The multibillion-dollar lotteries business has not changed much in decades. Many Australians still go to their local newsagent to buy a lotto ticket, particularly when jackpots start hitting the $10 million-plus mark.
This is a contrast to the wagering industry where there has already been a shift to online gaming and foreign giants like Paddy Power and William Hill have disrupted the local market.
But like just about every industry that has not been impacted by the internet, the game could soon be up for the lotteries monopolies which deliver state governments billions of dollars in revenues.
A little known Gibraltar-based online gaming company called Lottoland hit the jackpot on Christmas Eve when the Northern Territory awarded it a five-year sports betting licence to offer betting services in Australia.
The decision did not receive any attention in the dead of the holiday season despite its potential to shake-up the lotteries industry and the billions of dollars in revenue it delivers to state governments.
The Northern Territory Racing Commission’s decision to grant Lottoland the licence after a 12-month application process means Australians can now gamble on foreign lotteries for the first time. Previously, you would have had to physically travel to that country to bet in a non-Australian lottery.
The move is potentially disruptive for local players like Tatts because it means Australians can now dabble in mega-lotteries offshore where the prize pools overshadow the size of local draws.
King of all lotteries
In what has been superb timing for Lottoland, the king of all lottery prizes is being drawn on Thursday. The $US1.5 billion ($2.1 billion) US Powerball jackpot will be the world’s largest lottery prize.
Greed is the ultimate motivator for gamblers and the idea of becoming an instant billionaire attracts enormous interest, even though few people would know what to do with that much money.
Lottoland had been sitting on the news of the Northern Territory deal during the dead of the holiday season ahead of a soft launch planned this month. But the publicity around the US Powerball jackpot triggered the first wave of its marketing push this week.
Luke Brill, the manager of Lottoland’s Australian operations, says his business is like the Uber of the gaming industry which now looks ripe for disruption. Lottoland did not have any Australians on its books until this week when 35,000 signed up off the back of publicity around the US Powerball draw.
Lottoland is a secondary lottery product. This means customer selects their numbers and Lottoland insures those numbers. If the numbers come up it pays the punter out the same amount as if they had entered a ticket in the official lottery. Lottoland is insured by Lloyd’s of London and has also issued insurance-linked securities as a hedge for when its customers actually do hit the jackpot.
Tatts chief executive Robbie Cooke was not commenting on Lottoland’s potential incursion into the company’s core business on Wednesday but many in the industry are worried. His counterpart at Tabcorp David Attenborough is more than familiar with the impact foreign disruptors have had on the wagering business.
Target market
There is little doubt about Lottoland’s target market. Its Australian website promoting the $2.1 billion US PowerBall draw bears an uncanny resemblance to Tatts’ lotteries website.
Industry veterans who have watched foreign operators swoop in for a slice of the action since the landmark High Court ruling in 2008 which overturned efforts to stop the Packer family owned Betfair which broke down the geographical restrictions on sports betting, are expecting a similar shake-up in lotteries.
Huge multinationals like Britain’s William Hill, Ladbrokes and Unibet have also entered the Australian market via the Northern Territory where the tax regime is more favourable than the other states. Their online betting shops have shaken up Tabcorp’s traditional bricks and mortar TAB outlets.
The model has mean they have not had to pay as many fees and taxes which means they can offer their punters a better price.
Until now there has been a high barrier to entry for offshore lotteries.
CLSA gaming analyst Sacha Krien, who published a report on the issue this week, said it is the first real challenge to Tatts’ monopoly state lottery licences.
“We do not expect any near-term impact but left to operate unchecked Tatts’ lotteries sales could come under pressure medium term,” he says.
He does not expect Tatts or the state governments to lie down without a fight though. Tatts may look at initiating intellectual property challenges, while the states could apply for federal legislation to override Northern Territory law. The powerful newsagents lobby will not be happy either.
Other industry players agree, saying state governments have too much to lose from an incursion into their lotteries revenues which are worth more than the tax from wagering. CLSA says state tax receipts from lotteries across New South Wales, Queensland and Victoria are close to $1 billion.
Technology influence mixed
It is further evidence of the impact technology is having on the global gaming industry and not all of it good.
The federal government last year appointed former NSW premier Barry O’Farrell to oversee an investigation into online wagering operators. There is growing concern about the offshore gaming sites Australians are betting on that local regulators have no control over.
The Lottoland model is clever in the way it circumvents existing laws around playing lotteries in other geographies but it also highlights how regulators, governments and incumbent players are unprepared for new competition. Not unlike the taxi industry and Uber.
Meanwhile, Tatts and Tabcorp have not given up on their $9 billion marriage plans although there are no active discussions around reviving the tie-up that was scuttled at the 11th hour in November.
Tatts and Tabcorp were talking for several months about joining forces to take on their new offshore rivals. But a drop in Tabcorp’s shares meant the two could not see eye to eye on value. The incentive, including $100 million in synergies, remains. But whether they revive talks will depend on the outcome of court rulings over $1 billion in compensation claims over lost gaming licences in Victoria.
Over to Grover
Electronics retailer Dick Smith may be in intensive care but it will not be the first time an Australian retailer has been revived on the operating table.
The appointment of retail veteran Don Grover as new chief executive after Nick Abboud stepped down this week has prompted speculation the company has a future, at least in his eyes.
Grover was called in two years ago to run Fusion Retail Brands, the company created out of the ashes of failed adventure-wear group Colorado which went into administration in 2011. While creditors did not get all their money back, Grover closed 140 stores and breathed life back into that business.
The other obvious example is posh food chain Jones the Grocer which was placed into administration by its private equity owners L Capital in 2014. L Capital ended up negotiating a deal where founder John Manos walked away with nothing but creditors received 100c in the dollar.
It has since rebuilt that business.
Dick Smith creditors will not be that optimistic though when they gather at their first meeting at Sydney’s Wesley Conference Centre on Thursday. It is early days in the process and that meeting is being held to brief creditors on the details.
Control freak
CIMIC, the Spanish-controlled engineering and construction giant formerly known as Leighton, is clearly a control freak.
The company has made a $256 million hostile bid for Queensland engineering group Sedgman after its efforts to increase its influence on the target company’s board was defeated last year.
CIMIC clearly does not like losing a battle so is now seeking out-right ownership in what is the latest in a strong of corporate plays to gain greater control over the Australian companies it owns stakes in.
CIMIC failed to vote down Sedgman’s remuneration report last year when it sought to increase the number of its appointed directors on the target’s board from one to two.
It has also made a takeover bid for the remaining 49 per cent stake it does not already own in development group Devine and last year voted against the remuneration report at engineering group Macmahon Holdings, where it owns a 19.6 per cent stake.
CIMIC clearly thinks it knows what is best for its Australian assets and it is probably right given the track record turning things around at Leighton. It is owned by Spain’s Grupo ACS which moved fast to install its own people at the helm of Leighton when it acquired the business in 2014.