Can former AFL boss Gill McLachlan turn around Tabcorp’s fortunes?

By this, he meant the sea of TAB green flooding the stands from punters wearing its branded caps, as well as umbrellas and banners, which drove online betting to its app as well as on-course betting operations.

“It was a full end-to-end TAB experience. And people having a great time, young and old, male and female. And that vision, I think, is what the integrated experience is. It’s on course, it’s on digital, in retail, it’s all lots of demographics having a great day out,” he says.

But the biggest days on the racing calendar cannot hide Tabcorp’s current predicament. It is drowning under the legacy costs of the physical network of TAB outlets, and uncommercial deals with racing bodies – a reminder of the days when the TAB was a licence to print money – while all the action moves online to nimble rivals with lower taxes.

The old tote model was simple. Punters would shuffle into their local TAB, and the pool of money on each race would be divided into Tabcorp’s guaranteed take, the government and racing industry’s slice with the rest divided between the winning bets.

The noughties heralded a new breed of gambling operator focused on sports betting. The market exploded as young punters moved the main betting game from traditional wagering on thoroughbred horses to fixed odds betting on sports that were traditionally watched purely for enjoyment.

The profit margins are much lower than the traditional tote. But lower taxes, and no need to financially support the racing industry, meant these new operators could make up for the lack of physical presence with saturation marketing and advertising across the major sporting codes and dominate the gambling venue of choice for young gamblers: smartphones.

Nothing symbolises this strong link more than McLachlan’s elevation to the top job at Tabcorp just a year after stepping down from his successful stint running the AFL, which thrived despite the COVID lockdown and launched a women’s competition on the back of multi-billion-dollar broadcast rights, which are underpinned by this tsunami of gambling advertising.

The 2024 Tabcorp financial results, delivered in August – just weeks after McLachlan stepped in the door – laid out a brutal reality for the embattled group.

Group revenue dropped thanks to a shrinking wagering business as punters got crunched by the cost-of-living crisis, as costs continued to rise. But it was $1.4 billion worth of writedowns, mostly related to its wagering business in NSW, that saw it report a loss for the year. Tabcorp shares have dropped about 40 per cent since the start of the year.

Just weeks after stepping into the business McLachlan had to announce a miss on cost-cutting targets at its August full-year results, as well as ripping up the timetable to gain 30 per cent of the online market by next year.

Tabcorp currently sits on 25 per cent, roughly half the market share of the online betting industry goliath SportsBet.

It means there is no doubt what the new CEO’s first priority is: McLachlan will be planning a cull before Christmas to help rein in costs.

With the cost base under control, investors can then expect clarity on his grand vision with the first half results in February.

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Even McLachlan admits that a lot of the hard work has been done by his predecessor, Adam Rytenskild, whose abrupt exit is still playing out in the courts.

Rytenskild recently told the Fair Work Commission he had been forced into resigning by the wagering company in March after he was alleged to have made vulgar comments towards a female regulatory official eight months earlier. He denied making the comments and launched unfair dismissal proceedings against Tabcorp in August.

Thanks to Rytenskild, McLachlan inherits a Tabcorp with a more competitive mobile betting app and a deal with the Victorian racing industry that effectively resets the competitive landscape in the state and reflects the fact that the wagering business is no longer a cash cow that can do the heavy lifting.

“We think this sets the standard for retail licences going forward,” Rytenskild said when the new deal was announced last December.

Under the new deal, Tabcorp gets to drop the joint-venture with the state racing bodies and gets to retain all profit generated by the Victorian retail market.

Just as important was Victoria’s decision to increase the point-of-consumption tax to 15 per cent to match NSW, Western Australia, South Australia and Tasmania. This was hailed as a win for both Tabcorp and state racing industries – which had long called for the levelling of taxes paid by the TAB operator and online bookmakers.

McLachlan is tasked with ensuring that NSW follows Victoria’s lead next year, with a viable retail licence model, following a review that is currently underway.

But he has already made clear what the company will not be doing: Abandoning the retail network, which one shareholder dubbed a “dinosaur” at last month’s annual meeting.

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Tabcorp has already started revamping some of its outlets and is claiming a big boost in performance from the shops that have undergone the change.

But, even before joining Tabcorp, McLachlan could see a bigger change taking shape in the local pubs around his Melbourne home, part of the network of pubs and clubs which are so central to Tabcorp’s physical retail network.

“Pubs are back big time,” McLachlan told investors and analysts after the full-year results in August.

“My data sample of one, as I live in Prahran, is that the three pubs in my precinct are booked out every night and they’re busy … and I think we’re seeing that beyond our numbers into other verticals.”

Tabcorp noticed too. Cash betting outperformed digital betting for the 2024 financial year, adding further impetus to the new CEO’s plans to leverage – not ditch – the company’s retail footprint.

Tabcorp watchers see it as an important development for the group.

“We believe there is value inherent within its unique retail and SkyRacing media assets, that were arguably overlooked under the previous (Digital First) strategy,” Jarden Securities analyst Rohan Gallagher, says.

And there is another good reason why pubs, clubs and its retail network are back big time for Tabcorp.

The advantages enjoyed by its purely digital rivals are about to hit severe turbulence as state governments level the playing field on taxes and fees – which curbs their financial advantage on the advertising front – and the federal government contemplates potential curbs on gambling advertising itself.

The federal plan aims to cap the number of TV ads and impose a total ban on ads during and around sport broadcasts, as first reported by this masthead in August. It also proposes a total ban on social media and digital platforms, apart from some exemptions for search engines.

It won’t mean a return to an era where Tabcorp’s physical presence was enough to shut out competitors, but it could provide a significant boost and helps to explain its support for curbs on gambling advertising.

“I think there’s too much advertising and we expect it to come down,” McLachlan told investors in August.

“I don’t want to front-run where the government will land, but when we look into this business with the unique assets that we have, I think, we’re best placed in the market to absorb whatever the change looks like.”

But of course, Tabcorp investors have been here before.

In February it was Rytenskild telling analysts and investors that everything was on track with its transformation plan.

“TAB25 is about creating a substantially more valuable business at the end of FY25 than it was when the company demerged (the lotteries business),” he said.

“We’re happy that we’re on track and look forward to talking to you over the journey.”

He was gone the following month.

McLachlan has his own promise: “This time next year, I’m confident that we’ll be a more simple, cost-effective, united organisation.”

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