Tabcorp may lose Racing NSW vision rights as demerger of lotteries division nears

Racing NSW is on the verge of stripping Tabcorp of lucrative broadcast rights to show Australian horse racing overseas.

Tabcorp may lose the broadcast rights for NSW races such as The Everest to show to viewers in North America. Picture: AFP

Tabcorp is on the verge of losing lucrative broadcast rights to show Australian horse racing overseas as negotiations to give the demerger of its $10bn lotteries division the green light heat up.

The wagering giant, which will release its half-year financial results to the market on Thursday morning, needs approval from state governments and racing regulators for the mooted demerger that is planned for completion by June.

One of those jurisdictions is Racing NSW, which has long-term wagering sponsorship and broadcast agreements with Tabcorp that include the telecasting of NSW thoroughbred racing to overseas territories such as North America.

Sources have confirmed to The Australian that Racing NSW, under its powerful chief executive Peter V’landys, is considering stripping Tabcorp of its North American broadcast rights — potentially as part of demerger negotiations.

The North American gambling market is growing quickly, and racing officials believe the financial returns Tabcorp’s Kentucky-based subsidiary Sky Racing World is providing for the broadcast rights are insufficient and that the service is underperforming.

Racing officials have discussed awarding the rights to another party, potentially a consortium of local and international executives, or distribute the rights themselves.

Sky Racing World’s rights for NSW are understood to be under contract with Racing NSW until about the end of this decade.

While the fee the Tabcorp subsidiary pays Racing NSW is not sufficient enough to be material to the company’s overall profits, it would be a blow to its reputation given it has also lost the rights to show Victorian and South Australian racing overseas in recent years.

Mr V’Landys would not comment when approached by The Australian. Tabcorp said it would update the market on its demerger on Thursday.

Sky Racing World also distributes racing from countries such as New Zealand, South Korea and Japan, and recently gained the rights to show racing from South Africa as part of a deal with South African wagering operator Gold Circle. It also shows harness and greyhound racing from Australia.

The business generally shows its content in North America via its own app, and the online horse and greyhound racing business TVG Network.

Tabcorp’s financial results on Thursday are expected to confirm the group’s lotteries division, under managing director Sue van der Merwe, continues to perform strongly.

By contrast, Tabcorp’s wagering division, including the TAB betting brand and the Sky Racing media business, has been struggling to maintain its market share given the heavy competition from foreign-owned corporate bookmakers such as Sportsbet, Bet365, Ladbrokes and Neds.

Sportsbet, owned by the London-listed Flutter Entertainment, now estimates it has more than 40 per cent of the sports wagering market in Australia, while Entain’s market share has also been growing quickly.

Tabcorp’s wagering and media business contributed about $2.3bn revenue and earnings before interest, tax, depreciation and amortisation of $414m in the full 2021 financial year, about 32 per cent of which was from the Sky media and international rights arms.

Tabcorp’s lotteries arm had $3.2bn revenue and EBITDA of $620m for the year to June 30, 2021, and has long been considered by analysts and shareholders as the true powerhouse of the overall business.

Investors were successful in pushing Tabcorp’s board to demerge the lotteries division away from the wagering business after a series of articles by The Australian last year foreshadowed several takeover attempts of wagering by private equity companies and London-listed rival Entain, the owner of the Ladbrokes and Neds brands in Australia.

The takeover bids failed, in part Tabcorp chairman Steven Gregg said, because of the regulatory hurdles that would need to be overcome in order for the wagering business to be sold off.

That side of the business is now set to remain on the ASX as Tabcorp under the leadership of managing director Adam Rytenskild, with the lotteries business to become a newly listed entity under its new name of The Lotteries Corporation.

It will boast lottery licences in all states and territories in Australia except Western Australia, with popular brands including Powerball, Oz Lotto, Saturday Lotto and Set for Life.

Tabcorp has previously said it remains on track to demerge its lotteries division by June this year, with the first court hearing and scheme booklet for the $10bn transaction scheduled for April.

It has said the demerger was expected to cost between $225m and $275m, the majority of which relate to technology separation spending.

Tabcorp shares have fallen almost 2 per cent since January 1, but are up about 15 per cent in the past 12 months.