Australia / Analyst Insights
New taxes are increasing competition among betting agencies

What information do you want to see from IBISWorld on COVID-19? We'd love to hear from you

by Tom Youl
Aug 28 2018

Point of consumption taxes are expected to put pressure on profitability for online horse and sports betting agencies.
The Point of Consumption Taxes (PoCTs) introduced by the state governments are shaking up horse and sports betting agencies. Establishment numbers have fallen over the past five years, as growth in online betting has forced many bricks-and-mortar TAB outlets and small bookmakers to close. Online agencies are now also expected to consolidate. Crownbet’s takeover of William Hill, which will form BetEasy, is the first example of online players consolidating due to growing profitability pressures. Industry competitiveness increased following the merger of two major players, Tabcorp and Tatts Group, and this trend is anticipated to continue as PoCTs are introduced.

The government is introducing the taxes in response to considerable growth in online betting. Online wagering grew by approximately 15% nationwide between 2004 and 2014, while overall gambling spending only increased by 3% over the same period.  Currently, a large proportion of online betting agencies are incorporated in the Northern Territory due to its low tax rate on wagering revenue, capped at $550,000 per operator. PoCTs will force agencies to identify where a bet was placed based with an IP address location or the bettor’s registered address. The tax each state charges varies, starting at 8% in Victoria, 10% in New South Wales, and 15% in other states and territories.

Predictably, most online betting agencies have opposed the PoCTs, claiming that the levies are bad for industry competitiveness and consumers. Agencies are likely to offer shorter odds to maintain profit margins when the taxes are introduced. However, Tabcorp has welcomed the new laws as the company already faces a similar tax for physical point-of-sale wagering. Tabcorp holds a powerful position in the Horse and Sports Betting industry, commanding an estimated 46.2% of the market in 2017-18. Tabcorp’s market share is protected by the company’s exclusivity arrangements with on-the-ground betting in most states and territories.

The PoCT legislation has been introduced partly to assist the Horse and Dog racing industry. Licenced betting operators such as Tabcorp have helped fund racing in Australia through bookmaking rights and fees on fixed-odds and tote wagers. Online betting agencies pay as little as one-quarter of Tabcorp’s fees. Most states are therefore directing part of the tax revenue into the Horse and Dog Racing industry’s state bodies. For example, 1.5% of all taxable net wagering revenue in Victoria is sent to Victorian Racing Industries.

The Crownbet takeover of William Hill in March 2018 marked the beginning of consolidation for online betting agencies as taxes and growing legislation squeeze profitability. While industry revenue grew at a strong annualised 5.1% over the five years through 2017-18, the variety of betting platforms has spread punters’ spending across many firms. Horse and sports betting operators typically spend significant amounts on marketing to gain visibility and market share in a competitive space. The PoCTs are expected to constrain spending on advertising and promotions for many firms. Sportsbet is currently the only profitable major online betting agency and some firms may struggle, despite being backed by multinational parent companies. However, growing industry legislation may be too much for some agencies, as demonstrated by William Hill’s Australian operations being sold by its UK-based parent company.

Related industries:

Horse and Sports Betting

Horse and Dog Racing