A jackpot of stumbles
Stephen Mayne
February 14, 2010
IT IS hard to believe the government that so skilfully handled the
sale of
Victoria's electricity industry and the turnaround in WorkCover is
the same
outfit running gambling. Last week's $2.43 billion sale of the Yallourn power station is the
latest
excellent outcome for taxpayers, who can now look forward to
receiving up
to $20 billion for the old SECV. If only the news were so good in the gambling industry, which
continues to
be a disappointing story for taxpayers. Two events last week
reinforce this
point.
The first was Monday's $43 million December half-year profit
announced by
Tabcorp. This sent the company's shares rocketing 31 cents to a
record
$4.90 - 117 per cent above the $2.25 issue price just 20 months ago -
thanks to a bonanza from gaming machines. The government sold Tabcorp for $675 million - $750 million less
than it's
now worth. (The Opposition lost $100 million of this value by
sabotaging
the float.)
This is a bad outcome for taxpayers, and the cost is effectively
doubled by
the announcement last Tuesday that Tattersall's would pay a gaming
licence
fee based on the cheap Tabcorp float price.
This fee - $420 million in today's dollars and amounting to 30 per
cent of
Tatts' net gaming profit over the next 16 years - helps us recover
from the
Kirner Government's inexplicable decision to give Tatts a free
gaming
licence in 1991.
But it still looks too low. In negotiating, the Kennett
Government was constrained by the fact
that Tatts already had the licence to operate half of Victoria's
non-casino
machines. However, it held the whip hand through its ability to jack
up
Tatts' tax rate in November and cap the number of machines.
The government should have gone for broke, particularly as Tatts is a
millionaire factory for its top executives and owners - the
beneficiaries
of the George Adams estate. For example, Premier Jeff Kennett's
most senior adviser and closest confidant on gambling, Alister Drysdale, joined Tatts 18 months ago on a
package reputedly worth almost $500,000 a year. The claim that the Tatts fee is based on the Tabcorp equivalent
also looks
questionable. The government valued Tabcorp's gaming licence at $465 million when
Tabcorp
was floated, $45 million below the estimated Tatts fee.
But Tabcorp's is effectively only 75 per cent of a gaming licence,
because
25 per cent of its gaming income goes to the racing industry. This seems to have been ignored in calculating the Tatts fee, as has
Tabcorp's soaring share price.
The stockmarket now values Tabcorp at $1.4 billion, which suggests
the 75
per cent it owns of the least profitable gaming licence is worth
about $1
billion. Clearly the Tatts licence is worth well over $1 billion, yet the
government
has settled for just $420 million. We have clawed back perhaps one
third of
the Kirner Government's gift, which in the first three years has
yielded
Tatts more than $200 million in profits.
With the government now taking 30 per cent of future profits as a
fee, the
fat cats at Tatts get to keep the other 70 per cent and pay nothing
for the
privilege. This gift is worth about $800 million in today's dollars. Unfortunately, cheap gaming machine licences are not the only
gambling
mistakes made by the Kennett
Government. Investors in Crown Casino are almost $800 million in front after 21
months,
due in part to many favorable government decisions. And casino manager Hudson Conway has seen its sharemarket value soar
from
$150 million to $600 million thanks to the casino. This has created a lot of wealth, such as an additional $70 million
for
Grand Prix boss and Liberal Party treasurer Ron Walker. Even with
the
retrospective Tatts licence fee, which is a welcome advance on
Labor's
effort, the private owners of Victoria's gambling licences are
almost $2.5
billion in front.
For a government that rightly prides itself on financial management,
gambling remains the one major blot on its commercial copy book.
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