The government insists it simply bailed out the TAB by handing over operations to an overseas gaming company. But the deal is short-sighted and potentially dangerous, writes Terry Leisman.
So what happened?
Racing Minister Kieran McAnulty has just approved a 25-year deal to transfer our own TAB NZ betting operations to British gaming giant Entain. This deal will bring Entain $900 million to our racing industry over the first five years. This is a significant cash infusion for the racing industry, but at the cost of privatizing our betting industry to make way for global organized gambling. This is a potentially seismic shift in gambling culture for our society, a price we may all be paying years from now.
What is Entain?
You may not have heard of Entain before the coverage of this new arrangement with TAB. Entain operates under various brands in various areas of gambling, from sports betting to online casinos. It’s best known for its Ladbrokes brand, which you’ve probably had the misfortune of seeing in advert after advert if you’ve immersed yourself in watching Australian or British sports.
Entain comes to us with a dismal record of compliance with regulatory obligations to mitigate harmful gambling activity. Just last year, the UK Gambling Commission ordered Entain pay a record fine £17 million for a huge list of breaches of Safe Gambling and Anti-Money Laundering laws. His license to operate in the UK was at risk as it was his second breach of the rules in three years.
What does the government get from the sale?
In exchange for the sale of the bookmaking operations to the TAB, which is a chartered entity, McAnulty agreed to an upfront payment from Entain of $150 million, with a further 50/50 split of the gross proceeds, which Entain guarantees will be no less. than $150 million over the first five years of the deal. Entain has offered an extra $100 million to sweeten the deal if the government passes legislation to ban New Zealand players from using other overseas online gambling operators.
And is that… bad?
The harm from gambling cannot be underestimated. Gambling is still gambling whether you use our TAB or the many overseas gaming platforms. We cannot undo the harm done to individuals and families by gambling, but at least as long as the TAB remained a statutory business, it answered to our own government and not to the often confused morality of profit-driven shareholders. TAB profits and costs are now plowed back into our economy, supporting and growing social services and local businesses. The individual harm of gambling is balanced against the public good.
This balance is about to be disturbed. After Entain takes over betting operations, the approximately $350 million of net revenue that the TAB currently receives from its punters will now go to Entain to pay operating costs, with New Zealand getting its 50% of what’s left gross income. All good for the first five years with Entain’s $150 million guarantee, but what are we left with for the remaining 20 years of this deal? The hundreds of millions extracted from New Zealand players year after year – money no longer in our economy, but instead lining the pockets of Entain and their shareholders.
But I’ve read that it’s good?
McAnulty tells us that TAB would have gone out of business within the next three years had Entain not stepped in to take over the operation due to falling revenue as TAB was unable to remain competitive with overseas platforms. There is no doubt that TAB’s profit turnover has suffered due to Covid, as has many companies. But is TAB really not profitable enough to support itself without Entain? This report stands in stark contrast to the last one annual report from TAB, which boasts more customers than ever before – up to 250,000 under now former CEO Mike Todd. In fact, things were going pretty well in the second half of 2022, and TAB managed to post a net profit of $350 million for the year. It seemed that recovery was coming.
What does this geoblocking mean?
TAB is the only sports betting company licensed to operate in New Zealand. This means it has a monopoly on sports betting in New Zealand. However, for now, local players can freely use the online platforms of foreign providers. McAnulty confirmed that Cabinet had agreed in principle to introduce legislation that would allow the government to block New Zealand players from accessing online platforms provided by overseas companies that are not owned by Entain. This will give Entain a complete monopoly on sports betting for New Zealand punters. This begs the question: Why is this legislation only being agreed to now after Entain’s $100 million bid? What a sorry state we seem to be in, allowing a foreign company to buy legislation that will give them a complete monopoly on the industry.
But at least everyone keeps their jobs, right?
As part of the deal, Entain has agreed to retain 460 TAB staff for two years – which is pretty quick considering it’s a 25-year outsourcing deal. On the surface it appears to be little more than a grace period for existing TAB staff to organize other options, given the breakneck speed with which this deal has been agreed, which is expected to start as early as June (ie next week).
It all sounds bleak. Will anyone win?
There are some clear winners here. First of all Entain, as you’ve probably figured out. Over the next 25 years, it could take more than $4 billion out of our economy. There are also some short-term winners here. By signing the deal, McAnulty provided the racing codes with an unprecedented $150 million cash payout in addition to guaranteed distributions over five years. Not bad for a pastime, interest in which has been declining for some time.
But why is all this money going to the races?
This is truly the million dollar question. McAnulty signed a deal of guaranteed $900 million over the first 5 years to race in New Zealand. But what about New Zealand sport? Only $15 million was allocated for distribution to non-animal racing sports. This comes as no great surprise as sport in New Zealand has been similarly affected by the TAB’s distribution practices for many years. But it is becoming increasingly difficult to justify the huge difference in funding between New Zealand racing and New Zealand sport from the TAB.
The writing is on the wall for racing codes from 2018 TAB Annual Report found that horse racing fans are aging out of the game (so to speak). The report says that millennials are simply not interested in racing and would rather spend their money on sports. Sports betting, of course, is booming. More Kiwi fans than ever use the TAB, but they just don’t use it for racing. It’s a problem when you look at the TAB distribution and see numbers like $100 million spread across three racing codes and $5 million spread across 20+ sporting codes (if they’re lucky).
It makes you wonder if the TAB really can’t support itself or if it’s NZ racing not getting the funding it used to get from the TAB that has become unsustainable. From this perspective, it looks like New Zealand racing is getting one last squeeze as it comes to terms with a new world that appears to be leaving the racing industry behind.
Did the public gain anything important here?
Unfortunately, not very much. As Entain aims to significantly increase the number of active players in our country, what was thought of minimizing the damage? McAnulty is proud to announce that he has agreed to pay $5 million (out of an initial $150 million payout) to implement facial recognition software and harm-minimization “research,” whatever that means. He reminds us that the problem is not the gambling, but the gambling. Given Entain’s track record of harm minimization, this could be a problem we see much more often in our society in the future.