As Tabcorp continues its investigation into the outage which caused a huge disruption to wagering across Australia last weekend, the incident serves as a significant reminder to the thoroughbred industry of just how reliant it is on the health and prosperity of the wagering industry.
No official commercial impact of the 28-hour outage has been confirmed, with reports suggesting that it could be in the realms of a $100 million hit in turnover, which would then represent a net knock-on effect of between $5 and $10 million to the thoroughbred industry.
Whatever the final amount will be - and that will no doubt be the subject of discussions for some time to come between Tabcorp and the major racing bodies - the experience of a major raceday without meaningful wagering has certainly made the vulnerabilities of thoroughbred racing's core commercial model abundantly clear.
The past decade has seen a revolution in the wagering landscape and thoroughbred racing has done well not only to ride out the turmoil of change, but also prosper from it.
While the parimutuel model, which had been racing's bedrock for the previous generation, has declined significantly, the growth of fixed odds and other products from corporate bookmakers has led to an explosion in the overall volume of wagering. Significant legal wins in the early part of this revolution, notably the race fields legislation, have enabled PRAs to capitalise on this growth and secure additional revenue from corporate bookmakers.
That has enabled the major states like New South Wales and Victoria to not only offset the drop in the 'joint-venture' funds flowing from the retail exclusivity agreement with Tabcorp, but grow its overall revenue from wagering over 200 per cent in the space of a decade.
In the space of a decade, total annual prizemoney returns have grown from $141 million to $230 million in Victoria and $141 million to $259 million in New South Wales
This has, with other initiatives, driven a massive surge in returns to owners from prizemoney. In the space of a decade, total annual prizemoney returns have grown from $141 million to $230 million in Victoria and $141 million to $259 million in New South Wales.
This amazing growth has not only confirmed the Australian thoroughbred industry as the envy of the world when it comes to prizemoney but driven substantial confidence and investment in Australian breeding and bloodstock from overseas.
With such strong prizemoney returns spread across the industry and such a broad spread of those wishing to be involved in thoroughbred ownership, Australia has built itself a reputation as one of the best places to do thoroughbred business in the world.
But the 'rivers of gold' do not come without risk. Some of that risk, such as that around equine welfare and integrity, lies largely within the control of the thoroughbred industry, but others, such as where the revenue flows from, exists outside of the industry's control. The difficult truth for the racing industry is that when it comes to wagering, it does not own its own customers.
"The difficult truth for the racing industry is that when it comes to wagering, it does not own its own customers."
Saturday's TAB issues were a small window into that issue and how inter-reliant the various aspects of the wagering industry are on each other in terms of their health and prosperity.
It has been some time since the TAB has been the only game in town, but it is still very much the support system upon which everything else has been built around. While TAB's services were shut down, the corporate bookies' ability to capitalise on the situation was severely diminished by the fact it could only really offer fixed odds.
The largely popular top tote derivative products were rendered unworkable and while the outage would have delivered a host of new sign ups to the corporates, they were unable to showcase their best product.
But the broader risk to the thoroughbred industry extends far further than a fire at a third party data centre, as was reportedly the case on Saturday.
An industry in constant transformation
The wagering industry is a mercurial beast, impacted by so many factors, from corporate strategy to government legislation and the only thing we can say for sure is what it will look like in five years' time, will be very different to what we see now.
In the 10 years of the 'corporate bookmaking era', we first saw huge expansion, followed by a huge consolidation, of the amount of digital wagering operators on Australian racing. Tabcorp's incumbency as the goliath of the sector has been put under siege by Sportsbet in its various guises. Now under the ownership of global giant Flutter, Sportsbet, post its acquisition of BetEasy, is in its strongest ever position.
Tabcorp, which underwent its own recent merger with Tatts, still holds a retail monopoly, but the value of that has declined significantly, and in Victoria at least, expires in 2024. (It continues until 2033 in New South Wales).
Changes in the wagering sector have stirred up considerable calls for change within Tabcorp itself and long-time CEO David Attenborough will step down at the start of 2021, along with Chairman Paula Dwyer.
David Attenborough | Image courtesy of Tabcorp
What then emerged last week was the suggestion that the Tabcorp business, which consists of its wagering, gaming and lottery aspects, could be split up. The lottery business, which represented around 55 per cent of Tabcorp's 2019/20 EBITDA, is particularly lucrative, and could become the core part of the business strategy moving forward.
There have been a host of investors linked to a possible acquisition of the Tabcorp wagering business, which delivered around 37 per cent of Tabcorp's EBITDA of around $1 billion last financial year.
That includes GVC Holdings, who have a presence in Australia through both Ladbrokes and Neds, as well as consortiums reportedly spearheaded by Australian digital better pioneer Matthew Tripp, the former CEO of both Sportsbet and BetEasy.
Such rumours are not unusual in the corporate sector, but the fact the wagering aspect of Tabcorp, which also includes the media business of Sky Racing, could be for set for sale does add another layer of uncertainty on the entire wagering landscape.
There have been proposals before for the thoroughbred industry to take greater control of its wagering revenue and perhaps in the threat any Tabcorp sale could also produce an opportunity.
"There have been proposals before for the thoroughbred industry to take greater control of its wagering revenue and perhaps in the threat any Tabcorp sale could also produce an opportunity."
While a reported $3 billion pricetag would deter any direct acquisition by the industry of the wagering business, there could be an opportunity in the form of a joint venture or partnership, perhaps with a major media company.
The strategy of the racing industry controlling its own wagering destiny in some aspect is something which would likely have occupied discussion at board level of the two big PRAs, Racing NSW and Racing Victoria, at some point in the past. Certainly having greater control of its customers is part of any ongoing strategy.
Victoria, in particular, is in a position to at least consider the feasibility of operating its own wagering product after Tabcorp's exclusivity license expires in that state in 2024. Other corporate bookmakers have called for a non-exclusive arrangement, as exists with betting shops in the UK, to be implemented after that date. With so much in play in the wagering sector, it is very much a case of watch this space.
Regulatory challenges and the spectre of sports betting
The ability of government to insert themselves into the equation when it comes to wagering revenue was made clear with the Point of Consumption (POC) Taxes implemented by the states over the past few years. Denied revenue from the growing corporate bookmaker wagering pie by the fact most were regulated in the Northern Territory, legislators found a way to tax the bookmakers by where their customer was located, rather than where their business was headquartered.
The resultant POC taxes were largely passed on to punters through higher margins from the bookmakers, and that resulted in a slump in turnover, reportedly around 3 per cent in Victoria alone which then impacted thoroughbred industry revenue in the first half of the 2019/20 season.
A surge in turnover generated during COVID-19 lockdown periods, when racing was 'the only show in town' saw revenues recover, and turnover surged by as much as 17.8 per cent in Victoria from March to June. But there is a question over how sustainable that may be moving into the future.
The impact of the growing sports betting sector is another interesting variable moving forward. In 2009, sports betting represented just 1.3 per cent of all gambling turnover in Australia, while in the most recent data from 2018, that had grown to 5.3 per cent. Sports betting turnover in Australia in 2018 reached $11.6 billion, nearly half that of racing ($25.8 billion), and has undoubtedly grown since. Higher taxes and product fees levied on racing makes sports betting markets more profitable for bookmakers to operate on.
The ongoing challenge from these headwinds of regulation, competition and consolidation is part of the complex nature of the intersection of the wagering and thoroughbred industries. The strategic direction charted by the racing industry in the next five years in this regard, will be crucial to future prosperity.
Australian racing prizemoney is the envy of the world, thanks to the race fields legislation that forced corporate bookmakers to pay for the product; we only need to look toward the United Kingdom to see the effect of an industry without appropriate funding. A consideration of fair wagering tax by the state governments, in NSW particularly, has also assisted in the move toward a more sustainable business model for owners.
There is the old saying that without gambling, 'thoroughbreds would be racing for ribbons'. We didn’t quite see that last Saturday, but it certainly gave us an idea of what a racing world would look like should its premier revenue source face a metaphorical power outage.
