Ever heard of a takeover bid where the amount of cash paid to shareholders is contingent on an upcoming regulatory decision?
That’s what British gambling giants GVC and Ladbrokes came up with last week as they attempt to create a $10 billion gambling behemoth amidst a regulatory crackdown in the UK.
Ladbrokes, one of the world’s oldest bookmakers, is being taken over by a fast growing online upstart GVC in a classic case of the old and new worlds coming together. The terms of the merger deal, plus associated presentations and conference calls are available through this gambling industry newsletter.
Hard-charging GVC CEO Kenneth Alexander told CNBC the “clever” structure meant the softer the outcome of Britain’s tri-ennial review into gambling regulation, the more cash they would pay to Ladbrokes shareholders.
How much more cash? As GVC’s CFO explained during this 38 minute conference call, the upside is a staggering 837m pounds ($A1.5 billion). That is the difference between the base case takeover bid of 161p per share, versus the top of the range 204p if the Government only reduces the maximum bet on Britain’s gaming machines from 100 pounds to 50 pounds.
The worst case scenario is 2 pound maximum bets and slower spin rates being imposed on the 182,000 gaming machines sprinkled in 8502 betting shops across Britain.
Ladbrokes is the market leader with about 3000 UK outlets, but also has a booming online business in Australia, thanks to a dirt cheap licencing deal with the Northern Territory.
This 62 page statement by the UK government out-lines the range of options being considered in the regulatory review with consultations continuing until January 23, after which a final decision will be made. The contrast with the lack of action in Australia is stark indeed.
Shares in Ladbrokes soared more than 30% to 178.6p in the two days after the deal was announced. The CEO of GVC, which has 79 million gambling accounts globally, said he was particularly attracted by Ladbrokes’ profitable Australian operations, which has “performed fantastically”.
Britain and Australia are both currently grappling with national gambling losses of about $24 billion a year, although in per capita terms Australia remains the world’s worst performer at $1000 a head, 40% clear of the next worst country Singapore.
The latest Australian loss data showed a $900 million increase or 3.9% to $23.65 billion in 2015-16. However, with no national gambling regulator like in the UK, this Queensland Treasury data is already 17 months out of date.
Whilst Macau and Nevada release monthly gambling loss figures, the Australian states are hopeless in terms of gambling transparency but from a Ladbrokes point of view, the losses are still clearly rising strongly, as the GVC CEO told investors on Friday: “The growth they have been getting in Australia has been phenomenal in the last few years.”
The latest British loss data shows a 1.8% jump in losses to 13.7 billion pounds (A$24.5 billion) for the 12 months until March 31, 2017 with the biggest difference between the two countries being the staggering $12.1 billion lost annually on Australian poker machines, more than half of which occurs in NSW which has 95,000 machines and the lowest pokies taxes in the country.
In Britain, the so-called “remote sector”, which is essentially online gambling, now comprises 34% or some $8.36 billion of all losses. This is the sector where GVC is strongest with online betting, bingo and casino games.
Britain has a national 15% point of consumption tax on gambling and you’ve got to feel a bit sorry for Stephen Conroy at the moment as he tries to lobby against all Australian states following the lead set by South Australia, Western Australia and Queensland which have committed to a similar 15% tax as they try to claw back lost revenue to the various Northern Territory licenced outfits.
Conroy heads up the outfit called Responsible Wagering Australia which, as apiece in yesterday’s The Sunday Herald Sun explains, is pushing the states and territories to keep Australia’s version of the tax below 10%.
With GVC gloating about how much money Ladbrokes is making in Australia, it will now be even harder for Conroy to persuade some of his old Labor mates not to match Britain’s 15% national system, but we’re yet to see which way NSW and Victoria will jump.
Unlike Australian Labor, which remains heavily embedded with the gambling industry even to the point of Labor owning and operating 800 pokies in venues across NSW and the ACT, British Labor has launched a full frontal assault on the industry.
Jeremy Corbyn’s deputy, Tom Watson, has called for a ban on shirt sponsorship amidst a range of crack downs. Meanwhile, Bill Shorten remains relatively silent on the issue and his counterparts in Victoria have just recently legislated for another $70 billion in pokies losses through until 2042.
Stephen Mayne works part time for The Alliance for Gambling Reform and was not paid for this item.