Sportsbet, BetEasy merger to 'take the fight' to Tabcorp

The parent company of online bookmaker Sportsbet says a proposed merger with smaller rival BetEasy will allow the pair to more vigorously challenge Australia's wagering "behemoth" TAB.

Irish group Flutter Entertainment on Wednesday announced a $US6 billion ($8.9 billion) all-share merger with Canada's Stars Group, which owns BetEasy, as part of a plan to combine their businesses to create the world's largest online betting and gambling company.

Sportsbet's owner says a merger with BetEasy will help them compete with TAB. Credit: AAP

Flutter chief executive Peter Jackson said in an investor briefing overnight on Wednesday that the company intended to maintain both the Sportsbet and BetEasy brands in Australia, and use their combined weight to take on the Tabcorp-owned TAB.

"We would envisage running two brands, which we think we’ll need to do to try and take the fight to the TAB," he said.

“We're going to optimise the businesses, double down on product development, value and brand investment and together within the combined company will be very well placed to take on the TAB.

"They’re the behemoth in the market and we’re just the small corporate bookmakers nipping around their heels.”

Credit Suisse analyst Larry Gandler said the merger would give Sportsbet and BetEasy a 26 per cent share of Australia's $4.3 billion wagering market by revenue, compared to the ASX-listed Tabcorp's 50 per cent.

For online betting, Sportsbet and BetEasy control 26 per cent and 14 per cent of the market respectively, compared to Tatt's 31 per cent, according to Flutter.

Mr Gandler said there was no guarantee that the Australian Competition and Consumer Commission will approve the merger, and the combined group could have to sell one of its two brands.

Mr Jackson said the companies would work with the ACCC in due course as the regulator decides whether or not to approve the merger. Flutter and Stars will also need regulatory approval in the other markets they operate in, and said they expected that to be completed by the middle of next year.

Mr Gandler said there was the potential for Beteasy to improve its gross earnings margin from 12 per cent to closer to Sportsbet's 27 per cent, and for cost savings from the merger to be re-invested in the company to make the combined operation "even more competitive" against TAB.

Morgan Stanley analyst Elise Kennedy said the merger could be negative for Tabcorp, as it would face "an even stronger competitor", made up of the in number 1 and number 4 online players combining in "an already challenging wagering industry".

"On the other hand, industry consolidation may prove a positive, as the market moves from four to three large players," she said.

Credit Suisse estimated the combined companies were on track to generate about $250 million in earnings from their Australian wagering operations this year, compared to Tabcorp's $404 million.

Sportsbet claims to have 1.2 million customers annually and reported close to $740 million in revenue last year, while BetEasy had 400,000 customers and $300 million in revenue.

TAB has a monopoly on bricks and mortar bookmaking shopfronts in Australia, but has been challenged by an influx of online bookies.

However, life has become harder for the online players since the recent introduction of state-based point of consumption taxes on online gambling, leading to a wave of consolidation in the industry.

Sportsbet made £57 million ($100 million) in underlying earnings in the first half of this year, while BetEasy ran at a $US5.4 million ($9.9 million) loss.

Tabcorp's shares closed down 0.2 per cent on Thursday at $4.85, outperforming the ASX200 which fell 2.2 per cent.