Queensland bookie tax changes to deliver Tabcorp a profit boost

The licence and tax regime underpinning much of the wagering industry is likely to be reformed after Queensland became the first state to hike point of consumption taxes to 20 per cent.

Tabcorp chief executive Adam Rytenskild: ‘This is a big shot in the arm for the Queensland racing industry – it is also great for TABs in pubs and clubs, and great for punters right across Queensland.’ Picture: Chris Pavlich

The licence and tax regime underpinning much of the wagering industry is likely to be significantly reformed after Queensland became the first state to hike point of consumption taxes to 20 per cent.

The change will be a boon for Tabcorp, with equities analysts expecting the reduction in other fees and taxes to hand the company some $30m annually.

Tabcorp chief executive Adam Rytenskild said the government had “backed Australian-made and implemented fair reforms”.

“This is a big shot in the arm for the Queensland racing industry – it is also great for TABs in pubs and clubs, and great for punters right across Queensland,” he said.

However, Responsible Wagering Australia, the group representing bookies including bet365, Sportsbet, Betfair and Entain, said the tax changes would “unfairly entrench the monopoly enjoyed by established and land-based wagering service providers at the expense of the new and emerging online industry”.

“This decision, introduced without any consultation with the online wagering industry, would make the state’s taxes the highest across Australia,” it said in a statement. “It will lead to serious impacts on the Queensland racing sector and jobs, whilst disproportionably affecting punters who choose online options.”

Under the proposal, Queensland’s racing levy will increase by 5 per cent – from 15 per cent – and be broadened to include bonus bets.

While Tabcorp will still be able to offer on-course betting and will retain retail exclusivity, its sponsorship and advertising will end.

However, Tabcorp will pay a one-off $150m to settle long-running litigation with racing authorities, although analysts said the conclusion of the matter was a positive for the business.

“While Queensland represents less than 15 per cent of Tabcorp’s wagering business, the decision has implications for other states, especially Victoria and Western Australia, which are going through licence renewal processes,” Barrenjoey Capital Partners’ analysts Matt Ryan and Annie Zhu wrote.

“We view the announcement as net positive for Tabcorp and our earnings and price target increase accordingly.”

Under the proposed changes, the Queensland industry will receive around 16 per cent of the revenue collected through the point of consumption tax, compared to some 5 per cent previously.

“We assume competition will remain intense, with at least one new major operator to join the Australian market in the next year. We have reflected this in an additional $10m of generosities, Mr Ryan and Ms Zhu wrote to clients on Monday afternoon. At MST Marquee, Rohan Sundram told investors that the deal was likely to mean a $30m reduction of taxes for Tabcorp.

“We would expect Tabcorp to expand its lobby efforts into other states and seek to effect similar regime change in Victoria and in NSW (licence expiry not until 2097 however changes could be effected via new legislation),” Mr Sundram wrote.

The proposal comes as Tabcorp is buffeted by competition from global bookies – and a fortnight after the company demerged its lucrative lotteries and Keno business into a new ASX-listed vehicle, The Lotteries ­Corporation.

Last week, Morgan Stanley analysts warned that higher costs than its rivals and a lack of global reach would continue to hamper Tabcorp’s profits and lead to a lower market share.

In a lengthy note to clients, the investment bank said Tabcorp’s main competitor, Sportsbet, would be able to spend more on marketing, technology and product innovation given its significantly larger global revenue pool.

And while there are plenty of interested parties searching for acquisition opportunities in the sector – notably Entain and Apollo Global Management – complex renegotiations of wagering licences could push down the price a suitor would pay for Tabcorp, analysts Melinda Baxter, Mac Ross and Ed Young wrote.

In a statement on Monday, Mr Rytenskild said the deal with the Queensland government meant the local racing industry would “finally receive a fair share of funding from foreign-owned betting companies – who have grown rapidly, taking the TABs’ market share and therefore undercutting racing industry funding”.

The market responded positively to the announcement. Tabcorp shares rose 5.3 per cent to close 5c higher at 99c.