Profits fall for bookies Sportsbet and Entain as Victorian wagering licence bidding process begins

Australia’s largest bookmakers are being hit by higher taxes and a drop in spending by punters, just as the Victorian government seeks bids for a new 20-year wagering licence.

Profits are falling for Australian bookies like Sportsbet.

Profits for Australia’s largest bookmakers are being hit by higher taxes and a drop in spending by punters due to cost-of-living pressures increasing, as the country‘s biggest wagering licence hits the market.

Financial accounts for Sportsbet, Ladbrokes and Neds brands show the cost of doing business for the foreign-owned bookieshas had a marked drop in profits as new point-of-consumption taxes affect their balance sheets.

The accounts, recently lodged with the corporate regulator and obtained by The Australian, show a substantial fall in profit for Sportsbet parent Paddy Power Australia and also LB Holdings Australia, the parent of Ladbrokes, and Neds owner Entain Group.

Sportsbet’s net profit for the year to December 31 slipped almost 15 per cent to $316m from $2.25bn revenue, while Entain’s net profit in Australia also fell 15 per cent to $96m from $832m net gaming revenue.

Both companies attributed their results to rising point-of-consumption taxes that are levied by states, which have increased in Queensland and NSW in the past year and will soon rise to 15 per cent in Victoria.

A note in the Entain financial report said it paid $153m in point-of-consumption taxes in 2022, up from about $118m in the previous year, while the product fees paid to racing bodies rose $15m to $190m.

Sportsbet did not break down its tax payments but its London-listed owner, Flutter Entertainment, said in March that newly introduced point-of-consumption tax changes in NSW and Queensland had caused a £22m earnings hit in the second half of 2022.

The taxes will cause a full-year hit of £73m ($130m), Sportsbet said at the time.

Entain and Sportsbet spent a combined $350m on advertising and marketing expenses, according to the accounts both companies lodged with the Australian Securities and Investments Commission.

Sportsbet is the biggest digital or corporate bookmaker with about 1.09 million monthly players on average. Picture: Getty Images

Sportsbet is the biggest digital or corporate bookmaker with about 1.09 million monthly players on average, while Entain – owned by London-listed Entain Group – has a market share of more than 20 per cent.

The financial results come as wagering companies begin jostling for position in the race to win the Victorian wagering licence, which the state government in recent days called for bids for a contract of up to 20 years.

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

The Australian understands the Victorian government has sought bids for the new licence to be lodged by June 15, 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 Victorian government had previously received preliminary interest from Tabcorp and other potential bidders for the licence, including Sportsbet and Entain, but doubts have emerged about how competitive the bidding will be.

There are still question marks about customer data ownership, with Tabcorp claiming ownership of a database of about 240,000 customers related to the Victorian joint venture.

Without access to the database, Tabcorp’s rivals are unlikely to join in a competitive bidding process to take over the licence from Tabcorp for hundreds of millions of dollars, only to have to build a Victorian retail business from scratch.

The Victorian racing industry has been increasingly worried that a lack of competitive bidding would have dire implications for the funding it receives from its joint venture with the licence holder.

Meanwhile, the Victorian government announced an increases of its point-of-consumption tax from 10 per cent to 15 per cent on Tuesday. There is an expectation it could go to 20 per cent in the next year or two.

Increased revenue from such a rise could offset a lack of large upfront payment for the new wagering licence, although fears that Tabcorp could win a bid with an offer of $500m are starting to subside.

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