Betting stocks struggle despite Australia’s gambling obsession

Over the course of the past year, shares in Points Bet, which has a significant presence in Australia but is also trying to become a major player in the US, are down 70 percent. Meanwhile, shares in wagering technology group BetMakers have fallen 60 percent. The benchmark ASX 200 index has fallen by 14 percent over the same period.

PointsBet is currently the seventh largest operator in America’s $13 billion-a-year sports betting market, with a 3.7 percent share. The US market is expected to grow significantly in the coming years as more states legalize the activity. Last week, PointsBet launched in its 12th US state, Louisiana.

Swans fans at the AFL Grand Final parade in Melbourne.

Swans fans at the AFL Grand Final parade in Melbourne.Credit:Phil Hillyard

But while the potential of the US market has excited some investors, PointsBet’s cash burn has concerned others. The company last year spent $162 million of its $240 million sales budget on US marketing alone. Chief executive Sam Swanell last month said the marketing spend would not continue in 2023, but was a “necessary” set up cost this year.

Industry giant and stalwart Tabcorp, which had brief aspirations of cracking the UK and the US market in 2018, is in an entirely different position. The company recently de-merged its highly profitable lotteries business into a new entity after knocking back a $3.5 billion takeover approach from Entain.

Whether the Ladbrokes owner Entain returns for another tilt at Tabcorp remains to be seen. For now Tabcorp is focused on building out its digital strategy and catching up to digital rival Sportsbet, which now controls 50 percent of the local sports betting market.

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Liu is bullish on Tabcorp shares, particularly during the spring betting season. “I can easily see it go up by 10 to 20 percent because Tabcorp is the only one going through seasonally strong periods and still trading very low multiples and yet analysts don’t upgrade.”

Liu said she’s not sure what to think about other Australian bookies looking overseas. While the US presents an “enormous” market opportunity with the potential for enviable gains, she’s conscious that securing dominance in a region just beginning to legalize and regulate sports betting is a complex process.

“You just have to compete aggressively for eyeballs through a lot of spending,” she says. “For a while, the share market appreciated the aggressive spending, but the market condition has turned and investor attitudes towards companies who burn cash have changed now money costs more”.

On Wednesday Tabcorp unveiled a long-awaited app for the green giant’s 783,000 active punters. The app has made it 9 seconds faster to place a bet, incorporated racing and sports vision to betting slips and other technological improvements. The group has also committed to integrating a same-race multi offering and social betting platform before Christmas, following in the footsteps of Sportsbet and Ladbrokes’s socially geared sites.

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In May, Goldman Sachs analyst Desmond Tsao downgraded Tabcorp shares to a ‘neutral’ rating from an earlier ‘buy’ view. His 12-month target price is $1.07, compared to Tabcorp’s current price of 95 cents.

In July, Macquarie analysts raised their 12-month projection on Tabcorp from $1.05 to $1.20 and upgraded Tabcorp to a ‘buy’ rating after the group’s tax win in Queensland and new digital strategy reveal.

Fierce competition

As Tabcorp tries to reinvent itself, it also faces stiff challenges in the local market.

Flutter now rakes in about 50 percent of Australia’s sports betting revenue thanks to the amalgamation of Sportsbet and BetEasy. The pair’s combined income was $1.72 billion in 2021 from more than $15.5 billion bets. Sportsbet grew its player base by 27 percent during 2021, on the back of an online migration during the COVID-19 pandemic.

Tabcorp is also fighting Entain to hang on to state wagering licenses in Western Australian and Victoria as it prepares to face another formidable new market entrant to be launched by Rupert Murdoch’s News Corp.

News Corp’s product Betr will be led by former BetEasy owner Matthew Tripp and chief executive Andrew Menz. Tripp built Sportsbet into the country’s second-largest bookie before establishing BetEasy in 2014, so all eyes are on his new venture and its potential to shake up the market.

Irvine is excited by Betr and said investing in a social media strategy is the main value point for punters and can unlock “explosive” growth.

“Most bookies are realizing it’s the key to success, and I’m surprised it’s taken so long to be honest,” he said. Irvine said that while he is impressed by Tabcorp’s new digital strategy, questions about some legacy parts of its business remain unanswered. That includes what it will do with the three historic state based totalisor betting agencies, where NSW, Victoria and WA residents can bet from a cumulative prize pool rather than on fixed odds.

“The market is hugely competitive at the moment,” says Irvine. “It’s been challenging for operators because of increasing taxes and product fees. For years this industry got away with very little regulation and taxes, now they’re having to adjust to the new conditions.”

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