Tabcorp’s earnings have been under threat since UK bookmaker giants joined the market, but Morgan Stanley might have a solution.
Morgan Stanley has cut Tabcorp’s earnings forecast due increasing pressure from foreign-backed online bookmakers such as Paddy Power, William Hill, Bet365 and Ladbrokes.
The investment bank estimates that the Australian wagering operator’s share of the country’s online wagering turnover will be 23% in 2018, down from 30% in 2010. It also expects earnings per share of 23¢, 26¢ and 28¢ in the 2016-18 financial years respectively, compared with previous estimates of 24¢, 27¢ and 30¢.
However, Morgan Stanley thinks that Tabcorp is in a best position to slow the market share loss by venturing into the growing market of daily fantasy sports.
“If Tabcorp was to launch its own daily fantasy sports site, this could be used as another subscriber acquisition tool which would allow Tabcorp to start to monetize this new subscriber with racing products,” Morgan Stanley analyst Mark Goodridge told the Sydney Morning Herald. “This is exactly what Tabcorp currently does with its sports products.”
In December, Tabcorp announced its first international partnership with Rupert Murdoch’s News Corporation The Sun. The deal was described as the Tabcorp’s first push into the broader online gambling market as it aims to carve out a slice of the UK’s $7 billion online sports and race betting market.
Morgan Stanley believes that News Corp-run rugby league and soccer competitions are dominating the Australian fantasy sports market with an estimated 1.4 million fantasy players. Tabcorp could use its partnership with News Corp to create a powerful fantasy sports presence in its home market.
“News Corp in Australia runs the largest NRL fantasy league and also the soccer fantasy leagues, hence we do not think it unreasonable that Tabcorp could partner with News Corp in Australia for daily fantasy sports,” added Goodridge.
Morgan Stanley also thinks that Tabcorp’s venture with Luxbet is another option for the company to enter the fantasy sports space, although it would require regulatory reforms to add such a product to its NSW or Victorian TAB businesses.
Morgan Stanley might be right and Tabcorp knows it. Earlier this year, there were reports that Tabcorp is “actively watching” the growing fantasy marketplace. A company spokesperson later confirmed that the company was assessing a number of opportunities in the fantasy sports space, both nationally and globally.