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Watson, Gordon

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Members of the Board

The 1994 30-year history of the TAB, Beating the Odds, contains a schedule listing all of the members who served on the Board from 1964. Those then listed as current members continued until wind-up of the Statutory Board in 1997 with one exception. This exception was Doug Donoghue who resigned as Chairman of the Harness Racing Authority 11th April 1996 and consequently became ineligible for the TAB Board. Mr L J (Len) Graff replaced Mr Donoghue 9th September 1996.

Len Graff was nominated by the Harness Racing Authority and was a member of the Authority. A Chartered Accountant from Bathurst he was the then President of the Bathurst Harness Racing Club and an owner of Harness horses.

The Statutory Board ceased to exist 10th July 1997. A new Corporate Board for Tab Limited took office 11th July 1997. Two members of the old Board were appointed to the new: J R (Ross) Cribb as Deputy Chairman and G C (Geoff) Wild. There were five other appointments: Gary Pemberton as Chairman. Mr Pemberton was then also Chairman of Qantas; Belinda Hutchinson, a Director of a number of companies; Graham Kelly, later Chairman of Tab Limited, was also a director of several companies; Barrie Unsworth, former Premier of NSW and General Manager of 2KY Broadcasters; Allen Windross as Tab Managing Director. Allan McDonald, a Director of a number of companies joined the Board in October 1997.

Warren Wilson became Managing Director in June 1999 on the retirement of Allen Windross. Ross Cribb retired from the Board February 2002. In anticipation of this Brian Keane, who had been at AAMI, was appointed 2001. Gary Pemberton retired November 2002 and was replaced as Chairman by Graham Kelly. There were no other changes until the company was taken over by Tabcorp Holdings in May 2004.

The Pot-Holed Path of Privatisation

In the late 1980s and early 1990s the NSW Government, along with many governments around the World, sought to improve the financial management and accountability of their departments and authorities. Action was taken to privatise many public entities, particularly those considered to be in the commercial sector. Other public bodies were placed under strict financial controls that were usually reinforced by a dividend to Government measured by a market return on capital employed.

Initially the NSW Government ranked its departments and authorities according to their level of commercialism or exposure to market forces from Category ‘A’, those departments at the centre of government down to Category ‘F’ those that were competing on the open market such as the State Bank. The NSW TAB was given the ‘E’ classification noting that it was exposed to competition but had a level of government protection. At a later stage under the State Government's commercialisation framework, the TAB was classified as a non-dividend paying Government Trading Enterprise (GTE). The non-dividend paying status recognising that the TAB profit was paid to the Racing Industry.

In government circles generally, movement towards privatisation and corporatisation gathered momentum in the early 1990s and in July 1993 the NSW Government commissioned County Natwest in conjunction with Deloitte Touche Tohmatsu to conduct a corporatisation review into the TAB. Their report delivered in September 1993 painted a sound picture of the NSW TAB, both operationally and financially, and presented four options for the Government to consider.
 

  • The TAB be fully corporatised and brought under the control of the State Owned Corporations Act. This required Government Ministers to become shareholders of the corporatised body with the Board replaced by people appointed for their commercial background. The performance of the corporatised TAB being measured by a payment to Government of a dividend and income tax equivalent after an appropriate payment to the Racing Industry for the supply of product. The review did not recommend this option noting that such a structure would not fully recognise the partnership that existed between the TAB and the Racing Industry, particularly as the Industry would lose their representation on the Board. The review noted that despite the legal independence of the TAB, the Racing Industry perceived that the TAB was an organ of the Industry.
  • The second option put forward was to establish a corporate partnership with the TAB split into two bodies. The first, TAB Limited, being controlled by a new commercial Board running the existing TAB. The current Board would control the second corporation called TAB Distribution Company that would liaise with the Racing Industry and control the distribution of TAB profit to the industry. The review recommended that this was a workable option as it recognised the contribution made by the Racing Industry but noted the Industry may not believe that such a structure would fully protect its interests.
  • The third option was for the TAB to remain in its current form but to introduce accountability and measurement systems for Treasury to monitor the organisation's level of performance. This option was not favoured as it still left the TAB with divided objectives and no powerful incentive to perform.
  • The fourth option was for the status quo to remain.

The Racing Industry did not support the concept of corporatisation of the TAB. It had just 12 months earlier been at odds with Treasury, when without warning the Win and Place Government taxation level was increased by 1%. The Industry was suspicious that any change to the structure was merely another method to try and divert funds away from the Industry. It also saw that the new Board structure would result in it losing control of the TAB and the substantial assets built up within the TAB over the previous 30 years.

The Racing Industry's strong and public objection to any change to the TAB resulted in the corporatisation review coming to an abrupt end. Whilst corporatisation of the TAB still remained on the Government's agenda, it was not actively pursued. By default Option 3 was implemented with the structure of the TAB remaining unchanged and Treasury and the Minister monitoring the TAB's financial performance.

The Racing Industry continued to express concern about the level of wagering taxation, claiming that the lack of funds was affecting prize money and in turn reducing Industry participation. In August 1995 the Thoroughbred and Harness Racing codes presented a formal submission to Government outlining the Industry's position on corporatisation. The Industry viewpoint was that corporatisation by itself would not benefit the Industry unless it was in conjunction with wagering taxation reform. The Industry again outlined its concern over the loss of control of the TAB and proposed that whilst the TAB Board of 11 could be reduced to nine in accord with NSW Government corporatisation policies, that seven of these nine be Racing Industry nominees. This would still allow the Industry to control the TAB and its assets.

The main thrust of the Industry proposal was for a reduction in the rate of wagering taxation with the Industry funding also to be boosted by dividend fractions and unclaimed dividends which then flowed to the Government.

In view of this positive stance to corporatisation by the Industry the Government in August 1995, approved that the TAB be corporatised. A Steering Committee under the chairmanship of Mr Paul Broad, then Managing Director of Sydney Water Corporation, was established to achieve this by 31 December 1996.

The Steering Committee reported in April 1996 recommending the TAB be corporatised and given a clear commercial charter with the Board to be selected for their commercial skills and not for any official status they held within the Racing Industry. The corporatised body was to be given an exclusive licence to operate off‑course totalizator wagering and to be the co‑ordinating totalizator within NSW. Again the Steering Committee reported that for the corporatisation of the TAB to be successful, the concept must be fully embraced by the Racing Industry. It also reported that privatisation may be an option to consider.

In providing comments on the Steering Committee's report, the Racing Industry again strongly put the view that corporatisation would not give the Industry sufficient funds to be competitive. By then the Victorian TAB had been privatised and this company's gaming arm was delivering a level of funds to the Victorian Racing Industry well in excess of that proposed under the corporatisation of the NSW TAB.

The move to corporatise was again delayed as discussions between the Industry and Government on the two main issues of funding levels and control continued. The Industry stepped up the media campaign it had been running for some time outlining the inequity of NSW wagering taxation compared to gaming taxation and that paid by the Victorian Racing Industry. It became evident to both sides that privatisation offered the only solution to provide increased funding to the Industry whilst still maintaining Government income at the required level. At the time, however, corporatisation and not privatisation was Government policy.

In December 1996 the Industry, in a submission to Government, supported a proposal to privatise the TAB with a reduction in wagering taxation. The Industry also proposed that a joint venture be established with the privatised company and that this joint venture be given an exclusive off‑course licence for a term of 20 years and that the Industry receive a product fee payment based on sales and 25% of operating profit. It was also proposed that a gaming income stream be introduced. 

In the early part of 1997 the NSW Government and the Racing Industry discussed the underlying proposals for privatisation and the method to achieve this. After long and protracted discussions, a draft Memorandum of Understanding was produced which outlined that the Government would privatise the TAB and grant TAB Limited a licence to conduct off‑course betting for an exclusive period of 15 years. It would also grant TAB Limited licences for 15 years to run state-wide electronic gaming machine linked jackpots initially in licensed clubs and to operate a central monitoring system on all electronic gaming machines in hotels and clubs.

The Racing Industry and TAB Limited would enter into a joint venture agreement to run the off‑course betting operation. A Management Committee of six people, three from TAB Limited and three from the Racing Industry would set policy directions, approve budgets and basically be responsible for all major decisions regarding the wagering business. All decisions of this Management Committee were to be unanimous and if any were not, then a mediator was to be appointed.

The wagering tax rate would be reduced to 28.2% and dividend rounding and unclaimed dividends would flow to the joint venture. The payment to the Racing Industry from the product fee and 25% of the wagering profit was guaranteed at $165 million in 1995/96 terms which depending on the time of privatisation would be increased in proportion to TAB sales. The Racing Industry was also to be paid 25% of any gaming profit.

As a once off payment, the Racing Industry was also to receive a share of the TAB sale price provided it reached a certain level as compensation for the Industry funds held as TAB assets.

The Racecourse Development Fund was to be dissolved and the Industry to be paid an amount of $50 million from the sale price to meet Racecourse Development Committee commitments.

The Government commenced preparing legislation to enable the NSW TAB to move from a statutory authority to a privatised company. At the same time the totalizator legislation was being updated to incorporate it in a new Act.

On 22 April 1997 the Premier, Bob Carr, announced that the TAB would be privatised. The Totalizator Agency Board Privatisation Act 1997 passed through Parliament in the Autumn Session. The parts of this Act that enabled the replacement of the old Board with a new Board was proclaimed on 11 July 1997 and the new Board took office from this date.

At the time formal agreement on privatisation between the Government and the Racing Industry had not been finalised with parts still under active discussion.

The new Board became immediately concerned at the joint venture proposal. They expressed the view that this structure would give rise to legal and governance problems that would reduce the value of the Float. In essence the joint venture meant that another body i.e.; the Management Committee would make major decisions relating to the operations of the privatised company.

An alternative proposal was placed before the Racing Industry, which guaranteed that the funding of $165 million would be maintained via a product fee calculated on a percentage of sales. This improved funding was to be brought forward to 1 October 1997 from the Float date, estimated to be May 1998 which would result in additional funding to the Industry in excess of $31 million. In return the Racing Industry was to forego the joint venture allowing TAB Limited to float with a conventional corporate structure and normal governance arrangements for Directors.

The Racing Industry was totally against the proposal. It clearly saw the joint venture as the vehicle, which would prevent the Industry being controlled by the TAB and as an instrument to ensure that TAB Limited did not exploit the Industry in the interests of its shareholders.

Government endorsed the TAB Board’s view and the Industry claimed that the Government had reneged on its promises. It argued that the Government had formally agreed to the joint venture in correspondence even though the Memorandum of Understanding was still in draft form and unsigned.

Over the next few months there ensued a long and bitter tripartite debate between the TAB, Government and the Racing Industry. At times the dispute reached a level where consideration was being given to cancelling all thought of privatisation and maintaining the TAB as a statutory authority without a reduction in taxation. This of course would lead to substantial financial difficulties within the Industry and as the dispute wore on, all three parties strived to meet common ground.

The outcome was that the TAB and the Racing Industry signed a Racing Distribution Agreement (RDA), which outlined the rights and responsibilities of both parties including the payment of a product fee and 25% of Wagering profit. In return the Industry has a requirement to provide a minimum-racing programme to the TAB.

Throughout these discussions one of the Industry's main concerns was that TAB Limited would take action, which would be to the detriment of the Industry. The Agreement clarifies these areas, gives the Industry a share in profits flowing from Wagering and provides for the Industry to participate financially in new ventures.

Overall the RDA clarifies many areas, which at some later time would have become points of issue under the proposed joint venture proposal.

The Government agreed that if the TAB Board and the Industry reached agreement on their on‑going relationship and if the Industry met other conditions relating to the allocation of funds within the Industry that it would bring forward the introduction of the tax reduction to 1 October 1997.

Thus these matters were resolved with the signing of the Racing Distribution Agreement on 11 December 1997. The agreement outlined the responsibilities of the racing industry to supply product and the responsibility of TAB to provide totalizator betting coverage of these meetings. The agreement also had provisions for the racing industry to receive a product fee and 25%of wagering profit.

Corporatisation to TAB Limited occurred on 25 February 1998 and passed with little fanfare both within TAB and the Racing Industry. Those sections of the TAB Privatisation Act required to complete this transfer were proclaimed. The Articles of the company were specifically drafted to reflect the corporate status of TAB having the Government as the only shareholder.

TAB Limited issued nine million $1 shares to the Government. This represented the Govermnent's capital contribution held by TAB since commencement in 1964 being the funds originally provided by the racing industry and subsequently repaid by the State Government.

On 6 March 1998 TAB acquired at a total cost of $308 million an off‑course and an on‑course totalizator betting licence, both with a term of 99 years. The off‑course licence was exclusive for the first 15-year period. These amounts were paid for with $70 million in cash and $238 million with the issue of shares to the Government. With the introduction of these new licences the wagering tax rate reduced from the equivalent of 52% to 28.2% and TAB became the controlling totalizator for all totalizator betting within the State. From this date the various controlling bodies within the Industry took responsibility for TAB payments under the Racing Distribution Agreement to race clubs.

The stage was now set for the corporatised body to move to privatisation.

The process was highly controlled with the main Steering Committee comprising a working group of the Treasurer, the TAB Chairman, the Head Government Adviser from the primary consultants, Bankers Trust, and the Head of the TAB Sale Taskforce based in the Treasury. Below this was a working group called the Sale Taskforce, which comprised up to 30 people. Specific working groups were then formed with strict timetables set on the various aspects of the Float. These were:

  • Prospectus Working Group
  • Due Diligence Working Group
  • Accounting and Restructure Working Group
  • Regulatory/ Legislative Working Group
  • Offer Structure Working Group
  • Communications Working Group

The due diligence process involved a detailed analysis of every aspect of TAB finances and operational procedures. This included extensive management interviews and statements and numerous questions as the issues were raised and resolved.

The Prospectus Working Group firstly had a target to produce five drafts before a final version was presented. Due to the numerous changes that kept occurring during the process, the number of versions finally tabled was nine. 

The Accounting and Restructure Working Group was responsible to ensure that all financial information included in the Share Offer Document (SOD) was accurate, both for the historical financial statements and the forecasts. This group also had responsibility to restructure the balance sheet to support a stock market listing.

The Regulatory and Legislative Working Group took responsibility for all regulatory approvals necessary for the issue of the SOD and the listing on the Australian Stock Exchange. This group also ensured that legislative changes to Acts relating to TAB's gaming businesses were facilitated with the Parliament. The Communications Working Group, as the name suggests, was responsibility for managing the communications aspects of the listing, including the marketing campaign, conducting market research and issues management with the media and financial markets.

The Sky Channel purchase occurred on 15 April 1998 at a cost of $260 million. This was paid $100 million in cash, $100 million in shares and the remaining $60 million deferred for payment over the next four years of equal instalments of $15 million per annum. This purchase required substantial change to the draft SOD prepared at that time. All financials had to be reworked to include this new business unit. One of the strategic issues associated with the purchase of Sky Channel was the development of a domestic Pay TV channel. Whilst Sky Channel and the Racing Industry were in detailed discussion on this matter, there was a level of doubt as to whether a domestic Pay TV racing channel would come to fruition. The initial forecasts included the cost and income streams associated with Pay TV however, as the doubt remained unresolved, all forecasts were deleted from the SOD.

A marketing campaign was undertaken to advise the public of the Float and a Share Information line opened on 19 April 1998 to take pre‑registrations to receive a SOD. People who had pre‑registered were guaranteed an allocation of shares, 25% above those that did not. The Share Information line was inundated with calls and in total 1.3 million people pre registered to receive the SOD.

On 30 April 1998 the Company acquired, for a total consideration of $30 million, three gaming licences, each with a term of 15 years. The first was to develop and operate a Central Monitoring System on behalf of the Government, for all gaming machines within the State. The initial fee to be paid by each gaming machine venue was set by the Independent Prices & Regulatory Tribunal at $26.10 per machine per month.

The second licence was to operate a Linked Jackpot System in hotels and clubs. The third licence was for TAB to own, supply and operate gaming machines.

No financial information on these three gaming licences was included in the SOD as all were to start outside the SOD forecast period.

Rumours circulated that share allocation preferences would be given to PhoneTAB customers. This caused a flood of applications for PhoneTAB accounts, and TAB completely exhausted its stock of application cards.

Members of the Racing Industry also expected to receive a preference allocation as did staff and agents. This was a particularly contentious issue due to the large number of part time and casual workers in both the TAB and the Racing Industry. The final decision taken was that preferences would be given to permanent staff of both TAB and Sky Channel, TAB agents and casual staff employed ‑directly by TAB. This decision by the Government caused complaints to emanate from those participants in the industry or employees of TAB agents not included but was consistent with practices in other privatisation processes.

It was proposed that copies of the SOD be made available through Commonwealth Bank outlets however, due to the number of people that pre‑registered, this was cancelled as were further marketing campaigns for the Float.

The original decision was to have the public apply for a minimum of 700 shares. It became obvious to the Government that the level of interest meant that this minimum was too high, if they were going to allocate shares to all applicants. Initially TAB budget estimates worked on the assumption that there would be no more than 300,000 shareholders. Now with the anticipation that the number of shareholders could be as high as 700,000, this brought into conflict the aims of the Government in trying to have the widest possible ownership of shares and the ongoing profitability of the public company, having to carry the cost of such a large shareholding. To overcome this impasse, the Government agreed that it would meet the costs of servicing shareholders over and above $3 million in the 1998/99 year and above $4 million in the 1999/2000 year and above $5 million in the 2000/2001 year.

Over the 1997/98 financial year, TAB had four completely separate financial arrangements. In the first quarter TAB operated as a normal statutory authority with profit achieved in that quarter paid to the Racing Industry. From 1 October 1997 the Government gave an undertaking to the Racing Industry that it would receive an income at an equivalent rate as if the tax rate was reduced from 52% to 28.2%, even though the new tax rate was not applicable until TAB received its new licences on 6 March 1998. From the period of 1.10.97 until 6.3.98, TAB paid the Racing Industry a pro-forma product fee and 25% of profit boosted to a level as if the new tax rates were in effect. Subsequently Government repaid this difference to TAB to allow this additional funding to occur, amounting to $19.4 million.

From 6 March 1998 through to 30 June 1998, the new tax and product fee payment arrangements took full effect. From 22 June 1998 for a period of 8 days, TAB Limited became subject to Federal income tax.

All of these financial arrangements were detailed and included in the SOD forecasts.

TAB shares were to be offered to overseas investors and this required a separate SOD with additional information to meet requirements in America and other parts of the world. This required further financial analysis and information.

All these matters culminated in a joint meeting of Government, TAB and the consultants on 4 May 1998. At this meeting the Due Diligence Committee presented its final report, the capital structure of TAB Limited was finalised with the issue of 450 million shares of 50 cents each to the Government and finally the Board and the Treasurer signed the SOD to be released to the market. The Float of TAB was officially launched the next day on 5 May 1998 with the shares being offered to the public at $2.05.

The public offer closed on 12 June 1998 and the institutional share offers closed on 19 June 1998. The Government set the price for institutions at $2.10 per share. Broker clients who received a firm allocation of shares also paid $2. 10.

TAB Limited listed on Monday 22 June 1998, opening at $2.16 and closing at $2.20. TAB Limited had 755,000 shareholders and of these, 725,000 had an allocation of either 257 shares if they pre registered or 205 for those who had not.