What the Tabcorp-Tatts Merger Means for The Australian Gaming Sector
It’s a much-anticipated union, and one that took over a year to come to fruition. The Tabcorp-Tatts merger ended 2017 on a high for the industry – but what does this $11 billion merger mean for the business, its employees and its network of venues? Rick Wallace, Tabcorp’s Media Relations Manager, explains.
It is a case of third time lucky for the historic Tabcorp-Tatts merger, with the two key players on the Australian gambling scene finally sealing a union that eluded them back in 2015 when talks were previously held on a possible merger.
Before that, Tabcorp had tried to take over Unitab – the Queensland forerunner to Tatts’ UBET wagering business – in 2006, but the competition regulator, the Australian Competition and Consumer Commission (ACCC), blocked the deal. The final attempt to bring the businesses together has taken more than 14 months to complete from start to finish.
The latest plans for the merger were first announced back in October 2016 and the transaction has taken a long and winding path through various layers of approvals.
But, with the support of pubs and clubs, TAB agencies, news and lottery agencies and the racing industry throughout most of Australia, the deal was finally finalised at the end of last year.
The combination, which was endorsed by Tatts’ shareholders in December, creates a world-class, gambling-led entertainment business with a national footprint operating in wagering, media, lotteries, Keno and gaming services. The new Tabcorp is now one of the largest publicly listed gambling companies in the world and one of the 50 largest companies trading on the Australian stock exchange. Tabcorp CEO David Attenborough says the merger was a fascinating and exciting transaction to work on given its complexity.
“If you had a scale of one to 10 of complexity, it would be up towards a 10,’’ he says. “It has been an extremely complex transaction but that’s what gets a lot of us up in the morning. These are the sorts of things that are really exciting to work on.”
The long road to a new era
To successfully clinch the deal, Attenborough and the Tabcorp team, along with their Tatts counterparts, had to run the gauntlet of multiple legal appeals and attempts from competitors to thwart it.
The first major twist in the deal came in March last year when Tabcorp opted to have key competition issues – such as whether the combination of two large players would substantially reduce competition or not – decided by the Australian Competition Tribunal (ACT), a competition review body headed by a Federal Court judge, in series of public hearings over three weeks. This allowed those backing the merger – including pubs and clubs, their peak bodies and the racing industry – to put their support on record. The Tribunal found that not only would the combination not reduce competition but it would actually provide more competition by creating a better resourced organisation better able to duke it out with its rivals.
Any relief among the merger parties from the ACT’s decision in June was short lived with both the ACCC and rival CrownBet appealing to the full bench of the Federal Court, known as the Full Court. The Full Court took issue with one area of the Tribunal’s authorisation and sent it back to the Tribunal to take another look at the case, taking into account the one competition issue it had raised.
After three more days of hearings, the Tribunal reached the same conclusion – that the merger should be allowed to proceed as long as Tabcorp divested its Odyssey Gaming Services business to reduce the merged company’s coverage of the Queensland gaming machine monitoring market.
The ACCC and then CrownBet announced they would not be appealing the second authorisation and, when Tatts shareholders overwhelming backed the combination at the 12 December meeting, the deal was effectively done (effectively because the Supreme Court endorsement – which came the following day – was still outstanding).
Reflecting on the eventual success in bringing together Tatts and Tabcorp, Attenborough says the fundamental change in the competitive landscape – with the rise of corporate bookmakers, many of them backed by powerful global parent companies – created the conditions for the combination to be approved.
“The industrial logic of this combination is compelling, and that was certainly spelled out by the Tribunal,’’ he says. “There were times during the process where you had to dig deep to find the energy to tackle some of the issues coming our way but at no time did we lose faith that we would actually get there.”
A more dynamic and diversified business
The Tabcorp boss is now focused on integrating the two companies smoothly and then delivering the benefits to the full range of stakeholders – customers, the racing industry, venue partners and shareholders.
“It gives us the ability to invest more, to innovate more [and it] certainly sets us up to better compete with what are very strong competitors from very large companies that have entered this market from overseas,” Attenborough says. “It also gives us the opportunity to drive really strong integration with our stakeholders across multiple products. We do work very closely with our retail partners to invest and drive a very strong retail sector, and that’s good for business, for jobs and for the economy.”
Attenborough is conscious of the need to look after pubs and clubs – and now news and lottery agents courtesy of the company’s large lotteries arm – as valuable partners of the combined business.
“The lotteries business is a very strong business – it is a business that we will absolutely be investing in, supporting and looking to grow,” says Attenborough. “But I would also say the wagering businesses are strong businesses, as we bring UBET together with the TAB, and we combine with the media business that we have. We have a very powerful wagering and media business, and there are really some great opportunities there.”
“And then the bringing together of the gaming businesses – Maxgaming, which includes the monitoring, Bytecraft and our TGS business, and our INTECQ business,” continues Attenborough. “The gaming services side of our operations is also a very large business with very good growth prospects. What this combination brings is a very strong diversified gambling entertainment group and a very powerful balance sheet.”
That balance sheet – and the trust the company enjoys among regulators, governments and stakeholders – gives Tabcorp the ability to pursue offshore expansion. But the focus for the short to medium-term will be on the home-front – on integration and on continuing to deliver for customers in the way they expect.
“When you’re working with a larger footprint, it is about operating closely with your stakeholders in each state,” says Attenborough. “We are very focused on making sure that we communicate well and deliver what we say we are going to deliver. Our focus is very much on operating our business across all these states in a consistent and transparent manner.”
Key to that integration will be the people, the Tabcorp CEO says, noting the combined executive team features three members of the former Tatts executive: Sue van der Merwe, Managing Director – Lotteries and Keno; Frank Makryllos, Managing Director – Gaming Services; and CIO Mandy Ross.
“The executive reflects our commitment to bring together the leaders of both organisations,” he says. The focus on people and culture won’t be just at the top, though, with the Tabcorp leadership conscious of the need to bring the two cultures together throughout the combined organisation. A lot of mergers fail because they don’t put enough focus on the culture and they don’t put enough energy and resources into getting that right, Attenborough says.
“Essentially, it is all about getting your people and your technology and your roadmaps right. It is about bringing the people, the employees from both sides of the organisation, along on the journey. The guiding principle from Tabcorp is to support its people to come together with the tools they need to continue to serve venues well and provide innovation and improvements in the future.” Attenborough says the integration will be aided by the shared backgrounds the two companies have, both with proud histories, operating as well as being regulated businesses that drive returns to the community including substantial tax contributions. He adds, “In order to maintain the social licence for gambling products, you cannot alienate the community.”
For licensed venues, which supported the merger enthusiastically, it is hoped the long-awaited combination is a case of good things come to those who wait. Peak bodies in the hospitality industry pointed out during the Tribunal process that they welcomed Tabcorp and Tatts coming together because it would deliver innovation, service and products, and a pathway to a national tote pool in wagering.
What venues can expect from the merger
Tabcorp recognises, while venues look forward to these benefits, in the short-term, the main desire is to avoid disruption, and the integration is being carried out in a way that makes this a priority. That means, in most cases, venues are dealing with the same people within the new Tabcorp that they dealt with under either Tatts or Tabcorp. So, in the short-term, little will change.
However, over time, venues can expect to see greater investment and innovation, including the rollout of Tabcorp innovations, investment and products across the states and territories in which Tatts operated – Queensland, South Australia, Tasmania and the Northern Territory.
In wagering, the TAB brand will be rolled out across the Tatts states and new technology introduced to UBET venues. Tabcorp’s digital commissions program – under which wagering venues receive commissions on bets placed in venues using the TAB app – is an initiative that venues want to be extended to the former Tatts states. The program also allows venues to benefit from commissions on the betting of new account customers they sign up even when they bet outside the venue.
Moves to ensure product alignment between the two business are expected to see initiatives such as Quaddie Cash Out launched in Queensland, South Australia, Northern Territory and Tasmania, subject to regulatory approval. The merger also offers a pathway to a national tote, although that would require regulatory and racing industry approvals. Tabcorp’s animated Trackside wagering product is also expected to be rolled out in the former Tatts states, again subject to regulatory approval.
In South Australia, the merger has the potential, subject to regulatory approval, to extend the key features of Tabcorp’s Keno offering – its powerful brand, options for digital play and jackpot pooling – to venues in that state.
In gaming, in broad terms, the merger has brought together Tatts’ Maxgaming and Tabcorp Gaming Solutions (TGS) and INTECQ (eBet) businesses under one gaming services umbrella.
Despite the amalgamation of these operations, in the short-term, it is business as usual for the three pillars of Tabcorp’s gaming services business. Max will continue to pursue its monitoring activities in Queensland and New South Wales where it is operating the Centralised Monitoring System that was put in place on 1 December. With the exception of the sale of INTECQ’s Odyssey monitoring business – which was a condition of competition approval for the merger – it will be business as usual initially for the INTECQ team across its operations in Victoria, New South Wales, Queensland and Tasmania.
For TGS, the new environment presents an opportunity to expand beyond its current reach but TGS GM Paul Carew isn’t losing sight of the need to keep delivering to customers and helping venues thrive.
“In the short-term, I would anticipate very little change,” says Carew. “There will be no change to what we will be focusing on – that’s optimising the performance of our venues. The team has been really good about focusing on what we need to deliver. There is enough on the go to keep us busy. Bringing on board a substantial monitoring business in the form of Max, however, will give TGS and eBet a platform for expansion in the future.”
“You touch every machine in the market with monitoring,’’ Carew adds. “There are 97,000 machines in New South Wales and doing the monitoring gives us a relationship with every club in the state. Having Max as a conduit gives us that end-to-end capability in gaming.”
The new New South Wales monitoring contract won by Max features a new ‘protocol’ for monitoring that allows for improved self-service functionality and new features, as well as better analysis tools for venues, and fraud and money laundering detection systems.
“The new protocol will make it easier for implementing new technology,” Carew says. “Currently, you need to go out to a venue and replace a game. In the future, you may be able to change the game from a remote server. Max has monitoring capabilities in NSW and Queensland. We obviously have to have those Chinese walls in place – and we do – but we believe this will drive the technological change for the industry. We don’t know exactly what those products and services will be, but we know what the protocols will be and how we can use Max’s pipeline to bring those to market.”
It is important to note that monitoring data is safeguarded by agreements so the other parts of Tabcorp’s gaming services business cannot access venue-specific figures. In New South Wales, these are covered by a MoU (Memorandum of Understanding) struck between ClubsNSW and Tabcorp that provides an extra layer of comfort for clubs beyond the regulatory, legal and contractual restrictions already in place. In basic terms, the MoU ensures the only data from the Centralised Monitoring System that is shared within Tabcorp is that which is already available to market participants.
For the TGS side of the business, the merger provides major new territory for expansion. Carew says, while the business will remain resolutely focused on delivering for its customers, he is making no secret of the plan to expand into Queensland’s pubs and clubs using Max’s contacts and networks to ease the path.
“We have been focused on top-line growth and customer acquisition in Victoria and New South Wales,” Carew says. “But, with the Tatts combination, we can use Max’s footprint to help us with TGS.”
“The key message for venues in Queensland is that our mantra is all about optimising venue performance,” continues Carew. “That’s a way of investing in every business by focusing on growth. We are here to invest and we are all about optimising performance and watching venues grow. We will invest in venues but also in people in Queensland. We will set up a team in Queensland to complement the existing presence that Tatts has through Max.”
TGS hopes to follow the template set down in New South Wales where it has invested $46 million in 18 sites since 2014, with the money ploughed into the purchase of gaming machines, refurbishment of venues and other capital items.
“Tabcorp will now become a key gaming supplier,” says Carew. “It also gives us the capability to look internationally in the future. Having experience, knowledge and monitoring capability gives that foot in the door.”
There are exciting times ahead in the gambling sector as a whole, and in gaming services. Just as the greater scale gives the new Tabcorp the ability to look at new ventures, crucially, it also allows it to continue to innovate at home. That scale is vital to remaining competitive in an environment where consolidation is a growing trend.
Paddy Power Betfair, which owns Sportsbet in Australia, concluded its merger in 2016, the same year Ladbrokes and the Coral Group combined as Ladbrokes Coral, the parent company of the local Ladbrokes wagering operation in Australia. Late last year, online gaming player GVC reached an agreement to take over Ladbrokes Coral. On the local gambling scene, analysts and media commentators believe consolidation is likely here too.
One key enduring point of difference for the new Tabcorp in these times of change will be its relationships with venues and the industry, and its dedication to win-win solutions that ensure that benefits are shared.