The Standing Committee on Finance, Economic Opportunities and Tourism held virtual public hearings on the Western Cape Nineteenth Gambling and Racing Amendment Bill. The Committee received input from various stakeholders.
The Western Cape Provincial Treasury informed the Committee that the Western Cape Gambling and Racing Board is experiencing a shortfall in funding for the current year. As a result of the loss of exclusivity fees paid by casino and gambling machine operators, the board had become increasingly reliant on transfer payments from the Provincial Treasury which faced dire spending cuts. The amendments aimed to make sure that the regulator had an independent source of income to ensure that it was self-sufficient and that gambling was regulated appropriately.
The Amendment Bill would re-introduce the limited gambling machine operator fee, introduce a casino operator fee and provide for certain fees to be paid to the board and no longer to the Provincial Revenue Fund.
The Western Cape Gambling and Racing Board told the Committee that it welcomed the statutory amendments to address the loss of revenue. The proposed amendments would fast-track the board’s objective of becoming self-sufficient in line with a policy determination by the Provincial Executive Council.
The board recommended that the committee consider amendments it had proposed to address quorum prescripts impacting on the functioning of the board.
Sun International submitted that it was not an established principle that an industry should fund its own regulation. The board already was funded through the payment of annual license and investigation fees. The focus in funding the board was on only two categories of licensees. The provincial government and the board had not provided sufficient information to support the substantial fees.
The National Gambling Board pointed out the Bill introduced a new casino operator fee, but the Western Cape Gambling and Racing Act of 1996 and the Bill did not define an operator fee. It said the proposed limited payout machine (LPM) operator operator fees, along with the deletion of the ten year exclusivity period, might entrench monopolies and create higher barriers to entry. The Bill was not clear if the proposed LPM operator fees applied per site operator or per route operator. The rationale for the increase in LPM operator fees from a minimum amount of R50 000 per annum to a minimum amount of R1,953 million per annum was not clear and translated to an almost 4 000 percent increase.
Prof Peter Collins proposed that all provincial gambling boards should be funded from the total license fees paid by gambling companies and distributed pro rata on the basis of gross gambling revenue in each province. The budgets of all regulatory budgets should be based on properly costed deliverables, including treatment, prevention and research activities designed to minimise gambling-related harms. Mechanisms should be put in place for assessing the effectiveness of these measures.
Tsogo Sun and Vukani Gambling said the legislation had to meet the threshold of rationality. The principle of rationality was foundational to South Africa’s constitutional framework. When a government adopted legislation it had to ensure the legislation did not constitute a legal barrier to persons seeking to exercise their rights. If one chose to exercise one’s trade through the gambling industry, it was important that a government did not pass laws that made it too onerous or burdensome.
Tsogo Sun proposed that the legislature assist in rebuilding the industry by temporarily insulating the industry from new forms of gambling. In exchange the legislature would impose a fee of 0.5 percent of gross gambling revenue on each casino for the next five years.
Vukani Gambling said the industry should be allowed to rebuild itself as opposed to imposing a measure that had the potential to bring it to the brink of ruin.
Members wanted to know if self-regulation by the industry was something that could be achieved and whether it was possible for the Western Cape to increase its revenue from gambling.
Briefing by Provincial Treasury
Mr Anthony Phillips, Chief Director for Public Policy Services, Western Cape Provincial Treasury, informed the Committee that the Western Cape Gambling and Racing Board (WCGRB) was experiencing a shortfall in funding for the current year. As a result of the loss of revenue streams, the board had become increasingly reliant on transfer payments from the Provincial Treasury. There were dire spending cuts coming, and the amendments aimed to make sure the regulator had an independent source of income.
Creating an independent agency was no easy task and required among others, providing a reliable source of funding, usually through earmarked levies on regulated firms or consumers. The Western Cape Government had adopted the principle that the cost of regulating the gambling industry be borne by the regulated firms. Financial self-sufficiency was a requirement for the independence of the board.
The aim of the Amendment Bill was to ensure increased revenue so that the board remained self-sufficient and the gambling industry was regulated appropriately. It would compensate for the loss of exclusivity fees paid by casinos and limited gambling machine (LMG) operators whose 10-year exclusivity periods had expired. It provided for casino operator fees to be paid in perpetuity and for the deletion of the 10-year limitation on the payment of the LMG operator fees. The fees would be based on the number of LGM machines licensed by the WCGRB. The Bill also provided for the board to retain certain fees instead of transferring them to the Provincial Revenue Fund. The fees amounted to approximately R3.341 million in 2019/20.
Mr Phillips said it was not appropriate to compare fees and costs across provinces as there were differences in legislation, funding models, the size of the industry and the forms of gambling rolled out. The province had adopted a progressive system of taxes which used higher taxes on big players like casinos to reduce the tax burden on marginal industries and new entrants.
The Nineteenth Amendment Bill, before the Committee, dealt only with matters related to promoting the financial self-sufficiency of the board. Matters related to the relocation of casinos would be dealt with in the Twentieth and Twenty-first Amendment Bills.
The Provincial Treasury recommended that the Committee facilitate the passage of the Bill. A well regulated gambling industry benefited the citizens of the Western Cape, the industry and the provincial fiscus by helping to protect punters from unscrupulous illegal gambling sites, protecting the market share of legal gambling sites and supporting innovation at the board.
(Graphs were shown to illustrate funding streams of the Board; efficiency comparison across gambling boards; and growth in gambling revenues.)
Briefing by the Western Cape Gambling and Racing Board
Ms Yvonne Skepu, Manager for Legal Services, WCGRB, told the Committee that the board welcomed the statutory amendments to address the loss of revenue due to expiry of exclusivity and route operator fees. The proposed amendments would fast-track the WCGRB’s objective of becoming self-sufficient, in line with the Western Cape Executive Council’s gazetted policy determination that required the board to become financially self-sufficient “as soon as possible.”
The WCGRB requested the Committee consider comments which were submitted to the Provincial Treasury during July 2018. They drew attention to a quorum risk where vacancies at the board meant that, for some months in past financial years, it had operated with only five members. The WCGRB proposed an amendment to permit the Provincial Executive Council to extend the term of office of a member of the board for a period not exceeding three years, instead of one year. It proposed that a quorum be defined as the majority of elected members. The proposed amendment was in accord with both the National Gambling Act’s quorum stipulation and most provincial gambling legislation.
A three-year extension to a term of office was preferred as the gambling industry was fairly specialised and it took new board members approximately two years to get to grips with the industry and the legal landscape. The board had three industry specific sub-committees on which board members served as well as three further administrative sub-committees. Extended terms would allow board members to add most value. They would allow for continuity on the board and the expiry of terms could be staggered to retain institutional memory.
Briefing by Sun International
Mr Nick Altini, Partner at Herbert Smith Freehills, submitted that it was not an established principle that an industry should fund its own regulation. The WCGRB was already funded through the payment of annual licence and investigation fees. The focus in funding the board was on only two categories of licensees.
The provincial government and the board had not provided sufficient information to support the substantial fees.
He said Sun International could not consider the proposal in the absence of consideration of the Twentieth and Twenty-first Amendment Bills. The effect of the proposed fees and taxes would be an onerous, confusing, complex and overly burdensome regime. The Grand West Casino, specifically, would be required to pay substantial fees linked to exclusivity in circumstances where it would lose exclusivity. The proposed legislative regime would cause substantial harm to the industry with no effective benefit.
The COVID-19 pandemic and the National State of Disaster had had a devastating impact on gambling operators. Casinos had been trading under very stringent limitations. Limited payout machine (LPM) operators had been operating for only a few weeks. The pandemic had severely impacted revenue generation ability. Further increases in costs carried the real risk of closure and job losses. Funding for the WCGRB might be obtained through the amendments, but it would be disastrous for the industry.
Briefing by the National Gambling Board
Ms Sibahle Nqwata, Legal Advisor, National Gambling Board, pointed out that the Bill introduced a new casino operator fee, but the Western Cape Gambling and Racing Act of 1996 and the Bill did not define an operator fee.
The proposed LPM operator fees, along with the deletion of the ten-year exclusivity, might entrench the existence of monopolies and create higher barriers to entry. The Bill was not clear on whether the proposed LPM operator fees applied per site operator or route operator. Further clarity was sought on whether the proposed LPM operator fees were applicable to allocated or installed LPMs. LPM operator fees must be market related and affordable to the gambling industry. It was not known whether there had been an analysis of the feasibility of the increased LPM operator fees being payable by the existing market.
The proposed increase in the LPM operator fees called into question the issue of transformation in the gambling industry. One of the main factors that a potential new entrant considered was the cost of licensing. Such high fees deterred new entrants into the industry and entrenched monopolies within the gambling industry. This could lead to fewer historically disadvantaged individuals being able to participate in the gambling industry.
Ms Nqwata said the rationale for the increase in LPM operator fees from a minimum amount of R50 000 per annum to a minimum amount of R1,953 million per annum was not clear and translated into an almost 4000 percent increment. An affordability assessment should be conducted to ensure that the proposed LPM operator fees were affordable to the existing market. The proposed substantial increase in LPM operator fees might be a deterrent to the Government’s transformation agenda.
Briefing by Prof Peter Collins
Prof Peter Collins stated that small amendments raised big issues about the regulation of gambling. The issues were largely generic and global and related to how citizens’ choices should be restricted in the furtherance of the public interest.
Covid-19 had not changed anything fundamental but responses to it had accelerated some things which were changing anyway and revealed many growing dysfunctionalities which were previously being ignored. The lockdown might be a medium-term opportunity albeit a short-term calamity. It presented a chance to make many things better, and to address issues that would eventually have had to be addressed anyway.
He pointed out key dysfunctionalities. There were inadequate prevention and treatment measures to help problem gamblers, their families and others affected by excessive or compulsive gambling. There was inadequate knowledge of participation and problem gambling rates amongst gamblers at both legal and illegal venues. There was unregulated high stakes gambling via the internet and massive advertising thereof through a legal loophole. There were interprovincial inequities.
Prof Collins proposed that WCGRB and all provincial gambling boards should be funded from the total licence fees paid by gambling companies and distributed pro rata on the basis of gross gaming revenue (GGR) in each province.
The WCGRB budget, and all regulatory budgets, should be based on properly costed deliverables, including treatment, prevention and research activities designed to minimise gambling-related harms. Mechanisms should be put in place for assessing the effectiveness of these measures.
All regulatory bodies should collaborate in ensuring that only companies which were regulated and taxed in South Africa were allowed to advertise in South Africa. This would provide a major advantage to South African companies and encourage foreign companies who wished to attract South African customers to establish a business here. To be licensed in South Africa, companies would have to have a credible strategy for minimising gambling-related harms.
Briefing by Tsogo Sun and Vukani Gambling
Adv Karrisha Pillay said when a government chose to legislate on something, it had to ensure that the legislation met the threshold of rationality. The principle of rationality was foundational to the SA constitutional framework.
The central objective of the Bill was to ensure that the WCGRB was able to be financially independent. The question was whether the means the Bill adopted met the threshold of rationality. It was not about how it impacted on a particular industry player, but about whether or not the law, objectively considered, passed this threshold of rationality. A second consideration was whether or not it would result in an impermissible infringement of any constitutional right.
At the heart of amendments of this kind were the rights protected by Section 22 of the Constitution. When a government adopted legislation, it had to ensure the legislation did not constitute a legal barrier to persons seeking to exercise their rights. When one chose to exercise one’s trade through the gambling industry, it was important that the government did not pass laws that made it so onerous or burdensome that it placed impermissible limits on how one went about one’s business. It was important to decide whether the Bill was rational when viewed against its objectives and the means it chose to meet those objectives, and to see if it placed an impermissible burden on present casino operators and LGM operators.
Objectives of the Bill were to ensure the fees were paid to the Board instead of the provincial revenue fund and to provide for casino and LGM operator fees. The fees that would be imposed were substantially higher than they were previously.
The fundamental objective of the Bill was that the costs of the WCGRB were defrayed and that it was financially self-sufficient, and the industry paid for its own regulation. The question was whether the casino operator fees and LGM limited gambling machine operator fees would result in the ultimate objective of the industry paying for its regulation or whether the effect was to leave the casino and LGM operators with the bulk of the fees. The effect of the Bill right now was that it disproportionately loaded the two route operators, Vukani and Tsogo, and the casino operators.
A second ground of objection was how these fees had been calculated. It was a time of economic hardship for both government and the industry players. The fourfold increase in relation to the LGM operator fees and the fact that the casino fees were based on the original value of the casino, irrespective of profits, were impermissibly excessive.
A third ground of objection was that, while the one inherent value in the Bill was that it facilitated the WCGRB’s independence through financial self-sufficiency, it did so through the mechanism of route operators and casino operators. This could have a perverse consequence of impeding the independence of the board. For example, in considering whether a licence should be revoked because of a transgression, it would no longer be purely a question of whether a threshold had been met or not on objective grounds, but also whether the consequence of revoking would undermine a particular industry revenue stream. If legislation had the potential to undermine the founding value of the board, it had to be examined harshly to see if it was justified in those circumstances.
The last ground of objection was the question of the timing of legislation. Just as the government was facing an unprecedented economic predicament, so too were those in the industry. It was not the right time to be imposing something like this on this scale. .
Tsogo Sun and Vukani had two proposals aimed at recognising the harsh balancing act that the provincial government had to undertake. Tsogo Sun proposed that the legislature assist in rebuilding the industry by temporarily insulating the industry from new forms of gambling. In exchange, the legislature would impose a fee of 0.5 percent of gross gambling revenue (GGR) per annum on each casino for the next five years.
The Vukani proposal acknowledged the revenue raising efforts of the provincial legislature and accepted that certain measures were necessary. The core of its proposal was that the industry should be allowed to rebuild itself as opposed to imposing a measure that had the potential to destabilise the industry and bring it to the brink of ruin.
Mr A Van Der Westhuizen (DA) wanted to know if it was possible to strive for the industry to regulate itself. He asked if it was possible for the Western Cape to increase its revenue from gambling and whether it was necessary to subsidise the WCGRB.
Prof Collins said it was important to think of objectives like fighting crime, fighting money laundering, protecting the vulnerable and ensuring fairness to players. There was a need to devise public awareness programmes and conduct research. These activities needed to be costed in terms of normal market forces and as a percentage of gross revenue. The industry should be charged on gross revenue. Then if the industry was happy with that, the regulator would be happy to carry on with activities which they deemed necessary to minimise gambling harm. The licensing system needed to be changed. Money should be distributed between provinces to avoid the existing disparities.
Ms E Brand, attorney at ENSafrica, indicated that Tsogo Sun and Vukani had already made proposals to assist revenue raising efforts. She stated they were unable to quantify the total amounts of GGR and could only quantify for three casinos. If revenue was not sufficient, other industry players like online gambling and other licensees should be looked at to fill the gap and support revenue raising efforts.
The Chairperson asked what Sun International’s view was of the proposed fee of 0.5 percent of GGR.
Mr Altini said he did not have a view on that but could come back to the committee with a view. He said there was a need to assess the regulatory function of the board and to work out the costs associated with that and come up with the means to fund it. Should there be a shortfall, and if there was justification for that shortfall, a proposal could be made.
Mr Phillips said the provincial government had to fund many functions, such health, roads and education. Gambling and LPM operators were given a right to trade in a specific place. There were statutory functions performed by the Board to protect the industry. An amount of R175 million was being spent annually to finance the Board. Five licences had been issued for operating casinos. It was important to consider the size of the industry and geographical space. There were checks and balances to ensure the board remained independent in terms of governance and finances. Three thousand LPMs had been approved throughout the province.
The Chairperson adjourned the meeting.
- Vukani Gaming Western Cape (Pty) Ltd submission
- Economic Opportunities & Tourism: Western Cape Nineteenth Gambling & Racing Amendment Bill
- National Gambling Board submission
- Prof Peter Collins submission
- Sun International submission
- Provincial Treasury: Western Cape Nineteenth Gambling & Racing Amendment Bill
- Tsogo Sun Holdings Limited submission
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