Tabcorp's change in advertising strategy will hit TV

Chris Pash
By Chris Pash | 25 May 2023
Credit: Gene Devine via Unsplash.jpg

TV broadcasters will suffer from Tabcorp's change in advertising strategy, according to market analysts.

Morgan Stanley estimates $300 million was spent on gambling advertising in Australia last financial year, more than half of it on television.

Both the Labor government and the Coalition opposition are both making public comments on tightening the volume of gambling advertising on television. 

“We think the likelihood of change has increased,” write analysts at Morgan Stanley. 

Tabcorp, Australia's largest gambling company, employing more than 5,000 people, says gambling advertising should be  banned on free-to-air TV between 6.30am and 8.30pm unless it's during dedicated racing programming.

Tabcorp says it will voluntarily stop advertising between these hours if needed. 

“We've reached a critical, line-in-the-sand moment for the wagering industry and the role it plays in the Australian community,” CEO Adam Rytenskild told a parliamentary inquiry.

“The proliferation of gambling advertising, we believe, has gone too far. This is not good for the broader Australian community and not good for the long-term sustainability of the wagering industry.

“Regulation of the industry is rightly an increasing focus for the government and for the community. Tabcorp embraces this, and we want to be part of creating a better balance."

At Morgan Stanley, analysts say advertising related to sports betting/wagering has been a huge growth category for Australian media companies over the last decade.

“We think changes in Tabcorp's (TAH) strategy for how it advertises its sports betting and wagering business are likely prove a net incremental negative for TV broadcasters,” write the analysts in a note to clients."

Tabcorp, according to one estimate, would save about $30 million from cutting TV spending 6.30am to 8.30pm.

According to Nielsen, gambling advertising has been a top 20 category in Australia for the last four calendar years.

Morgan Stanley estimates TV gambling ad spending of about $180 million in the 2022 calendar year to represent about 6% of the total $3.2 billion.

“Any potential reduction in this spending could have a meaningful impact on earnings of publicly listed FTA TV operators … (Nine and Seven West) … given their dominance of sports broadcasting and the very high operating leverage characteristic of the FTA+BVOD TV business model,” the analysts say.

However, Morgan Stanley hasn’t changed its base case earnings estimates or valuations for Nine and Seven.

“What we know, having observed similar changes to advertising regulation in the past… is that it's unlikely for the elimination of gambling ad spending to result in a 100% loss of those specific revenues,” the analysts say.

“The advertising slots surrounding and during top-tier sport and sport-related Broadcasting are premium slots that will b in demand by other types of advertisers.

“If sports wagering companies are not permitted to use certain slots, we are confident that other advertisers would emerge to take their place.

“A trickier question to answer is whether this ad inventory could be sold at the same premium rates (as currently paid by sports betting/wagering companies) ... but the slots would likely be resold and the dollars would not evaporate to zero.”

“In our view, the current weak TV ad market would likely make matching the current premium ad rates more challenging.”

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