1、 Employed by a non-US affiliate of MLPF and (2) how well the incumbents insulate their existing land-based operations against the online threat. Aussie online gaming legalisation back on the agenda The Productivity Commission has put legalisation of online gaming back on the agenda. We see online ga
2、ming legalisation as inevitable at some point given: (1) $500m of taxation revenue potential; (2) better protection for vulnerable and recreational gamblers; and (3) governments globally trending towards regulation. Industry Overview Equity | Australia | Gaming 07 June 2010 Nathan Gee, CFA +61 2 922
3、6 5719 Research Analyst Merrill Lynch (Australia) Chart 1: Online gaming market opportunity -1, 0 0 02,0003,0002008 Base StretchCasinoPokerLive online bet t ing Source: Merrill Lynch estimates Chart 2: Opportunity/threat for the incumbents (% upside / downside relative to FY09 EBIT) 9%4%7%15%8%13%0
4、% 0% 0%-8%-8%-7%-10%-5%0%5%10 %15 %20%CWN TAH TTSUpside ( base c ase) Upside (stretch case)Downside (base case) Downside ( wor st c ase)Source: Merrill Lynch estimates BO 2 Australian Gaming 07 June 2010 Contents Executive summary 3 Legalisation is about when not if 4 The online gaming status quo 5
5、$1.5-2.5bn market opportunity 7 Online battlefield taking shape 8 The live betting opportunity 9 The online casino opportunity 13 The online poker opportunity 18 Threat to land-based incumbents 22 Stock implications around online gaming 28 Aristocrat (2) existing customer relationships and online ac
6、counts; and (3) retail transaction processing networks. But land-based operations face constrained growth: We expect online gaming supply growth to cannabalise the growth of the incumbents with past experience of new supply competition in Australia suggesting the incumbents grow at closer to CPI (ra
7、ther than HDI). Impact of online competition looks asymmetric: Lotteries look least exposed to supply competition given different player demographics and products. But casinos and wagering face some threat from online gaming that they need to respond via product differentiation and innovation to avo
8、id the threat of growth being cannibalised going forward. 3. Online gaming presents opportunities (2) the EU experience suggests that live betting customers are tougher; (3) live betting bookmaking is more complicated given its fast and unpredictable nature. Pre-existing vision arrangements: Critica
9、l to live betting is providing customers with vision of the particular sporting event with European operators offering video streaming on 20-30% of events they take bets on. This advantages the global operators who already likely have deals with various sporting codes for vision streaming rights tha
10、t they can also offer into Australia. Chart 13: FY09 Australian online sports wagering market share by revenue TAHTTSCILOtherSportsbetSporting betSource: Merrill Lynch estimates BO Australian Gaming 07 June 2010 12 Pre-existing local Aussie product: Aussie punters have a bias towards betting on loca
11、l sports with the composition of TAHs FY06 sports book aside. TAH reported that its highest performing sporting events in FY07 on .au were the Australian Open Mens Final, NRL State of Origin 1, NRL State of Origin 2, the NRL Grand Final and the FA Cup Final. But online bookmakers already offer live
12、betting on Aussie sports as follows: Table 9: Aussie live betting options already offered by the global online wagering players NRL AFL A-League Cricket Centrebet Yes Yes Yes Yes William Hill Yes Yes Yes Yes Ladbrokes Yes Yes Yes Yes Paddy Power Yes No Yes Yes Source: Company websites Larger TABs ca
13、n hold share but must act fast The larger TABs (TAH and (2) online wagering has a competitive product versus land-based TABs (i.e. attractive pricing, fixed odds), versus online casinos and slots where its harder for the product to compete against land-based peers. Strong Aussie propensity to gamble
14、: There is a long history of slot and casino gaming in Australia with Australians showing a high propensity to play. We expect this propensity to translate into online gaming, particularly given the more attractive RTPs on online slots versus land-based competitors (see Appendix 1 for more details).
15、 Intense Australian land-based competition: Supply competition is fairly intense in the Australian land-based market with a footprint of 200k slot machines and casinos in each major city centre. Chart 16: FY08 composition of Australian land-based and online gaming 0%50%100%Online Land based TotalWag
16、ering Casino (2) the racing industry-owned wagering operator AB Trav och Galopp (“ATG”); and (3) minor bingo operators. But in online gaming, Svenska and ATG compete against unlicensed foreign internet players (Ladbrokes, Unibet, Expekt and Betsson) who can advertise in the Swedish mass media and on
17、 foreign TV channels that broadcast in Sweden. BO Australian Gaming 07 June 2010 16 But the land based Swedish operators have held their own in the online market despite the influx of competition from offshore. After ten years of competing online, the offshore players have a 45% share of the market
18、compared to the incumbents Svenska who has a 29% share of the online market and ATG who has a 26% share. Figure 4: Swedish online gaming market share Source: Svenska Spel 2009 Annual Report Online wagering players well positioned Online wagering players are well positioned to win share The online wa
19、gering players are well positioned to win share if online casinos are legalised given: Single wallet offering: The existing online wagering players have the “single wallet” benefit of giving their customers the convenience of using their existing username, password and bank to play poker or casino p
20、roducts. Online gaming infrastructure: The existing players (CIL, Sportingbet, Paddy Power) already have the required product/software, payment processing systems (see below) and online marketing (affiliates, search engine optimisation) capabilities from their experience offshore, so should be ready
21、 from day one if online gaming is legalised. But we concede the presence of B2B providers like 888s Dragonfish and Playtech suggests the land based operators can catch up in this regard. Customer lists: Experience in the UK suggests that there is strong cross-over between wagering and poker customer
22、s given both are attracted to the skill based elements opening up the opportunity for the existing wagering players to leverage customers into poker. But PartyGaming concedes that poker players arent slot players suggesting more limited crossover between the wagering customer lists and online casino
23、 play. Online wagering players can win $200-300m of the market The EU experience suggests that the online wagering players tend to be very successful in cross-selling their players into online casinos as follows: Table 14: Existing global wagering players already have the online gaming infrastructur
24、e Casino provider Poker provider Centrebet Playtech iPoker / Playtech Sportingbet Boss, CryptoLogic Boss Sportsbet WagerWorks (IGT) iPoker / Playtech Source: Company websites BO Australian Gaming 07 June 2010 17Chart 19: FY09 revenue mix between wagering (2) NSW Lotteries (3) Victorian TAB (4) Victo
25、rian lotteries (5) QLD TAB and EGMs; (6) Golden Casket and EGMs NSW new supply experience over the mid 1990s The incumbent NSW gaming suppliers (TAB, lotteries) faced supply shocks during the mid-1990s with the introduction of new gaming supply in the form of: Star City casino: Permanent casino open
26、ed in September 1995 with 200 tables and 1.5k slots. NSW pub EGMs: NSW pubs approved to operate 15 EGMs from April 97, with authority to operate an extra 15 EGMs from 1998. The below tables and (2) the suitability of certain sports (soccer, tennis) to live betting rather than pre-event betting. And
27、whilst the TABs have a significant share in the sports betting market, they need to act fast to get their online live betting product right to compete against the global operators in this market. Casinos must differentiate to avoid online substitution Online casinos offer a very similar product to t
28、heir land-based peers. The proliferation of live dealer online products and million dollar progressive slots has narrowed the product gap between online and land-based casinos, although the online casinos will never be able to replicate the interactivity of squeeze baccarat or craps. But what online
29、 casinos miss on interactivity they probably make up around being able to offer unlimited gaming positions (Aussie casinos tend to reach capacity on Friday & Saturday nights) and better value with higher return to players on slots and lower minimum bets on table games. So the land-based casinos face
30、 some risk of cannibalisation (i.e. growth tailing to 2.5% p.a.) if they are slow to respond. But casinos who continue to differentiate should be able to sustain longer run growth forecasts of 4-5% by focusing on: Integrated resort offering: The Australian casinos who offer an integrated resort expe
31、rience with a strong complement of non-gaming facilities are better positioned to avoid online substitution versus those with weaker facilities. So not only do casinos need to ensure their product remains fresh, but also ensure their F&B, hotel, convention and entertainment offering remains competit
32、ive to create reasons for patrons to visit. Differentiated gaming experience: Casinos can offer a differentiated gaming experience by improving the dealer experience as well as via differentiated slot products. Strong loyalty programs: Casinos can engage their “locals” population through a strong lo
33、yalty program that offers attractive rewards and cash rebates. Online casinos offer a value proposition of better slot RTPs and lower minimum bets on table games BO Australian Gaming 07 June 2010 28 Stock implications around online gaming Online gaming presents opportunities and threats to the incum
34、bent land-based operators with the below summarising the EBIT upside & downside relative to FY09 EBIT for the big three land-based incumbents as follows: Chart 36: Online gaming EBIT upside & downside for the incumbents 9%4%7%15%8%13%0% 0% 0%-7%-8% -8%-10%-5%0%5%10%15%20%CWN TAH TTS%EBITupsideUpside
35、 (base case) Upside (stretch case) Downside (base case) Downside (worst case)Source: Merrill Lynch estimates The upside assumes the incumbents are successful in winning share in online gaming, whilst the base case downside assumes the incumbents actively respond to the threat of online gaming and av
36、oid cannibalisation risk. Our worst case downside assumes the incumbent wagering and casino operators are slow to react to the threat of online gaming and face cannibalisation risk as follows: Wagering risk: UniTAB wagering growth forecasts downgraded to 2.5% p.a. for the first ten years if it is sl
37、ow to respond to the competitive threat from poker & live betting. But no downside threat to our TAH wagering growth forecasts which are already below 2% so already take into account the competitive threat from online. Casinos risk: TAH casino growth forecasts downgraded to 2.5% p.a. for the first t
38、en years if it struggles to differentiate versus online gaming. For CWN, no downside risk to our Melbourne forecasts given strength of its integrated resort offering, but risk that Burswood casino growth forecasts downgraded to 2.5% p.a. for the first ten years if Burswood doesnt lift its game to be
39、tter differentiate versus online gaming. BO Australian Gaming 07 June 2010 29Crown Limited Opportunity: CWN capturing share in online gaming CWN could be a formidable competitor in the online domain given: Crown brand: The Crown Casino brand is the strongest gaming brand in Australia, and the Crown
40、Poker also carries strong brand strength within the land-based poker community given it hosts the prestigious Aussie Millions Poker Championship. Also the Crown brand is the only Aussie gaming brand that has some value in Asia opening up the potential for CWN to target Asian based online players Bur
41、swood brand: WA remains a significant opportunity for online gaming given the prohibition on land-based slots and an attractive market of high income resource industry workers. This means that CWNs Burswood brand is particularly valuable given it is one of a few recognisable WA gaming brands (alongs
42、ide the government-owned Lotterywest and WA TAB). Player database: Crown has a database of casino/poker players in Melbourne and Perth that it can cross sell into online poker and casinos. Also by linking online play with its land-based rewards program, it can enable players to earn status/points on
43、line that can be used in the casino. But obstacles that need to be overcome include: Lack of online accounts: CWN has strong brands and databases, but doesnt have customers with online accounts. This gives TAH & TTS and the online wagering operators an advantage as they can offer their customers the
44、 convenience of a single online wallet. Online gaming experience/infrastructure: CWN has limited online gaming experience relative to the global wagering players having launched an online casino JV (CrownGames) in 2002 and via its 50% JV share of Betfair Australia. So like its land-based competitors
45、, CWN will likely need to do a deal with an offshore B2B provider for software/products. Overall we estimate that CWN could extract an incremental EBIT of $40-70m from the online gaming regulation as follows: Table 19: CWN EBIT upside from online gaming regulation $Am Base Stretch Comment Revenue Li
46、ve betting - - Poker - Casino / slots 141 235 Assume CWN wins 40% of land-based share of the online casino/slot market given strong brand & WA positioning Total revenue upside 141 235 EBITLive betting - - Poker - Casino / slots 42 70 Assume 30% EBIT margins based on offshore egaming peers Total EBIT
47、 upside 42 70 % upside on FY09 EBIT 9% 15% Source: Merrill Lynch estimates BO Australian Gaming 07 June 2010 30 Threat: Melbourne insulated, but some risk at Burswood Crown remain the Australian leader in creating a destinational integrated resort experience with the gaming product partnered with a
48、strong complement of F&B, hotel, convention and entertainment facilities. We see Crown Melbourne in particular as immune to any risk of online cannibalisation with its strong non gaming product giving it insulation against competition from the online gaming operators given a highly differentiated pr
49、oduct offering. So we dont see Crown Melbourne growth being cannibalised by the competitive threat of online gaming going forward. Table 20: Crowns world class integrated resort offering at Melbourne Non gaming facilities Crown Melbourne Hotel rooms Three hotels with 1,600 rooms F&B 50+ F&B options including international celebrity chefs Convention Crown Conference Centre Ballroom 1,500 seat Palladium ballroom Entertainment Palms 900 seat cabaret venue, multi-screen cinema comp
