Tabcorp is seeking to use the review of its New South Wales licence and funding arrangements with the racing industry to resolve two key blockers for investors in the ASX-listed company.
A review into Tabcorp’s current funding deal was announced by the New South Wales treasurer Daniel Mookhey in June, with a loose deadline of the end of this year to resolve whether the current Tabcorp deal, which expires in 2033, should be revised.
While that review comes with the prospect of a rise in the Point Of Consumption rate to 20 per cent in New South Wales and a shake-up of the way Tabcorp helps fund racing, similar to what has already evolved in Victoria, there is also another possible upside for Tabcorp on a corporate level.
Tabcorp, whose new CEO Gillon McLachlan started in his role last month, is also pursuing reform which would see two key pieces of New South Wales regulation changed or removed.
They currently prevent one party from holding more than 10 per cent ownership of the ASX-listed company.
“Reforming legislative and license requirements related to wagering, including the requirements to enter into an agreement with the racing industry and 10 per cent shareholder cap,” was at the top of the agenda in the June announcement.
The current restrictions were highlighted by Tabcorp only last week when Magellan Financial Group upped its stake in the company to 6.7 per cent. It prompted a clarification from Tabcorp in its corporate release.
“There are a number of restrictions applying to shareholdings in Tabcorp, which arise under legislation, requirements of various regulatory authorities and in the company's constitution,” the Tabcorp statement said.
“In particular, the company's constitution (to be read in conjunction with applicable legislation) contains restrictions prohibiting a person from having voting power in the company in excess of 10 per cent without obtaining the written consent of the relevant government minister in NSW.
“In addition, legislative change to the Totalizator Act 1997 (NSW) (and related legislation) would also be required in order for a person to hold in excess of 10 per cent of the shares in the company (or the NSW Wagering Licence holder, TAB Limited).”
The second of those regulations relate to Tabcorp’s takeover of TAB Ltd in 2003. Under that deal, the NSW government removed the 10 per cent requirement but re-imposed it after the $2.3 billion deal was signed.
That deal gave Tabcorp around 80 per cent of the Australian wagering industry.
How things have changed.
In its annual report last week, Tabcorp, which holds a near monopoly of retail betting in Australia having merged with Tatts in 2017, stated it held 21.6 per cent of turnover of the digital wagering market.
Warwick Barr
Its New South Wales business is in particularly difficult circumstances and played a major role in the $1.38 billion impairment which drove a $1.36 billion loss in the 2023/24 financial year.
“Obviously the vast majority of the impairment is a result of where we are in New South Wales. On a pre-tax basis, the impairment was around $100 million in assets and it also accounted for most of the goodwill impairment,” chief financial officer Mark Howell said in last week’s earning call.
Since that announcement last Wednesday, Tabcorp shares have dropped from 56c to 40c. They had peaked in June 2023 at $1.14.
Howell said that a slower-than-anticipated recovery and increased taxation and regulation were the two major contributing factors to the impairment.
One of Tabcorp’s stated goals in its attempts to turnaround the company’s fortunes has been to create what it says is a level playing field in Australian wagering.
It said its new wagering deal in Victoria, which ended the long-term joint venture with the government and extended its retail exclusivity for 20 years, achieved this in that state.
Bren O’Brien
It is estimated that the uplift from the new Victorian deal will be in the realm of $115 million for the 2024/25 financial year.
It is little wonder that it is pursuing similar terms in New South Wales. Its cause in that regard has been helped along by the fact it has resolved its pending legal action with Racing NSW over the Kosciuszko.
However, nothing is guaranteed and Mookhey’s statement in June points to the state government's caution in this matter,
“The NSW government will apply strict scrutiny to Tabcorp’s proposal. Change will happen if it is clear that the public will be better off,” he said.
“Gambling companies should always be paying their fair share.”
The Straight understands that Mookhey has been involved in discussions over the Tabcorp deal since at least the start of the year and a deal in the realm of $700 million was discussed, with a substantial boost in club sponsorship, and even the possible acquisition of Tabcorp properties, on the table.
