Wednesday, August 10, 2022

Bookie mega merger still leaves room for growth

Australia’s booming sports betting market is still seen as being attractive to foreign investors despite the merger of local incumbents Tatts and Tabcorp, which are now expected to dominate the market.

The A$11.3 billion (US$8.7 billion) combination was approved in late June after a heated three-week battle at the Australian Competition Tribunal. It was the culmination of a prolonged period of opposition to the deal, which was first announced in October 2016. Despite the approval, the deal is not totally out of the woods with the Australian Competition and Consumer Commission saying earlier this week it will seek a judicial review of the decision.

Opponents to the merger say the combination will reduce competition in the fastest growing area of the market - online and telephone betting. It also comes hot on the heels of new online gambling legislation, which far from bringing Australia in line with international standards, imposed a more restrictive regime.

So is there room for further expansion, or will it lose its lustre for overseas players?

Sports betting has undoubtedly been gaining traction in the Australian gaming market, with growth far outpacing that of pokies or lottery in the country. In the 2014-15 period, total sportsbetting expenditure rose 30.1 percent to A$815 million ($618.5 million), compared to a mere 4.8 percent increase in EGM expenditure in the same period.

"The massive growth in sports betting is unrivalled, I think, in the history of Australian gambling,” said Dr Charles Livingston, a gambling researcher at Monash University's School of Public Health and Preventative Medicine at the time.

"I think this latest surge of growth is really directly attributable to the massive marketing and advertising campaigns that the online bookies have been engaging in in the last few years... fuelled by the takeover of local bookies by international operators,” he said.

Tabcorp has argued that the merger would help fight against the increasing competition from corporate bookmakers, as punters move away from brick-and-mortar gambling towards online and mobile punting.

It said that corporate bookmakers had doubled their turnover in the last five years, commanding more than $12 billion in national turnover, which amounts to about 40 percent of the wagering market.

Counsel for Tatts Group, Rod Smith said the wagering market had come to be dominated by global gaming powerhouses.

“The parents of these corporate bookmakers, if one puts aside CrownBet, are substantial overseas operators. Paddy Power owns Sportsbet and it's one of the largest online wagering operators in the world.”

"Ladbrokes is involved, William Hill is involved, CrownBet is owned by Crown Resources, which has a very substantial market capitalization,” Smith was quoted as saying by local media.

The wagering giant also toted a number of public benefit arguments for the proposed merger, including at least A$50 million in additional funding that would flow to racing authorities each year as a result of the deal.

Smith raised the prospect that if the merger were not to go ahead, the decline in the tote business may make it impossible for Tabcorp to continue supporting the racing industry through large payments to racing bodies.

Opponents were equally as vocal in condemning the deal, saying it will ultimately hit the consumer.

Gregory Houston, founding partner of HoustonKemp Economists argued that the competitive detriments from the merger would outweigh its “limited public benefits.”

“My analysis shows that the proposed transaction will lessen competition in a large, and the fastest-growing, part of the national wagering market, being the provision of online and over-the-telephone wagering services,” he said.

Houston, who was hired by CrownBet’s lawyers, MinterEllison, to produce an economic report on the deal said the merger would serve to reinforce the structural advantages the two already enjoy.

“The combining of two forms of structural advantage available to the merged entity only through the leverage of monopoly rights and exercise of market power will cause much greater long-term detriment to prices and output,” he said.

CrownBet chief executive Matthew Tripp argued that the reduced competition in the racing and sports betting markets would allow the combined entity to raise commissions, effectively reducing prize money for winning gamblers.

"If the merger goes ahead, the price of wagering services will rise and irreversible changes to the market will stifle competition,” he told the Australian Financial Review.

Sportsbet chief Cormac Barry said a combined Tabcorp and Tatts Group would snap up around 60.3 percent of the market’s gross profit and gross revenue, which would exceed all other Australian wagering operators combined.

There are also concerns that the merger would increase the monopoly power of Tabcorp-owned Sky Racing, with opponents arguing that the proposed merger could continue the “lockdown” of racing’s valuable media rights., a joint venture between Racing Victoria and Seven West Media, said in its submission that the merger would make it very difficult for the broadcaster to compete against Sky.

Yet, other industry commentators believe that arguments against the merger may have been exaggerated and say they still expect Australia to be an attractive proposition for online gaming companies.

The Tribunal in its judgement said the that the declining market share of both Tabcorp and Tatts, particularly in retail and pari-mutuel wagering, where it holds exclusive licenses, meant that the merged entity will still face substantial pressure, contrary to what opponents have said.

Jamie Nettleton, Partner at Addisons, says he believes Australia will still be an attractive location for foreign bookmakers, even post merger.

“There is no doubt that the Australian gambling landscape will change materially as a result of the Tabcorp /Tatts merger,” said Jamie Nettleton, Partner of Addisons Lawyers.

“Despite the above, Australia is still viewed internationally as a favoured jurisdiction for online gambling and I anticipate further operators making enquiries about the availability of an online licence.”

“The proposed merger is consistent with the trend towards ­industry consolidation, with the merged entity reaching a sufficient scale to compete,” said the tribunal in its conclusion. “Trends in consumer preferences for online, fixed-odds and sports wagering will not be turned around by this merger,” it added.

Asia Gaming Brief is a news and intelligence service providing up to date market information for worldwide executives on relevant gaming issues in Asia.

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