Worth a Punt: QAV AU #954

QAV AU 954

Bernard: [00:00:00] wel­come back to QAV Aus­tralia. This is episode 954. Record­ing this on Tues­day the 3rd of Novem­ber 2026, which is Mel­bourne Cup day, and that explains why I’m here by myself today because Tony’s at the Cup. So, uh, it’s, well, kind of a solo intro, but not a solo show because we did pre-record a Pulled Pork last week.

Tony was kind enough to take some time out of his week and, uh, he will be here kind of vir­tu­al­ly with me in a few min­utes to do his Pulled Pork for the week. But it’s gonna be a short show. Um, it’s gonna be basi­cal­ly just the Pulled Pork this week, although I did want to pro­vide a lit­tle bit of mar­ket com­men­tary.

Uh, mar­ket’s hav­ing a chop­py week, prob­a­bly some­thing to do with the US midterms, which hap­pen on Tues­day in the US. Uh, that [00:01:00] should be fas­ci­nat­ing to see how that plays out, and I guess the mar­ket’s hold­ing its breath, par­tic­u­lar­ly over there, but that affects all of us as we know. The mar­ket here has been very, very chop­py over the course of the last week.

Uh, up and down like a bride’s night­ie, as I like to say. But in fact, if you look back over the last 18 months, it’s just been going side­ways real­ly. Um, we’re– you know, the All Ords is run­ning about nine thou­sand, a lit­tle bit less than nine thou­sand at the moment. If you go back­wards, that’s kind of where it was in July of twen­ty twen­ty-five, and it was­n’t much below that in Feb­ru­ary of twen­ty twen­ty-five.

It was around eight sev­en eighty. But, uh, it’s, you know, been sort of going side­ways more or less for the last, um, year and a half, maybe two years.

So if we look at the mod­el port­fo­lio over the last two years, it’s up about fif­teen and a half [00:02:00] per­cent ver­sus the STW, which is up eight point eight per­cent. So we’re doing rough­ly dou­ble mar­ket over the last two years. But if I look at the last twelve months, not doing as well. We’re basi­cal­ly flat, neu­tral over the last twelve months.

Slight­ly neg­a­tive, zero point sev­en six per­cent per annum neg­a­tive ver­sus the STW, which is up four per­cent. So it has­n’t been a great year for the mod­el port­fo­lio. It’s just been going side­ways. We– And we know that hap­pens, right? We have years where we go up, we have years that we go side­ways, and we have years that we go down, but over­all, we’re more up than down.

If I look at the light group of port­fo­lios for the last two years, they’re up twen­ty-one point six sev­en per­cent per annum ver­sus nine point one six for the STW. So again, about dou­ble mar­ket, bit bet­ter than dou­ble mar­ket. But over the last one year, pret­ty much the same, up about four per­cent ver­sus the [00:03:00] STW up four per­cent.

So, uh, inter­est­ing space the mar­ket has been in from a QAV per­spec­tive for the last year. If I look at the last thir­ty days, the light port­fo­lio as a group is actu­al­ly down sev­en per­cent ver­sus the STW up two. And if I look at the mod­el port­fo­lio, we’re down five per­cent in the last thir­ty days ver­sus the STW up about two.

So yeah, not a great cli­mate for QAV stocks in the last year, but that’s okay. If, uh, again, like if you’re new, um, if I do the last five years for the QAV mod­el port­fo­lio, we’re up thir­teen per­cent per annum ver­sus sev­en point eight or eight real­ly for the STW. So not quite dou­ble mar­ket in the last five years.

If I look at, um, all time, we’re up four­teen point five ver­sus eight [00:04:00] point four. It’s not quite dou­ble mar­ket, but pret­ty close. If I look at the light group for all time, it’s up sev­en­teen point three sev­en per annum ver­sus ten for the STW. It’s a clean ten, ten point zero zero for the STW. Again, not quite dou­ble mar­ket, but pret­ty close.

And if I look at the last, uh, well it has­n’t been around five years, but I’ll look at the last three years, twen­ty-three point three per­cent for the light group ver­sus four­teen point nine for the STW. Again, not quite dou­ble mar­ket, but not far off it. So real­ly, real­ly good years, some aver­age years, a bad year every now and again.

That’s just the way the cycles work. What else can I tell you? Well, I did have in the news to talk about the Binance, uh, cryp­to hack. Six point three bil­lion dol­lars, the largest heist in his­to­ry. Not just the largest cryp­to heist, but the largest heist [00:05:00] in his­to­ry they’re call­ing it. So there you go. That’s cryp­to for you.

Um, some peo­ple are sug­gest­ing it might have been North Korea. Who knows? I was gonna talk to Tony about that, but he’s not here, so I guess we’ll talk maybe about that next week if we remem­ber. Well, that’s all from me. I don’t real­ly have any­thing else to tell you. I’m going to kick into Tony’s Pulled Pork, and I’ll see you next week.

Hap­py hunt­ing.

Cameron: Uh, okay. TK, uh, pre-record­ed TK, TK in the past, uh, TK who’s not at the races today, who are you doing a Pulled Pork on for us today in advance?

Tony Kynas­ton: Well, because it’s. You’re lis­ten­ing to this dur­ing Cup Week, I’m assum­ing, I’m gonna do a Pulled Pork on Tab­corp Hold­ings.

Cameron: Hope­ful­ly it has­n’t blown up between the 29th of Octo­ber and Cup Day.

Tony Kynas­ton: It did blow up many years ago because they, they got over­loaded on [00:06:00] Mel­bourne Cup Day and had to shut down for a cou­ple of hours, which, which hurt them.

Cameron: recall that, yeah.

Tony Kynas­ton: were on track when that hap­pened. Um, yeah, hope­ful­ly it does­n’t hap­pen. Hope­ful­ly they have a suc­cess­ful Mel­bourne Cup and there’s a bit of a share price bump after­wards, but we’ll see.

Cameron: Is this their biggest day of the year?

Tony Kynas­ton: Yeah, it would be. I’d s- I, I don’t know for sure, but I’d say so. Yeah, I’d say prob­a­bly AFL Grand Final and NRL Grand Final on the sports bet­ting side, and Cup Day on the, the wager­ing side. So I’ve titled this Worth a Punt. Um, it’s, it’s not a QAV stock, but it’s a spe­cial request by me, giv­en it’s Cup Day that we’re putting this out on.

Um,

Cameron: Spe­cial request by

Tony Kynas­ton: yeah.

Cameron: I like it.

Tony Kynas­ton: Uh, so, um, yeah, I mean, there’s a few, few caveats there. We’ll get to the score in a lit­tle while. But, um, I should also high­light too, it’s not gonna be on every­one’s [00:07:00] to-do list because it’s got­ta, it’s gonna have ESG con­cerns for some peo­ple. Um, so if you say nope to the Cup, you can pass on this pork.

Cameron: Whoa, look at

Tony Kynas­ton: Yeah.

Cameron: to the Cup. That’s even a bet­ter title.

Tony Kynas­ton: Um, yeah, because obvi­ous­ly some peo­ple don’t like invest­ing in gam­bling stocks. Uh, and part of this busi­ness, even though most of it’s wager­ing, part of it is also to do with the man­age­ment of pok­er machines as well. So some peo­ple don’t like invest­ing in busi­ness­es that, uh, oper­ate pok­er machines. But it is the, it is the wager­ing behe­moth in Aus­tralia.

There’s, um, some­thing like 4,000 or 5,000 staff across Aus­tralia, and obvi­ous­ly that fluc­tu­ates with casu­als and, and race days going up and down. Uh, so it’s pret­ty large. Uh, most peo­ple would know that it oper­ates the TAB horse and sports bet­ting plat­forms, um, on your phone and also on retail venues. It owns and oper­ates a media [00:08:00] busi­ness, so it broad­casts all the, uh, rac­ing, not just horse rac­ing, but grey­hounds and inter­na­tion­al rac­ing and, um, some sports.

Uh, and it also broad­casts it on radio as well through a few chan­nels there. So it’s a sig­nif­i­cant play­er in the broad­cast­ing world. Uh, and it also has a busi­ness called MAX, M‑A-X, and that pro­vides ser­vices to the pok­er machine, uh, venues around Aus­tralia. Most of them, or a lot of them are on, um, the MAX ser­vice.

Uh, TAB pro­vides com­pli­ance, mon­i­tor­ing, and also will, uh, do bulk buy­ing pro­cure­ment ser­vices, um, of pok­er machines for venues. So it gives them, it gives a small oper­a­tor a bit of lever­age. Uh, but the over­all part of the busi­ness, the biggest part of the busi­ness is wager­ing and media, and that’s about 85% of total group rev­enue, with the rest com­ing from the gam­ing ser­vices MAX divi­sion.

I thought it, it’s, it’s a real­ly inter­est­ing [00:09:00] busi­ness from the fund­ing point of view, and it’s worth­while drilling into that a bit, uh, to work out how horse rac­ing and bet­ting is fund­ed in Aus­tralia. So the rela­tion­ship between Aus­tralian rac­ing, uh, clubs and juris­dic­tions and state gov­ern­ments and the, the wager­ing oper­a­tors relies heav­i­ly on a num­ber of dif­fer­ent, um, agree­ments and ecosys­tems, I guess.

So his­tor­i­cal­ly, Tab­corp, as it used to be called, held a long-term joint ven­ture. Um, all com­mer­cial agree­ments were state rac­ing bod­ies like Rac­ing New South Wales and Rac­ing Vic­to­ria. Uh, in exchange for that, they got retail exclu­siv­i­ty, which is why you only see TAB shops and TAB venues in pubs and not Sports­bet or Lad­brokes or any of their oth­er com­peti­tors.

Uh, so, so they had a rela­tion­ship that gave them exclu­siv­i­ty on the retail side, and they paid fees for that, [00:10:00] and they sh- actu­al­ly share the, um, a per­cent­age of its wager­ing prof­its or rev­enue back to the local indus­try. A lot of that was used to fund prize mon­ey, um, and, and obvi­ous­ly, uh, race­track main­te­nance and, um, breed­ing ini­tia­tives, et cetera.

Uh, and that, that’s evolved a bit, so I’ll, I’ll go into that in a minute. Um, but if I keep explain­ing what else hap­pens, um, they also. The Tab­corp or, or Tab Hold­ings also pays race field fees. So this was a, a new fee income for the rac­ing clubs and the rac­ing states, uh, rac­ing bod­ies, um, which basi­cal­ly said, “If you’re going to, on your app, show the details of the hors­es, the form guide, um, and infor­ma­tion about the hors­es, you have to pay us a fee to, to reprint our race field infor­ma­tion.”

And so that, that came in, um, part­ly because of a, a wrin­kle in the, uh, in the [00:11:00] nation­al leg­is­la­tion or which was real­ly a col­lec­tion of dif­fer­ent state reg­u­la­tions, um, and was exploit­ed when over­seas com­pa­nies like Sports­bet and Lad­brokes, um, Bet365 came in. They real­ized if they oper­at­ed in the North­ern Ter­ri­to­ry, they, they paid very lit­tle in tax­es, and, um, that enabled them to come in and get big, uh, and have an advan­tage over the incum­bent, Tab­corp Hold­ings.

Uh, and, uh, less mon­ey was going back into the rac­ing indus­try for prize mon­ey and, and track main­te­nance, et cetera. And so the state bod­ies decid­ed to start charg­ing race field fees to make up for that, uh, lost tax. But they also, um, even­tu­al­ly, uh, changed laws to be able to, uh, levy what’s called the point of con­sump­tion tax or the POCT.

So it does­n’t mat­ter where the book­mak­er is res­i­dent, it’s where the punter places the bet [00:12:00] that, um, now is charged or taxed, um, when the bets are made. Or in fact, I think it’s a month­ly tal­ly, uh, that gets report­ed and taxed back to the, the state gov­ern­ment. So, so fair­ly, um, rea­son­ably com­pli­cat­ed tax­a­tion sys­tem for this oper­a­tor.

Uh, the oth­er dimen­sion to it is that there’s two types of wager­ing in Aus­tralia. Um, one is the, what’s typ­i­cal­ly called fixed odds, which is how a book­ie oper­ates, where they, you know, you walk up and you know what you’re going to get, um, as the return for your bet when you place the bet. So if the favorite’s $4, you get four times your mon­ey, um, back if you, if it wins.

Um, there’s that or there’s what– there’s also what’s called the tote, um, which has been the prob­a­bly more tra­di­tion­al way of plac­ing at least, uh, horse rac­ing bets. And tote bet­ting is a pool. It’s often called. It’s actu­al­ly called a parimutuel pool, and that means that, um, all the [00:13:00] mon­ey that’s, uh, staked gets put into a pool, and then the div­i­dends are divid­ed among the win­ners.

And so the odds can fluc­tu­ate, um, often­times quite dra­mat­i­cal­ly from when you place your bet to when the pay­outs are cal­cu­lat­ed at the end, and they can still be accept­ing bets right up till start time. So the, the odds can even change after the, the horse has jumped. So, um, that’s tra­di­tion­al­ly how Tab­corp oper­at­ed, uh, and they had a monop­oly on that, and there’s pros and cons for that.

Um, the monop­oly sit­u­a­tion, I guess, gave size to the pool, which was, uh, impor­tant, um, to attract peo­ple to bet with it. Um, and the take on the pool was, uh, rea­son­ably high. So as Tab­corp paid out peo­ple, it deduct­ed a tax back to the, the rac­ing body, so that was how prize mon­ey was often fund­ed in the past.

Um, there, there have obvi­ous­ly been [00:14:00] argu­ments against it, um, that often­times the, the fixed odds or book­ies would have bet­ter odds than the, the tote when, when the tote actu­al­ly final­ly tal­lied up all the bets. Um, uh, often to do with the mar­gins and the, and the take­outs from the pools that, that were levied.

But also some peo­ple would say there’s only one pool oper­a­tor, so there’s no com­pe­ti­tion. And I guess the last crit­i­cism, which has often been levied at the, the tote pool, is that, um, there’s been very lit­tle prod­uct inno­va­tion over the years. So if you look around the world, there are some places like Hong Kong that oper­ate very big parimutuel pools, and they have devel­oped, uh, kind of more like, um, TattsLot­to-type prod­ucts.

So they have things like a, a triple trio. So you don’t– You’re not just pick­ing. If you can pick the first three win­ners in three races that they nom­i­nate, there can be mil­lion-dol­lar prize, um, pay­outs for peo­ple who get that right, because the odds are so, [00:15:00] um, com­bi­na­to­ri­al­ly dif­fi­cult to get and, um, the, the pool is so large.

So, uh, but those kinds of things haven’t real­ly come to Aus­tralia, and one of the rea­sons for that is the tech stack for, for the TAB has­n’t changed much over the years. And in fact, one of the prob­lems, which is some­times iden­ti­fied at the Mel­bourne Cup, in the actu­al cup itself, is that there’s only ever 24 hors­es allowed to run in the race.

And that means if there’s a, a scratch­ing, for exam­ple, on race day, there’s no emer­gency to step in. Um, and the rea­son for that is there’s the– only 24 lines on the screen that, that TAB hard-cod­ed many years ago and, um, haven’t been able to change or update or get around. So there are some lim­i­ta­tions with the cur­rent tech stack, and I’ll, and I’ll, I’ll just talk on that a bit in, in a moment as well.

Um, the oth­er thing to note about the tote pool, the parimutuel pool, is there are dif­fer­ent take­out rates [00:16:00] depend­ing on the type of prod­uct. So, um, and these are, again, con­trac­tu­al­ly man­dat­ed, um, by state, uh, or rac­ing body in the state. So, for exam­ple, uh, for, for your, you know, basic win bet, uh, the take­out rate is 14.5%.

Um, same for a place bet. A quinel­la, it ris­es to 17.5. For a bet called an exac­ta, which is get­ting the first two hors­es in order right, you get, uh, 20% tak­en out. A quad­die, 20.5. A tri­fec­ta, 21.5. A first four, 23%. And what’s called a big six, which is pick­ing the win­ner of six races in a row, 25%. So basi­cal­ly, uh, as the bet gets hard­er to win, the, uh, Tab­corp, um, well, Tab Hold­ings take out more and more of that pool.

So if you’re a gam­bler, it’s actu­al­ly worse to play the exotics even though, um, they get the head­lines because the [00:17:00] pay­outs are, are often, are often huge. So, um, there’s a lot of com­pli­ca­tions in what gets tak­en out of those take­outs I just men­tioned. Some of that is mar­gin for Tab, but a lot of it is also going back to, uh, the, the rac­ing bod­ies either via POCT tax­es or race field tax­es or what­ev­er.

Um, it’s, it’s actu­al­ly pret­ty com­plex try­ing to work out what Tab­corp pays to var­i­ous, um, state bod­ies, and up until recent­ly they’ve been dif­fer­ent across Aus­tralia. But, um, you could, you could basi­cal­ly say they were giv­ing, say between 2 and 3% of turnover, um, in, in, uh, returns back to the, the rac­ing bod­ies and then keep­ing the rest as a, a mar­gin them­selves.

That’s a kind of rough rule of thumb. Um, that was before POCT [00:18:00] came in. The point of con­sump­tion tax is a bit high­er. It’s a lot high­er actu­al­ly. Um, but again, it’s, it’s tak­en out a bit dif­fer­ent­ly as well. It’s tak­en out of net wager­ing rev­enue. So what I was talk­ing about before of 2 to 3% was tak­en out of gross turnover.

The POC tax­es, um, vary between 15 and 20% depend­ing on the state, but that’s net wager­ing rev­enue. So if you looked at, say, the win bet I spoke about before, where Tab­corp takes out 12, uh, 14.5%, um, that’s the net that they’re then pay­ing 20% of to the Queens­land Rac­ing, um, state body if it, if the bet was placed in Queens­land.

Uh, so if, if you kind of unpick it, if I look at, um, an exam­ple. So if there’s a punter sit­ting in Syd­ney, they put on a $100 tri­fec­ta bet on the pre­mier race day at Rand­wick and, and the. Again, the con­tracts with the state rac­ing [00:19:00] bod­ies can vary depend­ing on whether it’s a, um, a mid­week race or a pre­mier race day.

Um, but if we’re look­ing at a, this exam­ple, we’re say­ing it’s a Syd­ney meet­ing, um, $100 tri­fec­ta bet placed in Syd­ney. Uh, $21.50, uh, goes straight off the top. That goes to Tab­corp. That’s the, the tote take­out mar­gin, so that leaves $78.50 in the pool. Uh, Tab­corp pays rough­ly $3, um, for the race field fee, and then what­ev­er the final gross prof­it Tab retains from New South Wales cus­tomer accounts activ­i­ty over the month, they pay anoth­er 15% of.

So yeah, the, it’s $100 might go in, but you know, it’s, it’s get­ting down to sort of, um, $70 being left after all the fees are tak­en out. Um, I spoke, spoke about the, the NT book­mak­ers. That was a real, uh, wake-up call for the rac­ing indus­try and [00:20:00] sig­nif­i­cant­ly under­mined the Tab’s busi­ness mod­els over the years and They, first of all, did a cou­ple of things, um, and I’ll.

I might just leave that until we get to the his­to­ry sec­tion. But they branched out into casi­nos and, uh, lot­to-type busi­ness­es to try and, um, make up for their lost rev­enue. I think, uh, both of those two busi­ness­es have now since been divest­ed. But what they’ve done now since, um, under new man­age­ment, and I guess it was start­ed under, uh, old man­age­ment, um, but fin­ished now, is they now have what’s called the One Pool.

Um, so instead of hav­ing all these dif­fer­ent state-based, um, con­tracts and state-based reg­u­la­tions, they now have one tote pool across most of Aus­tralia. I think, I think most states are in now. Um, New South Wales is in, uh, Vic­to­ria is in, South Aus­tralia is in, uh, Queens­land’s in. [00:21:00] I think, I’m not sure about WA, but any­way, most of Aus­trali­a’s in.

Um, the ben­e­fits of that are that with a big­ger pool, you can start to offer big jack­pot-style, uh, pay­outs on, on, on accu­mu­la­tor bets, so, uh, quad­dies or big six­es or what­ev­er, uh, first fours, et cetera. You’re pick­ing the first four hors­es in a race. And so the strat­e­gy is, if you can lever­age up how much peo­ple are win­ning by pick­ing the last four win­ners on a big race day, and it, it gets into the mil­lions of dol­lars, that will attract peo­ple back to the tote for, um, for busi­ness.

Um, the oth­er thing that they’re, they’ve been able to do is nego­ti­ate with the state bod­ies to have a vari­able take­out rate. So, um, I guess in broad terms, they still will pay the same amount, but they, they have some flex­i­bil­i­ty [00:22:00] now to, uh, say in the Mel­bourne Cup, um, to, to take out, uh, less from the pools in the Mel­bourne Cup and there­fore offer big­ger prize pay­outs to pun­ters to attract busi­ness.

And that vari­abil­i­ty across the race card and across the race days, um, will work for them as well, I think. Uh, and they also, uh, in, in putting togeth­er this one pool, it. they’re able to enhance their sports bet­ting, um, side of things. So they’re not just, uh, look­ing at horse rac­ing, but there’s also, of course, a lot of, um, busi­ness done on, um, crick­et match­es and ten­nis match­es and a lot on foot­ball match­es.

Um, and last­ly. Or a cou­ple of oth­er things, I guess, that will ben­e­fit from what they’ve done is, uh, they’re, they’re branch­ing off into a whole­sale-type ser­vice now. So, um, as I said before, the inter­na­tion­al com­peti­tors came into the North­ern Ter­ri­to­ry, [00:23:00] um, and with the changes to levy­ing a race field fee and the point of con­sump­tion tax, their mar­gins have also gone down because they’re now pay­ing more tax than they were when they first came in.

Um, so they’re try­ing to lim­it their costs, and by hav­ing this one pool, uh, and a more flex­i­ble tech stack, Tab is, is going to start sell­ing, um, whole­sale B2B ser­vices to the oth­er cor­po­rate book­mak­ers. So that’s anoth­er rev­enue stream for them which will open up. And last­ly, uh, with the big pool, they’re also start­ing to forge alliances with oth­er big pools around the world to allow peo­ple in Hong Kong, for exam­ple, to bet in the local Hong Kong pool but have it co-min­gled with the Aus­tralian pools.

And so the pools get even big­ger, um, which I said before is an attrac­tion because, um, if you have a, uh, if you’re the win­ning hold­er of a, you know, a, a, a dif­fi­cult, [00:24:00] um, bet to get like, uh, you know, pick­ing the first four win­ners in the Mel­bourne Cup, you’ll prob­a­bly get a big­ger pay­out, so it becomes more attrac­tive.

Um, to, to do all this, so that’s the strat­e­gy. Not only did, um, man­age­ment at, at, at this com­pa­ny have to nego­ti­ate with all the rac­ing bod­ies and the state reg­u­la­tors, um, which they did, but they also had to, uh, upgrade its, its tech stack. And the, rather than sort of spend hun­dreds of mil­lions of dol­lars, uh, doing it them­selves, they went out and bought a com­pa­ny called Bet­Mak­ers Tech­nol­o­gy Group for about $260 mil­lion in, uh, well, just recent­ly actu­al­ly, in August of this year.

And that pro­vides them with a, a much bet­ter tech stack than what they have now and a much more flex­i­ble offer­ing. And the idea is that it won’t just be that they can do these vari­able [00:25:00] take­out, uh, races. They’ll be able to pro­mote, you know, hap­py hours, um, in the venues where you can come in and get a bet­ter deal than nor­mal.

Um, but also too the, the venues will look dif­fer­ent­ly because instead of hav­ing the old tele­text type tele­vi­sion screen dis­play, the dis­plays will, uh, have a, an upgrad­ed GUI inter­face, so they’ll look more like the bet­ting app does on your phone. So that’s hap­pen­ing. Um, Bet­Mak­ers also allows them to pro­vide these bet­ter ser­vices to the cor­po­rate book­mak­ers and open up that as a rev­enue stream.

So there’s been a fair, a fair bit done in the last cou­ple of years, and that’s. A lot of that’s down to a new CEO called Gillon McLach­lan, who used to be the CEO of the AFL in Vic­to­ria for a, for a long time. Had a lot of expe­ri­ence there with man­ag­ing stake­hold­ers, with doing big, uh, media rights deals.

Um, and there are some peo­ple who are, who are con­tem­plat­ing that there might be a [00:26:00] media deal com­ing with the broad­cast side of, uh, TAB in the future. So I guess watch that space. But he seems to have done a pret­ty good job. Um, since tak­ing over, he did the clas­sic new CEO, uh, clean out of costs and, and wrote down assets.

But he’s also, uh, done the one pool nego­ti­a­tion, or com­plet­ed the one pool nego­ti­a­tion. I think it had start­ed under pre­vi­ous man­age­ment. But he made the Bet­Mak­ers acqui­si­tion, which has giv­en them the tech stack to be able to lever­age the one pool. But he’s also done some­thing else which I think is inter­est­ing.

Um, he’s changed the mod­el with the retail out­lets. So TAB his­tor­i­cal­ly has had that, um, mar­ket to them­selves, and they’ve, they have some­thing like three thou­sand sev­en hun­dred, uh, retail venues, either in licensed venues like in pubs or in stand­alone out­lets in, in shop fronts that they own and oper­ate.

What Gillon McLach­lan has done is to change the finan­cial mod­el for those. So in the [00:27:00] past, um, the venues used to, uh, uh, pay a com­mis­sion or get a com­mis­sion per­cent­age for what­ev­er turnover they had tak­en in the, in the pub. That’s now chang­ing and, uh, they, they get a, uh, mod­el, well, there is now a mod­el where the pubs and clubs are charged direct­ly, um, for ter­mi­nals and for broad­cast­ing the Sky Rac­ing Chan­nel.

Uh, and then they, uh, they also, as part of the deal, are pay­ing less, um, as a com­mis­sion return. So it’s, it’s reset the posi­tion, um, more in favor of the TAB. What do the pubs get out of this and the venue oper­a­tors get out of it is the, the tech upgrade and the prod­uct improve­ments to, um, to dri­ve peo­ple back into the loca­tions.

So I guess he’s, he’s, uh, tak­en some, some of the rev­enue that was going to those pub venues and put it into tech to be able to, [00:28:00] uh, have a bet­ter ser­vice, uh, for cus­tomers to dri­ve them back into the venues. That’s, um. There was a, a lot of hic­cups dur­ing that nego­ti­a­tion, obvi­ous­ly. You know, pubs are gonna not wan­na pay more, but I think most of them have now signed up.

So there is a, um, again, a watch this space on are there new prod­ucts that come down the line from the, uh, acqui­si­tion of Bet­Mak­ers and the OnePool nego­ti­a­tions. Are they gonna dri­ve peo­ple back into venues to, uh, take advan­tage of those offer­ings, offer­ings? So it was called the ren­o­va­tion res­cue, um, of tech­nol­o­gy for the pubs.

So there’ll be changes there as well. I– And I think, um, my notes are say­ing that over 95% of the retail net­work have, um, have signed up. Uh, I think there’s still a cou­ple of large groups, um, that might be hold­ing out. Uh, I know some of them ini­tial­ly did, but I think most of those have now signed over as well, like an Endeav­our group, for exam­ple.

So that’s the, the wager­ing side of things. Um, major [00:29:00] reset this year, and it’s prob­a­bly a good time to go back and look at the busi­ness because of that, and, uh, a fair­ly com­pli­cat­ed rev­enue side of, uh, uh, the, uh, rev­enue side of the busi­ness, but also the tax­a­tion side of the busi­ness. And, and some of that’s been cleaned up, um, with the lat­est, uh, round of restruc­tur­ing.

The oth­er busi­ness that, uh, Tab oper­ates is the Max Brand. Um, it’s the, the largest gam­ing ser­vices provider in Aus­tralia. It’s large­ly a B2B oper­a­tion. And, um, for any­one who has gone into a, a pok­ie venue, you, you’ll often see, um, that it’s all. You’ll see, uh, linked machines. So there’s often, uh, jack­pots which are paid across a num­ber of machines at a venue, but also across a num­ber of venues.

Um, and all of that has to be mon­i­tored, uh, for com­pli­ance, for tax col­lec­tion, for data integri­ty, make sure the pay­outs are at the right ratios. Um, and also now increas­ing­ly to, um, [00:30:00] mon­i­tor for anti-mon­ey, uh, laun­der­ing leg­is­la­tion. So, um, all of that is, is done by this Max Brand. They han­dle all that. They also, as I said before, will han­dle, um, ser­vices for the venue oper­a­tors to, um, to get data on their busi­ness and to be able to enter into, um, pro­cure­ment pools, to be able to buy new machines, um, to run loy­al­ty sys­tems and cash­less gam­ing options.

And that’s, uh, and play­er track­ing, and some of that is also being test­ed and tri­aled in dif­fer­ent juris­dic­tions in dif­fer­ent states to, um, lim­it gam­bling. So, um, there are some tri­als going on to, uh, use, um, uh, face recog­ni­tion, um, on the pok­er machines to lim­it peo­ple, um, stay­ing on them for too long. So all this is being oper­at­ed via the Max Brand, and, and that’s the respon­si­ble gam­ing tech, um, is doing that.

Um, inter­est­ing his­to­ry. So as I said [00:31:00] before, uh, a lot of, a lot of changes to tax, a lot of changes to com­pe­ti­tion. Orig­i­nal­ly, I guess if I go back as far as the start of the TAB era as a com­pa­ny, it pri­va­tized in 1961, uh, as the Total­isator Agency Board. So those tote pools are offi­cial­ly, um, total­isator pools, tote for short.

So the TAB stands for Total­isator Agency Board. They were, um, set up to, uh, you know, uh, as, as the, the pools were get­ting big and need­ed, um, prop­er cor­po­rati­sa­tion, tax­a­tion and reg­u­la­tion. Um, and also, uh, to, uh, I guess facil­i­tate and reg­u­late off-course bet­ting. So, you know, pri­or to the ’60s and I guess dur­ing the ’60s, there was a lot of what was called SP bet­ting, where some­one in the pub would have a tele­phone and, and you could ring up and take a bet, um, with them, and it was all unli­censed and untaxed.

So the TAB, um, even­tu­al­ly was [00:32:00] able to, uh, over­take that busi­ness, that, uh, black mar­ket in bet­ting. Um, in 1994, they list­ed. Uh, uh, first of all, in Vic­to­ria, uh, and, um, Tab­corp Hold­ings, um, was the first one to list, uh, on the ASX, and then, uh, New South Wales fol­lowed, uh, suit a lit­tle bit after that as well, um, with the TAB it was called up there.

Um, once they list­ed, Tab­corp in par­tic­u­lar start­ed an aggres­sive cross-state expan­sion cam­paign. So there was always this view, I think in the rac­ing indus­try in par­tic­u­lar, that, um, a, a fed­er­a­tion of state-based bod­ies and com­pa­nies and leg­is­la­tion was nev­er gonna be able to scale enough to, to make a real go of, of the indus­try.

And so one of the things, one of the ben­e­fits of list­ing was they could then go and, and, um, acquire oth­er busi­ness­es in oth­er [00:33:00] states and expand that way. Uh, but one of the, the things that they did first of all was that they acquired the Star Casi­no in 1999, uh, which was the, the Syd­ney Casi­no, and then they merged it with Jupiters, which was the Queens­land-based casi­nos in 2003.

And then, uh, that, uh, made the Vic­to­ri­an TAB big enough to take over the New South Wales TAB, which list­ed in 2004. And then, um, every­thing was, uh, was put togeth­er into the, the one com­pa­ny. Uh, and cer­tain­ly syn­er­gies and, and scale was obtained through that. But then, um, in 2011, Tab­corp decid­ed that the casi­nos were too cap­i­tal inten­sive, um, being large hotels and being large, um, food venues and, and, uh, staff, um, heavy busi­ness­es and com­pli­ance heavy busi­ness­es.

And they thought that, uh, the casi­nos were drag­ging [00:34:00] down the per­for­mance of the core wager­ing and, and, uh, oth­er busi­ness­es, so they decid­ed to divest, um, the casi­nos. They went out into a sep­a­rate ASX com­pa­ny called Echo Enter­tain­ment Group, and that was lat­er rebrand­ed as Star Enter­tain­ment Group. And peo­ple might be famil­iar with the tra­vails of Star if they read the papers, um, that, uh, you know, they’re, they’re kind of fight­ing for their life, I guess.

Um, there’s been some, um, anti-mon­ey laun­der­ing, uh, issues. There’s been some, uh, issues with the way high rollers, which are often big fun­ders of the rev­enue at casi­nos, the way they were treat­ed and account­ed for. But any­way, I won’t go into that. Um, Star Enter­tain­ment Group has, has had a rocky, uh, ride after, um, Tab­corp got rid of them or demerged them in 2011.

Um, a few years lat­er, they decid­ed that they would take over the Tatts Group and start, uh, get­ting into the lot­to [00:35:00] busi­ness, and, uh, that, that was an $11 bil­lion merg­er with the Tatts Group in 2017. And, uh, they decid­ed that they did­n’t want to, um, oper­ate a, a, a Tatts busi­ness. Um, I guess that, um, for the reverse rea­sons of the Star, the merg­er of the casi­nos, ana­lysts after a few years of oper­at­ing the com­bined busi­ness said, “Hey, the lot­to busi­ness is much bet­ter than the wager­ing busi­ness.

It should be spun off.” So in 2022, Tab­corp split again, and Lot­ter­ies and Keno went into a busi­ness called The Lot­tery Cor­po­ra­tion, which was sep­a­rate­ly list­ed. And so now, um, Tab­corp is a, a pure play busi­ness, um, as I said before, 85% wager­ing and some gam­ing, uh, ser­vices as well. Um, that’s the pot­ted his­to­ry of Tab­corp.

That’s what it’s been doing in the last sort of s- 12 months to try and [00:36:00] restruc­ture rac­ing. Uh, a lot of that was in, um, because of the com­pe­ti­tion that came in from over­seas book­ies and the way they had a tax advan­tage by oper­at­ing in the North­ern Ter­ri­to­ry, which actu­al­ly kept at a fair­ly low rate the amount of tax they paid in the year.

Um, so all of that work has actu­al­ly pro­duced some, uh, rea­son­able results this year. So if I go through the FY26 finan­cial results and com­pare them to the pri­or year, rev­enue was pret­ty flat, so 2.6 bil­lion this year, 2.6 bil­lion last year. It was u- up by less than 1%. Um, how­ev­er, mar­gin improved, um, from 15% to 16.4%, and, uh, net prof­it after tax improved from 50 mil­lion to 71 mil­lion, so that’s about a 43% improve­ment.

Some of that, um, had, uh, you know, uh, write-downs and write-backs, et cetera, in it. So [00:37:00] under­ly­ing statu­to­ry NPAT was up 26.5%. They increased their div­i­dend by a third from 2.25 cents to 3 cents, and they actu­al­ly paid off a lot of debt, so the gear­ing reduced from 1.8 times down to 1.2 times. So they’ve been able to, um, restruc­ture the bal­ance sheet as well.

And that also meant that, um, the, uh, ROI went up from 10% to 12%. So, um, not, not a big change on the rev­enue side of things yet, but cer­tain­ly a, a big change on the mar­gin side of the busi­ness, um, dri­ven by cost reduc­tions and, uh, all of these rene­go­ti­a­tions, both with the reg­u­la­tors and with the venue oper­a­tors.

Um, there was a Uh, what can I say? No, that’s, that’s prob­a­bly a good sum­ma­ry of where it was. If I look at the QAV num­bers, uh, it’s a high ADT stock, so rough­ly $4 mil­lion is trad­ed per day on aver­age. Um, I’m– did the analy­sis at [00:38:00] 85.2 cents, and that’s the Thurs­day before cup day, so may go up and down next week.

That, uh, 85 cents is 84% of the con­sen­sus tar­get, but it’s above our IV1 and IV2, 17 cents and 38 cents respec­tive­ly. The yield­’s 3.5% for the div­i­dend, so we can’t score it for that. Stock Doc­tor gives it a finan­cial health of strong and a trend of steady. The Stock­o­pe­dia qual­i­ty rank is only 70, which is down a bit.

Over­all, it’s o‑only 81, so again, you know, would­n’t score it for that if, if we were using Stock­o­pe­dia. But the F score is sev­en out of nine, which is good. Um, PE ratio is high, 25.3 times, but it’s always had a rea­son­ably high PE ratio, so it’s not the high­est or the low­est. And PROPCAF is 6.3 times, so just below our sev­en times cut­off.

Uh, and, um, it’s, it’s wor­thy of con­sid­er­a­tion, but it’s not gonna reach our [00:39:00] thresh­old score. There’s no con­sis­tent­ly increas­ing equi­ty. Can’t buy it for book plus 30, uh, which is 72 cents. Fore­cast earn­ings per share growth is, is rea­son­able. It’s, um, just under 20%, but if you put it over the high PE, we’re scor­ing, um,.75, so it’s not enough for us to, to score that.

Does­n’t have an own­er founder because it’s been around for a long time. Uh, so excuse me. Over­all, the Q score is four out of 15 and the QAV score is only.04. Um, and if you look at the bread­line, the sen­ti­ment is a hold and it’s, um, it’s now track­ing back towards its sell price. It’s only two cents above its sell price.

So, um, why am I doing a Pulled Pork on this? Well, it’s cup week and, but also too, I think there’s a fair amount of inter­est in the busi­ness com­mu­ni­ty around the McLough­lin turn­around sto­ry and it’s kind of a watch this space to see how that plays out and whether they do achieve big­ger pools, big­ger pay­outs, attract peo­ple back into venues, um, and all the [00:40:00] ben­e­fits they get from their rene­go­ti­a­tions and, um, and the tech changes.

Uh, what are the pos­i­tives for the stock? Well, um, 19% earn­ings per share growth fore­cast is good. Um, if they do get the tech changes right and they do get the new prod­uct offer­ings right, then, uh, it should dri­ve more in, in venue. It should, um. Well, sor­ry, one of the things I should have said about the in venue is that there is a pro­hi­bi­tion at the moment for sports bet­ting where you can’t bet on a live event.

So once it starts, uh, you can’t place a bet, um, unless you actu­al­ly ring up a tele­phone oper­a­tor and, uh, that’s meant to lim­it, um, bet­ting on events because there has been cas­es of cor­rup­tion in the past where a crick­eter would be paid by a, um, a cor­rupt, uh, orga­ni­za­tion to bowl a wide for a, at a cer­tain ball in the over and then the that orga­ni­za­tion will place a bet that the wide would be bowled at cer­tain ball in the over.

So I guess the bet­ting com­pa­nies have got bet­ter about not offer­ing those kinds of, um, [00:41:00] those kinds of propo­si­tions, but, um, the leg­is­la­tion’s also cracked down. But what’s pro­posed is that with the tech changes, there’ll be, uh, machines in the venues which will allow you to bet, um, in play, which will be a, um, an enhance­ment to, to rev­enue, I would think.

Uh, expand­ing into B2B ser­vices to the oth­er bet­ting com­pa­nies, uh, will have some ben­e­fits and inter­na­tion­al tie-ups will. On the neg­a­tive side of things, um, none of this makes the ESG crit­ics, uh, hap­py, espe­cial­ly if, um, bet­ting rev­enue goes up. So there’s always gonna be restric­tions on the abil­i­ty of this com­pa­ny to raise debt from banks.

Um, there’ll always be some protests around what it does. I think prob­a­bly the, the biggest impact at the moment is the gov­ern­ment, uh, I think it’s now brought in leg­is­la­tion restrict­ing gam­bling ads on TV in the evenings and around sport­ing events. Um, or it might, it might still be con­sid­er­ing it, but it’s cer­tain­ly been a hot top­ic and is [00:42:00] like­ly to con­tin­ue.

Um, and obvi­ous­ly if, uh, the busi­ness can’t adver­tise as much, that might hurt rev­enue. Anoth­er risk that, um, has popped up recent­ly is, uh, the increas­ing anti-mon­ey laun­der­ing scruti­ny that the, um, the reg­u­la­tors are, are, are, are shin­ing a light on in these kinds of busi­ness­es. And, um, you only have to go into a pub and peek into where the pok­er machines are to see that the same peo­ple are sit­ting there putting mon­ey through the machines, and you’ve got to won­der where that’s com­ing from.

So AML scruti­ny is an issue for them going, going p- uh, for­ward. And the last thing you– I could say is that the stock price did go for a run-up after the change of CEOs and, and Gil McLaugh­lin’s appoint­ment, and after the ear­ly wins that he was able to achieve. And it has been trend­ing down again now, um, I guess while the, the, uh, ana­lysts and the investors wait to see the actu­al exe­cu­tion of what the, the promise is for this com­pa­ny.

So, um, i- [00:43:00] is it worth a bet? At the moment, no. It’s a bit of a roughy, but, um, inter­est­ing to, to do it on cup day, and it might come onto our, our radar if, uh, some of these, um, enhance­ments come off.

Cameron: I thought you were gonna get into the whole Poly­mar­ket of space.

Tony Kynas­ton: It did­n’t c- did­n’t come up in the analy­sis, but you do won­der whether. I mean, um, it’s– Bet­fair has oper­at­ed a num­ber of those kinds of Poly­mar­ket bets on, par­tic­u­lar­ly on polit­i­cal elec­tions, um, but not as wide­ly as Poly­mar­ket. So, um, it’s, it’s pos­si­ble that Tab­corp could get into that space as well, but, uh, they haven’t announced any plans yet.

Cameron: Well, I asked GPT about it, and it was say­ing that there’s lim­i­ta­tions in Aus­tralia about pre­dic­tion mar­kets and all that kind of stuff, so.

Tony Kynas­ton: Yeah.

Cameron: that Bet­fair had done a cou­ple of those things. But you just have to won­der, I mean, the way these things hap­pen, if [00:44:00] it’s huge in the US it’ll– some­body’ll be putting pres­sure on them to do some­thing here.

And I won­der if that is com­pe­ti­tion to the TABs of the world. I mean, it’s not direct­ly com­pet­ing with horse rac­ing or grey­hound.

Tony Kynas­ton: Mm-hmm.

Cameron: gam­bling’s gam­bling, right?

Tony Kynas­ton: Yeah. And, and look, it cer­tain­ly is a, would be a threat if it came in and not oper­at­ed by Tab­corp, and they, they’d prob­a­bly have to do their own ver­sion of it. But also, you got­ta under­stand that the sports bet­ting in the US has had a dif­fer­ent his­to­ry. So, um, his­tor­i­cal­ly, you were only ever able to gam­ble on sports, uh, at, in Las Vegas, and you had to be there to place the bet.

Um, and there, there were some tech advances on that, doing it over phones and things. But the, the SP oper­a­tion in, in the US, the ille­gal black mar­ket oper­a­tion was still going until recent­ly. So the sort of pre­dic­tion mar­ket has grown up out of that unreg­u­lat­ed space. And what’s hap­pened [00:45:00] in the US recent­ly, which some Aus­tralian com­pa­nies have tried to get in on, was when.

I, I, I sup­pose I can draw a line between mar­i­jua­na decrim­i­nal­iza­tion. A lot of states said, “Hey, we should be legal­iz­ing this and tax­ing it,” and, you know, dri­ving the under­ground, um, providers either to legit­i­mate busi­ness peo­ple or out of the mar­ket. They then said, “Well, hang on. Why aren’t we doing this to the SP book­ies?”

So they’re also, you know, oper­at­ing with­out pay­ing tax­es and reg­u­la­tion. And so state by state, they start­ed to com­pete against Neva­da to, um, allow local venues and local oper­a­tors to run wager­ing and sports bet­ting oper­a­tions. Um, and it was kind of on the back of that leg­is­la­tion, I think, that the pre­dic­tion mar­kets were able to open in the US.

Cameron: I just had to look up SP again. Start­ing price.

Tony Kynas­ton: Yeah. It’s u- usu­al­ly. I mean, SP [00:46:00] does­n’t sound, um, in and of itself ille­gal, but it usu­al­ly denotes ille­gal bet tak­ing. Mm.

Cameron: And what are your, uh, Mel­bourne Cup tips,

Tony Kynas­ton: I had a look yes­ter­day to try and come up with some, but I’ll have to text them to you on Mon­day or Tues­day because the

Cameron: ’cause

Tony Kynas­ton: has­n’t final­ized yet.

Cameron: oh, no, because Gem­i­ni delet­ed all of your, uh, bet­ting stuff.

Tony Kynas­ton: Gem­i­ni’s been pay­ing– been– I don’t know if they’ve– I’ve exceed­ed my token use or some­thing, but now, like, when I use Gem­i­ni, um, after like five min­utes of work, it does­n’t even keep up with my typ­ing any­more. It’s like it just chokes me right down. So I guess they’re try­ing to mon­e­tize the usage and get me to up-upsell.

Cameron: Nobody, nobody uses Gem­i­ni,

Tony Kynas­ton: Ah.

Cameron: uh. No, no, you got­ta get a real, get a real one. Get a real AI. Uh, when you were going through the ear­ly bit o- um, of [00:47:00] that Pulled Pork, I was like, “I don’t under­stand it.” It, it remind­ed me of when we start­ed doing QAV. I did­n’t under­stand a word you were talk­ing.

Tony Kynas­ton: Yeah.

Cameron: A- and I know we have joked in the past about doing a, uh, horse

Tony Kynas­ton: Mm-hmm.

Cameron: or just a gam­bling pod­cast. Like, I did try and read, um, Beat­ing the, Beat­ing

Tony Kynas­ton: Beet­je, beet­je delen.

Cameron: Beat the Deal­er

Tony Kynas­ton: Mhm.

Cameron: oth­er one, which is Beat the

Tony Kynas­ton: Ja.

Cameron: got two books. I tried read­ing Beat the Deal­er ’cause I’m like, “Yeah, I’m gonna get into this. I’m gonna, I’m gonna. Final­ly, I’m gonna get.” And I was like, “Nah.”

I got, like, three pages in and I’m like, “Nah, I can’t do this.”

Tony Kynas­ton: I remem­ber like, uh, when did the casi­no open in Mel­bourne? The ’90s, I think. Um, read­ing Beat the Deal­er and mem­o­riz­ing the strate­gies and going in and play­ing black­jack for many, many, many hours. Hav­ing a lot of fun. Um, some nights you’d win, some nights you would­n’t. Uh, but, but yeah, the casi­nos worked it out and they, they just keep decreas­ing the odds.

So it [00:48:00] became, in the end it just became enter­tain­ment.

Cameron: Yeah.

Tony Kynas­ton: Yeah.

Cameron: Odds. I do not under­stand odds.

Tony Kynas­ton: Oh.

Cameron: Yeah,

Tony Kynas­ton: Well, that’s what we do with QAV, isn’t it? The, like the mar­ket goes up 10%, um, how do we increase the odds with, um, not increas­ing the risk real­ly?

Cameron: Yeah. I mean, I under­stand it at that

Tony Kynas­ton: Yeah. Right.

Cameron: talk­ing about horse rac­ing, it goes over my head. All right. uh, good luck with your bet­ting next week. You don’t have any hors­es run­ning.

Tony Kynas­ton: I don’t, No,

unfor­tu­nate­ly. But any­way.

Cameron: Hmm.

Tony Kynas­ton: Yep. They’re all, um, uh. Yeah, noth­ing, noth­ing is run­ning. Um, Dun Dirt Sweet ran in the coun­try, ran sev­enth recent­ly, so he’ll prob­a­bly go out for a spell. There’s a few start­ing work. They’ll be com­ing back in the next month or so, but noth­ing for Cup week. [00:49:00] It is fun hav­ing a, hav­ing a horse on, on Cup day.

Cameron: Oh, I

Tony Kynas­ton: We’ve been in the mount­ing yard with a b- huge crowd, 100,000 peo­ple look­ing on. Yeah. Hmm.

Cameron: All

Tony Kynas­ton: Okay.

Cameron: next week, and thanks for tak­ing the time out to do a, uh, pre, uh, Pulled Pork.

Tony Kynas­ton: No, my plea­sure.

Cameron: That was inter­est­ing.

Tony Kynas­ton: Good.