Opinion
Tabcorp’s big, risky bet on the former king of AFL
Elizabeth Knight
Business columnistYou’d think that appointing former AFL boss Gillon McLachlan – the closest thing Australia’s southern states have to corporate royalty – to head up Tabcorp would be (as they say) a big win for the gaming company.
Think again.
McLachlan will move from running a sporting code with a hurricane-powered revenue tailwind to a company employing maximum thrust just to offset structural and cyclical headwinds.
Former AFL chief executive Gillon McLachlan is the new Tabcorp boss.Credit: Eamon Gallagher
Ask any chief executive about running a monopoly – it is a licence to make money. In the AFL’s case, Australian rules football is so loved, so culturally ingrained, that it’s both a religion and a bulletproof money spinner.
Tabcorp is an entirely different beast.
Today’s modern gaming companies are technology plays, where the other key ingredient to success requires an ability to navigate and influence a spaghetti junction of regulation.
On the plus side, having once been a king of sport, McLachlan knows his way around Canberra and is a deft hand at lobbying.
Tabcorp’s historical roots lie in the state-based monopoly TAB betting shops that previously dotted the suburbs and pubs. But these were disrupted years ago when online corporate bookmakers entered the market and ate a large slab of Tabcorp’s lunch.
Like most companies disrupted by technology, Tabcorp was slow to evolve and its investment in (metaphorically analogue) bricks and mortar was an anchor weighing on its returns.
Perversely, it was disruption that provided a tailwind for the AFL, which propelled McLachlan’s success. Under his 10-year stewardship at Australia’s most lucrative sporting body, annual revenue more than doubled to more than $1 billion.
This is because the free-to-air broadcasting industry, cable and digital distributors have been in a bidding war for popular sports content, as they vie for customer eyeballs.
This has placed marquee sports such as AFL and NRL in a perfect position to extract a king’s ransom for their rights.
But primarily, leading Tabcorp is a gig that demands, in large part, a technology and regulatory skill and the ability to navigate a fierce and fluid competitive landscape.
Negotiating deals leveraging popular sports content is only a small part of the skill set required to revive the perpetually challenged Tabcorp.
To be fair, McLachlan has honed some significant skills in dealing with sporting rights, which will come in handy at Tabcorp. It has a large media business that creates racing content which is distributed through its 4000 retail venues, its Tabcorp app, the Sportsbet app and on Foxtel.
Tabcorp’s historical roots lie in the state-based monopoly TAB betting shops.Credit: Luis Ascui
The AFL under McLachlan also had a finger in the gambling pie, given the code gets a percentage take of bets made on its games via bookmakers. This is a revenue stream quaintly referred to as “product fees”.
Also on the plus side, having once been a king of sport, McLachlan knows his way around Canberra and is a deft hand at lobbying.
Former Tabcorp chief Adam Rytenskild.Credit: Alex Ellinghausen
Unsurprisingly, the Tabcorp board thinks it has snared an executive winner, and boasted McLachlan’s ownership of racehorses as the icing on the cake of experience.
But shareholders appear not to share that ebullient enthusiasm if the dip in the share price is any gauge.
Talented as McLachlan may be, an executive from the world of digital bookmaking would have been a more popular choice. Someone with a proven ability in technology would have provided investors with a sense that Tabcorp could catch up, or beat, the nimble competitors that increasingly dominate the betting landscape.
(In fairness, most of the senior gaming executives who cut their teeth in Australian casinos have been banished to the naughty corner after years of investigations by regulators uncovered problematic conduct.)
Meanwhile, someone with experience of listed companies – rather than a not-for-profit organisation – would also be a safer bet for Tabcorp.
McLachlan is a risky choice for Tabcorp’s chairman, Bruce Akhurst, at a time when the company is still reeling from the departure of McLachlan’s predecessor, Adam Rytenskild, who was pinged for making sexual jokes about a female gaming regulator.
The appointment also carries risks for McLachlan, whose remuneration will be closely tied to the company’s financial performance.
The $1.5 million base pay is shy of the estimated $2 million he was getting in his role at the AFL.
But he stands to make as much as $6 million a year if he meets the short- and long-term financial targets set by the Tabcorp board, the hurdles for which have not yet been announced.
It’s a big bet.
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