ACC threatens Tabcorp-Tatts merger

Counsel for the competition watchdog, Andrew McClelland QC, Friday rubbished Tabcorp’s claims of a significant public benefit, saying the cost savings were “inherently implausible” and “speculative”, and some of the revenue synergies did not exist.

“Although Tabcorp has asserted that some of these cost savings and revenue increases will flow through to the community, the majority of the claimed synergies are proposed to be retained by Tabcorp and should be given little weight,” Mr McClelland said.

The recommendation from the ACCC, which is not binding on the three-person tribunal, came in its closing submissions at the end of a bruising three-week legal battle.

The tribunal, comprising Federal Court judge John Middleton and members Grant Latta and Darryn Abraham, is likely to hand down its decision on June 13.

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The ACCC flagged competition concerns with the proposed merger in March.

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While corporate bookmakers offered wagering competition, the watchdog expressed concern that the combination of Tabcorp-owned Sky Racing with Tatts would increase the group’s market power in its dealings with licensed venues and racing media rights holders.

Instead of a formal review process, Tabcorp took the matter ­directly to the tribunal.

It said a merger would deliver value for both sets of shareholders, as well as benefits for the racing industry, business partners, customers and governments.

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The companies are the biggest source of funding for Australia’s racing industry.

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Contributing about $1bn in the 2016 financial year and more than $200 million in taxes to state governments.

In his final submission, Cameron Moore SC, for Tabcorp, said the merger was between two mostly complementary businesses, now that Tabcorp had addressed one of the ACCC’s concerns by agreeing to sell its Queensland electronic gaming machine monitoring business, Odyssey.

Mr Moore yesterday said it was unlikely that stand-alone, country-centric operators such as Tabcorp and Tatts were going to be around in five years “anywhere in the world”.

“There is a really material gap now in the likes of Bet365, Paddy Power and Betfair at a global level, and what are effectively becoming small local players like Tabcorp and Tatts,” he said.

“As technology gets more sophisticated, the investment ­required to create the quality product increases.

“It is going to be very hard for them to compete because they have a much smaller customer base to get a return from that investment,” Mr Moore added.

He said it was common ground there was a single market for wagering products, and that tote products were under significant competitive threat.

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This applied to win-place products and more complex products.

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He previously said the merger would produce scale synergies, and therefore public benefits, as well as promote competition through scale in the highly competitive wagering market.

“In addition to cost synergies, to the extent we can slow the relative decline in our businesses and the absolute decline in tote, this is good for the racing industry because we give more support to the industry, and the racing industry, of course, is a very important industry in Australia,” Mr Moore said.

But Mr McClelland countered yesterday that there were limited public benefits from the deal.

“Although there are likely to be some cost savings from the merger, they are not substantial and the weight of evidence indicates they will be well below the quantum asserted by Tabcorp,” he said.

As for the claimed revenue increases, he said they did not qualify as a public benefit.

This was because they were either an increase in yield for Tabcorp on its fixed-odds products, which counted as a detriment, or a transfer from consumers to Tabcorp.

Tatts could also achieve the revenue gains on its own.

Mr McClelland said it was clear from the evidence that Tabcorp and Tatts imposed some “competitive constraint on each other”, particularly in relation to online parimutuel wagering, where corporate bookmakers could not directly compete.

“The competitive constraint Tabcorp and Tatts impose on each other will be lost with the proposed acquisition and will likely give Tabcorp the ability to increase yields,” he said.