The Australian lottery business Jumbo Interactive revealed that it has extended its resale deal with the local gambling giant Tabcorp until 2030. As the announcement goes, the online lottery ticket retailer explained that it is set to pay new fees under the agreement that would probably reduce its earnings in the short term.
The extension of the deal, which was announced earlier today, was found disappointing by the group’s investors, after an unexplainable two-week trading halt that saw Jumbo’s shares decline by 13%.
Currently, Jumbo Interactive runs the website of OzLotteries, which offers Australian customers tickets for Tabcorp’s Powerball, TattsLotto and OzLotto under a deal that could have been ended by either one of the two companies in May 2023. However, the investors of the online lottery ticket retailer were anxious by the approaching deadline of the agreement. According to reports, the AU$630-million group generated AU$320-million worth of Tabcorp lotto ticket over the last financial year, with these sales accounting for nearly all of its AU$65.2-million revenue.
As mentioned above, a fortnight ago, Jumbo Interactive went into a trading halt explaining to its investors that it was negotiating over its Western Australia resale operations, as Tabcorp does not currently hold a licence for lotteries operation in the state. Later, the company provided the investors with an update that it is also renegotiating its nationwide agreement with Tabcorp.
New Fees to Be Imposed on Jumbo as Part of the Lotto Tickets Sale Deal
Earlier today, Jumbo Interactive revealed that it had reached an agreement with Tabcorp to extend their existing reseller agreement across all Australian states and territories except Queensland and Western Australia until 2030. The newly agreed deal includes an extension fee amounting to AU$15 million, as well as a new annual service fee that could rise to up to 4.65% in 2024. As long as Western Australia lotto ticket sales are concerned, Jumbo Interactive revealed that it was still having negotiations on the matter with Lotterywest.
According to Mike Veverka, founder and chief executive officer of the Australian online lottery ticket retailer, the following ten years are expected to see many developments in the lottery sector not only in Australia but also on a global scale.
On the other hand, a representative of one of the investors in Jumbo Interactive, Monash Investors, revealed that the renegotiated deal provided the company with certainty about its business model but the additional fees that were agreed by the two operators would most likely have a negative effect on its earnings. Simon Shields from Monash Investors further explained that in a way, the new deal resembled the process of getting a casino operating licence from the Government, as it requires the company to pay for that in a certain way.
As reminded by Davis Fabris, an analyst at Macquarie, the newly-agreed fees effectively represented about 50% of the commission that is currently being received by Jumbo Interactive from Tabcorp, which now also offers online lottery tickets. According to Mr Fabris, under the previous terms of the deal, Tabcorp had been giving away volume but was not receiving proper compensation for that. The updated reseller agreement addresses this issue by the introduction of a service fee.