both parties need to get the feeling they are doing well out of the arrangement.

The fact remains that the WA government doesn’t need to sell its TAB. The local racing industry is healthy and confident, investment in bloodstock is strong and prize money is relatively well placed.

While a third failed sale process after 10 years of trying may seem a backward step, it may prove prudent to wait for the potential buyers to wade out their current challenges and try for a fourth time.