Opinion
Gill’s knockdown rebuild in the house of Tabcorp
Elizabeth Knight
Business columnistWhen high-profile former AFL chief executive Gillon McLachlan became the left-field appointee to run the nation’s biggest gambling company, Tabcorp, he was expected to be a change agent.
Three weeks into the role, he has decided not to renovate this troubled company. Instead, he is looking at a demolition and rebuild.
How this manifests in a financial sense provides some perspective on the scope of what McLachlan is doing. Under his command, Tabcorp has taken an axe to the book value of its wagering assets, writing it off by almost $1.4 billion. That’s more than the sharemarket value of the entire company, which is capitalised at $1.1 billion.
Tabcorp chief executive and established networker Gillon McLachlan (right) with Seven Network chairman and billionaire Kerry Stokes.
Doing so is a huge swing for McLachlan, who has experience running a sporting code, but not a gambling company, or any listed company.
To justify such a massive financial sledgehammer suggests the future earning power of these assets is meaningfully compromised.
After the myriad company results over the past few weeks, we are all aware that consumer spending is tepid at best, thanks to high interest rates and the cost-of-living crisis.
We all understand that companies selling discretionary goods and services are experiencing what feels like a moratorium on wallet opening.
This also applies to gambling, as the community has eased off the accelerator on betting. Both casino groups Crown and Star have raised the prospect of softer earnings, blaming consumer spending – or the lack thereof – as part of the problem.
What McLachlan did tell the market on Wednesday after announcing Tabcorp’s $1.63 billion net loss for the year to June 30 is that the great strategy blueprint the company had been following under his predecessor is to be abandoned.
This master plan included a target to reach a 30 per cent market share in digital wagering and a major reduction in costs.
Tabcorp has now raised the white flag on these aspirations.
Yet beyond this, the company was light on detail about what its future holds, and what will be the architecture of the new Tabcorp McLachlan hopes to build.
For years, its traditional business has been under siege from online bookmakers that have been eating its lunch.
More recently, the whole gambling industry has been disrupted by an increased focus on regulation – yet how this plays out for its economics isn’t yet clear given most of the initiatives are in their infancy.
For example, there has been the introduction of BetStop, the national register that prohibits interactive wagering companies from accepting bets from self-excluded individuals or sending them marketing material.
More recently there has also been a ban on the use of credit cards or digital currency to place bets.
Restrictions on digital bookmaker advertising will be next – but how far this will go is being debated in Canberra. A total ban by the current federal government is extremely unlikely.
The good news for Tabcorp is that state-based tax regimes are increasingly being overhauled to remove advantages held by its online bookie competitors.
Restrictions on advertising and the use of credit cards and a focus on problem gamblers will feed into the revenue of all bookies, but whether it alters Australia’s ingrained gambling culture is questionable.
Tabcorp says it expects the macro environment to remain challenging in the 2025 financial year and increased regulation to have an impact.
It says the goal of gaining market share is still there, but McLachlan isn’t putting any numbers around it.
For shareholders, sticking with Tabcorp requires a leap of faith that the former footy supremo can rebuild a business that has been under attack for years.
So the question investors must ask themselves is: Are they feeling lucky?
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