Draft National Gambling Policy: Department of Trade and Industry briefing; Gambling Sector Performance: National Gambling Board briefing

Meeting report

Briefing by National Gambling Board (NGB) on the gambling sector performance

Ms Caroline Kongwa, Co-Administrator, NGB, said the entity monitored market conduct and gathered provincial gambling statistics. These statistics related to turnover, gross gambling revenue (GGR) and taxes/levies relevant to all regulated gambling modes, i.e. casinos, racing and betting, limited pay-out machines (LPMs) and bingo. Provincial gambling statistics were gathered from all Provincial Licensing Authorities (PLAs) on a quarterly basis and verified annually. This presentation was based on the latest (unaudited) data received from PLAs.

There were 37 operational casinos out of 40 available licences with the most concentrated in Gauteng, KwaZulu-Natal and the Western Cape. The steady increase in gambling positions in casinos was mainly as a result of 1 244 gambling positions added in KwaZulu-Natal and 152 gambling positions added in the Northern Cape. There had been a 4.5% in the GGR since the 2014 financial year. In terms of racing and betting, the Western Cape was a major role player with regards to bookmaker outlets and Gauteng was a major role player in totalisator outlets. During the 2015 financial year, and contrary to past trends (totalisator, horse racing), sports betting (bookmakers) generated the highest GGR. There had been a 17.9% increase in the number of operational bookmaker outlets since 2014 and although the number of operational totalisator outlets remained stable, there had been a 22.2% increase in GGR, mainly as a result of increased sports betting.

Major role players in the LPM sector were KwaZulu-Natal and Gauteng. There was a 10.7% increase in the roll out of operational LPMs since 2014 and a 19.6 increase in GGR since 2014. There were 26 operational bingo outlets in Gauteng, KwaZulu-Natal, Mpumalanga, North West and the Eastern Cape. Since the 2014 financial year it showed a 17.8% increase in the number of operational bingo positions mainly as a result of 642 operational traditional bingo positions rolled out in KwaZulu-Natal, 387 operational bingo positions added in Eastern Cape and a decrease in the number of operational bingo positions was noticed in Gauteng and North West during the 2015 financial year.

There was limited growth in the casino sector and sports betting had become very popular and generated the highest GGR in the racing and betting sector. Bingo accounted for the highest increase in operational positions and the highest increase in GGR (9.6%).

Department of Trade and Industry (DTI) on the Draft National Policy

Mr MacDonald Netshitenzhe, Chief Director: Policy and Legislation, DTI, said the presentation of the NGB gave context to the draft policy presentation, because it showed that there was limited growth in the sector. The salient point was that overstimulation and proliferation of the sector was not recommended, because of the potential of harm to communities, especially the poor and the uneducated. 

In 2002 a review of gambling policy was undertaken and the following were factors informing the review:

-Disputes between provincial gambling licensing authorities and the National Gambling Board

-Negative socio-economic effect of gambling

-New forms of gambling (horse racing and interactive gambling)

The review led to the institutionalisation of cooperative governance through the National Gambling Policy Council (NGPC), the establishment of the National Gambling Board (NGB) as oversight body and mechanisms to mitigate the increasing social harm. In 2008 the National Gambling Amendment Act was promulgated to regulate interactive gambling. Regulations were finalised and tabled in Parliament in 2009 and Parliament raised concerns about proliferation and protection of minors. The Minister appointed the Gambling Review Commission (GRC) in 2009. The GRC report was tabled in the two Houses of Parliament which produced separate reports in 2012 and 2013. In 2013, the DTI commenced with the draft National Gambling Policy Review guided by the above processes. The National Gambling Policy Review Document was tabled at the NGPC on 5 September 2014 and on 02 March 2015.

Some matters tabled at the NGPC meetings also informing policy proposals were:

-The dispute between provincial gambling regulatory authorities and the NGB on Central Monitoring System where the dispute was temporarily resolved through mediation by the DTI

-Proposals for legalisation of greyhound racing - research was conducted in 2009 which was met with serious opposition

-Court decision halting the licensing of electronic bingo terminals in Gauteng – various provinces revised legislation to allow this without policy

-North West Province lost Morula Sun casino licence to Gauteng Province due to demarcation

-The need to develop norms and standards to achieve consistency.

The policy decision on whether to expand or consolidate gambling took into account growing problem gambling, high levels of poverty, increasing unemployment rate (especially among young people), worrying levels of over-indebtedness, with more credit active consumers having impaired credit and other concerns relating to addiction, such as substance abuse and increasing trends. Mr Netshithenzhe gave an overview of the GRC policy matrix and the policy proposals and highlighted the policy problems with the proposed solutions.

In terms of the NGPC, the policy problems related to the effectiveness of the NGPC due to a constant lack of quorum and the lack of policy alignment at national and provincial level. The status of the structure of the NGB needed review and due to lack of impact, problem gambling under the National Responsible Gambling Programme (NRGP) would fall under the National Gambling Board to ensure the broad reach of people affected. The developments around casinos began to impact on the destination policy approach of their location and this included the considerations to relocate casinos from one area to another. Technological advancement brought about the emergence of electronic bingo terminals and it highlighted the need for policy framework to anticipate future events. The proposal was that a framework be introduced for regulating electronic bingo terminals in a coherent and consistent manner. Horseracing was regulated through self-regulation and the National Gambling Act only regulated betting (tote betting or bookmakers betting). Other forms of horseracing were not regulated within this framework. Bookmakers took bets on horseracing events without making any contribution towards the development of horseracing sports. Bookmakers also did not pay for intellectual property rights attached to the totalisator system and despite calls to eradicate bookmakers, a strong case had not been made for the policy to propose their ban from taking bets in the horse racing industry. Bookmakers and horseracing operators took bets on lotteries results including sports stakes and this was contravention of the Lotteries Act. There had been proposals to introduce greyhound or dog racing as a form of racing and gambling. The activity was said to be taking place in the country despite the standing ban imposed by the Transvaal, Free State, Natal and the Cape Ordinances. There were concerns regarding enforcement of animal welfare standards. With relaxed enforcement, online gambling had become a challenge for South Africa given the capacity to regulate, the extent of problem gambling and other social issues arising from gambling. More still needed to be done to determine the impact this form of gambling would have on the brick and mortar gambling operations considering benefits already derived from them.

South Africa had to consider its current environment as well as the need to minimise the socio-economic effects of gambling. The choice to be made should be the one that created stability and provided a significant contribution to job creation. On assessment, online gambling promised financial contribution by way of tax revenue, but had limited employment opportunities. At this point, the recommendation was to improve regulation and viability of the current modes and the proposed new forms of gambling should remain illegal as the benefits were unlikely to outweigh the harm.

Discussion

The Chairperson said the draft policy had been gazette and published for comments and was subject to amendment based on the comments received during the process.

Mr A Williams (ANC) asked what percentage of the GGR was paid back to the gambler. It seemed that the GGR for the 2014/15 financial year of 9.6% was a significant increase from the 2013/14 financial year. He asked if the figures of previous financial years were available and if it was a trend that when the population was under financial pressure (over indebtedness and poverty), they tended to gamble more.

Ms Estelle Jonkheid, Research Manager, NGB, replied that the NGB monitored turnover which was regarded as the Rand value of money wagered and it included recycling. The GGR was the Rand value of the gross revenue of an operator i.e. turnover less winnings paid to players. The NGB monitored the returns to players and it was roughly 94% in the horseracing betting environment and sometimes significantly lower because it varied. In the casino and bingo industry the return to player figures could be from 93% to 95% which was quite high. There was detailed statistics the NGB could provide and all these statistics were also available on the NGB website which was updated. The GGR increase could be tracked for the last 15 years and this was also available on the website.

Ms Zodwa Ntuli, Deputy Director-General: Consumer and Corporate Regulation Division, DTI, replied that the Department in 2008/9 during the global financial crisis reported that the gambling industry was the only sector growing at a consistent rate of around 10% during that time. It could be an indication that even though people were financially depressed they were still gambling.

Mr Williams said in 2013 the turnover was R281 billion and the GGR was R20 billion and he asked how much money people were essentially spending on gambling activities because the GGR was basically the surplus/profit that licence holders were making.

Ms Jonkheid said turnover was money paid over and over and it was difficult to determine how much was being gambled, however the University of South Africa (UNISA) had provided some figures around turnover contained in the NGB’s economic impact report and it would be made available to the Committee. 

Mr G Hill-Lewis (DA) said it was concerning that the presentation argued against proliferation, but proliferation was exactly what was happening in South Africa already without any action form the DTI or the NGB to prevent it. The proliferation of bingo and limited payout machines (LPMs) across the country was just as harmful as the other forms of gambling mentioned in the studies and the aversion to proliferation seemed to be selective. In terms of the different modes of gambling, bookmaking and totes seemed to be clumped together as one mode and it was actually very different and should be separated in the presentation and in the policy. It essentially meant there were five legalised gambling modes in South Africa.

Ms Ntuli agreed and said proliferation had been one of the terms of reference for the GRC to look at. From a policy objective perspective, proliferation was a critical issue to monitor and there were trends around certain modes of gambling that had expanded to other areas. It was however not something that could not be dealt with, hence the policy proposal. 

Ms Jonkheid replied that there was a distinction between bookmaking and totes in terms of statistical monitoring and the related statistics were also available. It should be noted that for this financial year it showed for the first time that sports betting overtook all other GGR modes and it was now the highest GGR generator in the racing and betting industry.

Mr N Koornhof (ANC) referred to the policy problem that showed a lack of effectiveness of the National Gambling Policy Council (NGPC) due to constant lack of quorum. He asked how many times the NGPC had met or tried to meet last year.

Mr Netshitenzhe confirmed that the NGPC had been able to meet on 2 September 2014, but did not have a quorum for the subsequent scheduled meeting on 5 March 2015. All the provinces agreed that regardless of quorum, a decision should be taken at the scheduled follow-up meetings.

The Chairperson replied that these meetings could be classified as fruitless expenditure, because a meeting that was called but could not quorate was at a cost to the fiscus. She referred to the court decision halting the licensing of electronic bingo terminals in Gauteng and the various provinces that revised their legislation to allow this without policy. She asked how many provinces were operating by abusing loopholes in the current legislation. She asked in which areas the misalignment and contradiction of national and provincial legislation specifically were and perhaps a matrix could be provided. She also wanted to know where the abuse was recurring in terms of loopholes in the legislation and which provinces were operating in terms of interactive gambling. A few years ago it had been made clear in newspapers and in the broader media that some provinces were exploiting some loopholes.

Ms Ntuli replied that the constitutional concurrent jurisdiction relied heavily on all the parties to cooperate in order to be successful. It was one of the main challenges that necessitated the review in 2002, because there was no coherence or alignment and half the time in the meetings people would be fighting about territory. The review led to the establishment created the NGPC structure to extend the level of commitment in terms of cooperative governance. This structure, made up of the Minister and the MECs, needed to take positions around matters speaking to the harmonising of these misalignments. It was supposed to be a very cordial forum where all the parties achieved coherence so that there was no contradiction in the country on gambling issues. The assessment done by the Gambling Review Commission (GRC) reported that the NGPC was not effective and that the lack of quorating meetings was the cause of the ineffectiveness of the Council. In 2008, the NGPC had not quorated in the previous two years and it had been an ongoing challenge. The NGPC then discussed what could be done to ensure that the meetings were attended and that decisions could be made and there had been agreement on several steps. All the possibilities had been explored around making it easier to meet by planning the schedules at the beginning of the year so that everybody knew the schedule upfront. It had really been the nature of their commitments that resulted in people not being able to make the meetings. It was agreed that participation would improve and initially the meetings had been held in Cape Town because most members agreed that Cape Town was the most appropriate venue. This had since been changed and the meetings were now being held in Johannesburg at the airport so that there was not a need to be driving in and out of the city. It should be acknowledged that there had been improvement, but it was not sustainable. Commitment had been shown to the process by all members in the proposals that a decision had to be reached by the second meeting and the round robin process. The problem was also caused by provinces rolling activities out that did not align with the policy. There were only four modes of gambling allowed in South Africa and bookmaking was not a fifth mode as claimed by Mr Hill-Lewis.

In terms of the specific misalignments, Ms Ntuli replied that electronic bingo terminals were one of the first issues that created misalignment.  The NGPC indicated that the electronic version of bingo should not proceed until there was a framework that resonated within a policy. One of the terms of reference given to the GRC was to look at whether the current regulatory framework allowed for technological developments so that it did not unnecessarily restricted development. Some provinces moved ahead and amended their legislation to allow for electronic bingo terminals without the policy framework in place. One of the main challenges was also that provinces could amend legislation in their provincial legislature even if it was not the policy of the country. Countless letters had to be written just to explain the implications of such actions and the Minister had shared that correspondence with the Committee. Two licences had been issued, one issued by the Western Cape province and the other by Mpumalanga provinces, to operators that were operating online currently outside the context they should be operating in. The Minster had been interacting directly with the MEC of the Western Cape on this issue and there had been a commitment that it would be addressed. The licences had been issued under the default provision that allowed for “any other mode” and it was used to interpret the policy and the legislation incorrectly. In licensing, the lottery was a national competence regulated under the Lotteries Act. Getting involved with something similar to a lottery was illegal, because the Lotteries Commission should authorise and regulate those kinds of activities. The criteria provinces had around LPMs varied so much that it had unintended consequences. The lack of growth in the LPM sector had been a consequence of the misaligned requirements and it would also be addressed. There had been disagreement between the NGB and Provincial Licensing Authorities around licensing the central monitoring system operator. It became a significant issue that had to be mediated by the Department. If the structure that had to ensure that this alignment happened functioned properly, most of these things should be avoided. The Minister should raise these matters in the political sector so that it could be resolved there. Another option could be for the Minister to request provinces to align or legal action had to be considered against provinces as a last resort.

Mr P Mantashe (ANC) asked what would change once the NGB became the NGR.

Ms Ntuli replied that the Department had a process that assessed the effectiveness of all its regulatory institutions in terms of decision making and operations. It became clear that a board structure was not an appropriate structure for a regulatory entity on issues of enforcement especially. The Department undertook to relook at the structure of entities and when the National Credit Amendment Act was processed, the legislation was amended to remove the board as a structure within the National Credit Regulator (NCR). Consequently the NGB was supposed to be following the same process to create effectiveness and speed in terms of decision making. The GRC indicated that there was some form of duplication in the current role of the NGB and the role of the provinces. The NGB should not be issuing licences, but rather focus on its role of regulating and looking at issues that enforced illegal gambling and proving statistics needed to monitor the market.

The Chairperson said FICA would be briefing the Committee in the near future on related issues and asked how the flow of money would be regulated. She suggested that Members, the Department and the NGB read up on the report by the Hong Kong Horseracing Association which would be made available.

Ms Ntuli replied that the expertise and resources of government needed to be coordinated to be able to do this effectively and to have an industry that was also protected against illegal operations. There were devices that, if government would be able to procure them, would be able to detect illegal online gambling. Most of the countries that had these devices did not have appropriate legislation in place that allowed for the devices to be used. This policy proposed that the legislation should allow some devices to pick up and monitor online gambling when it happened. The central monitoring system in terms of LPMs worked where all the machines were monitored. Internet Service Providers (ISPs) should be enabled through legislation to help government detect websites and operations that should not be operating in this country. From a trade perspective the Department would negotiate with some of its trading partners to ensure that companies did not operate illegally in the country. The Department believed that resources would be available and once the process had gone through the Cabinet, DTI would be in a position to provide the Committee with a business case. The proposals in the policy document sought to balance all the interests, policy objectives and the social impact. The Department’s proposal was to consolidate and regulate the industry better and focus energies on assisting the current modes of gambling that were currently struggling because of illegal online gambling. DTI would be providing a report later in terms of horseracing on some of the things the Department had been dealing with outside of the policy.

The Chairperson thanked everyone and the meeting was adjourned.