October
JulyCheap shot
The feasibility analysis conducted by Ernst & Young (E&Y) into the potential merger of the Australian Jockey Club and Sydney Turf Club has been subject to significant debate within the racing industry, with a number of views expressed. One person who has been extremely vocal in her opinion is Gai Waterhouse who has labelled the report "rot". More specifically, Gai stated that the $21 million in estimated synergies was "pie in the sky" which would be difficult to achieve or sustain unless Canterbury was sold.
It is always easy to slam a report. I’d love to obtain more clarity from Gai in understanding which of E&Y’s specific assumptions are aggressive and how the sale of Canterbury even fits into the $21 million of expected synergies.
From my reading of the report, it seems that the sale of Canterbury will provide a windfall gain of $400 million. In no way, shape or form does the Canterbury sale appear to be reflected in the expected annual synergies of $21 million.
Therefore, in my opinion, it appears that Gai has misunderstood the report and is therefore potentially misleading the racing public – over which she has considerable influence.
My understanding of the $21 million annual synergies is as follows:
• $6.5 million of labour cost savings by reducing staff numbers and aligning salaries.
• $3.1 million of other cost savings stemming from economies of scale from the formation of the merged group or "super club".
• $11 million of net margin benefit from: additional sponsorship ($3.9m), membership ($1.7m), field sizes ($2m), increased hospitality spend ($1.3m), and large event opportunities ($2.1 m).
Will the merged club be able to achieve the abovementioned synergies? Who knows? There are always risks and challenges in executing synergies. Irrespective, I found the report insightful as it highlighted a number of real issues impacting NSW racing.
Melbourne