AATA conference spotlights co-mingling efforts, illegal gambling challenges

by Gregory Conroy *

The Asian-African Tote Association (AATA), which was established last year to foster relationships between global wagering operators, wrapped up its annual conference in Sydney Sept. 4th- 5th, with leading industry figures providing insight on topics including the potential of co-mingling and the challenges posed by illegal gambling.

Members include wagering operators from Australia, Hong Kong, Singapore, South Africa, New Zealand and many other regions. The conference’s main day on the Friday included presentations from Tabcorp, Hong Kong Jockey Club, Singapore Turf Club, NZ Racing Board and also Australia’s leading telecommunications company, Telstra, as well as ‘big data’ company Quantium.

Tabcorp CEO David Attenborough opened proceedings outlining the strong competitive challenges and progress being made at Tabcorp. The points included:
 

• They represent 53 percent of the Australian wagering market’s total revenue – with the integration of ACTTAB recently completed.
• Retail represents 52 percent of all bets, with soccer (football) and NBA (basketball) very popular, however 80 percent of revenue is still derived from racing, with 15 percent sports and the remaining 5 percent dominated by virtual racing product, Trackside;
• Over 400,000 races are broadcast each year into 2.6 million homes, with Sky Channel in Australia, plus well over 100 countries receiving their exported racing product.
• Their Victorian co-mingling agreement with HKJC will soon be joined by NSW racing – the first external co-mingling approved by the NSW regulator.
• The very competitive Australian wagering market is forcing Tabcorp to get better at what they do – and digital is a major focus of the organization.
• They are developing systems to compete better, although there is a massive disparity between what Tabcorp pays the racing industry compared to the NT based corporate operators, which makes it challenging, especially to bridge the marketing and promotional gaps.
• Their approach will be to seamlessly compete across a wide variety of wagering channels.

Paul Cross, GM of International Business Development was next to talk, his topic was ‘PGI – the Global Gateway Leading the Way.’

PGI is a joint venture between Phumelela (South Africa’s major Totalizator operator) and Tabcorp based in the Isle of Man – which was chosen due to the strategic historical reasons and not for tax treatment which many assume.

PGI is a mechanism whereby many operators who want to co-mingle into other pools around the world and also receive investment into their pools can more efficiently and quickly achieve this aim. Paul outlined the time and cost savings and they are certainly significant.

The idea arose during a meeting in Singapore in 2007, primarily to solve the issue of merging multiple currencies involved in co-mingling pools. PGI can take what would normally take years and cost millions for each linked operator into a much simpler, more efficient and much less costly exercise.

There are many advantages to co-mingling pools, but one of the niche ones is the ability to flatten out country price inefficiencies, often related to local favoured horses and jockeys.

Kim Heng, VP Wagering for Singapore Turf Club talked about their experience with co-mingling. He gave background to STC’s history dating back to 1843, but the major take-away was the ability for co-mingling to allow diversity and reduce local risk to STC’s operators.

This was born out with three recent examples: the impact of new local gambling options in Singapore; the impact of an enforced downturn in Malaysian Racing’s produce due to equine influenza and the impact of favourite bias and following affecting the dividends returned to punters for exceptional horses and jockeys.

The ability of co-mingling to temper these otherwise difficult periods for any tote was very stark. It provides the opportunity for STC to increase their product offering and also bring in increased liquidity.

Some of the other insights were:

• The emergence of South Korea.
• The increased customer sophistication from exposure to more racing product which provides increased satisfaction.
• The threat common to a few Asian organizations of illegal operators across the internet.

Richard Cheung, Executive Director Customer and Marketing for HKJC spoke about the efforts to tackle illegal and pirate operators.

He provided extensive background and figures on the illegal operators that ride off the back of HKJC’s world-leading product, but can offer a superior price over the internet without the need to provide taxes and returns to government.

A telling graph showed how offering rebates to the higher-level players by HKJC has reduced the margin of return to much closer to the illegal operators and has arrested a sharp decline in turnover.

It’s interesting that since HKJC is an effective monopoly they have an above average takeout rate from their pools and illegal competition has thus provided an incentive to price their product at a much more generous discount.

One strong point was the effect on reducing their sports takeout over about five years from 17.9 percent to 14.3 percent - this improved gross margin returns from $7.16 billion to $11.2 billion.

There is a strong argument that perhaps every totalizator operator needs to look at, which is  whether the price of totalizator wagering is too high? What is the optimal price? If HKJC’s figures are a guide it would be closer to their rebate level than their retail level.

This was not a point brought up by Richard per se, but for a student of wagering economics, is it a very important question to ask. And even more telling is how much more revenue could HKJC potentially create if they did price more competitively?

He said that the global illegal market could be as big as US$500 billion  – and this is a figure that even HKJC’s current  $24 billion turnover doesn’t get close to. There is certainly a staggeringly large illegal market and racing administrators have to look at ways to bring that money flow into the mainstream operators.

Providing a more engaging betting interaction experience is certainly a consideration as well as betting options that are difficult for illegal operators to offer.

Gerard Boyle, International Relationships Manager for the NZ Racing Board, presented on their experiences with the product watchandbet – live sports streaming.

It aims to increase turnover and revenue, improve the user experience and directly drive the uptake of new account and customer attention. It’s a CRM platform that automates acquisition, encoding and distribution of content. It was a great insight into another valuable strategy that is being taken up by a number of operators around the world to provide a richer engagement experience to their customers.

Michael Finn, Head of Online Distribution and Luke Stubbles, Head of Digital Technology presented on some of Tabcorp’s initiatives in the digital space. Tabcorp has moved to an agile software engineering space where new features are rapidly prototyped, coded, tested and implemented in two-week cycles.

Their Soccer World Cup site was a detailed example of how a major initiative can be achieved in a matter of six-to-eight weeks.

Having intimate knowledge of this business and deployment of online betting websites I was still not comfortably convinced that agile methodology is the best solution for the critical components of online transaction processing systems, which are at the core of a wagering operator’s technology.

However, it certainly provides a great environment to roll out rapid features which are not core ‘betting options’ to customers.

A tour of the ‘digital retail office of the future’ showed some of the new assets that retail customers of Tabcorp will soon see including the removal of paper-based race-lists to be replaced by portrait style touch screens.

Conclusion: One of the presentations included the slide noting the famous quote by Henry Ford, inventor of the motor car: “If I’d asked the customer what they wanted they would have said a faster horse.” I think this is a valuable thought provoker for those responsible for innovation and new product development in this industry.

Certainly the PGI gateway is a marvelous internal innovation for the wagering operators involved in co-mingling. The benefits of co-mingling are quite clear, although the desire to keep similar take-out rates across jurisdictions should be examined, in my opinion.

It’s evident that the price of wagering should take into account local conditions and the competitive environment.

--
*About the author: Gregory Conroy has been in the wagering and gaming industry his whole career, across technology, marketing and consumer psychology. He is regarded as an ‘internet betting pioneer’, having been on the team that developed the first internet wagering site in the world in 1996 and has worked across totalizator systems as well as betting exchanges. He is inventor of what has been described by the industry as the most innovative wagering product in decades, RewardBet. This product works across Racing, Sports and Casino interfaces. It increases operator turnover by at least 20% as well as significantly uplifting revenue.