Jumbo Interactive extends lottery resale agreement with Tabcorp
Online lottery ticket retailer Jumbo Interactive has extended its resale agreement with gambling giant Tabcorp until 2030, but will pay new fees which will crunch its earnings in the short term.
The Sydney Morning Herald reports that investors in the $630 million group were bitterly disappointed by the deal announced on Monday morning following a mysterious two-week trading halt, sending Jumbo’s shares plummeting to close 13 per cent lower.
Jumbo runs the OzLotteries website, which sells tickets for Tabcorp’s Powerball, OzLotto and TattsLotto under an agreement that could have been terminated by either party in May 2020.
That looming deadline was causing anxiety for some Jumbo investors.
The group clipped $320 million worth of Tabcorp lotto tickets last financial year, which accounted for almost all its $65.2 million in revenue.
Jumbo went into a trading halt two weeks ago telling investors it was in negotiations over its resale operations in Western Australia, where Tabcorp does not have a lotteries licence.
It later updated that to say its nationwide agreement with Tabcorp was also being renegotiated.
On Monday, Jumbo said it had agreed with Tabcorp to extend their reseller agreement in all states and territories, except Western Australia and Queensland until 2030, in a deal that included a $15 million extension fee and a new annual service fee scaling of up to 4.65 per cent in 2024.
“The next 10 years will see a lot of advances in the lottery industry both in Australia and abroad,” Jumbo chief executive and founder Mike Veverka said.
“The new 10-year reseller agreements are the longest ever term in Jumbo’s history and provide a basis for continuing expansion.”
Monash Investors fund manager Simon Shields, which holds Jumbo as one of its top-five investments, said the agreement would give the company certainty about its business model but the additional fees would weigh on its earnings.
“In a sense, it’s like getting a licence from the government for a casino – you’ve got to pay for that in some way, and this is how they’re paying for it,” he said.
Macquarie analyst David Fabris said the new fees effectively halved the 9.3 per cent commission Jumbo currently receives from the $6.8 million Tabcorp, which now also sells lotto tickets online.
“Tabcorp was giving away volume within this channel without necessarily receiving appropriate compensation – the new reseller agreement addresses this issue given the introduction of a service fee,” he said.
“Some shareholders may be disappointed that Tabcorp has renewed the agreement with Jumbo, albeit with more commercial terms.”
Jumbo said it was still in discussions with lottery operator Lotterywest about selling tickets in Western Australia, which last year accounted for 10 per cent of its ticket sales.
Jumbo’s shares closed down 13.23 per cent at $9.90 and Tabcorp’s shares closed 0.91 per cent higher at $3.54.
Tabcorp drives more customers online
Wagering giant Tabcorp has says that its punters are embracing its efforts to get more customers betting online.
The Sydney Morning Herald reported in January that a third of Tabcorp’s active customers in Victoria and New South Wales placed an online bet in a venue since October.
The shift to digital betting, led by others in the industry such as Sportsbet and Ladbrokes, over the past 15 years presented a challenge to Tabcorp’s retail network of 4,000 betting agencies and entertainment venues.
The $9 billion group’s managing director of wagering Adam Rytenskild said many punters went to its pubs and clubs to watch live sport and racing, but placed bets on their phones, not the TAB betting terminals.
This meant the venue would not get its cut of the gambling turnover.
“That’s not good for the publicans, that’s not good for the clubs and it’s not good for TAB,” he said.
“There were some extreme situations of marching customers out of the venue if they weren’t betting cash with them.”