Could PBL Bid Forge Alliance Between Victoria Racing and Betfair?

30 March 2006

Australian media and gambling conglomerate Publishing and Broadcasting Limited (PBL) has proposed a A$25 million bid to acquire a 25 percent stake in ThoroughVisioN (TVN), the Australian horse racing broadcaster that is jointly owned by six of the country's racing clubs. Acceptance of the offer would provide TVN with relief from mammoth start-up expenses and costs of waging a war its Tabcorp-owned rival Sky Channel. The fact that PBL is engaged in a joint venture partnership with Betfair makes the prospective deal even more intriguing. The race clubs, especially the ones in Victoria, vehemently opposed the licensing of Betfair's betting exchange in Tasmania last year, but ironically it is Betfair that could serve as the vehicle that would allow TVN to bid on the 2012 Victorian wagering license if the deal with PBL is accepted.

TVN is owned by the Australian Jockey Club, Country Racing Victoria, Moonee Valley Racing Club, Melbourne Racing Club, Sydney Turf Club and Victoria Racing Club. These racing clubs formed TVN in 2003 in an effort to secure a better financial deal with regard to the thoroughbred racing broadcast rights that had until last year been owned exclusively by Tabcorp's Sky Channel. TVN now manages the thoroughbred horse racing rights for all racing in Victoria and metropolitan Sydney, and it has set itself up as the sole broadcaster of video data from its clubs, which has consequently put the company in a heated battle with rival horse racing broadcaster Sky Channel.

PBL, headed by James Packer, son of the late Kerry Packer, has offered A$25 million to acquire a 25 percent stake in TVN, which would value the company at A$100 million. TVN's board of directors met on Sunday to contemplate the offer, and shareholders are expected to meet early next week to discuss and vote on it.

The immediate benefit of a deal for TVN would be an injection of cash to help offset an estimated A$38 million in start up costs and ensure ongoing shareholder value and returns. The company would also be able to utilize PBL's broad spectrum of media businesses, including Channel Nine and NineMSN, in order to gain increased exposure.

According to Thoroughbred News early this week, "One senior Sydney racing club official on Saturday described the potential agreement as complete justification for their shareholding in TVN and the business plan of TVN. Another described a potential PBL tie-up as having 'benefits of more than just money', citing the proven commercial investments by PBL in technology and wagering."

Tony King, CEO of the Australian Jockey Club, told the Sydney Morning Herald that PBL's involvement with Betfair should not affect ThoroughVisioN's decision on the offer.

"If the deal's OK, that won't even come into it," stated King.

Meanwhile Country Racing Victoria's chairman Michael Caveny feels that conferring over the deal with PBL and another potential deal with Telstra does little more than distract from the serious problem the TVN faces.

"Nothing else matter to me other than solving the split-screen issue with Tabcorp," said Caveny.

"I don't know why they need to get distracted by dealing with other groups. Solve this and then worry about other issues."

He continued, "I believe they've taken their eyes off the ball."

Tabcorp has refused to pay a commercial fee to TVN in order to show TVN broadcast feeds in TAB agencies and has refused to allow the feeds to be shown on Austar, with whom Sky Channel has an exclusive agreement. A noticeable decline in wagering revenue is already underway as a consequence of the split in coverage between TVN and Sky Channel in May of 2005.

In recent weeks there has been speculation that the two broadcasters were nearing a deal to solve the problem, but negotiations would likely be put on hold if the PBL deal is accepted.

PBL's benefits in obtaining a stake in TVN would be yet another entry into the gambling industry in addition obtaining part ownership of the broadcast rights to some of Australia's most lucrative races.

PBL would also have the potential to gain a stake in wagering operations under the right circumstances. The Victorian racing clubs have indicated that they would like to join forces with a wagering operator so that they may bid for the Victorian wagering license that is currently held by Tabcorp but expires in 2012. PBL can not be permitted to own a wagering operator because is already owns Crown Casino in Melbourne, but it would be able to become a minority shareholder in such a venture if Victoria's racing clubs were willing to accept an alliance with Betfair.

Racing Victoria, however, has been one of the staunchest opponents of Betfair, going so far as to refuse the company permission to publish Victorian race fields through new legislation whose primary purpose seemed aimed at preventing Betfair from taking action on its races.

TVN may also be on the verge of signing a separate deal that would captilize on its media rights possessions. The company is known to be in the process of negotiating a deal with mobile firm Telstra that would enable users to view races and wager on them via their mobile phones.

And yet another shake-up of the Australian gambling industry could be just on the horizon following a A$1.9 million pitch by Australia's largest lottery operator Tattersall's Ltd. Queensland-based UNiTAB Ltd., the second-largest wagering company on the continent. Under the merger plan Tattersall's would issue 4.33 Tattersall's shares in exchange for each UNiTAB share. Alternatively, Tattersall's has also set aside A$522 million to purchase UNiTAB shares from shareholders who prefer to receive cash.

A merger of the two companies would be expected to generate about A$3 billion in annual turnover and put the newly formed entity in a position to compete with Tabcorp, Australia's largest gambling company, which recorded A$3.7 billion in revenue last year. It is also thought that synergies between the two companies would save A$10 million in costs during the first year of the merged company's operation and A$20 million during the second year.

"UNiTAB and Tattersall's are an excellent fit," stated UNiTAB chairman George Chapman. "We have similar business models an strategies, complementary assets and skill bases."

Bradley Vallerius

Articles by Bradley P. Vallerius, JD manages For the Bettor Good, a comprehensive resource for information related to Internet gaming policy in the U.S. federal and state governments. For the Bettor Good provides official government documents, jurisdiction updates, policy analysis, and many other helpful research materials. Bradley has been researching and writing about the business and law of internet gaming since 2003. His work has covered all aspects of the industry, including technology, finance, advertising, taxation, poker, betting exchanges, and laws and regulations around the world.

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