Horse Flu's Market Toll

As well, Woolworths and Coles could be hit as both have extensive hotel interests, especially Woolies.

And the ING Real Estate Entertainment Trust has 23 hotels in NSW and Queensland, which leave it exposed.

Just how much damage will be done will depend on the length of the bans on racing while the flu outbreak is contained and beaten.With more cases being reported in NSW and now possibly Queensland, hopes for a quick end to the bans by next weekend look optimistic. Hundreds of cases, real and potential, have been reported in NSW and next weekend's opening to the Spring Carnival looks like being cancelled.

Tabcorp last week revealed poor 2007 profits, especially in its wagering business, and especially in NSW where the flu problems seem to have started and at this stage, are worse than anywhere else.

Tattersall's and UniTab merged during the year and are due to reveal their 2007 figures this Thursday.

Some of the listed online gambling companies such as Centrebet and ISAS will be impacted for the same reason as the larger Tabcorp and Tattersall's.

The impact of the flu epidemic is likely to take the gloss off the maiden profit of the merged company, while Tabcorp's hopes for a revival to start in the closing months of the 2008 financial year, could be postponed into 2009.

The ban on racing leaves only greyhounds, poker machines and casinos as outlets for gamblers, but not all punters can go to a casino, not all punters like greyhounds (it's why they rate number three in wagering behind thoroughbreds and pacing). Only wagering on horses and pacers across NSW, Queensland and other states through TABs, pubs and clubs and other licensed outlets, plus the races, seems to make gamblers happy.

Poker machines in pubs and clubs rate a poor second and many punters don't like them because they don't offer any chance of showing skill or ability in picking and backing winners.

Already there's been betting revenue losses estimated at $50 to $70 million, with most of that felt by the TABs in NSW and Victoria which are controlled by Tabcorp.

There are estimates the sports betting and online gaming web businesses could have lost more than $20 million in revenues over the weekend.

Racing NSW said the NSW TAB had lost $9 million due to Randwick being closed Saturday; bookmakers lost a similar amount of turnover.

The total NSW TAB loss yesterday, including those incurred from regional racecourses was estimated about $14 million.

The company saidyesterday that if Australian thoroughbred and harness racing did not resume until next weekend, it expected to lose $150million in turnover. The 72-hour suspension of racing had already had an effect, with NSW and Victorian TAB turnover slumping on Saturday to $5.9 million; well down on the $52.8million on the same day last year. Tabcorp said increased betting turnover on races in New Zealand and England during the shutdown was partially compensating for the losses. If the Spring Carnivals were banned Tabcorp could lose up to $1.5 billion in revenue, with around $160 million of that on the Melbourne Cup.Unitab saysit turned over about $200million from the Victorian spring racing carnival through its betting agencies in Queensland, South Australia and the Northern Territory. He did not mention the about to start Sydney Spring Carnival.

At least 16 horses at two Sydney locations have tested positive to the virus and six more are showing symptoms. Eleven are in lockdown at Centennial Park and another five are at a quarantine facility at Eastern Creek. Cases have now been reported in Queensland.

The rich Melbourne Cup Carnival could be threatened, not to mention Sydney's Spring Carnival which is about to start.

It all depends on the length of the ban.

But the impact on Tabcorp and Tattersall's has been immediate because there is no way they can recoup the lost revenue from the bank, and the lost profits.

Other companies, such as Spotless (which is involved in food service and catering), David Jones (retailing), Fosters, Lion Nathan plus a host of others who service the rich racing carnivals, could face varying impact.

The carnivals are times of big sales for the likes of Fosters and Lion Nathan. David Jones usually spends heavily to promote itself: that could be a cost saving but sales momentum at the top end of the market could be lost (and at rival, Myer).

Small clothing, millinery and other suppliers will be affected as well if the bans force the spring racing carnivals to be postponed or abridged.

State Governments could feel the pinch with tax revenues from their take from wagering down, race clubs, jockeys, trainers and owners will feel the pain as well.

There are several trusts and companies specialising in hotel ownership or management: they will be impacted by a drop in revenue from Pub Tabs and from lower beer and food sales because of the lower number (or absence of punters over the weekend, and for as long as the bans remain in force). The ING Real Estate Entertainment Trust is one of the biggest with management or ownership deals over 28 hotels in NSW and Queensland worth $340 million.

Retail giant Woolworths has the largest exposure to pubs (it's the biggest owner in Australia) and a long ban will hurt its hotels operation. It reports 2007 earnings today.

Coles Group has a smaller interest in pubs in Queensland after it bought the Hedley group.

PBL half owns Betfair: it will face reduced gambling levels during the ban, like all other outlets.

But it's Tabcorp which will be the biggest casualty, simply because of its dominant position, and its stumbling operation and financial performance in the past year.

Tabcorp shares fell 34c to $15.83 on Friday, a fall of 2% when the market was off around 1%.

The shares had been easier on Thursday after the results had been released.

"Tabcorp Holdings Limited today announced a net profit after tax (normalised and before non-recurring items) of $515.6 million, down 3.8 percent for the full year to 30 June 2007. Normalised earnings per share were 98.2 cents.

"Normalised net operating revenue was up 3.2 percent to $3.9 billion. Revenue growth was more than offset by expense growth of 9.1 percent, resulting in a lower bottom line result.

"The reported net profit after tax was $450.4 million, down 17.1 percent on the previous year. Reported earnings per share were 85.8 cents," the company's commentary started in Thursday's statement.

The normalised result is where the figures are adjusted for win rates in the VIP gambling businesses in TAH's casinos in NSW and Queensland: a more accurate figure was the 17% fall in "reported net profit to $450.4 million".

The new CEO, Elmer Funke Kupper, described the result as unacceptable and said the company had to do better.

It will find it much tougher now there's a flu outbreak and an uncertain situation about a resumption of racing and the company's wagering business.

He said 2008 would be another challenging year for Tabcorp, following the introduction of 100% indoor smoking bans in Victoria and New South Wales, and a further increase in the gaming machine levy by the Victorian Government. 2008 earnings (normalised and before non-recurring items) are expected to be broadly in line with 2007, with the second half benefiting from the improvement initiatives currently under way.

"We have prepared well for the introduction of smoke-free venues and the early signs are encouraging. Together with improved expense management, we will be in a strong position to regain Tabcorp's previously consistent growth trajectory in 2009," Mr Funke Kupper said in Thursday's statement.

The longer the bans go on, the more the recovery in Tabcorp will be pushed into 2009 and the company could be facing the prospect of a lower result in 2008 than in 2007.

While the casinos business saw EBIT fall 5.1% because of the smoking bans in Queensland and higher expenses, and earnings from poker machines rose just 1%, the real problem was in wagering.

"Wagering EBIT $253.7 million was down 5.5% on 2006, despite a 4.4% rise in operating revenues. That, the company said, reflected "the continuing strong performance in Victoria and growth in Sportsbetting". This was offset by continued slow growth in New South Wales, the company said.

"During the year, Tabcorp changed its wagering systems. While these changes helped deliver higher revenue growth, the implementation did not go as planned and costs were higher than forecast. "These higher technology costs, together with the costs of the settlement of the split-picture dispute with ThoroughVision (TVN), led to a 17.7% increase in expenses."

"Tabcorp worked closely with the racing industries in Victoria and New South Wales to ensure that they could continue to increase prize money. As a result, Tabcorp was able to contribute a record $526.7 million of income to the racing industry in 2006/07," the company said

If the ban goes on for longer than expected, Tabcorp and Tattersall's will no doubt approach the state governments for help with prize money where they operate. Cutting prize money levels could be one way for both wagering giants to protect themselves financially in a big downturn............And Tabcorp issued a statement

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