Analyst overlooks how CrownBet-ClubsNSW deal can benefit Tabcorp

An investment banking analyst has implied regulatory reforms to the online gambling industry will benefit Tabcorp, but only if the CrownBet deal with ClubsNSW is stopped.

An analyst from CLSA, Sacha Krien, has released an extensive report revealing the planned amendments to the Interactive Gambling Act 2001, as well as other reforms, will favour Tabcorp’s wagering business.

The changes include gambling advertising bans – a plan to phase out these ads will be enforced if the Interactive Gambling Amendment bill 2016 is approved.

A national point of consumption (POC) tax and bans on credit card use is also being considered, though it has not been included in the IGA bill.

Online bookmakers have been targeted during the debate over the legislative changes, but they won’t be made illegal as offshore online gambling sites will be. Regardless, they will still be significantly impacted by the reforms.

CrownBet is one digital wagering company which has been proactive during the long legislative process. James Packer’s online bookmaker has extended its operations to the retail landscape, threatening Tabcorp’s wagering exclusivity.

“The market share gains of the corporate bookmakers relative to the incumbent retail TABs suggests those operators have over the last 10 years disproportionately benefited from what has been a largely deregulated wagering market with ad hoc legislation across different states,” Krien said.

The Turnbull government is expected to introduce the reforms which will no doubt be supported by Tabcorp.

But Krien believes Tabcorp will not reap the benefits if the CrownBet deal with ClubsNSW goes through.

The deal will see machines installed in registered clubs across New South Wales with owners earning commission for every member who signs up using the CrownBet app in ClubNSW venues.

The deal is why Tabcorp lashed out and threatened to remove all TAB machines from participating CrownBet clubs – which is yet to happen.

Krien said if the CrownBet deal is successful – it is yet to be officially approved – “the risks to Tabcorp and Tatts are material in our view.”

He added Tabcorp will most likely fight the CrownBet deal to retain retail exclusivity by lobbying the government and even through the courts.

“It is not just retail turnover at risk,” Krien said. “To the extent that CrownBet can successfully sign up club members that are existing customers of Tabcorp digital there might also be an impact on digital revenues.

“At the very least you might expect Tabcorp digital customer acquisition, and therefore digital turnover growth, to slow in the event this deal went ahead.”

But Krien may have overlooked the importance of the CrownBet deal in relation to the Tabcorp-Tatts merger.

One of the biggest concerns about the Tatts takeover is weakened competition. While Krien highlights the CrownBet deal with ClubsNSW is a threat, he fails to note it is necessary for the Tatts merger to even be considered.

The only argument supporters of the merger state in their submissions to the Australian Competition Tribunal over the weakened competition is the CrownBet-ClubsNSW deal.

Tabcorp has also created its own digital wagering model which will be implemented within Community Clubs in Victoria and pubs and hotels across NSW Krien believes it “may sign exclusive deals with other retail groups”.

“This is a defensive step against further progress from CrownBet rather than a solution to CrownBet’s existing ClubsNSW deal,” Krien said.

Still, Krien believes Tabcorp’s digital model will earn 16 percent less revenue than CrownBet if both are subject to the same turnover amounts. He added that it increases to 42 percent less if the 15 percent POC tax is introduced.

Online bookmakers are fighting against the POC tax, as suggested by Federal Treasurer Scott Morrison, which is already being introduced in South Australia.

Krien believes the tax will be implemented, noting it would increase taxes from $10 million to a whopping $200 million for the government.