The shares of Australian gaming business Tabcorp Holdings Limited (ASX: TAH) have plunged by 6% today after the fate of the greyhound industry in New South Wales was decided.
Following a Special Commission of Inquiry, New South Wales has become the first Australian state to ban greyhound racing. Premier Mike Baird said the state government was left with "no acceptable course of action except to close this industry down."
The inquiry found overwhelming evidence of systemic animal cruelty, including mass greyhound killings and live baiting. In addition to this the inquiry's report determined that the NSW Greyhound Racing Industry has fundamental animal welfare issues, integrity, and governance failings that cannot be remedied.
According to the inquiry, the NSW greyhound racing industry will be transitioned to closure over the next 12 months to allow for appropriate management of animal welfare, as well as transitions for industry participants.
Tabcorp has been quick to respond to the news in an effort to calm the nerves of investors. It has stated that:
"NSW greyhound racing represents around 5% of Tabcorp's total wagering turnover. However, Tabcorp expects a significant level of substitution will occur to other wagering product, such as thoroughbred racing, harness racing, sport and animated racing. Tabcorp's media business, Sky Racing, will work with other Australian and international racing industry bodies to source alternative racing product."
The New South Wales government's ban on greyhound racing could impact Tabcorp's turnover in the short term, especially if other states follow their lead. But I do agree with its management and expect that most punters will end up moving across to other wagering products.
However, I would hold off making an investment. The main concern I have with Tabcorp is the increasing level of online competition coming from overseas. Ladbrokes, William Hill, Betfair and Bet 365 are just four of a number of bookmakers trying to get a slice of the Australian market.
This increased level of competition has no doubt been a factor in its alarming drop in revenue. In the last five years Tabcorp's top line has almost halved from $4.2 billion in 2010, to $2.2 billion in 2015.
Personally I would recommend avoiding an investment in Tabcorp today. Investors looking for exposure to the gaming industry might be better off taking a look at businesses with wider moats like Crown Resorts Ltd (ASX: CWN) and SKYCITY Entertainment Group Limited-Ord (ASX: SKC).
