Australia’s sports betting market has never been more competitive, yet it finds itself facing myriad challenges as operators clamber for position at a time when anti-gambling sentiment threatens to kill the golden goose. IAG takes a look at the key issues.
Australia’s sports betting market has never been more competitive. According to information from the Northern Territory Racing Commission – the main regulatory body responsible for issuing and overseeing online bookmaking licenses – there are currently 34 licensed sportsbook and betting exchange operators nationwide, although industry experts put the total number of operational bookmakers, including on-course bookies, at around 150.
Estimates place the value of the domestic sports betting industry at more than AU$50 billion (US$34 billion) in terms of total bets taken annually, with a March 2023 study by the Australian Gambling Research Centre finding that 34% of the 20.5 million Australians aged 18 years and over had bet on sports at least once during the previous 12 months.
But there are wars being waged within the Australian sports betting scene, as smaller bookmakers fight for survival and the industry as a whole battles an increasingly hostile regulatory environment. Meanwhile, ASX-listed Tabcorp finds itself in conflict with the so-called corporate bookmakers, in part to maintain control of the Australian retail and hotels betting scene but also to claw back valuable market share in the rapidly growing digital space.
Despite seeing its once undisputed position as Australia’s wagering king suffer some significant blows in recent years, Tabcorp – which last year sold off its Lotteries and Keno business in an AU$6.5 billion demerger – remains at the heart of the Australian racing and wagering scene. Aside from its online presence, licensing agreements in all Australian states and territories other than Western Australia mean it holds the exclusive right to operate live betting outlets in more than 4,000 pubs, clubs, agencies and on-course sites, as well as to provide racing and sports vision to 4,875 venues via pay TV and various digital platforms.
For this privilege, Tabcorp raked in AU$2.37 billion in revenues (not including lotteries and Keno) in FY22 with EBITDA of AU$382 million, although its unique licensing models also see the company fund a large chunk of the local horse racing industry via various fees and taxes.
Where Tabcorp is losing ground is digital. As recently as 2019, the company controlled around 50% of Australia’s online wagering market share, however the tables were turned in early 2020 when UK gaming giant Flutter Entertainment, which ran the Sportsbet brand in Australia, merged with Canada’s The Stars Group, owner of BetEasy.
Now operating exclusively under the Sportsbet banner, their combined financial might has helped grow market share from 26% (Sportsbet and BetEasy) in early 2020 to around 44% (as Sportsbet) in 2022, while Tabcorp has fallen back below 24% (with Entain’s Ladbrokes and Neds combining for 18%). Put another way, Tabcorp claims to have 750,000 active digital players, while Sportsbet’s 1Q23 results announcement highlighted a 9% year-on-year increase in average monthly players to 993,000.
There are two schools of thought as to exactly how such a seismic shift took place, with critics accusing Tabcorp of missing the digital boat and, more specifically, failing to effectively transition its retail customers to online during the COVID-19 pandemic. Tabcorp responded by launching a revamped sports betting app last September, described by Managing Director and CEO Adam Rytenskild as “faster and easier to place a bet”. The company has set a target of increasing its digital market share from 25% to 30% by 2025.
For its part, Tabcorp blames its slide on what it calls an uneven playing field, claiming that it pays significantly more in taxes and license fees in certain states than what is paid by online wagering operators licensed in the Northern Territory.
In particular, Tabcorp references instances where the wagering taxes it pays under its licensing deal are higher than the Point of Consumption (POC) taxes paid by its corporate rivals.
Speaking at the Regulating the Game conference in Sydney in March, Rytenskild noted that racing’s being well funded remains “incredibly important … to ensure the safe operation of the industry,” but added, “What’s changed is the source of funding. Tabcorp can no longer be the predominant source of funding and be successful paying double the amount on average that everyone else does. In effect, where that’s the case, the industry is over-indexed to an uncompetitive TAB, and that can no longer continue, which is why the answer is actually pretty simple: we all pay the same, the industry is well funded and the operators in the market get on with competing on the basis of brand and providing good services to customers.”
Tabcorp’s lobbying on this matter has achieved some results. In July 2022, New South Wales raised its POC tax rate from 10% to 15% and Queensland from 15% to 20%, while Victoria will raise its POC tax from 10% to 15% as of 1 July 2024 – generating hundreds of millions of dollars of additional government revenue in each state annually.
It also, theoretically at least, protects Tabcorp’s coffers: if higher tax rates can effectively reduce the marketing spend of the corporates, then Tabcorp doesn’t have to spend as much on marketing to stay competitive.
But not everyone buys Tabcorp’s “leveling the playing field” argument.
“The one thing that ignores is that, as a retail wagering licensee, what’s wrong with having to pay more taxes than a corporate?” asks Julian Hoskins, founder and Principal at Australian gambling law specialists Senet.
“One way to look at it is that you’ve got a license that gives you special privileges and you’ve got retail exclusivity. You’re operating both land-based and online, therefore why should you try and compare a tax rate that is online only with one that applies to online and retail? It’s not apples and apples, it’s apples and oranges.”
Sportsbet is also fighting back, locking horns with Tabcorp for the rights to the Victorian wagering license its rival has held exclusively for the past 30 years when it expires in August 2024. According to local media reports, the Victorian state government is still undecided on whether the new 20-year license should remain exclusive – potentially opening the door for Sportsbet to open its own betting shops across the state.
While JP Morgan notes that Victoria is currently Tabcorp’s “least profitable wagering ‘operation’ with earnings/returns near zero”, the AU$750 million to AU$800 million value analyst Donald Carducci places on the license may well be worth it for the regional marketing value alone those retail betting shops would provide, especially given a federal government proposal to phase out almost all gambling advertising nationwide within the next three years.
“The thing that’s really interesting about the fight in Victoria is that if you have a regional presence, you are essentially going to have captive traffic and free marketing, even though marketing might no longer be permitted,” observes Jamie Nettleton, Partner at Addisons Law Firm.
A final decision on the Victorian license is expected by November at the latest.
Meanwhile, the proposed advertising ban looms as a possible shadow over every single operator in the industry. The ban is one of 31 recommendations emanating from a parliamentary inquiry into online gambling and its impacts on those experiencing gambling harm, made public in late June. It would, if adopted, be introduced across four phases over three years, with Phase One to include a prohibition on all online gambling inducements and inducement advertising, and all advertising of online gambling on social media and online platforms. It would also prohibit such advertising on commercial radio between school drop-off and pick-up times. Phase Two would ban all online gambling advertising and commentary on odds both during and for an hour before and after any sports broadcast, along with in-stadia advertising and logos on player uniforms. Phase Three would add prohibition of all broadcast online gambling advertising between the hours of 6am and 10pm, while Phase 4 would see a blanket ban prohibition on all online gambling advertising and sponsorship.
At the moment it remains just that – a proposal – although if recent gambling industry inquiries into Australian casino giants Crown Resorts and Star Entertainment Group are any indication, then governments in the current regulatory environment appear driven to act on such recommendations first and ask questions later.
That’s a worry, says Hoskins, given the racing industry itself – which relies heavily on funding from Tabcorp et al. – wasn’t invited to offer its insights as part of the recent inquiry. He also questions the effectiveness of such an advertising ban and warns of unforeseen consequences.
“I don’t think [a ban] is appropriate,” Hoskins says.
“I do believe gambling advertising needs to be whittled back, but it should be approached in a carefully measured way so there is a reduction in gambling related harm and so that children aren’t exposed to gambling advertising.
“Advertising on TV at 8pm should not be compared to advertising at midnight. And advertising around the [Melbourne Cricket Ground]is different from advertising around a racetrack where 99% of people attending will be adults. The approach to a complete ban, it certainly hasn’t worked in other jurisdictions, and irrespective of gambling advertising restrictions on local operators, you’re still going to see advertising by offshore operators and those that shouldn’t be offering into this market.”
“The question you have to ask is: why do you have a license? What’s the benefit of having a license? Well, the benefit of having a license is access to the market, and access to the market is not just access to the market by having customers but being able to market to those customers to allow them to keep on coming through the door. That’s part of the benefit,” he says.
Combined with rising costs and charges for sportsbook operators – with further gambling harm prevention costs listed among the inquiry’s 31 recommendations – the inevitable result will be licensed Australian operators having to offer worse odds than those based offshore are able to offer.
“Those who recognize a good price will find [the better odds] and utilize them,” Nettleton adds.
A more contentious proposal stemming from the parliamentary inquiry is the concept of a national gambling regulator. In its report, titled “You win some, you lose more,” inquiry chair Peta Murphy wrote, “We have recommended that a single Australian Government Minister be responsible for developing and implementing a comprehensive national strategy on online gambling harm reduction, supported by national regulation, an online gambling ombudsman, a harm reduction levy on online wagering service providers (WSPs), and a public education campaign.
“Under national regulation, the Australian Government would be responsible for all regulation and licensing of online gambling, although the states and territories would retain the capacity to levy point of consumption taxes on online gambling. The Committee has recommended stronger consumer protections for online gambling, including a requirement for WSPs to verify their customer’s identity before accepting bets from them, a ban on inducements, and a legislated duty of care on WSPs.”
The idea of a national regulator has found support in some quarters, with Tabcorp’s Rytenskild calling for exactly this kind of reform at the Regulating the Game conference in March.
“The [current] regulatory framework to police wagering operators [in Australia] is not fit for purpose,” Rytenskild said at the time. “It doesn’t hold all wagering operators to account. In some states the regulator is regulating less than 40% of the wagering activity in the state. It needs to change to better protect the community and take into account our social license responsibilities.
“Our regulators do great work but are constrained by not having a nationally consistent, well-resourced framework. Instead, we have a patchwork quilt system with different rules and regulations across each state. It has allowed foreign online bookmakers to be licensed in the Northern Territory and this has contributed to the proliferation of gambling advertising across our screens.
“The state-based licensing and regulatory regimes were established more than 20 years ago and they haven’t kept pace with the changing wagering ecosystem which has been disrupted.”
Yet it is because of this “patchwork quilt system” that Hoskins believes a national regulator won’t work.
“It would be very difficult to have a model where there was a national regulator and it would be pretty much impossible to achieve, the reason being that gambling law and regulation is predominately done on a state and territory basis,” he explains.
“You’ve got expertise that has been developed within each framework but also complex laws within each state and territory.
“To suggest a national regulator would solve all the problems that are associated with the industry would be wrong. It is no silver bullet.
“The better thing to focus on would be harmonization amongst laws throughout the states and territories so that you get them working together collaboratively to ensure there are no conflicts of laws like exists at the moment.”
Exactly how these battles play out remains to be seen, but one thing that seems certain is that further change is afoot.
“The market has probably got to full maturity, and I doubt we are going to see significant increase in turnover from where we are now,” says Hoskins.
“We are at a point where competitors are grabbing customers from each other, so I expect there will be consolidation in the industry over the next few years. That’s due to a few things, one being the sheer number of new entrants to the market over the last couple of years, which is ongoing as on-course bookmakers migrate online due to COVID restrictions that stopped them from operating on course.
“The second thing is that costs for bookmakers continue to increase, so their margins are being squeezed. We’ve seen POC tax increases as well as rising regulatory costs and even some of the proposals from the [parliamentary inquiry] require funding from the industry, all of which adds more pressure.”
Says Nettleton, “I don’t think that transition [from on-course to online] has finished yet, and the trend we are seeing is they are setting up in either NSW or Victoria and then having a very close look at moving to the Northern Territory. I would be very surprised if the number of NT bookmakers hasn’t doubled in the past three years.
“But those people are going to find it very tough to continue to grow the business or even cover their costs by going online and with all the compliance obligations. Where that trend is going is consolidation.
“If you are a successful small to medium bookmaker you’re going to be an attractive proposition to the larger bookmakers, not because of your client base but because of your product range. Going forward, the large will become larger and it will become more competitive among them, at least in the short them.”