I don’t know the ins and outs of gambling in Victoria. But I was amazed at the article by Stephen Mayne in Crikey! Victorian Premier John Brumby has acted to break the duopoly that holds licences to host poker machines in Victoria. Clubs will be able to bid for licences as well. I believe the decision does not increase the number of machines, but just allows greater competition for the right to host them.
Now presuming that Brumby has legal advice that he can do this, that is that after a period in which the duopoly was guaranteed by government, this guarantee has now come to an end, then it seems that Brumby is doing the right thing. Naturally Tabcorp isn’t too impressed as they just lost around 2.7 billion dollars as measured by stock market valuations.
Mayne takes the companies’ side and argues that they should get compensation. For what exactly? For not enjoying the duopoly in perpetuity? This, according to Tabcorp and Stephen Mayne raises sovereign risk issues. Perhaps it does. Perhaps the Government clearly implied that the duopoly would remain for those snouts that were already in its trough. But it would want to be pretty strong kind of implication – together with some contract like offer, substantial consideration and acceptance for me to be too sympathetic.
And if we’re to argue this from the morality or the efficiency implications of property rights, all I can say is that that is one good reason why monopoly rights are not (generally) property and if this makes it harder for governments to ‘bank’ promises of monopoly rights by selling them for higher prices, well and good.
Like I said in the headline, should I be disappointed in Stephen Mayne or am I missing something? Mayne’s post is below the fold.
Is Victorian Premier John Brumby wreaking revenge on Tabcorp for the severe damage he suffered at the time it was floated back in August 1994?
The Kennett Government slammed through the Tabcorp float with indecent haste after being poorly advised by Mike Tilley, the current CEO of Challenger Financial Group which has caused more losses than any other stock for Opes Prime customers.
Opposition leader Brumby was famously blamed by Jeff Kennett, Tilley and The AFRs then Chanticleer columnist Ivor Ries for single-handedly destroying the float by raising the prospect of introducing competitors to Tabcorps gambling licences.
The government was hoping to float Tabcorp for $2.70 a share but was instead forced to settle for the $2.25, the bottom of the range.
Fast forward 14 years and John Brumby has managed to wipe $2.86 a share or $1.5 billion from the value of Tabcorp in one morning.
In percentage terms Tabcorps 20% hit a $7.54 billion company is now only worth $6 billion was overshadowed by Tattersalls which this morning opened 25% lower, slashing its market cap by $1.2 billion from $4.63 billion to $3.45 billion.
Woolworths and colourful billionaire Bruce Mathieson are clearly the biggest winners because they already control more than 35% of Victorias poker machines. Woolies shares rose 31c yesterday and a further 52c to $30.76 this morning a total rise of 83c which added 2.8% or exactly $1 billion to its market cap whilst the broader market slipped 1.7%.
Whilst the move to a system similar to the rest of the country is not that surprising, the refusal to pay out $1.2 billion in compensation to the duopolists is the biggest shock from yesterdays announcement.
Never before has a government decision wiped out $2.7 billion of sharemarket value and Brumby is already being slammed by the likes of Business Spectators Stephen Bartholomeusz for immoral behaviour.
Brumby is clearly banking on the lack of sympathy for the duopoly. After all, even after todays plunge, Tabcorp investors have still enjoyed returns of more than 700% including a big dividend flow. Tattersalls never paid for its pokies licence in the first place a Kirner Government special which was arguably the most incompetent commercial act by a state government in the last 30 years making it Australias second biggest millionaires factory after Macquarie Group.
I reckon this is just a negotiating ploy and the duopolists will eventually settle for something like a discounted wagering licence fee.
That said, the union-controlled Labor Party has always carried some fears for business and this brazen rejection of compensation raises the spectre of sovereign risk. If Labor can do this to Victorias gaming duopoly, why should other major licensed businesses such as media companies, banks and telcos not expect the same?
For instance, given Laura Tingle has today revealed that Treasurer Wayne Swan used Glenn Milne to do a hatchet job on RBA governor Glenn Stevens, the banks themselves have plenty to fear.