Gaming Review Commission Report: public hearings

Meeting report

South African Responsible Gambling Foundation (SARGF) submission
Prof Peter Collins, SARGF Executive Director, said responsible gambling was considered to be a harmless form of entertainment. Irresponsible gambling (i.e. “problem gambling”) occurred where people spent so much time or money gambling that they did significant harm to themselves and others. The National Responsible Gambling Programme (NRGP) had conducted six research projects since 2001. Results indicated that in 2001, 26% of the adult population did not gamble. Slightly less than 50% of gamblers only played the national lottery. In 2011, 68% of the sampled population never gambled and of those who did, 57% only played the lottery. The research conducted in 2009 provided data on the types of gambling activity and the participation percentages per activity. Findings indicated that very poor, rural people hardly gambled, fairly poor people gambled more than fairly affluent people and poor people (particularly young, unemployed men) were the most vulnerable sector. The number of problem gamblers showed a slight decline over the research period. There was a correlation between problem gambling and other psychological disorders.

The submission included an overview of the South African NRGP; how the organisation operated; the treatment available; raising public awareness; the NRGP’s schools programme and research and monitoring activities. Areas of concern were under-age gambling; online and cell phone gambling; increased illegal gambling and associated social problems and the relatively large percentage of problem gamblers who only played the lottery. SARGF suggested that the free telephone counselling service available to problem gamblers was expanded to people with alcohol and drug abuse problems.

Discussion
Mr B Radebe (ANC) asked for details of the employees and provincial footprint of SARGF. On-line gambling was highlighted as an area of concern and he asked what SARGF suggested was done to mitigate the problem. He asked if SARGF suggested that advertising of gambling activities be banned. The national lottery was advertised on television.

Mr J Smalle (DA) asked if the funding model of SARGF was efficient and if the organisation reached enough people. He understood that not all gambling organisations contributed to SARGF. He asked if any research had been conducted on online gambling and if any statistical data was available.

Mr T Harris (DA) observed that the submission had made no mention of horseracing. He asked if SARGF had conducted any research on racing. He asked what the role of the State was in SARGF and if any public/private partnerships had been formed. He asked for comment on the regulatory structures, if gambling was over-regulated or if regulation was uncoordinated. The national lottery appeared to be a benign gambling activity and he was surprised by the relatively large percentage of problem gamblers that only played the lottery. He asked if SARGF recommended that gambling advertisements was banned or restricted to land-based gambling organisations.

The Chairperson asked if internet gambling had been effectively banned by any other country.

Prof Collins replied that internet gambling had been banned in the United States of America but the ban had not been 100% successful and there were moves afoot to legalise online gambling in that country. It was difficult to enforce a ban on internet gambling and a carrot and stick approach was more effective. Land-based gambling companies were more effectively controlled and taxed. He was not in favour of banning gambling advertising. The impact of such a ban was not known but he doubted that it would make any difference on the incidence of problem gambling. Gambling in South Africa was legalised because the country had had a large unregulated gambling industry. It was more beneficial if the industry was legalised, regulated and taxed.

Prof Collins explained that SARGF had determined what needed to be done and had calculated the amount of funding required accordingly. The total cost of providing the services amounted to 0.1% of the value of gambling in the country and that percentage was used to determine the contribution of gambling companies. The national lottery was excluded from paying a contribution to SARGF. Horseracing comprised a very small percentage of total gambling but SARGF had data available. The problems associated with horseracing were similar to other types of gambling. SARGF employed six full-time telephone counselling personnel only. SARFG had a network of 75 professional counsellors available, spread throughout all nine provinces. SARFG had recently placed advertisements inviting proposals for research projects. Previously, research was conducted in association with the University of Cape Town. It was necessary to provide training for research assistants from previously disadvantaged communities. The executive management of SARGF reported to a Board of Trustees and had a BBEEE rating of 5.

The Chairperson requested that SARGF forwarded written details of the organisation to the Committee.

Gold Circle (Pty) Ltd submission
Mr Graeme Hawkins, Operations Officer, said Gold Circle was a privately-owned company involved in thoroughbred horseracing. Equal shares were held by the Durban Turf Club, Pietermaritzburg Turf Club, Clairwood Turf Club and Western Province Racing Club. Any profits were ploughed back into thoroughbred horseracing and were not distributed to shareholders. The submission included an explanation of the management of Gold Circle and an overview of its operations. Gold Circle employed 2,500 people. 80% of the company’s revenue was derived from totalisator betting operations in KwaZulu Natal and the Western Cape. Horseracing in the other provinces was operated by Phumelela Gaming Limited.

The major threat to the sport of horseracing was the precarious financial position. The sport was driven by prize money but the amount of prize money no longer covered the cost of owning and training. Owners, breeders and trainers of thoroughbred horses were major employers, particularly in rural areas. The number of owners and breeders had decreased by 51% since 2001. A number of racecourses had closed or were under imminent threat of closure. The current funding model was unsustainable. The funding of the necessary infrastructure was explained. Bookmakers leveraged off the sport did not contribute to the funding of infrastructure. The sport had contributed R2.71 billion to the gross domestic product and R694 in taxation during 2009.

Gold Circle agreed with the recommendations in the Gambling Review that a review of the horseracing industry was required, that the number of racetracks was determined by market forces, that statutory recognition and funding was considered for the National Horseracing Authority (NHA), that racetracks were integrated with gambling and that modernised and new products were made available. The organisation disagreed with recommendations that totalisator and racing operators were separated, that telephone and internet betting were regulated, that racing participation in sports pools was reviewed and that the use of cell phones for betting purposes was controlled. A list of errors and omissions in the Gambling Review report was included.

Gold Circle suggested that horseracing was recognised as a sport, that the funding model was reviewed, that funding of the sport by participants and Government was improved, that other commercial revenue streams were allowed and that sports betting was more appropriately regulated.

Discussion
Mr J Selau (ANC) noted that Gold Circle campaigned for Government funding of horseracing but pointed out that other types of sport did not receive Government funding. He asked what role was played by the private sector in horseracing.

Mr Radebe asked how many racehorse owners, breeders and trainers were black. The industry needed to be transformed before Government funding could be considered. He asked for comment on the use of steroids in South African horseracing.

Mr Smalle asked why Gold Circle suggested that totalisator licences were limited to horseracing operators. He wondered if the sale of broadcasting rights had been considered by the industry. The Bill providing protection for indigenous intellectual property rights was passed by Parliament on 27 October 2011 and would support the suggestion concerning the protection of intellectual property in thoroughbred horseracing. Horseracing was linked to gambling and taxed accordingly. He asked if the revenue base would be increased if horseracing was recognised as a sport and if this would assist competitiveness and open up participation in international events.

The Chairperson asked for clarity on the recommendations concerning intellectual property and greater freedom from regulation. The level of jobs in the industry was not clear and she asked what the race profile of owners was. She asked if the required Government funding would be considered to be a hand-out.

Mr Hawkins explained that the NHA should be given statutory recognition as the regulator for the industry and should receive Government funding to allow it to operate effectively. The industry attempted to ensure that there were no transgressions of the rules against the use of banned substances. The winning horse was tested plus a random sample of the other horses in the race. The laboratory in Johannesburg conducting the testing of horses had full accreditation. The industry complied with international regulations and offenders were dealt with. South Africa had world-class horses and facilities. South African-bred horses were exported all over the world and were well-regarded.

Mr Hawkins pointed out that the industry had contributed R694 million in taxes in 2009 but the total industry surplus was only R40 million. A solution to the financial challenges needed to be found. In the Western Cape in particular, costs far outstripped revenue, resulting in major financial losses each year. The industry did not expect hand-outs from Government but wanted a level playing field and compete for available funding on an equal basis. With regard to transformation, the industry had implemented a successful worker/rider programme which had produced a number of successful black jockeys. The champion apprentice jockey in KwaZulu Natal was black and several jockeys and stable hands from previously disadvantaged communities had worked in Dubai and the USA. There were several black and Indian racehorse owners in South Africa but the current lack of profitability in the industry scared off investors. It was necessary to attract more owners by providing incentives.

Mr Hawkins explained that the tote dividend was used by bookmakers to fix open bets. The tote dividend should be protected as intellectual property. Currently, the industry lost between R500 million and R600 million per annum because the tote dividend was not regarded as intellectual property. Current regulations were time-consuming and restrictive. The approval of nine gaming Boards were required and the process for approving a new bet took two years. In the interim, the operator had to carry the costs.

Mr Hawkins said that the private sector was actively involved in the industry. Horses were bred on privately-owned stud farms and auctioned off to owners. Other participants were the trainers, racing operators and the enterprises providing ancillary services. It would be fatal if the tote was separated from the racecourse. Sponsorship was obtained from private companies. Operators had to pay for the broadcasting of events.

Racing South Africa (Pty) Ltd submission
Mr Peter Gibson, Chief Executive Officer, said Racing SA aimed to improve the quality of South African horses, assist with the curing and management of equine diseases and to effectively market South African horses internationally. There were approximately 280,000 horses in South Africa, used for the purpose of business (racehorses), sport (hobby horses) and informal industry (work horses). On average, each horse provided 2.5 jobs. Economic multipliers included ancillary products and services, skills development, wealth creation and infrastructure development. Access to the global bloodstock market would benefit rural development, employment, foreign direct investment and international competition. The global value of the industry was currently US$2 billion per annum. South Africa’s market share was less than 1%. Approximately 250 South African horses were exported per year, valued at R250 million. Constraints to growing the export industry included African Horse Sickness, non-tariff barriers and a lack of resources.

The major challenge to the South African equestrian industry was African Horse Sickness (AHS). AHS was a virus endemic to Africa. There were 9 serotypes and the disease was transmitted by the culicoides midge. The disease had a 90% mortality rate in unprotected horses but zebras were immune. The 2010/11 season was the worst in 25 years with 604 reported cases between November 2010 and June 2011. The most vulnerable horses were in the rural areas of the country. The spread of the disease was exacerbated by neglected horses being allowed to roam freely. Research into AHS focused on the development of new vaccine technology, improved diagnostic testing and epidemiology. Additional financial support from Government to undertake research and to develop vaccines was required.

The presentation was illustrated with photographs of well-known South African horses. South African horses and riders performed well in international competitions and South Africa had the potential to be a serious contender at the Olympic Games.

Discussion
Mr Selau commented that the industry included the sale of horse meat and the use of horses for agricultural purposes. He asked what was necessary to revitalise the equestrian industry in South Africa.

Mr Radebe asked what the relationship was between Racing SA and Onderstepoort Veterinary Services (OVS). OVS received Government funding and he was under the impression that OVS dealt with outbreaks of AHS in the country. He agreed that the export of South African horses should be encouraged. He asked what the relationship with the Society for the Protection of Animals (SPCA) was, particularly with regard to the care of retired racehorses.

Mr N Gcwabaza (ANC) asked what the sources of funding were for Racing SA.

The Chairperson asked for clarity on the comment made during the presentation concerning the exporting of Australian horses.

Mr Gibson replied that there was an international trade in horse meat. Horse meat was popular in certain European countries. South African abattoirs accepted horses for slaughter. AHS had a negative impact on obtaining certification for South African horse meat. The process of integrating rural communities into the immunization structures was slow and a formal, funded programme was required. Vaccines were manufactured by OVS but there were challenges with the current live vaccine in use. A new vaccine was under development and it was suggested that Government sponsored a country-wide vaccination programme.

Mr Gibson advised that there were approximately 40,000 ex-racehorses in the country. Many retired racehorses were used for sporting purposes and were generally well taken care of. Racing SA was funded by contributions from thoroughbred racehorse breeders, owners and racing operators. It was a non-profit organisation. Other countries had problems with equine viral diseases but continued to export horses. The Australian equine virus was fatal to humans and had resulted in the deaths of veterinarians.

The Chairperson asked for a written report on how other countries managed to export horses despite exposure to equine viral diseases.

Mr Smalle asked that the report included more information on the role played by laboratories in developing solutions and the action that could be taken by Government to provide assistance.

Bingo Association of South Africa (BASA) submission
Adv Steven Budlender, Legal Counsel for BASA, said BASA was a voluntary association representing the interests of the bingo industry. The hearings were attended by representatives from Galaxy and Viva, the two largest bingo licensees in South Africa.

The Gambling Review Commission (GRC) made two findings regarding bingo, i.e. that a national policy should be developed, restricting the number of licensees per province and that electronic bingo terminals (EBT’s) should be banned. BASA supported the first recommendation but strongly opposed the second. Reasons against the banning of EBT’s were provided. BASA disagreed that the proposed ban supported the purpose of gambling regulation and listed a number of facts to illustrate that there was no basis for banning EBT’s. The GRC recommendation was based on three assertions, two of which were factually incorrect. EBT’s were not casino slot machines and did not cause an uneven playing field for casinos. The features of the game were explained and the differences between EBT’s and casino slot machines were listed. The GRC assertions regarding the lack of corporate social investment requirements for bingo licensees, the amount of licence fees/taxes, the failure of casinos to install EBT’s and the threat of bingo operations to the casino industry were refuted. The benefits of bingo were listed and the role played in job creation was outlined.

Discussion
Mr X Mabaso (ANC) disagreed that bingo was played by the more affluent sector of society as was claimed in the submission. Members of the Committee had observed during oversight visits that the game was also played by poor patrons. The Committee had noted that automatic teller machines (ATM’s) were installed in bingo halls and was concerned that this could result in abuse and cause problems. He asked for clarity on the black economic empowerment initiatives of BASA.

Mr Smalle concurred that the software used for EBT’s could be controlled and regulated. He asked how EBT’s balanced gaming with entertainment.

Mr Radebe asked for a profile of bingo patrons and where the licenced operations were situated. He asked what other business opportunities existed at bingo operations. He asked where EBT’s were manufactured and how the integrity of the machines was assured and controlled.

Mr Smalle asked for an explanation of the comment concerning provincial inconsistencies in the submission.

The Chairperson referred to the comparison between EBT’s and casino slot machines. She asked if bingo was considered to be a loss leader by casinos. There was a perception that bingo was ‘soft’ gambling, played mainly by the elderly and disabled communities. She asked for comment on the sale of bingo toys to children.

Adv Budlender replied that the profile of the average bingo patron was based on the data included in the GRC report. An analysis of the income bracket of game players was on page 77 of the report. Less than 1% of bingo players earned less than R6,000 per month. Poorer gamblers were more exposed to illegal gambling. The same rules applied to ATM’s in bingo halls and in casinos. BASA’s black economic empowerment referred to black ownership of member companies, for example Galaxy was owned by the South African Clothing and Allied Workers Union (SACAWU). It was possible that the software for EBT machines could be used for control purposes. Certain older EBT’s had double screens but the newer versions had a single screen. The technology was constantly developing and it was better to legislate the game rather than the machine. The licences issued in Mpumalanga and KwaZulu Natal included corporate social investment (CSI) requirements. The older licences issued in Gauteng did not include such requirements but the licensees would not object if licence conditions were amended to include CSI requirements. EBT machines were certified by the same organisation that certified casino slot machines. EBT’s were manufactured in Nevada, USA.

Adv Budlender explained that operators made money from the game because the total stake was not paid out in prizes. Bingo had been played for many years but the issue was to prevent children from being exposed to gambling in general. Bingo halls exercised tight access control to limit access by children. The data included in the GRC report indicated that less than 0.6% of gamblers were children.

The Chairperson had noted that there were many children at resorts and school fundraising events where bingo was played on an informal basis.

Adv Budlender responded that BASA members operated licensed bingo, not the type of informal bingo games played at resorts and fundraising events. Unlicensed games were not legal and could be reported to the police.

Betfair submission
Mr Andrew McCabe, Legal Counsel for Betfair, said Betfair was a FTSE 250 company, listed on the London Stock Exchange. Betfair was licensed in the UK, USA, Italy, Australia, Malta and Gibraltar and employed 2,000 people. The company offered a range of online gaming products but sport betting was the largest component (75%). Betfair’s target market was wealthy males in the 30 to 50 age group. The company had established relationships with certain retail banks and utilised a country’s official identity system to verify client identity details whenever possible. Clients had to submit documented proof of age and of residence for verification purposes. Befair refuted criticism that betting exchanges created corruption in sport and was committed to sporting integrity, preventing money laundering and problem gambling.

Betfair was a reputable operator and complied with the relevant regulations and licence requirements. Online gambling was growing rapidly and the company felt that the industry should be regulated.

Discussion
Mr Smalle said that online gambling was a major area of concern for the Committee. He asked if Betfair offered other gambling games in addition to sports betting. He asked if there was an audit trail and if client information was safeguarded. He asked what measures were in place to prevent problem gambling.

Mr Radebe said that online gambling was currently illegal in South Africa. Internet gambling sites could be accessed by sophisticated cell phones. He wanted to know how Betfair ensured that the identities of online gamblers were not fictitious and how problem gamblers were identified.

Mr Selau was concerned that a company that operated an illegal online gambling business had made a submission to Parliament. He asked for clarity on the reference made to using identity card systems to verify identity details of clients. Betfair had stated in its submission that the company wished to become a licensed operator in South Africa, pay tax and employ South Africans. He asked on what basis Betfair operated currently as there were no licensed online gambling operators in the country.

The Chairperson said that the verification of online gambling customers was a major concern. The Committee had investigated online gambling and found that there was currently no system available to ensure that online clients were properly verified. Clients would not be able to legally bring the winnings from online gambling into the country. Another problem was to prevent access by minors. She was bemused by Betfair’s arguments that the organisation did not pose a threat to South African gambling competitors. She asked who Betfair’s target market was. South Africans were already accessing online gambling sites based outside the borders of the country and she wondered if Betfair could prove that its site was not one of those being accessed.

Mr Gcwabaza asked what Betfair’s risks were, how the operation was managed and what the impact of its product was on clients.

Mr McCabe responded that Betfair offered a portfolio of online games. Sport betting accounted for 75%. Betfair used a similar system to safeguard the data of clients as Amazon.com and complied with the audit and legal requirements of the countries the company operated in. Customers set their own limits and controlled their own session times. A waiting period applied before an increased limit took effect. Betfair required documentary proof of identity and residence of customers. Where possible, identity data was cross-referenced by the relevant country’s official identity system. Additional checks were carried out if the payment method was available to persons younger than 18. Research had found that it was easier for under-aged children to place a bet at a legal gambling operation than to circumvent the checks of a reputable online operation. The Betfair website had links to free software to control access by minors, for example “net nanny”.

Mr McCabe said that Netfair did not advertise and had a small number of South African clients. Netfair did not accept bets in Rands. Online gambling was currently a legal grey area and the decision in a recent High Court case was awaited. Betfair did as much as possible to mitigate corruption in sport. Netfair posed no threat to bookmakers. Betfair’s market share in the UK was 20%. Sport betting market was a niche product. Netfair’s target market was males between the ages of 30 and 50. There was no risk to the company as it was not affected by the outcome of a sport game. Netfair matched customers betting on the outcome of a particular game and had no exposure. Netfair contributed to the UK version of SARGF and would contribute to the South African Foundation.

The Chairperson said that the Committee wanted to see legitimate trading, not illegal operations.

Mr Radebe asked if Netfair knowingly accepted South African clients despite not being licensed in South Africa.

Mr Gcwabaza asked if Netfair had a relationship with South African banks and with the Department of Home Affairs.

Mr McCabe said that no formal relationships had been established.

The Chairperson wondered how Netfair verified the identities of South African clients and how these clients paid the company. The Committee had serious concerns regarding the Piggs Peak online gambling operation (which was based in Swaziland). The Committee had requested the South African Reserve Bank to tighten the regulations on funds leaving the country for gambling purposes. An alternative was that everyone played online games for free. Mr Gcwabaza chaired a Parliamentary working group on online gambling and she suggested that there was further interaction between Netfair and the working group.

Afternoon session
National Horseracing Authority of Southern Africa submission
Mr Denzil Pillay, Racing Control Manager at the NHA, said the NHA was formerly the Jockey’s Club but had changed its name to reflect the role it played. It was recognised in provincial ordinances, because licences to operate racecourses were granted in line with the rules and the constitution of the NHA. Its board members were elected and co-opted by stakeholders in racing.

The NHA supported a proposal by the Gambling Review Commission that it be granted statutory powers. It was important that the NHA was understood as a regulatory authority for the sport of racing thoroughbred horses in Southern Africa. There were two aspects to horse racing – the sport itself and the betting element. The purpose of NHA was to promote and maintain integrity in the sport of thoroughbred horse racing. The authority was central to all stakeholders including owners, breeders, racing operators. The NHA regulated the sport and not betting.

Mr Pillay said the role of the NHA was to formulate and review rules that regulated horseracing and the breeding of thoroughbred horses. It licensed and registered all participants in the sport and also maintained the Stud Book. The NHA handicapped horses, recorded and published data on individual horses. There was a laboratory to test horses for the use of prohibited substances and there were disciplinary structures to deal with malpractices.

NHA rules provided an effective regulatory framework for the sport and were not static. The Authority entered into contractual agreements with the participants, where they agreed to be bound by NHA rules and its constitution. This process ensured that those involved were indeed qualified to be in the sport. It thus ensured the protection of the integrity of the sport and the betting public.

Mr Pillay said the racing horses needed to be registered with an international body that regulated stud book matters of which the NHA was a member, along with Australia, US, Britain, India, Ireland, France, Japan, South America. The breeders submitted details on the lineage of horses and that enabled the NHA to effectively control the breeding process. The DNA of horses were tested to verify parentage and, once confirmed, were registered on the Stud Book. Horses would then be micro-chipped and issued with passports.

NHA was a signatory to Article 6 of international agreements on racing that set a framework for rules relating to prohibited substances. The NHA laboratory maintained the integrity of horseracing by continually screening urine and blood plasma of horses. The NHA also held the membership of the International Federation of Horseracing Authorities (IFHA) and Association of Official Racing Chemists (AORC).

Mr Pillay said the NHA test laboratory played a critical role in maintaining the integrity of racing. It scored a 100% in the proficiency testing programme that confirmed adherence to international standards. The laboratory was accredited by SA’s national accreditation system and serves as drug confirmatory facility for England, France, Hong Kong and Singapore. In the previous season the laboratory tested 4 733 horses and only ten were positive. This served as a confirmation that the industry was well regulated.

The training and racing of horses were monitored by its Stipendary Stewards, who assessed if all participants were capable of performing at the required level. The Stipes were the referees of the sport and were using technology to maintain the highest standard of control. The Stipes were responsible for ten racecourses in SA, and one in Zimbabwe. Last year they officiated in 443 races in SA. They were highly regarded internationally, and were often poached by other countries.

Also employed were investigating officers, who looked into suspected malpractices; and vet surgeons who were there to ensure the welfare of the horses. They were authorised to give any treatment deemed necessary to the horses. On non-race days they would accompany the Stipes to do stable inspections. The NHA employed all the handlers, starters, judges and specimen collectors. This ensured that staff were independent from the racing operators.

Mr Pillay said handicapping gave participants an equal opportunity to participate. All horses were assessed and rated according to performance. The NHA was affiliated as one of the 58 members of the IFHA and was a member of the Asian Racing Federation (ARF), on whose council it served, and the International Stud Book Committee. The Test Lab Director of NHA chaired the European section of the AORC, and also the ARF Drugs Committee.

Provincial Gambling Associations recognised the NHA as the officiators of horseracing. The National Gambling Act gave the National Gambling Board a mandate to regulate casinos, racing and gambling, but racing was only mentioned in the preamble of the Act and not anywhere else. Various gambling boards and stakeholders had engaged during the period 2001to 2005, in an attempt to draft legislation which would regulate horseracing. The transitional provisions in the draft legislation contemplated that the NHA should be licensed to operate as a regulator.

Mr Pillay said betting on horseracing accounted for 75% of betting on offer and created direct and indirect jobs in excess of 16 000. He said 43% of the 196 NHA employees were people of colour. Horseracing should be brought into a legislative framework, and the NHA should be granted statutory recognition as the regulator of the sport. Horseracing rules should be admitted, and betting operators should contribute equitably to the cost of regulating the sport.

Discussion
Mr J Smalle (DA) asked if the NHA wanted the licensing of totalisators to be under its arm. He wanted to know if accreditation of the laboratory meant NHA could lift sanctions imposed on quarantined horses due viruses.

Mr Rob de Kock, CEO NHA, replied that the Authority should not be controlling betting, as that was a competence of National and Provincial Gambling Boards. The NHA had not in the past regulated betting and did not believe that mandate should be transferred to it either.

Mr De Kock said the NHA laboratory was not equipped to do specialised evaluations, assessments and clearances on those horses quarantined as a result of African horse sickness. The laboratory was a forensic, chemical and analytical establishment that looked at the drug use of horses and jockeys. Clearing quarantined horses would require specialised skills and equipment and the NHA was not geared to take that up. This was better left with the organisations that were currently doing it.

Mr X Mabaso (ANC) said the aspects of breeding, owning and training of the horses were not in proportion to the SA population. He wanted to know if it was reserved for the very rich. Was there a way that breeding and ownership could be spread along economic lines?

Mr B Radebe (ANC) agreed with Mr Mabaso and asked what could the NHA show for transformation, given its long history. The Committee knew that before 1994, the state of horseracing was dismal. He asked what state was the industry in; and if the NHA supported emerging breeders. He cited a weekend news report where an Eastern Cape breeder (Phindi Kema), complained that she was suppressed by the NHA. If there were people from historically disadvantaged communities who felt gutted by the NHA, how could Parliament give NHA a regulatory status?

Mr Pillay said the NHA did not have a say on who was employed by the owners and breeders. That was governed by the labour laws. There were no obstacles for people wanting to enter the industry. There were registered breeders who were female and black. He said 30 of the 48 jockeys who were at the academy were black. NHA encouraged transformation in various sectors, but had no direct influence. In terms of support provided to new entrants into the industry, there were no restrictions and anyone was welcome to come forward. The Authority did not have funds to support new entrants into the industry.

Mr de Kock requested if NHA could table a written response to the question about Ms Kema who felt undone by the NHA. He had dealt with the case and had sent a full reply with facts to Ms Kema and clarified some of her misapprehensions about African Horse Sickness. There were no restrictions placed on anyone who wished to enter breeding including Ms Kema. She had not engaged with the NHA in order to be registered, but there would be no preclusion should she wish to do so.

Mr Radebe asked the NHA to provide a detailed report of the Eastern Cape breeder story, especially noting that Ms Kema was a woman breeder.

Mr G McIntosh (Cope) wanted to know if the statistic was correct that people in over 40 countries followed SA races. Were these people following the races on television; and were they betting on these horses? He asked if it was the case in SA, and if indeed it was true, that horses were made to inhale dagga to get them to perform better. He asked if dagga traces could be detected by the laboratory tests.

Mr de Kock replied SA races were indeed viewed in 40 countries around the world and betting was taking place. Specifics and detail on this could be provided. This would not be the case if people from other countries who betted on the races, did not believe SA racing was of top quality.

Mr De Kock said dagga inhaling was an urban legend. He said if horses inhaled dagga, the laboratory would pick it up. The lab could pick up things like caffeine, other stimulants and drugs.

Mr G Selau (ANC) asked for clarity on the independence of the NHA, as the presentation sought to suggest it operated in SA and Zimbabwe. These were two sovereign countries with their own constitutions. How was it possible that the NHA was for both countries?

Mr de Kock replied the inter-state relationship with Zimbabwe went back a long way. SA provided the service to Zimbabwe happily as that country did not have such a mechanism, staff and resources. The NHA also conducted tests on behalf of Zimbabwe. The NHA accepted that Zimbabwe was a sovereign state, but NHA was merely supplying a service. Assistance would be provided willingly to any other country on the continent but not at the expense of SA having to pay for this.

The Chairperson referred to a comment that there were no problems in the industry. She said she had not stopped hearing about problems in the last ten years. She sought clarity on how information was sourced by commissions into the sport, as findings seemed to contradict reality on the ground. She asked that the role of the NHA be clarified as it seemed that it was doing everything in the industry.

Mr Pillay replied they did not seek to control everything in horseracing but were merely regulating it. All NHA provided was the referee service. NHA did not organise the races, racing operators did; and horse owners decided which horses to run. If anyone was aggrieved by NHA rulings, there was an inquiry board and if someone was not satisfied with a ruling, that could be taken up on appeal, and all the way up to the High Court.

Mr de Kock replied that he was not aware of how information was collected by researchers of the commissions.

The Chairperson suggested he provide a written reply to the question about information gathering, as his response was unsatisfactory and unacceptable.

Provincial Bookmakers’ Associations submission
Mr Dean Finder, Chairperson: Western Cape Bookmakers Association, said the bookmakers association was not for gain, and was made up of three provinces KZN, Gauteng and the Western Cape. The Association represented the interests of licensed bookmakers. He commented that there was a media campaign by racing operators to discredit and undermine the bookmakers.

He said the aim of the submission was to provide the Committee with accurate information about its operations, the issues facing the industry and to assist the Committee in its critical policy making functions. Horseracing was faced with a serious challenge from other betting forms such as the Lotto and the casinos. Horseracing existed for the purpose of betting, and it allowed owners to compete for the stakes generated from betting turnovers. Without betting, horseracing as a commercial activity would cease to exist.

Mr Finder said betting took two forms: bet on the totalisator or a licensed bookmaker. Patrons had a choice in deciding where they wanted to place their bets. There were differences on how totalisators and licensed bookmakers conducted business. Understanding these key differences was crucial to policy making. The money that sustained horseracing as a sport was provided by the betting public. From every winning, 25% was deducted and channelled towards the sport. Bookmakers were not into pool betting and each bet represented a liability. Bookmakers laid bets on several horses and they tended to minimise their risk. Bookmakers had to pay the holder of a winning ticket. Six percent of the winnings was retained by the bookmakers; this amount was shared equally among the totalisator operators and the provincial fiscus of the Association.

Adv Alicia Gibson, from AG Consulting, said an open bet was taken in reference to the dividends that were generated by totalisators. when the patron took a bet with the bookmakers, the odds were not known until the totalisator had declared dividends. The totalisators had for many years campaigned against the open bet because, they claimed, bookmakers returned less to the sport. The argument was that bookmakers made money on the intellectual property of the totalisator. She rejected the argument as flawed because neither the totalisator nor the bookmakers funded horseracing, but the public. It was the bookmakers’ submission that it was inaccurate to allege that bookmakers made money out of the sport. The open bet was legislated for in the National Gambling Act, which meant bookmakers might legally offer open bets.

Ms Gibson said the issue of open bets had been canvassed on many platforms over a long time. Open bets had been in existence for over 50 years. The constitutionality of it had been extensively discussed. The Constitutional Court had recently found that there was no substance to the claim that by offering the open bet, the bookmakers encroached on the competitive territory of the totalisator. By discouraging the public from doing open bets, that were permissible by law, totalisators were acting unlawfully. It was in fact undermining an established government policy and equalled to advocating for the demise of the bookmaking industry.

She said bookmakers found it contradictory that totalisators, which used up to 20% of bookmakers in the country, would suggest that they be taken out of the equation. The ongoing campaign against open bets disregarded the fact that the public had a right to choose between lawful betting options. Bookmakers did not solicit the open bet. Racing operators were impinging on the territory of bookmakers, as they were offering bets on other sports such as football, rugby and cricket.

Mr Finder said the bookmakers turned over R4 billion a year while the totalisators turned over R4.7 billion. Bookmakers generated a R136 million while the totalisators were at R75 million. Without the bookmakers, the total generated to the fiscus through taxes would be significantly less.

Ms Gibson said bookmakers and totalisators were entirely different and could not be regulated the same way. Challenges that confronted the industry, although not mentioned in the Gambling Review Commission Report, included the proposed withholding of 15% of all winnings. This proposal was a major challenge to anybody involved in the industry and would be at odds with government policy. Once patrons realised there was a reduction in earnings they would take their custom elsewhere, and that would impact on jobs. It was concerning that the person-to-person betting should be brought into the regulatory framework.

Ms Gibson suggested that before a decision was taken to licence that type of activity, there needed to be a sustained reflection on the part of the Commission and all the stakeholders. The licensed bookmaking industry had the interest of horseracing at heart. She recognised that the promotion of the industry was fundamental to the survival of all industry stakeholders.

Discussion
Mr Smalle wanted clarity on the open bet. He asked why the stakes were higher at the point of placing a bet, and decreased at closing. There needed to be more clarity in the definitions within the Act.

Mr Finder replied there were two types of betting. The open bet was a bet that the bookmaker made in terms of the swinger. The payout was determined by what the totalisator paid out. The bookmaker took the risk and paid out all the money while a totalisator held on to some funds. Another type of betting was the fixed odds bet where the odds shorten drastically during the race.

Mr Selau said the presentation contained too much unnecessary detail about the industry. He wanted to know the proposals the bookmakers were putting forward for the purposes of changing the Act. He asked if there were specific areas that were problematic within the Act and regulation of the industry. What were the things that should be changed to improve your operations?

Mr Finder agreed that the presentation was loaded with industry terminology. It was not the Association’s intention to bore the Members.

Mr Harris asked if bookmakers allowed online betting, and how it worked given the regulation constraints that were reported in the industry. He asked if there were countries that had forbidden open betting. What were their experiences? Did they encounter what the Association foresaw would happen to SA, if this were forbidden?

Ms Gibson said bookmakers allowed online and interactive gambling. With interactive gambling everything was virtual and done on the internet. The person who was playing in an interactive environment was not in the same environment to the one playing online with regard to risk. The licensed bookmakers did not share the view of the Gambling Review Commission.

Mr Mabasa wanted to know if the Association played any role in assisting government to carry its objectives forward. Were there benefits that accrued, as a result of bookmaking, to priority areas of government such as job creation, education, welfare?

The Chairperson said many of the submissions showed profiles of how they would contribute towards job creation. Where did the bookmakers think they could create jobs? She asked if it was possible that the Association saw other forms of gambling as threatening? She supported the view that asked how the industry would go forward.

Mr Finder said the Associations were there to protect the interest of bookmakers and ensure the integrity of how bookmakers operated. Associations were involved in equity programmes that benefited a lot of people in the three provinces in which they were housed. The Western Cape Bookmakers Association had an annual Equity Day where it hosted 60 children from previously disadvantaged communities at a stud farm for entertainment. The Association made financial contributions to NGOs that were in poor communities in the province.

The Chairperson requested that the Association provide a written response that detailed an outline of its contribution to society. The session was not intended to make a decision but collect all the views.

Racing Association submission
Mr Larry Wainstein, Chairman: Racing Association, said the Association was incorporated in December 1997, around the time when Phumelela was founded and represented horse-racing clubs. Its objectives were to promote the interests of the owners of thoroughbred horses nationally. The Association sought to ensure that stakes were paid at the rate agreed to between the Race Association and Phumelela. The Association protected the copyright of the audiovisuals of racing, but also ensured infrastructure was maintained satisfactorily.

The membership of the Association was offered to turf clubs and all new members had to be registered with the National Horseracing Authority. The Association was given 35% of the newly formed Phumelela. Thoroughbred horseracing had been facing challenges in SA from a wide range of other forms of entertainment. This competition resulted in fewer participants at racetracks, and had led to a stagnant growth. The number of races had gone down from 490 to 430 per year, and the population of thoroughbred horses had also decreased. There had been a total decline in the sector.

Mr Wainstein said Phumelela did not fund the sport, but the owners. The owners made a substantial contribution to horseracing and contributed R570 million, excluding vet bills and all feeding costs, annually. Horses raced when they were two or three, but in the event of a horse never racing, all the costs was carried by the owner. The bookmakers contributed only six percent (about R10 million of stakes). The export side of the industry had kept owners afloat, but it had been impacted upon by the African Horse Sickness. Another challenge was the ring-fencing of losses. The majority of horse owners were paying for losses at least for 12 months or more. A review on ring-fencing would be appropriate and the Association would appreciate it.

Owners in the Western Cape were under pressure to survive. The sport had a proud history in the province and contributed directly and indirectly to the local economy. The Racing Association had contributed to several BEE initiatives that were aimed at developing the sport. Indirect initiatives included support and administration on behalf of the Thoroughbred Horseracing Trust and the Work Rider’s Programme, where grooms were taught riding skills. There were eight registered jockeys who had come through this programme. All the regions had their own groom schools.

Mr Wainstein said the Association had hosted a Young Achiever’s Day, to try and motivate aspiring owners. A young owner with a potential was drawn in, and taken to races around the country in order to get him interested in the field, but his interest had since diminished. The Association had brought Africans to the races so as to expose them to the industry. Although the Association was committed to BEE objectives there was the challenge of cost. As a result, it was very difficult to attract new entrants into horseracing and ownership of thoroughbreds.

Thoroughbred horseracing was a sport in SA, and the Association was instrumental in setting up events such as the International Jockeys’ Challenge. This had been going on for three years. There were jockeys who had already achieved their colours and four of them were previously disadvantaged individuals. Owners could not continue to fund horseracing indefinitely while other stakeholders watched.

Discussion
Mr Radebe wanted to know what the Association was doing to promote the sport among the previously disadvantaged. The Association should know that when requiring assistance from government, issues of equity were likely to come up. He queried why nothing was done or said about provinces where riding horses was traditionally a mode of transport, such as the Free State. Local economies were boosted when provinces hosted horseracing events such as the Durban July. government wanted to see equal development.

Mr Wainstein replied that involvement of all provinces was required in popularising horseracing. A failure by one province affected all others. There were racecourses in the Eastern Cape and the Northern Cape, and racing festivals were hosted in those provinces. The Association could use all of the racecourses in Gauteng, Eastern Cape and Northern Cape; there was no limitation, but others were owned by Gold Circle. It was important that all the areas were looked after, so that racing could thrive and help contribute towards the Gross Domestic Product (GDP).

Mr Smalle wanted to know how the Association was hoping ring-fencing would be removed from the owners. He asked if a review of the percentage contribution by bookmakers needed a review. Were the owners in some way in discussions with government departments to see how the deteriorating state of horseracing could be improved?

Mr Wainstein said ring-fencing was a tax issue where owners were not allowed to claim for losses as was the case before. The Association had been talking about the bookmakers’ contribution which was legislated.

Mr Selau said there was a problem with the system of how money was traded in the industry. The Association needed to propose to the Committee the changes it thought should be made in relation to money exchange and money making. Although the presentation was informative, it contributed nothing to the meeting as it sought to suggest everything was fine. He criticised the Association for not suggesting turn-around strategies. People and institutions needed to move away from the mentality of expecting bailouts from the government. Instead South Africans needed to start asking themselves about what they could do to increase the tax revenue, so that government could be able to deliver the infrastructure.

Mr Harris asked what would happen if Parliament removed the limit on the number of tracks.

Mr Wainstein said when Phumelela was formed, the company was listed. The percentage was dependent on the turnover on the tilt. The amount that the Associations raced for was R300 million and yet owners were expected to put in the excess of R570 million. There was the cost of infrastructure and running the racecourses. Maintaining a track could cost R10 million a year. There could be more racetracks, but the money was not enough.

Mr Mabasa wanted to know the relationship between owners of thoroughbreds and the community owners of local horses. He asked if ownership of thoroughbreds was reserved for the affluent. Was there a plan to spread ownership of thoroughbreds and introduce it throughout the country?

Mr Wainstein replied that the Association supported the Bush horseracing. There were a number of associations that helped local communities with the treatment of their horses. This was all funded through the Racing Association and Phumelela.

The Chairpersons suggested the Association prepare a detailed written response especially on ownership and spread of racetracks. The Association could include business plans and how it hoped to transform the ownership structure.

Grand Parade Investments submission
Mr Alex Abercrombie, Chairman: Grand Parade Investments, said he wanted to give the Committee an idea of who the company was. Grand Parade was a national Broad Based Economic Empowerment company listed in 1997. The company was started with R28 million, and in 1999 it had a net asset value of R1 million but that had grown to R1.8 billion.

The company believed in meaningful empowerment, and that it had a proud record of achievements. The Grand Parade was involved in the community with charity organisations and last financial year had made contributions to the value of R1.4 million. The company would continue this trend to ensure the betterment of communities. The company created jobs through the Limited Payout Machines (LPMs). There was a nationwide footprint of black ownership. The company stimulated good entrepreneurial practices. Every site needed to be registered with the South African Revenue Service, in order to have a business licence.

Mr Abercrombie said the business was well regulated, and gave a good impression to people who wanted to do business in the country. The advertising restrictions were applied differently in the LPM industry than in the casinos. There should be some sort of equality in terms of advertising. Grand Parade recommended that a nationally legislated set of advertising standards be agreed for the LPM operators, similar to the existing casino guidelines. At a national level one needed to know exactly what kind of advertising was possible so that in the planning and budgetary processes, these could be taken into account.

He said the LPM industry contributed 6% of taxation to the fiscus. Inflation had eroded the value of money. The maximum winnings of R500 had remained the same for 17 years, whilst the operational cost of doing business had gone up. The private consumption expenditure was R263 billion in 1993, compared to R1,576 billion now. The stakes should be purchased for R30, whilst maximum winning should be R3,000. The increase was in line with market forces and could be reviewed every four years.

Another recommendation was about the distribution of the LPMs. Grand Parade agreed with the Gambling Review Commission about the model used to decide the location of LPMs when it said “the insistence that large numbers of LPMs be located in previously disadvantaged areas may be both economically mistaken and socially undesirable”. The distribution of these machines needed to be reviewed. The market forces should determine the number and the sites where to put up the LPMs. Grand Parade agreed with the concept of empowering people in the rural areas, but the siting of machines was was counter-productive.

Mr Abercrombie said about 18 000 thousand operators were registered at the beginning of the year, but only 6601 were operational. These limitations would shackle the company’s ability to grow. He requested that the Gambling Commission consider rolling out 50% of the machines by the end of December as that would contribute to job creation. The opportunity for rolling out more LPMs existed and would generate sufficient income through taxes.

The uniform implementation of the BEE Code of Good Practice should be the benchmark for which businesses should operate in provinces. There was a problem with the software systems Grand Parade used to monitor. Operators should be able to approach a monitoring system in the same way that casinos were monitored. It recommended that more than one game play monitoring system service provider needed to be approved so that the LPM industry had a choice.

Discussion
The Chairperson sought clarity on whether Parliament had a controlling stake in Grand Parade Investments as he saw its logo on the submission. When Mr Abercrombie replied it did not, then the Chairperson cautioned against the use of the Parliamentary Logo on the company’s presentation material.

Mr McIntosh said the presentation was interesting. He wanted to know what was done on an LPM.

Mr Abercrombie said the gross gambling revenue (GGR) was R13 000 to R22 000 a month per machine. He had visited Germany recently to look at the possibility of having the machines manufactured locally. The National Gaming Board was looking at online gaming. This happened all over the world and there was a lot of money that was flowing out of the country just to be able to operate online.

Mr Radebe asked Grand Parade to expand on the job creation aspect. Gambling was harmful and he asked about the contribution the industry made to society. Did they expect the Committee to allow a free for all situation without putting a limit on advertising.

Mr Abercrombie said the casinos had a big share of the advertising industry. There was a disparity and the LPM operators should be allowed the same advertising opportunities afforded to casinos.

Mr Selau asked why were licences were given out and yet operators were inactive. He failed to understand how operators could just have a licence, without having an operation somewhere. Companies needed to prove when they were issued with licences that they would get into the industry immediately.

Mr Abercrombie replied that applications were lodged with the gaming board and licences were given initially. But operators had to put everything in place before the machine went live, and that resulted in operational delays. There were delays with the boards as well when it came to issuing licences, especially around the time of electing new members.

Mr Harris asked why issuing of licences should be a concern if in every three licences issued, only one machine came into operation. He wanted to know if there would still be concerns about the Western Cape if there were no casinos.

Mr Abercrombie said he was not sure if Grand Parade would still be concerned if there were no casinos in the province. There was a study done by Ernst & Young to look at propensities and determine exactly where casinos should be placed. The decision was that it should be greater than 100 kilometres from the Grand West Casino, and there was no reason to change that. Five areas were identified as untapped. The 40 machine sites would create all other entertainment areas.

The Chairperson wanted to know about the kind of vandalism that the LPM would be subjected to especially since even the ATMs were not safe. She asked where the LPMs would be located.

Mr Abercrombie said the Act specified five machines per site, and that they had to be a secondary business, to the primary business of the operator. Grand Parade was looking at using garages and pubs for the purpose.

Harness Racing Association submission
Mr Dean Latimer, Executive Chairman, Harness Racing Association of SA, said harness racing was introduced to complement thoroughbred racing. The objective was to speed transformation in the horseracing and stud feeding industries. The Association was a member of the International Trotting Association and was supported by countries such as Sweden, Switzerland, France Canada, and Australia.

The Association had a strong relationship with the rural horseracing programme or traditional horseracing. It was demeaning for other presenters to refer to traditional horseracing as Bush or illegal, especially as it was structured and fully licensed in KZN. It was launched by then Premier of KZN Sbu Ndebele at Greyville and two race events took place that day.

Mr Latimer said the Association used a different breeder horse that was less costly and more resistant to disease. A stallion had been imported from Sweden to upgrade the genetic make-up of the rural breed that was diminishing in the province. It would raise significantly the ownership levels and the capital value of the horse owners. It would also serve a stimulus to transformation.

Harness racing was bigger than flat racing and it employed the principles of pacing and trotting – not galloping. The costs of entry were lower than conventional racing. The Association was fully licensed and had access to the Dundee Race Track. The Association also had a competition called Sisonke Summer Cup, named after its new track called Sisonke.

Mr Latimer said the Association had a very close relationship with rural communities, and boasted 31 white and 533 black members. Since 2006, Gold Circle had been a major sponsor of the Association’s events. The Association was concerned there was a morally questionable practice taking place currently, where effective monopoly was taking place. PGE (Television Track Channel) imported trotting signals from overseas which were betted on, and yet, not a cent was returned to the development of the industry locally. That should be looked at.

He said an SA Academy would be started soon. Sweden had provided a grant to SA on turnovers from their betting and the events were televised by PGE. Rural horseracing was a core structure and was funded by the Office of the Premier in KZN. It was demeaning for the industry to be labelled as Bush, whilst there were legitimate structures in place that supported harness racing. This should have made been known to the Gambling Review Commission.

Mr Latimer said the traditional horseracing started in 1901 and first horse participants were Irish/English breed imports during the Anglo-Boer War. It had since been practiced and had extended to the Eastern Cape, Mpumalanga and Lesotho. The Association received applications from these provinces (and a country) for the Dundee Race. The thoroughbred would not handle the conditions at these tracks well.
He implored the Members to assist in the development of the sport.

Discussion
Mr Radebe said the Association had done a lot in development and transformation of the sport. He asked if the Association had tried to access Lotto funding. He asked how the Association was hoping to attract more white members. It was important to have a plan to lure in the white community.

Mr Latimer replied that the Association had not applied for Lotto funding, and were waiting for the next round for applications to be advertised by Lotto. The MEC for sport in the province, Weziwe Thusi, indicated that she would support such an application. There were only ten imported standard-bred horses at the moment. There was a stud book that was managed and had recently been approved by the Department of Agriculture. A lot of white people were waiting to see how the sport developed. Whites did not want to spend money until they saw that it had venues. There were powerful people who supported the objective.

Mr Harris wanted to know how a horse could be made go faster without having it gallop.

Mr Latimer replied that avoiding a horse from galloping required a skill. These horses ran faster at about 60km per hour. This required a great deal of equine skill, and if left unchecked would result in a gallop, and that would lead to a disqualification.

Mr Mabasa commented that the transformation efforts by the Association were appreciated. It would have been better if the presentation had been made in the presence of all the other presenters. They always thought that these things were hard to do.

Mr Smalle said the two horseracing events eventually became a business and there needed to be standards set. He asked it the Association aligned itself with the same principles applied to thoroughbreds. He wanted to know if the Association had agreements with Gold Circle to use its tracks for future events.

Mr Latimer said Gold Circle had given the Association permission to use its tracks but they were too big. The sport had been viewed as a threat by many white males in the thoroughbred sector. Thoroughbred was a sector in demise and it needed augmentation. Gold Circle had embraced harness racing by allowing the Association office space, and it was contributing to the rural horseracing programmes.

The Chairperson asked if there was a footprint in other provinces as it appeared that it was confined to only a few provinces.

Mr Latimer said the Association was still localised in KZN but it was hoping to spread throughout the country as there was an opportunity to make it big.

The Chairperson thanked the delegations and said the whole idea was not to see the proliferation of gambling but acknowledge it was here and that it needed to be regulated.

The meeting was adjourned.