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With Murdoch circling Tabcorp, the only safe bet is on change

Tabcorp has come under pressure to spin-off its wagering business and unlock value in its booming lotteries arm.

Tabcorp has come under pressure to spin-off its wagering business and unlock value in its booming lotteries arm. Credit:Getty

The Sydney Morning Herald and The Age reported on Wednesday that Fox Corp was speaking with other investors about a potential bid for the $10 billion group’s wagering business.

Tabcorp’s Steven Gregg-led board has already been weighing up a bid of around $3 billion for its unloved wagering and media arm from the £9 billion ($16 billion) UK betting powerhouse Entain, which owns Ladbrokes and Neds brand. US private equity firm Apollo is also interested.

Sources said Fox Corp was looking to join a consortium preparing to bid for Tabcorp’s wagering arm including an as-yet unnamed private equity firm and Matthew Tripp, the Australian online bookmaking pioneer with – seemingly – a bet each way in this multi-billion dollar race.

Inevitable move

The Age and The Sydney Morning Herald has spoken to more than 17 large Tabcorp investors, senior investment bankers and leading wagering, racing and media industry figures for this article. Most asked to speak on the condition of anonymity so they could discuss Tabcorp’s future and the Murdochs’ involvement in it candidly, or because they were not permitted to speak to the media.

It was inevitable that the Murdoch family would try their luck in Australia, which is home to its News Corp newspapers, pay TV company Foxtel, and the world’s biggest gamblers.

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Lachlan has also recently approached major incumbent bookmakers about partnering up to launch Fox Bet in Australia – such as Sportsbet (owned by Irish giant Flutter, which merged with Stars in 2020) and Ladbrokes (owned by UK giant Entain). It has also registered a local trademark.

The Murdochs know the Tabcorp business well. They formed the ill-fated Sun Bets partnership with the UK newspaper The Sun in 2016, which broke up after two years of poor financial performance. But Mudoch’s fresh interest in the business could reshape one of the biggest deals likely to play out in corporate Australia this year.

A pretty good “plan A”

Meanwhile, another long-mooted option for Tabcorp is also gaining momentum. Investors have been pushing it to spin-off its wagering business as a separate ASX-listed company, un-picking the $11 billion merger between Tabcorp and the lotteries group Tatts in 2017.

A groundswell of angst has been brewing from major shareholders who believe the benefits of the Tabcorp-Tatts merger were never delivered. With wagering spun-off, they say, lotteries could shine.

That arm of Tabcorp (Tattslotto, OzLotto, Powerball, Keno) has continued to deliver stable and consistent growth through thick and thin, with earnings rising 4 per cent last year despite the COVID-19 pandemic. Macquarie analyst David Fabris says lotteries makes up half of Tabcorp’s earnings but 75 per cent of his valuation.

Meanwhile the wagering business, which is split 50/50 between online punting and its legacy network of retail betting shops and wagering terminals in over 4000 pubs and clubs, continues to lose ground to its purely online competitors.

“A demerger would act as the catalyst for the fair value of the lotteries and wagering businesses to be fully recognised by the market,” says Mark Landau, joint chief investment officer at L1 Capital, one of several major shareholders that have pushed for a Tabcorp break-up. “We believe this would unlock significant upside for all Tabcorp shareholders.”

Tabcorp is still the country’s biggest bookmaker with a 43 per cent share of the almost $5 billion a year market. But is number two behind Sportsbet online, where punters continue to shift.

A shareholder push also led to chairman Paula Dwyer and CEO David Attenborough announcing their resignations in July last year. There is a belief among major shareholders that new chairman Gregg, who is searching for a replacement for Attenborough, is more open to answering their calls to break the company up.

However, some observers warn that simply spinning off Tabcorp’s wagering arm would lock in the status quo: a business losing ground to its nimble online competitors, backed by global behemoths (Entain and Flutter) with an unbeatable technological advantage.

“Investors will get scrip in an underperforming business, and that’s a business where there’s competition on global scale,” said a senior market source familiar with the Tabcorp business. “It will be the runt of the litter who will be at a disadvantage against its two global major competitors.”

But support for a demerger is firming. The Age and Herald can reveal there is a push from some investors for the 46-year-old Tripp to be put in charge of the spun-off wagering arm, should the de-merger plan proceed.

One person aware of discussions taking place said that Tripp’s involvement would “tell a story investors need to hear” to give them confidence the spun-off company had a chance to turn itself around.

Wagering entrepreneur Matt Tripp is close to a consortium preparing to bid for TAB, but could also be involved in a demerger.

Wagering entrepreneur Matt Tripp is close to a consortium preparing to bid for TAB, but could also be involved in a demerger. Credit:Luis Ascui

Tripp is considered to have a midas touch. He built Sportsbet into Australia’s second largest bookmaker behind only Tabcorp, sold it to Paddy Power (now Flutter) for $338 million, and then took charge of BetEasy before selling that to Stars (now also part of Flutter) in 2019.

“Tripp’s weighing up his options as to which path to take,” the person said, referring to Tripp either bidding alongside private equity or leading a demerger. The source suggested that in either scenario, Tripp would make a personal investment of around $300 million to get a 10 per cent stake in the new company to “put his money where his mouth was” and share in the upside if he manages a turnaround. “He’s not looking for a job,” the source said.

Tripp – a co-owner and chairman of the Melbourne Storm – declined an interview request. However, he told wagering industry publication EGR this week he was “sitting back and watching” as the bidding race for Tabcorp unfolds.

“I’m happy for the bids to come in and see how that plays out before I determine whether or not there is value in the business in terms of making a formal bid myself,” Tripp was quoted as saying.

He went on to say that Tabcorp should look to expand internationally once it had repositioned itself in Australia. “Whether or not that’s through a bid by myself or through someone else, this should
be a priority,” he added.

One large Tabcorp investor, who was aware of the push for Tripp to be put in charge of a spun-off wagering entity, said he would be an “outstanding choice”.

“Matt’s highly regarded, he’s got an incredible track record and he’s a guy that a lot of people believe could grow that business, turn it around from decline into growth,” the shareholder said, while requesting anonymity to discuss confidential matters.

“There’s a large section of the investor base that would like to see a value unlock in this company and it looks like the best path is through a demerger.”

“The fact that they haven’t got a transaction (after the Entain approach) means that the demerger might have been plan B and now it looks like plan A. And it looks like a pretty good plan A.”

Another large Tabcorp shareholder said that while Tripp would be an asset, turning the business around would be difficult as a listed entity.

“If he’s CEO of a de-merged, listed entity it runs into the same issues the current team has got: protecting the legacy business and earnings stream while trying to compete in the online space,” the shareholder said. “But if he was part of a private consortium he could spend four years behind closed doors, and then come back to the market having had the heavy work done.”

One major Tabcorp shareholder said it was clear Tabcorp was at a “pivotal point”, with its new chairman Gregg holding a number of meeting with investors in recent weeks to get test their appetite on what to do next: sell wagering, de-merge it or push with Tabcorp in its current form.

If Tabcorp opts for the status quo, investors will pin hopes that the soon-to-be-completed integration of the TAB and Tatt’s UBET wagering operation will start delivering significant benefits.

“They are two very different businesses [lotteries and wagering] and that tension is probably at the heart of some of the problems for TAB at the moment,” the major shareholder said.

Yet a third horse Tripp has backed himself on is the ASX-listed BetMakers, making a $25 million personal investment and coming on board the wagering software and data outfit as a strategic advisor to drum up “transformational” deals.

Taylor Collison gaming analyst Andrew Orbach said in an investors note on Thursday that Tripp and BookMakers could be the path the Murdochs take to establish themselves in Australian punting.

“This would also greatly accelerate Fox Bet’s path to market,” Orbach said. “It wouldn’t need to spend time building out a platform as well as assembling a tech and trading team. It could focus on its strengths and driving turnover.”

Another reason a Tabcorp spin-off is considered increasingly likely that an outside buyer will need to get state racing bodies’ approval – something NSW Racing boss Peter V’landys has said he won’t give lightly – and jump regulatory hurdles including a 10 per cent ownership cap built into Tabcorp’s NSW licence.

Three highly placed racing and wagering industry sources said they believed Entain had underestimated how difficult this will be.

For its part Entain has also been tight lipped, and declined an interview request for this article. But its global deputy CEO Rob Wood told trade publication EGR two weeks ago that the group was absolutely confident it could get clear the regulatory hurdles involved in a Tabcorp takeover.

“The bigger hurdle is whether the Tabcorp board would like to sell or not,” Wood said.

Explaining the rationale for the bid, Wood said it would be “transformational” for the company, making Entain far and away the biggest player in the Australian market, with significant upside from getting its technology systems into TAB.

“It [TAB] has struggled, if we’re honest, to keep pace with some of the other operators,” he said.

Spoilt for choice

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Where the Murdochs land in all this is not yet clear, but Tabcorp is not the only horse they are backing.

Fox owns 2.5 per cent of Flutter (owner of Sportsbet) after its merger with Stars in 2019. And in July this year it will have the option of upping its stake (from 2.6 per cent to 18.5 per cent) in Flutter’s FanDuel business, a long-running and popular “fantasy league” sports site that is using its huge brand recognition and user base to pivot into sports betting.

News Corp, which is also led by the Murdoch family, bought Punters.com.au and Racenet before merging the two in 2018, in deal valued at $17 million that put two of Australia’s most prominent horse racing websites under its umbrella.

The deal was led by Damian Eales, now News Corp’s global head of transformation. While they present as horse racing news websites, News Corp also earns revenue through “affiliate” programs that encourage users to start new accounts with bookmakers. News gets a cut of their gambling losses. There is every chance News Corp and Eales may look at taking their own gamble with the local wagering industry.

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