Tabcorp’s Q4 Report Disappointing as New Competition Appears

Sunday, February 11th, 2018 | Written by April Bergman
Tabcorp’s Q4 Report Disappointing as New Competition Appears

Despite changes to Internet wagering regulations designed to help Aussie gaming operators, Tabcorp’s 4th Quarter results were disappointing, causing a 7% dropoff in stock prices after the Q4 2017 report was announced this week. The Australian mega gambling company’s CEO said he expects the incoming competition from online sports-betting rivals to remain fierce.

Tabcorp was one of several big Australian gambling companies which sought the passage of the Interactive Gaming Amendment 2016, which the Australian Senate finally passed in August 2017. The new law forced publicly-traded international gaming companies to stop operating in the Aussie gaming market.

The move was designed to eliminate competition for Tabcorp, Tatts, Crown, and others.

Instead, the new laws forced out companies which were taxed on their revenues, while it lacked the teeth to force unregulated offshore online casinos to leave Australia.

Many Aussie online gamblers preferred to take their business to the offshore sites. Because those sites do not pay Australian taxes on their gaming revenue, Tabcorp and other land-based monopolies now face competition from companies with a better competitive advantage than before.

Tabcorp Poor Q4 Report

In most Australian states and territories, Tabcorp seems omnipresent. The company runs lotteries, digital betting services, and exclusive retail betting in every state except Western Australia. After a $4.7 billion merger with Tatts Group late last year, Tabcorp announced poor results in the 4th Quarter of 2017.

After the announcement, Tabcorp faced the company’s biggest daily share price fall in five years. Merger costs were to blame for part of the revenue hit. Tabcorp also did not hit the expected mark on online gaming revenues, as the company’s stocks took a hit on Thursday as it has faced fierce competition online.

Not accounting for the company’s one-off items like the purchase cost of Tatts, Tabcorp said their net profit fell by a fifth bringing it to A$82 million ($64.1 million) for the six months end time period. Tabcorp missed its average analyst forecast of A$89 million.

Gabriel Radzuminski’s Analysis

Founder Sandon Capital, Gabriel Radzyminski, said online bookmakers had “changed consumer behaviour to the point where there’s little value in physical betting operations”.

“This reflects why Tabcorp wanted to buy (Tatts) so much, because it gave them that lotteries business and strong, stable earnings contribution.”

Thus, the long term news should be positive, but short term results are ugly. Tabcorp shares took a hit of as much as 7% by mid-session, making it their biggest decline since 2012 as well as making the company the biggest loser in a rather flat S&P/ASX 200 index.

Though the company’s wagering unit, responsible for three-quarters of sales, saw a slight growth of just 1.4 percent, the division’s pre-tax profit took a large drop of 11.6%. One of the most significant losses for the gaming company was its statutory net profit, which fell 58 percent.

David Attenborough’s Positive Spin

Tabcorp CEO David Attenborough tried to spin the financial news. In a statement, Attenborough said, “This was pleasing in a highly competitive wagering market in which competitors aggressively pursued customer acquisition ahead of regulatory change. The wagering business has made strategic investments in digital commissions and venue partnerships.”

Tabcorp’s one-off costs included a AU$49 million contract provision, as well as a AU$4.3 million charge for Sun Bets. Sun Bets is a loss-making British online betting site that partnered up with News Corp.

Tabcorp mentioned that Sun Bets’s performance was “unsatisfactory” and has been currently reviewing the company. Tabcorp cut its interim dividend from AU13 cents per share, down to AU11 cents.

An Unexpected Outcome

Tabcorp and its domestic operators expected when it pushed out publicly-traded companies like 888 Casino and Ladbrokes, it would have less competition. Instead, a wave of privately-owned offshore operators rushed to fill the void.

Many of these operators have solid reputations in the online gaming community, so Australian casino players have the option to play for real money at Ignition Casino, Las Vegas USA Casino, Black Diamond, Box24 Casino, Drake Casino, Club World Casinos, Aladdin’s Gold, Slotastic, All Star Slots, and Betfair Live Casino.

Meanwhile, new offshore online casinos launched in 2017, such as MagicRed.com, which offers big bonuses, new technology like live dealers, and 3D video slots using HTML5 technology. Online casinos designed for Australian players — such as Joe Fortune Casino, Emu Casino, and ComeOn Casino — have high ratings on player-reviewed sites like Ask Gamblers, so Aussie gamblers have no reason to fear signing up with such operators.

Offshore Online Bookmaker Sites

Whatever competition the online casinos might provide to new launched by companies like Crown Limited, it is the online sportsbooks which provide the toughest competition for Tabcorp.

David Attenborough, said the company’s share was a direct result of the markets take over by lush promotions and incentives that are being handed out by largely foreign-owned online bookmakers. Attenborough said that he was committed to Tabcorp’s wagering revenue growth.

“Leveling the Playing Field”

Tabcorp was “well-placed” in front of new state-based digital betting taxes of nearly 15% that will be applied to corporate bookmakers. This will help to “level the playing field”, according to Attenborough.

Tabcorp’s chief executive added, “The way I look at it, this means they [corporate bookmakers] will start to pay more for offering gambling products in Australia, and that will, by its very nature, at least reduce some of the money they are piling into marketing. It’s not a panacea, but it will help. I’d love to see everyone eventually paying the same taxes.”

Point of Consumption Tax

South Australia has recently introduced a 15 percent “point of consumption tax”. This will mean that wherever an online bet is placed, South Australia will now receive revenue on gambler losses (when that gambler is in South Australia). Western Australia and Queensland have announced 15 percent taxes as well.

New South Wales and Victoria do not seem too far behind in doing the same, though they have yet to announce a set tax rate.

Donald Carducci Analysis

Donald Carducci, a gaming analyst from investment bank JP Morgan, said the online wagering environment competition had increased. Carducci said there was uncertainty when it came to the different states’ enactment of the point-of-consumption taxes. He believes that the sudden rush for corporate bookmakers is not as extreme as at first expected.

Mr. Carducci said in his analysis, “The corporate bookmakers will maintain their brand, brand strategy, and product innovation, which they do very well. The difficulty with the [point-of-consumption tax] is no one assuredly knows the quantum of the tax, the timeline for implementation, or if there will be concessions.”

Last week’s half-year results are the first come out since the merger between Tabcorp and Tatts. The now Tabcorp-Tatts company is in the middle of the mega task of combining the two nationwide businesses, their many technologies and the thousands of employees that stretch across wagering, lotteries, media and gaming services divisions.