Entain pulls out of bidding for Victorian betting licence

The move likely puts Tabcorp in the box seat to keep the licence, potentially at a company-friendly amount. It also looms as a blow to the financially-challenged Victorian racing industry.

Tabcorp looks set for a dream run in the race for the Victorian wagering licence, with rival Entain Group formally withdrawing from the process in a move that will be a blow to the state’s racing industry.

Entain, the owner of the Ladbrokes and Neds brands in Australia, is understood to have sent a letter to Victorian government authorities last week alerting them to its intention not to bid for the licence.

Given Entain was seen as the main rival for Tabcorp, which has held the joint venture licence since 1994, it now seems likely that there will be few bidders for what was once considered one of the crown jewels of the Australian wagering sector.

A recent note to investors by JPMorgan put a price tag of about $750m to $800m on the next licence for Tabcorp, while Andrew Orbach of Taylor Collison was telling clients that the upfront licence payment “may sit between $600m and $960m” depending on valuation modelling.

But with few bids likely to be lodged for the licence, Tabcorp could strike a deal on company-friendly terms and put further funding pressure on a cash-strapped Victorian racing industry.

Previous estimates earlier this year had Tabcorp willing to pay only $500m upfront for a licence that generates earnings before interest and tax, depreciation and amortisation of $220m-$250m – which some estimate gives it intrinsic value of $1.5bn-$2bn.

Confusion over access to customer database information related to the licence is behind the Entain move, and is also likely to stymie attempts to convince Tabcorp rivals such as Sportsbet to stay in the bidding race.

Entain would not comment when approached by The Australian.

Without access to the customer database – which Tabcorp has consistently claimed it owns – Tabcorp’s rivals have been reluctant to bid to take over the licence from Tabcorp for hundreds of millions of dollars, only to have to build a Victorian retail business from scratch.

Tabcorp and Victoria are in a joint venture that expires in August next year, for which Tabcorp paid an upfront $410m in 2011 for the right to exclusively operate retail betting outlets and TABs in pubs and clubs.

Gold Trip wins last year’s Melbourne Cup. Tabcorp has engaged with the VRC about buying all of its Melbourne Cup broadcasting rights. Picture: Getty Images

The Australian understands the Victorian government has sought bids for the new licence to be lodged by mid-June, ahead of a likely decision in October and an official announcement in November.

There are options for one exclusive licence holder, similar to present conditions for incumbent Tabcorp, as well as a scenario presented for multiple licences for two or three bookmakers.

While the licences are for 20 years, the Victorian government has an option to make changes after the first 10 years.

The joint venture arrangement between Tabcorp and the racing industry sees the latter receive annual funding amounts derived from the pari mutuel “tote”, which has been on the wane in recent years due to the rapid rise in digital betting by punters.

The Victorian government recently announced an increase to its point-of-consumption tax from 10 per cent to 15 per cent, which was hailed by state racing authorities as a vital source of revenue to be passed on to the industry.

But concerns are rising about the current financial strength of the horse racing industry in Victoria, including governing body Racing Victoria and the racing clubs that include the Victorian Racing Club, Melbourne Racing Club and Moonee Valley Racing Club.

Each are likely to at best break even in fiscal terms for the 2023 financial year and are understood to be budgeting for losses in 2024.

The VRC, which runs Flemington and iconic races such as the Melbourne Cup is one club under financial pressure, after the Melbourne Cup carnivals in 2020 and 2021 had to be held mostly or entirely behind closed doors. It has made combined losses of $30m over the past two years.

In a separate move revealed by The Australian, Tabcorp has engaged with the VRC about buying all of its Melbourne Cup broadcasting rights – some of which would need to on-sold to free-to-air television networks.

Tabcorp is understood to have offered more than $20m annually to the VRC for all rights, including free-to-air, pay TV, digital and international rights.