$10bn lottery demerger looms for Tabcorp but Covid costs rise to $50m a month during lockdown

Tabcorp’s lotteries division is heading for a $10bn demerger by mid-2022, but lockdown is costing the ­wagering giant at least $50m a month in lost revenue.

Tabcorp CEO David Attenborough has high hopes for its lotteries demerger. Picture: Stuart McEvoy

Tabcorp’s lotteries division is heading for a $10bn demerger by mid-2022 after a huge record profit, but lockdown is costing the ­wagering giant at least $50m a month in lost revenue.

Betting outlets and pubs and clubs have been closed in NSW and Victoria due to Covid-19 restrictions, with Tabcorp revealing the adverse revenue impact in July was about $30m-$40m for its wagering and media division and $5m-$10m for its wagering services arm.

Tabcorp chief executive David Attenborough told The Australian those figures would probably rise during the upcoming spring racing carnival, usually the most lucrative time of year for bookmakers, should lockdowns continue in the nation’s two biggest states.

“You would obviously expect in a month [like] November, a high month, that would be a high number,” Mr Attenborough said.

“At the same time what we do see is some uptick in the digital side of our business … but our business is obviously much more powerful when retail is open.”

Digital growth for the lotteries arm has been strong as well, doubling as a share of revenue over the past three years to now contribute 32.8 per cent of income.

That shift helped the group’s lotteries and Keno division contribute EBITDA of $620m and $3.2bn revenue, up 14.4 per cent and 9.9 per cent respectively, despite below-average jackpots.

Overall, Tabcorp recorded an 11 per cent increase in EBITDA before significant items to about $1.1bn and revenue rose 8 per cent to $5.6bn. Statutory net profit after tax was $269m, following a $870m loss last year.

The result was the biggest ever for the lotteries arm, as Tabcorp said on Tuesday it expected the demerger of the division to be completed by May or June with expectations of it trading at 18-20 times earnings to give it a market capitalisation of more than $10bn.

“Without doubt, the lotteries and Keno business is an extremely attractive business. I think investors feel that it is undervalued as part of the group, and that it will see an uplift in its ratings when listed separately,” Mr Attenborough said.

“We agree with them. If you start applying the sort of high-teen [profit] multiples that are talked about … you get to a top 50 company.”

Covid lockdowns have closed betting outlets and Tabcorp said the adverse revenue impact in July was about $30m-$40m for its wagering and media division and $5m-$10m for its wagering services arm. Picture: Getty Images

The decision to demerge the lotteries arm away from Tabcorp’s media and wagering division, which faces heavy competition from internationally owned corporate bookmakers, came after the latter attracted $4bn bids from London-listed Entain, a BetMakers and Matthew Tripp combination and private equity firm Apollo Global Management.

The offers were rejected by the Tabcorp board earlier this year, with chairman Steven Gregg citing the length of time regulatory approvals would take as a major factor.

But one potential impediment for a future deal could be removed, with lobbying taking place for the removal or at least changing of the cap on any individual or group owning more than 10 per cent of Tabcorp shares currently under NSW legislation.

“I think there will be, without doubt, a look at that, and there will be a change in the way that it is applied,” Mr Attenborough said. “It’s less about the cap, and more about the process to ­approve a change.

“You actually want a process that ideally is simpler, even if it’s a regulatory ministerial process. We certainly expect that there will be movement on this in the foreseeable future.”

Tabcorp’s wagering business recorded an EBITDA increase of 11.6 per cent to $414m, and revenue rose 10.3 per cent to almost $2.3bn. But it still lags behind a competitor such as Sportsbet, which is owned by London-listed Flutter Entertainment and made adjusted EBITDA of about $750m in the same period.

Mr Attenborough said corporate bookmakers such as Entain had benefited from lockdowns and a shift towards more digital betting and therefore should pay more tax: “We continue to advocate that the point of consumption tax should be higher … and there should be more of a level playing field if we look at the sorts of margins across the industry.”

Tabcorp also flagged pursuing more deals in the US, where the gambling market is being opened up and growing quickly, potentially in joint ventures with BetMakers.

It will pay shareholders a final dividend of 7c a share, fully franked. Tabcorp shares closed down 4c at $4.81 on Wednesday.