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NZ Racing Board skittish about outsourcing TAB

Thursday 3rd January 2019

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The New Zealand Racing doesn't want to lose control of its TAB betting arm unless outsourcing is clearly in the long term interests of the racing industry, because there's no turning back once it's done. 

The board made its view known in one of about 1,600 submissions on a report by Australian racing expert John Messara on how to revive the local industry. Among the suggested remedies was a recommendation to outsource TAB's betting service to an international firm, given the NZ Racing Board's insurmountable lack of scale, with increasingly onerous capital demands to meet technology upgrades and anti-money laundering rules making it harder to meet customer expectations. 

The NZRB had already hired Investec and Cameron Partners to gauge interest in fully outsourcing its wagering unit and what impact such a transaction could have on distributions to the wider industry. It told Messara that work raised questions about whether a sale or outsourcing would offer greater long-term value than its own strategy and that outsourcing was unlikely to fix the fundamental issues holding the industry back. 

Messara's report triggered speculation in Australian media that ASX-listed Tabcorp was in the box seat to pay at least A$1.5 billion to buy the TAB's operating rights. TAB and Tabcorp already have arrangements to commingle certain betting pools.

In a submission on the report, the NZRB reiterated its warning to Mesara, saying it opposed unilaterally outsourcing TAB before a commercial evaluation clearly demonstrated doing so was in the best interests of New Zealand racing over the long-term. 

It wants to continue its 'Desert Gold' project evaluating the value of outsourcing parts or all of the TAB and Trackside, which has so far attracted a number of indicative bids from international parties. The board recommends that work continue and a formal report with options and analysis be presented before any final decisions are made. 

"Without such a process, it is the board’s view that any outsourcing decision will expose the industry to lower returns and greater risk and, once a decision is taken to outsource, there is no going back," it said in its submission of Oct 12. The Department of Internal Affairs declined to release the submission, which BusinessDesk then searched for.

The NZRB reported a 1.3 percent increase in net profit at $145.9 million in the year ended July 31, 2018, distributing a record $148.2 million to the three racing codes: thoroughbred racing, harness racing, and greyhound racing. Since then, TAB reported record-equalling turnover of $10.6 million for the Melbourne Cup in November. 

The codes themselves are divided on whether to back outsourcing TAB. Greyhound Racing New Zealand and Harness Racing New Zealand supported reviewing whether to outsource the wagering operations but stopped short of fully endorsing an immediate move. New Zealand Thoroughbred Racing is an enthusiastic supporter on the basis that outsourcing would deliver significantly better returns than the status quo. 

Greyhound NZ also wants such a review to consider corporatising TAB and limited share sales. Messara's report didn't recommend privatisation and listing TAB, saying there is no appetite within industry or government for a sale and that the benefits would be diverted from the racing industry to TAB's new owners. 

The NZRB set up a debt facility for the first time in the 2018 financial year, drawing down $10 million in the period to support its investment in developing a fixed odds betting platform, which is estimated to lift profit by up to $30 million a year.

It's targeting a net profit of $220 million by 2021, having overhauled its IT systems to a cloud-based service, attracted more betting customers, and kept a lid on costs. It's also in the process of replacing its broadcasting vehicle fleet, having found outsourcing its production would lift costs without improving performance. 

When releasing the Messara report in August, Racing Minister Winston Peters said changes to TAB licensing will need Cabinet sign-off and legislation will need to pass through Parliament. 

The racing board said it supports Messara's recommendation to split the board into Wagering NZ and Racing NZ to better focus its activities, and also a new legislative framework to ensure TAB stays competitive.

The NZ Racing Board accepts that fewer racing venues are needed, but says any changes need to go through the industry's existing Future Venue Plan. The board opposes central ownership because it would cut out small clubs from being involved in the decision making. 

(BusinessDesk)



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