TAH’s NSW Problem

The big sell is happening at Tabcorp, which has just lost a CEO, and is about to lose a chairman and at least one other director.

The wagering and casino groupgave CEO Matthew Slatter the push a fortnight ago, while long time chairman, Melbourne lawyer, Michael Robinson, is leaving later this year, along with possibly one other director.

The group popped its CEO after a 22 per cent fall in interim earnings last month after lower than anticipated results from its poker machine business at its three Queensland casinos, and poor returns from the NSW Casino and the less than satisfactory returns from the old NSW TAB business.

Judging by the hard sell and roadshows for broking analysts in NSW this past week, the NSW TAB business is the real weak point, as evidenced by the Spring racing carnival last year where returns from the NSW TAB fell for what is the wagering highlight of the year.

The share price finished 6c higher at $17.05 yesterday.

In contrast the better run and marketed Victorian wagering business more than held its own in Spring.

The roadshows for brokers this week is a positive sign for TAH shareholders that the board and management are no longer so besotted with growth through acquisition.

It’s quite clear than former CEO Matthew Slatter had no idea what to do with a company once it had been taken over. The NSW TAB is the best example of that.

The wagering business of Tabcorp represents around 30 per cent of the company’s EBIT; poker machines make up a roughly similar share with the four casinos making up the remaining 40 per cent.

Analysts point out that casinos are doing OK but will be boosted by a bigger spend on revamping Sydney (and the new hotel tower, if it happens).

The impact of the NSW smoking bans on pubs and clubs could be positive for TAH’s casinos, especially on the Gold Coast and in Brisbane.

But the problem area is the less than satisfactory returns from the NSW TAB wagering business.

It’s why the company says it’s going to spend upwards of $50 million improving facilities to the point where the look and service is on a par with the Victorian wagering business.

TAH is telling the market the changes in NSW will be a three to five year campaign: it’s easy for current temporary management to sell that line but it was impossible for Mr Slatter to use it because he had exhausted his credits with many big shareholders. (‘Trust me, I know what I am doing’ rings a little hollow after the third or fifth time.)

The key in NSW will be the TAB Sportsbetting business has a very strong market position in the state and can be expected to continue growing at double digit rates over the next three years, maintaining or building on its six per cent of TAH’s wagering revenues.

TAH has problems not only revamping its stand alone business in NSW, it has to help licenced outlets improve their offerings; much in the way fast food businesses work with their franchisees to improve the offer.

The revamp in NSW will be slow and steady. There are some 1800 pubs and clubs who are licenced operators and about 300 actual TAB outlets. That’s a lot of people, egos and ambitions to work with.

The NSW racing industry is fractured, unlike Victoria’s and costs are higher, especially in Sydney.

The old Sky Channel media business (plus the TVN deal) are in the wagering operation and can either boost or cut margins, depending on how aggressively it is sold.

Tabcorp though has a very strong asset position: SuperTAB (WA, Vic, Tas) holds a 42 per cent national wagering market share, the NSW TAB holds around 36 per cent and Unitab (NT, QLD and SA) has 22 per cent.

Another complication is the uncertainty about the Victorian wagering licence.

That uncertainty surrounding the tender process in Victoria for post 2012 will be a negative for TAH until the Bracks Government makes up its mind.

A decision is expected later this year or in early 2008, possibly after a select Committee of the Victorian Upper House has completed its inquiry into the question of the post 2012 situation.

But ask an experienced punter and they will tell you that while betting on Victorian racing is OK, NSW is a bit of a problem: growth in NSW is slowing because of problems in the administration of racing, poor offerings from race clubs and ego problems between key players.

The key metric to be addressed by the revamp in NSW is why Victorian TAH wagering agencies generate up to 40 per cent more income than their NSW counterparts. Self service wagering terminals, improved ambience and more sports betting are some of the answers.

But more importantly it will be a CEO, chairman and board which fully understands that TAH is a gaming, wagering and casino business, not an acquisition machine.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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