Gambling Commission Review into South Africa gambling industry and its regulation

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Trade and Industry

09 August 2011
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Gambling Review Commission (GRC) had been commissioned  to conduct a holistic review of the gambling industry since 1996, to address concerns expressed by stakeholders, and had submitted a report in September 2010. That 188-page report was summarised for the Committee by the GRC. The mandate of the GRC had including assessing the social and economic impact of the industry, assessing the proliferation of the different types of gambling, determining if regulatory bodies were effective, and benchmarking with other international jurisdictions. The industry had generated substantial tax revenues for good causes in both provinces and national government, had created about 60 000 jobs up to 2009, of which 86% were in casinos. Turnover had doubled between 2001 and 2009, although it was noted also that gambling figures had stabilised from about 2005 onwards. The National Lottery accounted for 12% of revenue and 47% of taxes, but some forms of gambling were struggling from competition from slot machines in casinos and electronic bingo terminals that offered unlimited payout and did not have to comply with the same conditions as casinos and limited payout machines (LPMs).

The three possible models for gambling were outlined, and the GRC had recommended that South Africa continue using a sumptuary model for gambling, and a revenue model for the National Lottery (the lottery). There was scope for limited addition of new activities, and the possible introduction of medium-stake slot machines at licensed gambling venues. However, the GRC recommended that dog racing should not be allowed, and ownership of horse racing courses and the tote would be split. In addition, it recommended that there be monitoring of venues, that public places and gambling venues should be separated, and clear limits should be set for gambling activities. It also recommended reviews of licences and conditions, including impact assessments, every five years.  The GRC had specifically looked at whether problem gambling (or financial over-commitment through gambling) and underage gambling were causes for major concern, and found that although they existed, the levels were not high, although in some areas youth were gambling to buy necessities or pay school-fees. Youth tended to engage in illegal gambling, which in turn was linked to criminal elements. GRC recommended that regulatory measures and education should be enhanced. Currently, there was no overarching strategy, lack of funding for independent research and treatment organizations, and inability to assess the effectiveness of the lottery fully. There was also a need for improved distribution and grant processes. GRC recommended that the administration of the National Lottery Distribution Trust Fund should be moved from the National Lotteries Board to a professional and independent body, who should be accountable either to the Board, regulator, or the Department.

The most controversial form of gambling was on-line gambling, where South Africa was in the process of finalising the regulations. Ten licenses had been provided for interactive gambling. A larger role for banking would be considered and mandatory ID checking and limited amount of daily gambling would be enforced. GRC recommended that provincial governments should license and regulate land-based gambling activities, with compliance audited by the Provincial Gambling Boards. Local authorities should be able to issue some licences. The National Regulator should attend to licensing and regulation of the lottery sports pools, on-line gambling, national registers and central electronic monetary systems. The National Gambling Policy Council should review policy.

Members asked if problem Gambling was more prevalent in the formal or informal sector, whether pensioners or those on social grants were gambling, the trends in youth gambling, whether the national lottery had an impact on redistribution of wealth in the country. Members asked about the delay in finalizing the regulations, questioned if there was capacity in local government to deal with licensing, and why licensing had to be reviewed so frequently.

Meeting report

Gambling Commission Review into South Africa gambling industry and its regulation
Opening comment from Department of Trade and Industry

Ms Zodwa Ntuli, Deputy Director-General: Department of Trade and Industry, welcomed the opportunity for the Gambling Review Commission (GRC) to share its findings, as contained in the GRC report on the South Africa gambling industry and its regulation.  This report had been commissioned by the Minister in December 2009, following stakeholder concerns around proliferation of the gambling industry in South Africa. The findings of the GRC hoped to offer a balanced approach between regulation of gambling, and the social and economic impact of gambling in South Africa. This independent report was also commissioned also to establish whether the Department of Trade and Industry (dti) legislative framework was consistent with technological development of the industry, and the GRC was also expected to recommend interventions in this regard.

Presentation on Gambling Review Commission Report
Ms Astrid Ludin, Chairperson, Gambling Review Commission, said that the GRC was commissioned to conduct a holistic review of the industry since 1996, to assess the social and economic impact of the industry, to look into the proliferation of gambling in South Africa, and to determine whether regulatory bodies were effectively achieving their legislative objectives. As part of its review, the GRC was expected to benchmark the best-policy approaches in other jurisdictions and recommend policy positions for South Africa. The review had taken nine months, and the final report was submitted in September 2010.

There were three types of frameworks adopted as models for gambling. The revenue model (currently applied by the National Lottery) had the objective of maximum government revenue and low payout. It imposed few restrictions on advertising, and involved unlimited products. The consumer model maximised the player or punter. It imposed in-truth advertising restrictions and payout was high. The sumptuary model accommodated existing demands for gambling while discouraging excessive involvement in gambling. Promotion was in the form of educational information, and pay out was low.  The current policy, as set out by the Wiehahn Commission, implied implementation of combined approaches taken from these gambling modes.

The gambling industry in South Africa was a mature industry that played a key role in generating tax income. The industry had doubled its turnover between 2001 and 2009 and had offered 60 000 jobs (of which 86% were from casinos). National revenue generated was R18.129 billion. There had been transfer from of funding for good causes and taxes, to the amount of R2.981 billion. The National Lottery (the lottery) accounted for 12% of revenue and 47% of taxes, and had transferred R1.442 billion to good causes and taxes, or R1.923 billion if Value Added Tax (VAT)  was also taken into account.

Other forms of gambling - namely, bingo and betting - were struggling because of competition from electronic gambling. The reason why Limited Payout Machines (LPM) were under pressure was ascribed to competition from slot machines in casinos, as well as Electronic Bingo Terminals (EBT), which offered unlimited payout and were not subject to the stringent requirements of compliance applied to casinos or LPMs. In the United Kingdom, bingo halls were also struggling, and had diversified to seek other sources of revenue. South Africa still had a low number of slot machines per head of population, and full rollout of 50 000 new machines would result in 608 people per slot machine. This was to be compared to Italy, where there were 171 people per slot machine, and parts of Australia, where there were 67 people per slot machine.

Ms Ludin outlined that the social impact findings showed that the lower the income, the less gambling took place. This lower-income sector tended to gamble on lottery and scratch cards and only a small segment of it frequented casinos. More gambling occurred where gambling was formalised and incomes were higher.  However, these findings were open to dispute and the casino industry had undertaken to perform extended research in this regard. Compulsive gambling tended to be associated with other compulsive obsessions such as alcohol.

The lottery impacted on problem gambling (where a person gambled to the point where s/he was financially over-committed) but the latest data from 2005-2008 showed that problem gambling had stabilised. Problem gambling in South Africa was similar to that in other middle income countries such as Singapore and Hong Kong. Though there was no immediate ground for concern, GRC believed that existing policy measures, as well as education, treatment and prevention measures, should be reinforced to try to curb problem gambling.

Although the report showed no crisis with underage gambling, there were concerns that youth in impoverished areas were gambling in order to buy necessities and pay for school fees. Furthermore,  illegal gambling using dice and cards, associated with criminal elements, was linked to underage gambling. Minors were also accessing the lottery. The GRC therefore suggested that it was critical to have outreach at schools to mitigate against and teach about the risks of gambling. GRC believed that regulatory measures and education should be enhanced. The problem with treatment and education was that there was no overarching strategy and no funding for independent research and treatment organizations at present. There was a general inability to fully assess the lottery programme’s effectiveness.

The National Gambling Board (NGB) had the function of oversight over provincial government compliance with the gambling legislation, and of ensuring harmony and uniformity. However, there were no remedies if a province did not comply with the national law. The National Lotteries Board (NLB) only partially filled its mandate and there was not sufficient attention to sports pools. The National Gambling Policy Council (NGPC) was not effective in resolving disputes, largely because of the different gambling revenues of the NLB and provincial government. Gambling revenue for provincial government was not huge, but was the second largest source of independent funding for provincial government. The role of the NGPC needed to be reviewed.

Provincial Gambling Boards were, by and large, effective in monitoring compliance, but different regulators in different provinces displayed varying levels of efficiency in their regulation. Revenue was significant in Gauteng, and money spent on regulation resulted in positive efficiencies. The relative efficiency was lower in the small provinces.

The overall conclusion of the GRC was that the policy adopted since 1996 had largely been effective. National policy and its approach at national level distinguished South Africa from other countries where gambling proliferated, such as Australia. South Africa was in a fortunate position in that it had managed the growth of the industry, but there was potential for proliferation, and thus some of the controls needed to be tightened. A decision had to taken as to whether the National Lottery’s revenue-maximisation approach should be continued. There was a need for improved distribution and more professionalised granting of funds.

The GRC also found that the limitations already imposed on the different gambling activities had contained the social impact of gambling. The impact of legal gambling for the poor was not significant, except for the lottery. However, the growing illegal gambling component was of concern.

The GRC made a policy recommendation to continue with the existing models, which were the sumptuary model for gambling and a revenue model for the lottery. There was scope for limited addition of new activities and possible deepening of existing activities, including the opportunity to introduce medium-stake slot machines at licensed gambling venues, and to monitor gambling venues. Ms Ludin noted the distinction between public places and gambling venues, which was done so as not to encourage impulsive spending. GRC felt strongly that clear limits should to be set for all gambling activities. A five year license review, which would consider license conditions, social impact, harm minimisation and overarching policy on Broad-based Economic Empowerment (BBBEE) should be developed and monitored properly.

Ms Ludin noted that the recommendations by GRC for the existing forms of gambling, including casinos, bingo, LPMs, horseracing and betting, and lottery,  as well as for  new forms of gambling, which would include dog racing; bushracing, fafhee, dice and cards, were set out at pages 16 to 19 of the GRC Review Report. GRC recommended that ownership of horserace courses and tote be split, that dog racing should not be legalised, and that regulation of bushracing should be considered. Poker terminals should only be allowed at licensed gambling venues and rules for poker applied equally across gambling venues. Other limited venues for social poker, such as at restaurants, should be regulated. 

Ms Ludin noted that at present, the most controversial type of gambling was on-line gambling. Prohibition was not effective and international jurisdictions were considering legalising on-line gambling. There was a fear that illegal operators would affect accredited on-line gambling if action was delayed. The South African law had distinguished between provincial on-line and interactive gambling. Draft regulations to deal with interactive gambling had yet to be finalised. There would be an emphasis on strict enforcement of licences. To date, ten licences had been provided for interactive gambling. Advertising was closely linked to licensing. A larger role for banking would be considered. Mandatory checking of identity documents (IDs) and a limited amount of daily gambling would be enforced.

GRC believed that government should design a strategy and budget within a social framework and that independent treatment organisations and research should also receive funding. Advertising for the sumptuary model should be monitored tightly.

In regard to the regulatory framework, he said that there needed to be a clearer distinction between national and provincial governments. Provincial governments should license and regulate land-based gambling activities and introduce requirements for compliance with norms and standards. Compliance should be audited by the Provincial Gambling Board (PGB), and auditing reports should be submitted to both the national and provincial legislature. The local authority in terms of issuing of some licenses was also recommended. The role of the national regulator should include licensing and regulation of the lottery sports, pools, on-line gambling, national registers and central electronic monetary systems. It may be effective to have one national regulator overseeing inspection and enforcement all national activities, which would include lottery and on-line gambling. GRC also recommended that the administration of the National Lottery Distribution Trust Fund be transferred from the NLB to an independent grant-making body, to be accountable to the NLB or single regulator, or directly to the dti, as opposed to the current position where the NLB had the dual mandate of fund distribution and regulating or monitoring.

GRC recommended that the NGPC could be reviewed to include joint-monitoring for implementation of policy and dispute resolution. Parliament should have an oversight role over provincial policy compliance with national policy. The NGB and Parliament had the role of harmonisation and oversight. National policy making should remain the preserve of dti.

Discussion
The Chairperson thanked the GRC for presenting a broad overview of the 188-page GRC report. It appeared to address the concerns that had been raised in 2009 around under age and compulsive gambling, risks of money laundering, and the need for public protection. This report also seemed to have done a careful evaluation of the risks and benefits of the main issues. She also appreciated the fact that the GRC had looked into the technology aspects of both on-line and the newer forms of gambling, and that interactive gambling was under review.

Mr J Smalle (DA) asked if the study had showed how the problem gambling and illegal gambling impacted on the regulated industry itself, and whether levels of these were higher in the formal or informal sector.

Dr Stephen Louw, Commissioner, GRC, said that illegal, unregulated gambling in informal settlements correlated with higher levels of problem Gambling. The lowest levels of illegal gambling took place in formal areas where people had a more affluent profile. Problem gamblers partook in a number of gambling activities.

Mr Smalle asked for clarification on why it was necessary to review licensing every five years. This could be expensive for owners, who pay millions of rands for licenses.

Professor Siphiwe Nzimande, Commissioner, GRC, replied that it was necessary that all aspects around updating of licensing operations and investigations into shortcomings should be reviewed every five years.

Mr T Harris (DA) questioned whether there was capacity in local government to deal with licensing responsibility, as this did not appear to be mandated to local government.

Ms Ludin said that the GRC was not suggesting that local government should have a licensing role, but rather that it should have authority to issue some licenses, such as for playing poker in a restaurant. However this would have its challenges of proliferation, as it was a revenue-driven incentive.

Ms P Lebenya (ANC) said that she had hoped for comment on whether the placing of ATM machines inside casinos encouraged irresponsible gambling. She asked if the GRC had found a trend that pensioners in the rural areas would spend their pension on gambling.

Dr Louw replied that the GRC had found no evidence of people who were reliant on pensions or social grants spending their money at casinos. There was, however, a correlation between receiving social grants and informal social gambling.

Mr N Gcwabaza (ANC) asked to what extent gambling was a form of redistribution of wealth from those who had it to those who had not.

Ms G Selau (ANC) asked if the GRC could determine whether distribution of revenue from the national lottery had an impact on the country.

Dr Louw said that the National Lottery was a very efficient revenue-maximising body, and this was exactly why it was introduced. Although 12% of all gambling expenditure was on the lottery, a much larger amount of 55% (including VAT) was transferred to the National Trust Fund, and was thus regarded as beneficial to the country.

Mr Harris said that although some provinces were experiencing problems, it might not be the correct approach to remove controls from them, and that perhaps more emphasis should be placed on improving the controls wherever this was needed, rather than centralising control. Gauteng, Western Cape and KwaZulu Natal were performing well.

Dr Louw said that the fundamental structural problem was that the administration and work of the National Distribution Trust Fund needed to be separated. The current system did not work efficiently. Furthermore, the NLB research expenditure was not focused, did not appear to be developing correctly, its funding priorities shifted regularly, and it was generally not advancing. He added that many provinces did not have the capacity to close down illegal gambling. This was often due to lack of political will.

The Chairperson said that a study done in Canada in 2003 showed that the gambling problem was 3% higher in the 15-18 year old age group, than in the adult problem. She asked about the statistics in other countries. A South African survey in 2004 showed that this country was in line with international trends on under-age gambling. A study in 2009 showed that the youth were aware of the problems associated with gambling. Illegal and problem gambling were still of concern and though the GRC had stated that there was no immediate ground for concern about the level of problem gambling, she felt that it was undesirable to be too complacent about the problem. It was important to reinforce policy measures. Another critical area appeared to be the jurisdiction issue. There were currently challenges around regulation, monitoring and review of structures.

Professor Nzimande replied that indeed the studies into youth gambling in 2004 and 2009 showed that there was awareness amongst young people about gambling issues. There would be restrictions at casinos and the National Lottery, which specifically prevented people under the age of 18 from gambling. Studies had shown that there had been a downward trend in the novelty of gambling and this process was accompanied by public education. The regulatory framework would address problems with youth, excessive and problem gambling.

Dr Louw added that child gambling figures of 3.4% were meaningless when considered in isolation. It was far more important to look at the trend in survey results. South Africa showed a spike in gambling, particularly when the lottery was rolled out. Since 2005 it had stabilised. The UK study in 2004 suggested that minors who gambled generally did not go on to become hard core gamblers in adulthood, but there was a correlation between youth gambling and unregulated gambling.

Mr Harris asked why there had been a delay in finalising regulations for on-line gambling. He requested that these should be published as soon as possible. Parliament would endeavor to speed up the process.

Dr Louw replied that internet-based gambling would be dealt with on a national basis, as the internet could be accessed from anywhere. Currently there was no track record call for control, and gambling was not being regulated adequately. There was a need for regulation of a licensed framework. The idea would be to encourage participation through incentives, and providing disincentives to deter gamblers from accessing illegal sites. He agreed that political willingness at provincial level was a problem.

Ms Ntuli added that the GRC review was presented to the Minister, and that a number of structures within the dti were dealing with the issues concurrently, to ensure that when the legislation was amended, there would be co-operative governance. She added that the regulations on-line gambling were nearing finalisation.

Ms Ludin added that public hearings on the regulations for interactive on-line gambling were scheduled for 2 September 2011.

[PMG note: Further discussions will be added to this report later]

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