Matt Williams, head of Australian equities at Airlie Funds Management, said he made a mistake in expecting a recovery in the betting market.
“This was a turnaround position in the portfolio that I was very misjudging. The environment for all industry players has fallen more than we would have historically expected,” Williams said. “Tabcorp seems to have a bit of a cost problem, but the positive side is that we have a new CEO who is very well qualified. The market today is not thinking too much about the medium or long-term potential.”
Mr McLachlan indicated he would focus on making money from the assets unaffected by potential regulatory changes, including Tabcorp’s Sky Racing television channel, its 4,000 betting shops and its mobile app. He did not give details of his plans other than to say they would “unlock value”.
The assets written off on Wednesday were mostly in NSW and South Australia, where Tabcorp pays about twice as much tax as its rivals in the online bookmaking business. This is because the company has historically had a monopoly on retail betting and the tax rules were introduced at a time when bookmakers such as Sportsbet and Ladbrokes did not yet exist.
Online bookmakers pay an excise tax on a state-by-state basis – Tabcorp pays this tax and additional betting fees. The New South Wales Government is currently reviewing the way it taxes these businesses, but no decision or change has been made yet.
Simon Conn, portfolio manager at Investors Mutual, said resolving the tax issue was critical to the company’s prospects.
Separately, the federal government is preparing a crackdown on online gambling companies, proposing stricter restrictions on advertising during live sports broadcasts and a ban on social media platforms such as Facebook, TikTok, Instagram and YouTube.
“There is a balance to be struck,” McLachlan said. “Tabcorp is better positioned than most companies in this sector and best equipped with its unique assets to handle whatever it may be. There are clearly channels and nuances that we have strong views on and we express those to the government, but by and large our company will adapt.”
Tabcorp reported a 3.9 percent drop in revenue to $2.4 billion for the 12 months to June 30, while profit fell 18.7 percent to $317.7 million. The company’s net assets are now $1.4 billion – its market capitalization is $1.1 billion as of Wednesday afternoon.
Mr McLachlan said he could not see any change in market conditions in the run-up to the spring carnival. “It will change, there will be a bottom. But right now most companies that have the necessary spending are feeling the impact of high interest rates and inflation.”
Mr Conn of Investors Mutual said he expected the market to recover faster than planned as other sectors – such as retail – had recovered. But what frustrated him most was the cost. “I thought they set the cost quite high, so I was very disappointed when the cost went up,” Mr Conn said. “Inflation is a problem, but $20 million is a huge cost increase in half. Very difficult to understand.”
Taylor Collison analyst Andrew Orbach said larger bookmakers such as Tabcorp and its international rival Sportsbet underperformed last year, while smaller firms such as ASX-listed PointsBet gained market share.
“Tabcorp needs a second brand. The TAB brand will not resonate with 20-year-old sports bettors. Ever,” Mr. Orbach said in a note to clients.
Tabcorp holds a 20 percent stake in Dabble, an app that allows customers to copy bets from friends or other people they follow. Mr Orbach said the group would have to consider acquiring another company within the year. “(They) need it for brand, team, technology and scale reasons. Seems obvious,” he added.
The findings are the first for Mr McLachlan, who succeeded Adam Rytenskild. Mr Rytenskild left the company in March after the board launched an investigation into whether he made inappropriate comments about a female Victorian regulator.
Mr Rytenskild said he did not remember making the comments and has since sued Tabcorp at the Fair Work Commission, claiming he was unfairly dismissed. He received a $500,000 severance payment, bringing his compensation for the year to $3.3 million.
