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Tabcorp’s revenue woes predict weak racing seasons

High-interest rates, rising mortgage costs, and inflation have combined to take a significant toll on the gaming market, foreshadowing weak racing seasons in Sydney and Melbourne over the next month. This comes after Tabcorp (ASX:TAH) surprised investors with a rare trading update that revealed a decline in revenues across its divisions during the first three months of the new financial year.

Shares in the ASX-listed operator initially plummeted by 10.3% to 87.5 cents in early Thursday trading but managed to recover to around 91 cents, marking a two-year low for the shares.

Tabcorp reported a 6.1% drop in revenue for the quarter, primarily due to weakness in wagering and media, digital wagering, and gaming services. Wagering turnover also saw a slight decline of 0.9%.

CEO Adam Rytenskild noted the growth in digital wagering turnover as a positive sign given the challenging market conditions and emphasised the company’s commitment to executing its TAB25 strategy for the long-term success of the business.

This decline echoes warnings from foreign gaming giants such as Entain (Neds, Ladbrokes, Bookmaker, and Betstar) and Flutter (Sportsbet, the leading online wagering business) regarding expectations of weak revenue growth and earnings for 2023 and beyond. Entain recently cut around 10% of its local staff in response to weak revenue and earnings, while Flutter projected a third consecutive year of lower revenues and earnings from its Australian operations, citing tax changes, increased costs, and sluggish consumer spending.

Tabcorp, typically reserved in releasing revenue data, stated that it felt compelled to keep the market informed due to the current macroeconomic environment and the performance of rival wagering groups. Mr. Rytenskild did not provide any earnings or revenue guidance during the annual figures released in August.

The future of Tabcorp is heavily dependent on whether it retains the Victorian wagering license, a core aspect of its business. Media reports have suggested that the government may split the license among wagering groups to maximise returns.

Additionally, Tabcorp is engaged in separate negotiations with the Victorian Racing Club regarding the broadcast rights for the Melbourne Cup for the next six years, which it would sublicense to a free-to-air television network.

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