What price a winner?… By Bruce Clark

What price a winner?… By Bruce Clark

So, you missed out on making the Business Review Weekly Top 200 list again this year? No problems – you are in good company, but there are plenty in racing with plenty of companies who did make it. The disclaimer is they didn’t make the list because they made it from racing, indeed their “investments” in the sport may have had slight negative (being kind) impact on their bottom line, but then they can afford it. After all, racing and economics rarely collide via rationality.

And it’s been an issue these past three weeks as the Australian Competition Tribunal hears discussions for and against the merger of wagering giants Tabcorp and Tatt’s and their $11b wager. Final submissions went before Judge John Middleton, today – Friday

Sadly, what has not been heard much has been the voice of the customer, you the punter and your bottom line. So you can look on at Kerry Stokes zooming up to No 14 on the BRW list worth $2.9b and he goes in under a racing figure under Seven West Media, of course racing.com’s joint venture partner and an ‘intervener” this week in the merger.

In layman’s speak they don’t want it to happen.  Why?

Lessens their chance at new media rights was the argument offered by racing.com CEO Andrew Catterall told the ACT this week. This is the same week racing.com announced new wagering partners, Ladbrokes gone, original major partner CrownBet taking Saturday only and would you welcome Sportsbet to the emerging Thursday and Friday night product and Bet365 taking the remainder. That’s competition surely? It has been written elsewhere that racing.com were “hawking’ minor days to anyone prepared to pay.

Add to that the announcement today of television rights for South Australian racing for the next seven years. They sub-licensed the vision back to Sky Racing to ensure it remains on the chocolate wheel that is Sky 1, but it will be racing.com’s responsibility to enhance and grow SA product, hopefully not at the expense of their own product. And what should be the question is if (when) racing.com acquires the SA rights what are the wagering linked returns to the Victorian racing industry or is this just simple content fill (scheduled five minutes after most Melbourne metropolitan races on a Saturday), or a revenue earning strategy for future growth? The understanding answer is nil.

“The proposed acquisition(Tabcorp/Tatts) is likely to result in a substantial lessening of competition in the acquisition of media rights,” wrote Catterall in a submission to the tribunal.”

So now with SA rights, racing.com, was keen to chase more.

“Post acquisition – Tabcorp/Tatts/Sky will have more power to leverage its wagering joint ventures with [racing authorities] to obtain more favourable media rights deals in seven of eight of Australia’s racing jurisdictions,” he said.

“This will occur, for the first time, in the four jurisdictions (Queensland, South Australia, Tasmania and the Northern Territory) in which Tatts holds the monopoly totalisator rights and related retail monopoly rights.”

Racing.com is currently showing premium Brisbane winter carnival meetings, which impacts its premier Melbourne metropolitan coverage, and again it is understood there is no financial benefit to the Victorian industry in doing so.

Full Queensland rights are up for negotiation in 2020, while NSW, who has a locked in wagering contract with Tabcorp (owners of Sky Channel), until 2097, has their wagering rights “available” in 2025. Insert your (short) odds here where you think they will land.

Tasmanian vision rights are up in 2026 (wagering with Tatts until 2062), Perth is ‘contestable in the next decade) and on it goes.

At this week’s hearings the racing industry’s economic expert, Tom Hird, raised the issue of vision at the hearing suggested Tabcorp’s monopoly position gave it market power in retail wagering venues and removed a market for a new entrant.

But let’s get back to you the customer and the possible or likely outcome on you the punter with an approved merger. Prices will go up! That means you will receive less for your winning dollar and the new entity’s shareholders will receive more for their shares. Don’t worry, you come second here.

And punters hate running second. (Unless if there is a protest payout).

In his own words Tabcorp’s commercial development boss Doug Freeman told the hearings, that Tabcorp planned to ‘increase take out rates on certain days, decrease them on other days”.

He said: “there was likely to be a net difference which we then intended to use that extra revenue to promote more, just like the corporates do.”

Of course, the take out rates would go up on Saturday or major race meetings under what is now known as Project Alfred, as Tabcorp introduce a new software package known as “Longitude” which may generate “2m-$3m” in extra profits for Tabcorp (and its shareholders)

CrownBet’s Matthew Tripp told the hearing punters would be charged more if the $11bmerger proceed (with alleged $130m in synergies and another $50m flowing back to the industry).

“Tabcorp wants punters to pay the price for the merger through worse odds and service,” Mr Tripp said. “If the merger goes ahead, the price of wagering services will rise and irreversible changes to the market will stifle competition.”

Naturally Tabcorp rejected the claim.

“The take-out is a minor factor in the indicative dividend,” Freeman told the ACT hearings in Melbourne last week. “The amount of bets on those horses is by far the most significant driver of that price.”

“The take-out is not where competition happens in the parimutuel [tote betting] market. The actual indicative dividend is what the customer looks at. The key driver of the indicative dividend is the amount of investments on each runner in the race. So if there’s a large number of bets on a horse in a race, its price will be lower.”

Among its public benefits arguments, Tabcorp has claimed at least $50 million in additional funding would flow to racing authorities across the country each year as a result of the deal.

Here was nothing more indicative that punters would be first called victims of the merger via a price gouging as indicated by Tatt’s CEO Robin Cooke to the Tribunal.

In submissions put to the hearing: “It is made clear that the expected improvement in yield is 2.6% (from 12.1% to 14.7%) of Tatts FY16 fixed odds revenue. Tatts Groups fixed odds sales (amount staked) was $1.97 Billion in FY16. At an average yield of 12.1%, that amounts to $238 million gross gaming revenue in FY16. “An increase of 2.6% in yield equates to an increase of approximately $61.8 million of additional gross revenue if that yield were applied to Tatts group’s FY16 fixed odds turnover.

In layman’s terms then, Tabcorp is claiming that the ability to extract an additional $61 million per annum from fixed odds punters placing bets with Tatts post-transaction, or – put another way — the ability to impose a 21% ‘price rise’ on Tatts fixed odds punters. Surely that is hardly a ‘public benefit”?

No matter, it is clear, punter management will increase when Tatt’s gets hold of Tabcorp technology and the price of the punt will increase with it.

The more alarming feature is when Tabcorp internationally pools and take-out rates reach up to 40% or the lesser of 40% or the maximum commission applying in the local jurisdiction.”

Those jurisdictions now extend to South Africa, Singapore, Hong Kong, Germany and other growing markets.

What this means is the price of racing to its customer goes up, and at a time when competition increases and is more attractive from sports betting and other product.

Sadly, racing officials do not think the majority of their customers are “price sensitive”.

Perhaps they are sadly right but at the same time they under estimating their own customers for other commercial relationships.

And whilst this happens, a new player quietly emerges with lower takeout rates, – the Global Tote, an arm of TopBetta and licensed to Ladbrokes.

The Global Tote was seeking the support of other corporate bookmakers before its soft launch but promotes reduced takeout rates, as low as 12%

“Currently, tote markets in Australia take out 17%-25% from the pool before paying out winnings to those lucky punters who find the winner,” said TopBetta in their launch of the Global Tote.

“Such high percentages have rendered tote betting somewhat uncompetitive in the modern wagering landscape, which is dominated by online-based corporate bookmakers and fixed odds betting”.

“The Global Tote will only take out a maximum of 12%, leaving a greater portion of the pool to be distributed to punters who backed the winner.”

In the meantime, punters will keep punting, the industry thinking they accept “any price a winner”.

 

PS: Here are Racing’s BRW top 200 team

14 (up from 27): Kerry Stokes (7 West Media) $2.9b

16 (14) David Hains (Investment Portland House Group) Kingston Town $2.55b

21(19) Gerry Harvey (Harvey Norman/Magic Millions ($1.9b)

28 (35) Nigel Austin (Cotton On/Rosemont Stud) $1.89b

48 (44) Bob Ingham (Enterprises) $1.19b

54 (50) Jonathan Munz (Reliance Worldwide) Pinecliff $1.10b

63 (53) Bruce Matthison (Property Investments/Entertainment) $943m

81 (69) Lloyd Williams (Hudson Conway) $784m

99 (91) Paul Fudge (Coal Seam Resources) Waratah Thoroughbreds) $663m

137 (149) Grahame Mapp (Investments) $523m

138 (99) Bryan Dorman (Regis Health Care) $522m

143 (131) Kevin Maloney (Mining Services) Segenhoe $499m

155 (188) David Paradice (Funds management) $479m

158 (174) Gerry Ryan (Jayco, Orica Green Edge) $473m

159 (139) Bruce Neill (Finance) Cressfield Stud $472m

172 (155) John Singleton (Advertising) – (Strawberry Hill Stud) $450m

 

And for your records, some takeout rates

SuperTAB        (Vic)                                        NSW

Win:                 14.5%                                      14.5%

Place:               14.25%                                    14.25%

Quinella:          17.5%                                      17.5%

Exacta:             20%                                         20%

Trifecta:           20%                                         21%

Quaddie:          20%                                         20%

Big6;                25%                                         25%

First4:              22.5%                                      22.5%