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The online sports wagering industry is set to be shaken up once again, with the proposed merger of online bookmaker operators The Stars Group and Flutter Entertainment. With the Groups operating BetEasy and SportsBet respectively, merging two of Australia’s largest online bookmakers will have significant industry ramifications, with punters set to be the biggest winners – if that’s possible.

The merger news comes at a time when online bookmakers are spamming television commercials in the lead up to the Spring Racing Carnival. Each are fighting for the valuable market segment of recreational punters who have a flutter in the weeks leading up to the Melbourne Cup.

Credit Suisse analyst Larry Gandler estimates Australians are to wager $4.3 billion annually. Tabcorp (ASX: TAH) is leading the market with a 50% market share, but their dominance is likely to see a major pullback following the merger which should give SportsBet and BetEasy 26% of the market share.

TabCorp’s operations are split between their online business and the traditional brick-and-mortar retail store model, which they have monopolised since their 2017 merger with Tatts Group. However, this has not stopped Tabcorp’s earnings decline from their wagering and media brand which makes up 42% of the Group’s overall revenue.

For Tabcorp, FY19 saw a 7.4% decline in turnover from their retail outlets. This has somewhat been offset by their digital offering which increased its revenue by 7.7%. The Group made a concerted marketing effort to bring its online products inline with solely online operators SportsBet, Ladbrokes, BetEasy, Neds and PointsBet (ASX: PBH) – each offering a suite of promotions which had proven highly successful in customer acquisition.

Perhaps most alarming to investors, however, was the overall 4.4% decline in total revenue from TabCorp’s wagering business despite reporting 720,000 active customers.

What may be further cause for concern is the fact that these declines came at a time when market conditions were most favourable for TabCorp. This was due to the introduction of State-based point-of-consumption taxes designed to levy online operators, which had long capitalised on legislative loopholes for being licenced in the Northern Territory. Following the introduction of the POC tax, the Australian market swiftly saw the exit of global powerhouse William Hill, with its Australian brand acquired by BetEasy in 2018.

Despite these significant weaknesses in their wagering business, TabCorp still enjoyed a profitable year with Group EBITDA up 7.6%, courtesy of a 28.9% rise in earnings from their Lotteries and Keno business.

Pending approval from the Australian Competition and Consumer Commission (which would have to be expected after they approved the TabCorp-Tatts merger), the new Flutter-Stars entity will become the world’s largest online betting and gambling company. Shared resources should see significant operation savings, expected to bring BetEasy’s gross operating margins from 12% closer to Sportsbet’s 27%.

Should the merger replicate results witnessed when international operator Ladbrokes purchased domestic operator Neds in 2018 for $95 million, it should see a bevvy of promotions and bonuses passed on to punters. It’s something TabCorp would be hard-pressed to mirror based on the losses already being incurred from their wagering business associated with overhang from their 4,400+ retail venues.

Whilst many of those venues are split between standalone stores, and those located within pubs and hotels, divesting the enormous retail portfolio will take time. Time in which the Sportbet-BetEasy merger should halt the growth of TabCorp’s online business as recreational punters seek greater value being passed on from the merger synergies.

Unfortunately for the general public, it is expected that both SportsBet and BetEasy brands will be maintained in Australia, post-merger, which means those pesky ads won’t be going away anytime soon.