LOGO. Racing s Lifeblood The Future Landscape for Wagering

LOGO Racing s Lifeblood The Future Landscape for Wagering

LOGO Racing s Lifeblood The Future Landscape for Wagering Speaker: Research Consultant, Aspire Wealth Management Pty Limited

The Future Landscape for Wagering Market Analysis and Implications Aspire Wealth Management Pty Limited jenniferowenjo@gmail.com

Outline 1 2 3 Market Analysis Forces at Work Structural Market Changes 4 Successful Strategies 5 The Way Forward? 4

1: Market Share by Nation, 2012 ROW 19% 27B 28% Japan 17.5B France Australia 10% 9.9B 9.9B 12% 11.3B 9% USA 9.3B 11.6B 12% 10% Great Britain Hong Kong Source: IFHRA Statistics 5

( M) Market Analysis: Global Racing In Flux 4 000.00 2012 Turnover: Change from 2006 (at Constant Currency) 3 000.00 2 000.00 1 000.00 - -1 000.00 Japan Hong Kong Great Britain USA Australia France ROW -2 000.00-3 000.00 Source: IFHRA Statistics 6

Activity Levels and Returns to Owners Mixed Trends in Activity.. And in Amounts Wagered per Race Change in Races Held From 2006 to 2012 Turnover (GB = Gross Win) per Race: Changes since 2005 120% 115% 110% 105% 100% 95% 90% 85% 80% 2006 2007 2008 2009 2010 2011 2012 Japan Great Britain Australia Hong Kong USA France 140% 120% 100% 80% 60% 40% 2005 2006 2007 2008 2009 2010 2011 2012 Japan Great Britain Australia Hong Kong USA France Source: IFHRA Statistics 7 Source: IFHRA Statistics

Starters per Race 14.0 13.0 12.0 11.0 10.0 9.0 8.0 7.0 Starters Per Race Japan US GB HK Australia France 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: IFHRA Statistics 8

2: Forces at Work Economy Competition Forces Technology Liberalisation 9

Forces: Economic Conditions The GFC Impact GDP Growth But Household Spending Growth Was More Positive Household Income Growth 12.0 10.0 8.0 6.0 10.0% 8.0% 6.0% 4.0 2.0 0.0-2.0-4.0 2006 2007 2008 2009 2010 2011 2012 4.0% 2.0% 0.0% -2.0% 2006 2007 2008 2009 2010 2011 2012-6.0-8.0 Australia France Japan -4.0% Australia France Japan United Kingdom United States Hong Kong United Kingdom United States Hong Kong Source: OECD, World Bank 10 Source: OECD, World Bank

Forces: Economic Conditions Turnover Trends since 2005 HDI Trends since 2005 140% 140% 130% 130% 120% 120% 110% 110% 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 2005 2006 2007 2008 2009 2010 2011 2012 Japan Great Britain Australia Hong Kong USA France 40% 2005 2006 2007 2008 2009 2010 2011 2012 Japan Great Britain Australia Hong Kong USA France Source: IFHRA Statistics, OECD, RBA exchange rates 11

Forces: Competition Existing Bookmakers Other Sports Gaming Machines Racing Other Codes New Entrants New Casinos 12

Forces: Sports Taking More Share 80% Sportsbetting as % of Total Wagering 70% 60% 50% 40% 30% 20% 10% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Great Britain Gross Win Australia Gross Win Nevada Bookmakers Gross Win France Turnover HK Gross Win Source: Annual reports from Qld Treasury, Nevada Gaming Control Board, Deloitte UK report, HKJC, FDJ, PMU and Arjel 13

Forces: HKJC Growth, Racing and Sports 25.0% HKJC Growth Rates: Racing and Sports 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13-10.0% Racing Sports Betting 14

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 A$ M A$ M Forces: Sports Plus New Entrants 3 500 Australia: Wagering Gross Win 3 500 Australia Gross Win: TAB v. Bookmakers 3 000 3 000 2 500 2 500 2 000 2 000 1 500 1 000 500-1 500 1 000 500 - Race Wagering Sports Betting TAB's Bookmakers Source: AGS, Qld Treasury 15 Source: AGS, Qld Treasury

Forces: New Entrants Paddy Power: Betting Revenues by Channel ( M) William Hill: Betting Revenues by Channel ( M) 600 500 400 300 200 100 0 FY08 FY09 FY10 FY11 FY12 FY13 900 800 700 600 500 400 300 200 100 0 FY09 FY10 FY11 FY12 FY13 Online Sportsbook Online Australia UK Retail Sportsbook Online Sportsbook Irish Retail UK retail Telephone Australia Sportsbook Telephone (ex Australia) US Sportsbook Source: Company reports 16 Source: Company reports

( M) Forces: Competition from Other Gambling 4 500 UK Bookmakers' Gross Win 4 000 3 500 3 000 2 500 2 000 1 500 1 000 500-2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Racing Sports Gaming machines Source: Deloitte Report: The Economic Impact of UK Horse Racing, 2012 17

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 HK$ M MOP M Wagering Turnover (S$M) Casino Revenues (S$M) Forces: Competition from Other Gambling Hong Kong Impact Malaysia/Singapore Impact Hong Kong Betting Turnover (HK$M) vs. Casinos Revenues (MOP M) $150 000 $130 000 $110 000 $90 000 $70 000 $50 000 350 000 300 000 250 000 200 000 150 000 100 000 50 000-3 000 2 500 2 000 1 500 1 000 500 - Malaysia/Singapore Revenues Betting & Casinos 10 000 8 000 6 000 4 000 2 000 0 Wagering Turnover (HK $Bn) Macau Casino Revenues (MOP M) Source: HKJC, Macau Gaming Control Board 18 Malaysia/Singapore Racing Turnover (SGD) Regional Casino Revenues (S $M) Source: IFHRA Statistics, Company Reports

Forces: Global and Regional Casinos Largest Casino Countries Country Casinos United States 1514 France 189 Russia 169 Netherlands 167 UK 144 Canada 110 Argentina 79 Germany 76 Estonia 75 Peru 48 Macau 33 Regional Expansion Plans Country Casinos at 2014 Australia 12 17 Macau 33 No limit Potential at 2020 Singapore 2 Limit of 2 until March 2017 Japan 0 4 Revenue Forecasts Country 2013 2020 Macau $45B $90B Source: World Casino Directory, HKJC, Various public media 19

Forces: Technology Retail 1970 s Race track Pre-1960 Phone 1990 s Internet 2000 s Mobile Devices 2010 and beyond 20

Forces: Online Well-Established 100% Online as % of Total Betting Revenues at 2013 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FDJ - France Gala/Coral Ladbrokes PMU Tatts group TABCORP William Hill HKJC Paddy Power Betfair Source: Company Reports, 2013 21

Forces: Migration to Mobile Smartphone and tablet growth Global Internet Device Sales 1 000 000 000 900 000 000 800 000 000 700 000 000 600 000 000 500 000 000 400 000 000 300 000 000 200 000 000 100 000 000 - Source: BI Intelligence Personal Computers Smartphones Tablets 22 Smarter, faster, cheaper 60 000 000 50 000 000 40 000 000 30 000 000 20 000 000 10 000 000 - Device shipments: Smartphones (esp androids) dominate Android Tablet Apple Tablet Kindle Android Apple Blackberry Windows Source: BI Intelligence

Forces: Digital = The New Shopfront 60% 50% 40% 30% Entertainment/Sports/Media Percentage of purchases by digital mobile device 33% 49% 20% 10% 0% CY2012 actual Tata Consultancy services, Sept 2012: The New Digital Mobile Consumer: How large Companies are Responding 23 CY2015est

Forces: Technology 1 2 3 Online migration well established in Wagering + Smart phones and tablets drive further growth and untether the punter from his desk As mobility increases, so does the competition for the punter + + = exclusive licences are increasingly difficult to protect 24

Forces: Digital Customers more Valuable Source: Ladbrokes Company reports 25

Turnover A$M Forces: Mobiles Outpace PC s William Hill: Channel Usage - Online Customers Tabcorp: Online Growth and Channel Shift 80% 70% 60% 50% 40% 30% 20% 10% 0% 67% 49% 15% 7% 2% 5% 31% 24% PC Smartphone Tablet Multiple devices (PC, Phone, Tablet) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1% 5% 11% 36% 49% FY10 FY11 FY12 FY13 Oct-13 $3 000 $2 500 $2 000 $1 500 $1 000 $500 $- 2Q12 2Q13 Mobile device PC TAH Online Source: 2013 Company reports 26 Source: Company reports

3: Structural Changes: Multi-Nationals Publicly Owned Operators Great Britain Licensed Jurisdictions Europe Australia US William Hill Y Italy, Spain Y Nevada Ladbrokes Y Ireland, Belgium, Spain Y In progress Paddy Power Y Ireland, Italy Y New Jersey Betfair Y Gibraltar, Malta, Denmark, Spain, Italy. Has exited Greece, Germany, Cyprus Gala Coral Y Italy N N Y New Jersey, California Source: Company reports 27

Multi-Nationals: Motivators Red: Neutral or disincentive; Green: Strong motivator Country Population 2012 (M) Horse Racing Bet Per Capita 2012 (US$) Population growth (2012-2015) Great Britain 63.2 $262 12% Y Open Market? Australia 22.0 $657 19% Y Ireland 4.7 $861 19% Y France 63.6 $222 6% Y Hong Kong 7.1 $1,870 13% N Japan 127.6 $301-6% N USA 313.9 $38 12% Opening Source: IFHRA Statistics, OECD data, Population Reference Bureau 2012 data and 2015 forecasts 28

Multi-Nationals Transactions: Prices Paid Year Acquirer Target Consideration FY13 Earnings Before Interest and Tax Return on Invested Capital at FY13 2009 Betfair TVG (US) US$50m US$4.5m 9% 2009-2011 Paddy Power Sportsbet IAS Bet A$194.6m A$40m 2011-2013 Sportingbet Centrebet A$183m A$19.5m (FY12 Normalised) 2012 2013 William Hill Sportingbet Tom Waterhouse 2013 Ladbrokes GIPL Betstar A$670m A$40m + earn out A$22.5m A$20-$25m A$61.7m 26% A$37.5m -A$17.1m Losses 11% 6% -43% N/A Source: Company Reports 29

Structural Changes: Betting Exchanges Online Sophisticated Bettors c. 150m Betfair share c.60-70% c 97.m Online Recreational Bettors c. 440m Betfair share c.10% c. 44m Online Occasional Bettors c. 60m 0% share Source: betfair 2013 Annual Report, based on 2011 NGR from Gambling Data 30

( M) Exchanges Price Advantage UK Online Sports Betting Segments and Betfair Share 2013 TABCORP: Yield based on Bet Size 500 450 400 350 300 250 200 150 100 50 - Sophisticated Recreational Occasional 27% 23% 16% 17% 8% 7% <$20 Between $20 to $200 > $200 Bet Size (A$) Total Betfair Est Share Racing Sports Source: Company Reports Source: Company Reports 31

Exchanges: Impact on Win Rates 25.0% UK Bookmakers Win Rates since 2005 20.0% 15.0% 10.0% 5.0% 0.0% Paddy Power UK retail Coral Retail (pre 2010 data n/avail) Ladbrokes - retail William Hill - retail Paddy Power Phone & Online (ex Australia) Ladbrokes - Phone/online William Hill - Online and phone 2005 2006 2007 2008 2009 2010 2011 2012 2013 32

Forces & Structural Shifts: Impact on Funding FOBTs ~ Nil return to UK racing Wagering market changes compressing racing funding base Corporate bookmakers ~1.8% turnover compare to TAB > 4% turnover TAB shift to fixed odds betting Betting exchanges 33

4: Successful strategies Industry Responses Product: Venue Design Recreational Punters Connect with Younger Punters Value: Pricing Field Sizes Fast Access to Cash 34

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (Turnover HK$Bn) (Annual Attendance M) Re-design: Attractive Venues 100 90 80 70 60 50 40 30 20 10 - HKJC: Racing 5.0 4.8 4.6 4.4 4.2 4.0 3.8 3.6 3.4 3.2 3.0 Turnover (HK$ Bn) Annual Attendance at Race Meetings (M) Source: HKJC Annual Reports 35

Turnover A$bn Yield Re-design: Fixed Odds 1.8 TABCORP: Fixed Odds Turnover 15.0% 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 11.9% 11.7% 12.4% 12.4% 14.2% 13.5% 14.5% 14.0% 13.5% 13.0% 12.5% 12.0% 11.5% 0.0 FY11 FY12 FY13 11.0% FO Racing Turnover (A$bn) FO Sports Turnover (A$bn) Yield - Racing Yield - Sports Source: AGS, Qld Treasury 36

Re-design: Entry-Level Products 23.1% TABCORP: Yield based on Bet Size 27.3% 16.2% 16.5% 7.7% <$20 Between $20 to $200 > $200 Bet Size (A$) 6.9% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% TABCORP Fixed Odds: MultiBets Deliver Better Yields 62% 38% Turnover 34% 66% Revenue Racing Sports Multi Bets Single Bets Source: TABCORP Investor Presentation 2013 Source: TABCORP Investor Presentation 2013 37

Re-Design: Appeal to a Younger Crowd Racing Customers are Older France: Age of Race Bettors 60% 50% 49% 47% 48% 40% 30% 26% 20% 17% 19% 17% 18% 18% 20% 10% 7% 8% 10% 9% 9% 11% 5% 9% 0% 2011 2012 2013 18-24 25-34 35-54 55-64 >65 Mobile Users To Survive, Need to Win and Younger Audience 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 38% France: Age of Sports Bettors 41% 30% 29% 27% 26% 10% 12% 36% 32% 28% 3% 3% 4% 1% 1% 1% 2011 2012 2013 18-24 25-34 35-54 55-64 >65 Mobile Users 33% Source: ARJEL 38 Source: ARJEL

Value: Improve the Customer Proposition Increased competition, and Customer mobility, forces an increased focus on value for money Price is one factor affecting value for money Quality is another. Field sizes have been demonstrated to have a material impact on customer interest 39

Value: Impact of Field Size on Appeal 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% Field Sizes (2012) and Turnover Changes (2006-2012) France Australia Japan Hong Kong USA Great Britain Turnover (% Change from 2006) Average Fields at 2012 13.0 12.0 11.0 10.0 9.0 8.0 7.0 6.0 40

Value: Despite Competition, Prices Rising Australia: Gross Win Rising 16.1% 16.0% 15.9% 16.4% 16.6% 16.5% 16.6% 16.5% 16.6% 16.7% 17.3% 5.2% 5.0% 6.1% 5.1% 5.6% 5.8% 6.0% 6.3% 7.0% 7.4% 8.8% 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Fixed Odds Parimutuel Source: AGS, Qld Treasury 41

Value: Access to Cash Ladbrokes card access to cash immediately post-race in venue. ATM s and smart phones obviate retail networks of the incumbent land-based operators. Source: Ladbrokes Australia Website 42

The Way Forward Tighter Control Over Supply Better Control over Distribution More Appropriate Structure Incentives to Grow Volumes 43

Thank you Aspire Wealth Management Pty Limited em: jenniferowenjo@gmail.com ph:+614 09 746 286