CEO Tod begins investigating partnering TAB NZ as profits decline

by Brian de Lore
 Published 11th October 2022

Two sets of figures recently released by TAB NZ can only leave you thinking that its diminishing turnover/profit trend is not sustainable for New Zealand Racing as we currently know it.

Examining the numbers leaves one in no doubt racing is financially contracting at an alarming rate. Few in the industry seem even aware or bothered about it except for Mike Tod, who has outlined plans in a memo to staff and how he will combat the strengthening headwinds at the TAB.

TAB NZ posted its July and end-of-year result three weeks before a memo from CEO Mike Tod came to staff talking of significant future changes. July revealed a betting profit of only $7.3 million, a massive $4.9 million below budget. A year earlier, the betting profit for July came in at $13.4 million, so this year’s July downturn is substantial.

The July year-on-year downturn calculated out at a contraction of 45.2%. Even when the figure is adjusted for an extra Saturday in July 2021, it still falls by 32%.

$28.9 million downturn off bottom line from previous year

For the full year ended July 31st, 2022, the profit came in at $23.5 million below the previous year. But operating expenses blew out to $119.0 million or $5.4 million above the previous year.

The bottom line differential between year-end 2021 and year-end 2022 resulted in a shortfall of $28.9 million. Last week TAB NZ posted its August profit which brought in $8.6 million, a 28% contraction in two years from the $11.9 million 2020 result.

Rising interest rates, mortgage payment hikes, and a recent sharp rise in the cost of living at the supermarket and other places must affect TAB turnover in the immediate future.  

The Optimist has highlighted this industry’s woes ad nauseam for years, and I have always believed that the reluctance of the majority of New Zealand racing administrators to partner/outsource TAB NZ with a global betting operator would one day result in having to do by necessity rather than choice.

That day has apparently arrived.

Memo informs staff of an investigation into TAB partnering

In the memo to TAB staff on September 22^nd, written by the relatively new CEO, Mike Tod (who started in March), the first two paragraphs read as follows:

“A key pillar in our TAB Gameplan growth strategy is leveraging global capabilities to build a world-class betting experience for our customers, and cementing a strategic partnership with a wagering operator at the cutting edge of the industry could be a key factor in us achieving that target.

“With that in mind, we have commenced discussions with a small number of international operators to understand how they may help us rapidly enhance our products, services and customer experience while building on the more than $200 million that was passed on to New Zealand racing, sport and communities in the 2021/22 financial year.”

Mike Tod’s claim that they passed on $200 million (true figure $140m) is both mischievous and misleading. He’s including the Betting Information User Charges (BIUC) ($23M), Gaming ($14m), and the reduction in the betting levy ($13m), which had nothing to do with what TAB NZ collected.

What a shock! The Tod statement contradicts everything NZRB, RITA, and TAB NZ (all the same mob) have previously said for years about the future direction of the TAB. John Allen only thought about building a FOB platform to justify his $680,000pa, and Dean McKenzie had a jealous-driven romantic affair with the TAB and had no intention of letting the Aussies near it.

Messara: …partnering will provide significantly increased prizemoney

The Messara Review highlighted it as its most vital recommendation of the 17 put forward, and John Messara AM openly stated that without the partnering of the TAB, the door would not open for the opportunity of doubling prizemoney to revive New Zealand racing.

CEO Mike Tod has breathed half a breath of fresh air into racing with his memo that a serious, proactive, and positive approach to investigating the partnering of the TAB is happening. Whether or not the reason comes back to simple financial commonsense or the TAB has no option as it faces stiff headwinds is uncertain.

Here’s a list of bullet points in the memo to TAB staff that provides testimony to Tod’s thinking on the matter:

Tod recognises the benefits of partnering

“The objectives of a strategic partnership would be to:

• “Achieve a customer experience that is on par with leading Australian and global operators.
• “Partner with an innovative operator that will help TAB NZ extract the biggest benefits and opportunities from its unique assets (in-play, gaming, retail and broadcast).
• “Balance benefiting from a global product roadmap and having the ability to develop bespoke products that cater to the New Zealand environment.
• “Have a partner who understands the importance of strong relationships with Government, racing and sport and is prepared to act in the interests of these stakeholders.
• “Leverage the resources of a well-respected, global operator.

“For clarity, the process that has commenced is not about a sale of all or part of TAB NZ. It is about trying to identify a world-class strategic long-term partner.”

Tod stresses that it’s not a sale of the TAB but a long-term strategic partnership; what John Messara said should happen in his review four and a half years ago.

Substandard options and odds offered by TAB NZ

In the above five bullet points, the first suggests an admission that TAB NZ offers its customers substandard options and odds compared to other betting agencies – and punters already know that.

The second point mentions broadcast, which might put ‘the wind up’ everyone at Trackside as one of the benefits of partnering is the chance to substantially reduce TAB NZ’s costs which currently amount to a staggering $119 million annually.   

The fourth bullet point mentions the strong relationship with the Government, which is another way of saying the Government has assumed ownership/control because Winton Peters bailed the TAB out of receivership with a $50 million gift in the 2020 May budget.

Bullet point four also describes ‘sport’ as a stakeholder, which is entirely incorrect. Sport supplies the TAB with a product on which to bet, for which they receive a fair fee and fair commission on the profit derived. Sport is simply a supplier.

When the NZ Racing Conference and NZ Trotting Conference sought a legal opinion on the ownership of the TAB in 1995, George Barton QC prepared a 24-page report stating that NZ racing clubs “have an irrefutable claim as beneficial owners of the TAB.”

The racing and trotting clubs had to put up £50,000 in September 1950 to start the TAB in 1951. Sport has contributed nothing in either set-up and running costs over the past 71 years and suddenly can’t claim to be stakeholders, but the clubs of New Zealand have proven themselves very weak in defending their rightful position of ownership of the TAB.

The fifth bullet point talks about leveraging the resources of a well-respected global operator. Well, is that comment present because the TAB has bankrupted its own resources?

About five years ago, RWWA (Racing and Wagering Western Australia) plugged into Tabcorp’s betting platform for an annual fee of $7 million. Our TAB built its own platform for $50 million, with $17 million annually committed in ongoing costs to Openbet and Paddy Power.

NZRB, in their day, seemed to have a mindset of doing a ‘number eight wire fix’ on the TAB to keep intact its misguided nationalistic safeguarding of a betting business it knew zero about – crazy!

$150 million upfront for partnering turned down 5 years ago

Our FOB platform is already out of date. Some global betting agencies spend as much as $120 million annually on IT development. How did Glenda Hughes, John Allen, and company ever think we could keep the pace up? Five years ago, they concealed a partnering offer from a big corporate betting agency with the upfront payment now acknowledged by insiders as $150 million.

On scale,  the TAB in NZ never rated a chance to exist alone in a global market, let alone compete with the product. No one with authority at the TAB through all those years and name changes seems to have ever grasped that fact, and most have walked away without an ounce of accountability.

In post-World War II New Zealand, we saw four decades of growth and prosperity because the people that administered racing all had skin in the game; they had acquired knowledge through experience, had common visions and a passion for horses, and gave their time at no cost to the industry. They were successful.

Then the first minister of racing arrived in 1991, and the retardation began and 14 ministers later, we are still retarding. Most of our administrators today lack horse knowledge and a feel for the industry but, nevertheless, turn up to collect their massive salaries or directors’ fees for attending once a month.

Members’ Council has failed

The so-called Members Council that selects directors for NZTR has an appalling record – proven by the inability of their appointments to make a meaningful contribution. When the system fails, why continue with it?

The faceless TAB board gained their appointments politically through the previous racing Minister Grant Robertson, who also appointed the Chair and CEO of the Racing Integrity Board (RIB)  – a retired judge and a retired deputy chief of police.

The cost to racing for the RIB now works out at $40,000 a day – every single day of the year. How’s that for value?

Cronyism, nepotism, partisanship, self-interest, jobs for the boys, call it what you like, but don’t say that any of these people landed their positions through a fair and democratic process to serve the best interests of racing.

Racing’s crooked all right – no doubt about it. But it’s not the people at the coalface.

Government interference is killing the racing goose, which bears no resemblance to its once golden colour. It’s gone a dull grey.

Hire a QC and contest ownership of the TAB

So, why don’t the clubs reunite, employ a fresh QC to do a new appraisal of the ownership of the TAB, and afterwards offer the Government its $50 million back, and reclaim the TAB under the same arrangement as when formed?

Under the directive of the DIA, TAB NZ has instructions to hold a reserve fund of $100 million in case it goes insolvent again. My information says they already have $60 million on deposit right now, but what good is that to the codes and participants?  

Even if Mike Tod succeeds with his partnering plan, it will take one to two years to finalise a deal. In the meantime, racing needs the Government out of its life, and if an agreement fails, the clubs should take them to court based on a favourable review completed by the QC.

The marriage is incompatible and the sooner we see an annulment, the better.

Doing nothing remains the worst option.