Tatts and Tabcorp get a win

The gaming giants appear to have won a temporary reprieve from competitors offering online in-play betting.

Back in the days before the internet and smart phones, punters had to venture down to their local TAB or racetrack to place a bet.

Between them, Tatts (ASX: TTS) and Tabcorp (ASX: TAH) own all the state and territory TABs except the Western Australian TAB (which is now also being privatised) and have benefitted greatly from their monopolies.  

In turn, State governments have done very well from the taxes Tatts and Tabcorp pay whilst the racing industry also benefits from receiving a percentage of monies bet on the races it organises.

Like many industries around the world, however, Australia’s gambling industry is now being disrupted by technology and punters can now place bets via their smart phones from the comfort of their living rooms. To the potential detriment of the racing industry, Australians are also betting more on a whole host of local and international sports.

With a costly retail network no longer a requirement and the costs of developing an app and related software relatively low, it’s not surprising that competition has rising dramatically in recent times. CrownBet – two-thirds owned by Crown Resorts (ASX: CWN) – Bet365 and Ladbrokes are some of the companies that have entered the market seeking a share of the gambling dollar.

Some corporate bookmakers use the Northern Territory's low tax regime to gain a further competitive advantage over Tatts and Tabcorp whereas others haven't even bothered to obtain an Australian licence. Moreover, although in-play betting – where customers place bets after a game has started – is illegal unless you do so in person or over the phone, some companies allow punters to bet in-play online by utilising loopholes in the law. 

O’Farrell report

Not surprisingly, Tatts and Tabcorp have been lobbying the government to level the playing field by banning live in-play betting online, harmonising the tax regime and cracking down on unlicenced overseas operators.

Frankly, who can argue with them? Unfortunately, regulators never work as fast as markets and so the industry has been eagerly awaiting the release of the report by former NSW Premier Barry O’Farrell into the impact of illegal offshore wagering.

Whilst the government is still keeping the report's conclusions under wraps, it appears online in-play betting will be banned at least until the next election and unlicenced foreign bookmakers wont be able to take bets from Aussie punters if a report in News Corp’s (ASX: NWS) The Australian is accurate.

Temporary win

Of course, I doubt Tatts and Tabcorp would oppose online in-play betting if they had a monopoly on it like their TAB licences and management has suggested the companies will begin offering this service should it be legalised.

With the Federal government under its new leadership having trouble making decisions (let alone those that disadvantage someone other than its core supporters, as one wag has noted!), we'll have to wait to see what it ultimately decides.

Tatts appears in better shape than Tabcorp to compete with the new operators due to the former's Lotteries division, although it too is facing increasing competition from the likes of Lottoland that essentially allows punters to bet on lotteries worldwide. However, I wouldn’t be surprised if the companies recommence merger discussions to gain greater scale to compete with global behemoths such as a merged Ladbrokes-Coral and Paddy Power Betfair. Unlike many mergers suggested by investment bankers, the cost synergies from a combined Tatts-Tabcorp are real and substantial.

In any case, Tatts and Tabcorp’s win is likely to be temporary at best and they face a much more competitive and potentially less lucrative future. 

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