Britain looks like the best bet

Australia’s listed gaming groups are scrambling to position themselves in the British market as they search for growth alternatives to the all-but-saturated Australian gambling industry.


The prize? A soon-to-be-deregulated regime that will allow an explosion of poker machines, Las Vegas-style casinos and unlimited jackpots in a country with three times the population of home.


The move to Britain comes after the Australian groups shunned recent opportunities to move to Asia’s gaming capital, Macau, deciding the risks were too great.


Instead, the TAB triumvirate – TAB, Tabcorp and TAB Queensland, along with Kerry Packer’s PBL, and a host of smaller players – are rushing to sign joint ventures, partnerships and licensing agreements with their British counterparts.


“In terms of land-based gaming, the UK market probably represents the market that offers the most significant growth potential across a five- to seven-year period,” says Michael Burn of Macquarie Bank’s corporate finance team.


“It also has the advantage of a culture and a legal framework that corporates from this part of the world would feel pretty comfortable operating in.”


Recent tax law changes and the prospect of a liberalisation of gaming laws in Britain are expected to see unprecedented investments in casinos and gaming machines.


Analysts estimate the changes will increase the number of British casinos to more than 200, from just 118. Britain also will allow unlimited payouts from UFA poker machines, previously banned.


Other archaic restrictions – such as an alcohol ban on gaming floors and a 24-hour cooling off period before new members can enter a casino – are slated to be scrapped.


Schroeder Salomon Smith Barney estimates bookmaking, bingo and casinos could show gains at the earnings before interest and tax level of 35 per cent to 50 per cent once the changes are effected.


Rapid acceleration of growth is not expected until 2003-04, but already the Australians are jockeying for position. Almost every listed gaming company is treading a path to Britain.


Aristocrat now has its head of corporate development, Gavin Isaacs, full-time in the UK. Fellow gaming machine maker Stargames recently signed a long-term licence agreement with the UK’s Maygay Machines, with Maygay incorporating Stargames PC-based gaming technology into its electronic machines.


Victoria’s Tabcorp and PBL have been in the UK recently, while Queensland’s Jupiters is said to be taking a close look.



The successful float last week of Britain’s second-biggest wagering company William Hill, and an upcoming trade sale of the number-three, Coral, has left Australia’s players salivating.



William Hill – which ranks second behind Hilton Group’s Ladbrokes – is valued around £1billion ($2.63 billion) an enterprise value to EBITDA multiple of some 10 times, according to UBS Warburg analyst Anthony Aboud.


The valuation is substantially higher than the eight to 8.5 times multiples that the wagering divisions of TAB, Tabcorp and TAB Queensland trade on, despite Australia’s relatively favourable competitive environment with its regulated state-based monopolies and the use of totes for races, which are more favourable for operators than the UK’s fixed odds.


But it is a double-edged sword for Australians looking at acquisitions. “It’s always a challenge to pay a higher multiple in another market than what you’re trading on yourselves,” says Burn.


Meanwhile, Coral, with 11 per cent of the market, is for sale.


Aboud expects the operation to be offloaded for around £750 million. JP Morgan says it could go for as much as £850 million. Bids are due at the end of this month.


Coral would be a “huge buy” for an Australian company. Says Burn: “Even Tabcorp would struggle with that … though it is a strategically important business. At a stretch Tabcorp might be able to, but it would be a big bite for them and you would imagine it isn’t going to go cheap.”


Tabcorp has little to say on the matter, although JP Morgan analyst Mark Wilson plays down a move, saying if Tabcorp decided to undertake an acquisition in the UK, it was more likely to be in gaming.


Ironically, while speculation on Australian bidders for Coral has centred on Tabcorp and PBL, casino operator Jupiters may be the most interested.


“Jupiters is big in sports betting and is having success with Centrebet,” said one investment banker specialising in gaming and close to the Coral sale.


“Jupiters are looking at stuff in the UK and probably thinking that [Coral] would be nice. But I’m not sure any Aussie company would want the [Coral’s] betting shops.”


One option, the investment banker says, would be for Jupiters to buy Coral’s Eurobet internet gambling operation, to leverage off its success with Centrebet.


Eurobet, which generates £340 million turnover a year, would still be a big buy for Jupiters, however.


Schroder Salomon Smith Barney values Eurobet at £100 million.


Jupiters was not available for comment.