Tabcorp Tatts merger in jeopardy as politics threatens deal

TAGs: Australia, Editorial, Tabcorp, Tatts Group

The ongoing drama in Australia over the impending (or mayby now not so impending) Tabcorp/Tatts merger is nothing but a show of juridical pretentiousness. It’s hard to tell who even to root for because everyone is clothing their actual wishes and intentions in legalistic nonsense. All sides say they are concerned for consumer safety and fair competition, yet nobody is at all. All sides are concerned with how much money they will come out with on the other side. Nothing else.

Tabcorp Tatts merger in jeopardy as politics threatens dealThere’s nothing wrong with that by itself. That’s everyone’s goal always. What’s wrong is that everyone is pretending otherwise and all sides are using the pro-competition argument to actually stamp out competition.

Now one state competition body, the ACCC, is challenging another state competition body, the ACT, for approving the merger. The challenge is coming on the grounds that the ACT calculations about competition were wrong, and this supposedly imperils consumers. Why there should even be two of them, let alone one, is a big question.

The elephant in the room here, one of many, is that if either of these Australian acronyms were actually concerned about fair competition, they would break up the monopolistic relationship between Tatts and the Australian government. Tatts’s biggest business is operating state lotteries. Who else can operate lotteries in Australia? Nobody. Only the state. Anyone else who tries gets arrested. Is that fair competition? Is that consumer protection? No. But the Australian government is the boss of both of these acronyms, so neither can fight the actual source of real monopoly.

One of the unintentionally humorous points that the ACCC makes in its objection to the ACT approving the merger is this, “The ACCC observes that all benefits are counted, not just those which are found to be substantial, and will submit that this must also be the case with detriments.”

In other words, the ACCC doesn’t like the final math the ACT came up with that allowed the merger. They want different math. But wait. We’re supposed to believe that a room full of government-appointed number crunchers is going to accurately measure supply and demand after a given business move? Fine, let them crunch, but why should their determination allow or disallow a merger? What if they’re wrong? Capital markets all over the world are full of number crunchers and technical analysts and market forecasters with all kinds of systems, and if they are right they make money. If they’re wrong they lose their own money. We know many of them are wrong all the time, and they have every reason to try their best to be right.
What about the people at the ACCC or the ACT? Are they really all that concerned with having accurate predictions? No, because they have no skin in the game. And if they’re wrong and a business suffers because of it, who gets the blame? Who loses money? Not either of these commissions of course.

Here’s another unintentionally funny line from the ACCC appeal. “The tribunal [ACT] overstated the benefits of the proposed deal, such as cost savings and revenue synergies available to the combined group.”

Get down to the bare logic, and we must ask why are cost savings and revenue synergies considered benefits at all, by ACCC or ACT reasoning? Why are they not detriments? Cost savings means that the combined company will spend less money than before as separate entities. Somebody (a consumer, because in the end we are all consumers) will now get less money because Tabcorp/Tatts will be spending less. Is that not a detriment to the people that the merged entity will no longer be paying because they can now save that money?

What about revenue synergies? Why is that a benefit and not a detriment to consumers on the same “save the consumer” logic? Revenue synergies means you are able to cross sell and get more money out of each consumer. But don’t we want to save consumers money, not milk them for more? So revenue synergies are a detriment.

Or, look at it this way. Perhaps pre-merger, consumers were buying from Tabcorp and some other product from some other gaming company. Now, due to synergies, they will buy from Tabcorp/Tatts only. So these synergies would hurt other companies which are no longer getting that business. Isn’t this “bad for competition?” Why is it a benefit then?

At bottom, not only can a group of number crunching bureaucrats not accurately calculate benefits versus detriments to consumers. They cannot even accurately identify which things are benefits and which detriments. It’s like a bunch of mathematicians trying to figure out the answer to a complex math problem but confusing plus and minus.

In order to truly open up competition and really protect the consumer, you don’t need tribunals of bureaucrats doing voodoo math they don’t even understand. What you need is to simply get rid of the restrictions and regulations preventing competition in the first place. Open up the gambling market in Australia to anyone in the world who wants to compete. See how consumers like that. They’d be very happy, obviously. Get rid of the government monopoly on lotteries. Consumers would like that too. This can be passed in a bill of only 2 sentences, like this:

All regulations involving gambling in Australia are hereby removed. Any company in the country can also now provide lottery services freely.

That’ll be the day.

So will the merger happen now? Probably yes. Overruling it now would just look embarrassing after all these years since the merger was proposed. The chances though have nothing to do with supposed math errors. They have to do with the personal preferences and connections of the people making the decisions. It’s all just politics.


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