Blow to budget after Tatts ruling hits state for $540m

THE Victorian government is reeling after a court ruled it had to pay gaming group Tatts Group $540 million in compensation.

Treasurer Michael O'Brien speaks alongside Premier Denis Napthine in parliament on Wednesday. Picture: Hamish Blair

THE Victorian government is reeling after a court ruled it had to pay gaming group Tatts Group $540 million in compensation for changing its gaming lic­ence ­arrangements.

The Victorian Supreme Court found yesterday that Tatts should be awarded $451.2m plus interest and legal costs for the termination of its agreement with the government in 2012.

The government has estimated the bill to be about $540m.

Separate action brought by another gaming group, Tabcorp, was dismissed, in a minor win for the government, which was facing a potential $1.2 billion blow to its coffers.

Tabcorp had sought $686.8m from the government to compensate for changes to its licensing ­arrangements.

The legal battle was sparked in 2012 by a new policy to break Victoria’s gaming machine duo­poly and implement the NSW model, where venue operators manage machines and in turn reap the profits. The policy followed changes to legislation by the Brumby Labor government in 2008.

The court found that the 1995 agreement between Tatts and the state government for Tatts to pay a licensing fee included a clause that Tatts be compensated if its ­licence was terminated.

The agreement between Tatts and the government followed the state’s decision to privatise the Totalisator Agency Board, now Tabcorp, in 1994.

Tabcorp had argued it was also due a termination payment after its licence expired in 2012.

The court found that in Tabcorp’s case the termination payment was not required as no new licences had been awarded as per the terms of its contract.

Victorian Treasurer Michael O’Brien said last night the decis­ion was expected to cost more than $540m and the government was considering an appeal.

He said while the decision regarding Tabcorp was positive, there was the potential for there to be a big impact on the government’s bottom line, affecting the ability to fund basic services such as schools and hospitals.

However, the Victorian budget is strongly in surplus over the forward estimates. The surplus for 2014-15 is estimated at $1.3bn.

“The Victorian government is now considering both judgments, including prospects for appeal with respect to the Tatts Group decision,’’ he said.

“I can say this is a very mater­ial blow to the state of Victoria. It’s a very material blow to the state’s budget.’’

A Labor spokesman said the government should consider an appeal.

“It appears the contracts signed by the Kennett government with Tattersalls has provided a windfall gain,’’ the spokesman said.

“However, if the government is confident of its case then it should strongly consider appealing. The decision of the former government not to pay out Tabcorp has been vindicated.”

Tabcorp is expected to appeal against the judgment as well.

Late yesterday Tabcorp released a statement to the Australian Securities Exchange noting the judgment.

“Tabcorp is reviewing the court’s judgment,” the company said. “Tabcorp has 14 days to lodge an appeal with the Victorian Court of Appeal.”

Tabcorp made impairments against the loss of the licence in 2008 and expects no negative ­financial impact from yesterday’s decision.