![The race for Tabcorp to get its $11 billion merger with Tatts Group is heating up.](/content/dam/images/g/p/v/d/g/j/image.related.afrArticleLead.620x350.gv5sed.png/1490504428223.jpg)
Tabcorp's $11 billion merger play for Tatts Group is heating up, with Tabcorp's joint venture partner Racing Victoria making a controversial move to lodge an application with the Australian Competition Tribunal to intervene on the deal.
The move means Racing Victoria has broken cover to publicly oppose the merger, even though it receives the bulk of its funding – almost $200 million annually – from Tabcorp in return for the wagering giant's exclusive retail and tote betting licence in Victoria.
Racing Victoria is being joined by the other racing codes in the state, Harness Racing Victoria and Greyhounds Victoria.
Other parties to have lodged intervening applications including Racing.com, the broadcast joint venture of Racing Victoria and Seven West Media that competes with Tabcorp's Sky Racing channel, and corporate bookmaker CrownBet, which is backed by other bookies.
In documents filed with the Tribunal on Friday and seen by The Australian Financial Review, Racing Victoria acting chief executive Giles Thompson argues his organisation will be hit hard by the merger in that it will virtually end any prospect of a competitive bidding process for the next wagering licence from 2025 onwards.
Only one bidder
"Tabcorp and Tatts are ... the only certain Australian bidders for the next retail licence," Thompson says. "The proposed merger would therefore result in only one certain bidder [and] it is also unlikely Tabcorp would face competition from an international bidder or indeed any other bidder."
There have long been rumours that Racing Victoria would look to gain the wagering licence, potentially in concert with the likes of Seven or CrownBet, but Thompson says it is unlikely the Victorian government would change the state's Gambling Regulation Act to allow it to bid or allow multiple licence holders.
"In the event that there is only one viable bidder for the retail licence, the amount of revenue ... the bidder is likely to offer in its bid is likely to be less than that would be offered in a competitive bid. There would be no need to to make the bid attractive by offering more generous funding to the local industry."
While it could be argued Racing Victoria is attempting to bite the hand that feeds it, it is probably no surprise the organisation has made this move. While Racing Victoria has made big profits of between $30 million and $50 million in the past two financials years, Tabcorp accounts for 48 per cent of its funding.
Though that number is falling slightly every year though and while the race fields fees Racing Victoria garners from corporate bookmakers is rising, it would be a big blow to the organisation should it be squeezed even harder by Tabcorp next time the licence is up for tender.
Sinking relationship
But it also shows just how far the relationship between Tabcorp and Racing Victoria has sunk in recent times. Take when Tabcorp surprised the market, and the Australian Competition and Consumer Commission, earlier in March to take the transaction to the Competition Tribunal.
Tabcorp's submission included no less than 32 statements of support from racing industry executives and interested parties. But missing is any submissions from the Victorian racing industry – even though the state accounts for about 30 per cent of Tabcorp's annual wagering and media revenue.
Ultimately though, that 30 per cent figure and the fact Tabcorp accounts for almost half of Racing Victoria's funding mean the two parties need each other.
It is likely the overall merger will be approved, which will mean Racing Victoria will be pushing hard for some sort of mechanism or agreement that keeps its funding levels from the wagering licence at reasonable levels should Tabcorp renew its joint venture from 2025 onwards.
In the meantime, another sore point between the two parties is the competition between Racing.com and Sky – which is at the heart of Racing.com's submission to the Competition Tribunal.
Racing.com argues in the document, seen by the Financial Review, that it will be hampered in bidding for rights by Tabcorp post merger being vertically integrated with a tote and wagering monopoly, and holding media rights in every state and territory bar Western Australia.
"The merged entity will be in a position to use the power afforded from the wagering relationship to create a nexus between wagering and media rights deals," Racing.com says.
It goes on to argue that such arrangements would put it at a competitive disadvantage in any rights negotiations as it is unable to create such a nexus and that "as a consequence ... the merged entity has the ability to use its significant power to disadvantage or constrain a [racing authority] that enters into an alternative media agreement, by using their power as the joint venture wagering partner."
Racing.com is pushing hard for South Australian rights, and will also argue for greater access to more big race meets in Queensland and other states as well as the dropping of Foxtel's veto power over some Racing.com content being shown on pay TV. Without those its future could be clouded.
So the Tabcorp and Tatts merger has a few twists and turns to come yet. What makes it so fascinating is the close relationship that exists between parties support and opposing the deal – whether they like or not.