WEEKEND READ: IAS may be smart bet

Veteran bookmaker Mark Read is a natural-born actor. Back 30 years ago, when horse racing was the biggest game in town, Read ruled Australia's betting rings at the tender age of 28 by being the most theatrical bookie in Australia. Even now he's full of stories about what he calls "the golden age”.

Like the time Rupert Murdoch and Kerry Packer were both at his bookmakers stand in the Flemington betting ring, haggling over bets. "I told them they'd missed the good prices and they could take what they were offered,” Read recalls.

Or the time during the 1978 Melbourne Cup Carnival when he took more money in bets than the on-course tote.

Or about his battles with legendary gambler Michael Pitt, a hosiery magnate who reportedly bet $500 million during his 47 years on the punt and still bet up to $1 million on a single race day right up to the age of 85.

Read can certainly spin a yarn, but there's no joking around when it comes to the fate of his listed gaming company, International All Sports. The company, which Read founded in 1996 and listed in 1999, is up for sale.

IAS is very much Read's baby, but its performance has been disappointing. The shares listed at $2 in 1999 and are trading around 35 cents today. Read is brutally honest about the reason company needs a new owner – it's him. "I've had a good go. But I'm not getting any value for my shareholders here.”

Ironically, Read says IAS, which reported its half year results this week, has finally matured. It reported a net profit of $481,000 for the six months to December 31, 2007, compared with a loss of $8.73 million in the previous corresponding period, which included abnormals of $7.93 million. While the company's small offshore businesses are still making losses, the Australian business is performing particularly well: EBITDA was $7.48 million in the first half, compared with $7.84 million for the entire 2007 financial year. "This is the best business in Australia,” Read says.

That may be so, but the market stopped listening to Read a long time ago. IAS has simply made too many mistakes. Read says the company has been unlucky. But he qualifies that quickly. "Bookies don't believe in bad luck, we believe that luck runs in cycles.”

Read started IAS after watching his on-course bookmaking business decline with racetrack attendances. His idea was to create a corporate bookmaking business and allow punters to bet on a greater range of products, including sports betting. After being refused licences in Victoria and New South Wales, Read eventually got a licence in the Northern Territory in 1997.

Almost immediately, the slanging matches started between IAS and the newly-privatised Tabcorp (in Victoria) and TAB Limited (in NSW). The TABs accused Reid of piracy by taking bets on racing in Victoria and NSW without making a contribution to the funding of those states' racing industries. Read accused the totes of being afraid of competition.

Read listed in the company in 1999 in preparation for a bid for the Northern Territory's state-owned totalisator operation, NT TAB. Read says IAS was certain to win the bid until the southern states put pressure on the NT government to award the licence to TAB Queensland. Not long after, legislation was passed in most states making it illegal for IAS (and other corporate bookmakers from the Northern Territory) to advertise. IAS's momentum was shot.

More bad luck struck in 2006. IAS acquired listed wagering company Canbet in 2004 in a bid to get access to its lucrative US business. But in October 2006, the US Congress suddenly announced legislation preventing banks and credit card companies from process payments for online gambling. The effective ban on US citizens gambling online destroyed IAS's hopes for growth in the US market.

Of course, some of IAS's bad luck has been of its own making. In 2004, IAS was sued by the Commonwealth Bank after Kim Faithfull, manager of the bank's Karratha branch in the Pilbara mining district of Western Australia, was jailed in for stealing almost $19 million from the bank. The bulk of the stolen money was used by Faithfull to place bets with IAS. CBA alleged the company knew that the income Faithfull got from his job with the bank could not have supported his huge betting.

IAS denied the allegation and Read says the company was not at fault; it thought Faithfull was either a member of one of the region's wealthy mining families or an agent placing bets on behalf of a big punter.

The damage to IAS from the legal battle was huge. In late 2006, IAS settled with CBA for $7 million in damages and $1.3 million in legal costs. Even worse, two years of management time and $2 million in lawyer's fees were gone.

Read says the recent improvement in IAS's results prove that the business finally has a strong, stable customer base and the sort of scale needed to produce good profits – technology is the big cost for an online betting operation, but this cost won't rise, even as the operation wins more customers. He is expecting strong interest in the business from local players looking to add more bulk to their operations and overseas buyers looking to expand into Australia.

His aim is to get $1 a share for IAS, which, based on forecast EBITDA for 2007-08 of about $12.5 million, would value the business at $66 million, or just over five times EBITDA.

Given the company has a market capitalisation of just $23 million at present (less than two times EBITDA), Read appears optimistic. But as he points out, IAS's listed competitor Centrebet has a market capitalisation of $141 million, or around 10 times earnings. What Read needs is a few bidders fighting over IAS.

Read says his next challenge is bookmaking in Asia, where the sports betting market is enjoying explosive growth, driven by European soccer. "I'm a mountain climber,” Read says. "It's a beautiful view up here, but where's the next mountain?”