National Lottery

Meeting report

PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY
9 February 2000
NATIONAL LOTTERY

 

Lotteries Act, No 57 of 1997
Presentation on the South African National Lottery (see Appendix 1)
Draft committee programme (see Appendix 2)

SUMMARY
The committee was briefed on the characteristics of the national lottery which launches in March 2000 and the functions of the Lottery Board.

The Lottery Board's only gripe with the current Act is that too many people are excluded from participating in the lottery. All Post Office and Spar employees, for example, are prevented from participating. It recommended that this provision be amended.

MINUTES
Mr Foster (chairperson of the Lottery Board) and Professor Ram (CEO of the Lottery Board) gave a presentation on lotteries as envisaged in the Lotteries Act.

Synopsis of their presentation
The National Lottery Act establishes the National Lottery Board. The Act also sets up the process for awarding a licence, the monitoring, and the distribution of licences. Further, the Act prescribes how the Board should be comprised. It must consist of seven people including one legal practitioner, one chartered accountant, one businessperson and one person designated by the Minister.

The elements of a successful lottery were described as being its accessibility, its prizes, a fair and impartial draw, and the reliability of the method of recording wagers. The draw is set to be made weekly on Saturday evenings on SABC 2.

The committee was assured that various measures would be taken to ensure lottery security. These measures include counterfeit avoidance (each lottery ticket has a serial number) and also detection (if tickets were stolen, for example, they could be tracked).

Of the money received from ticket sales: 1% would go to the tax department, 5% would go to ticket retailers as commission, 30% would go to the National Lottery Distribution Trust Fund, 50% for prizes, 13% on costs and 1% on profit.

Functions of the Lottery Board
1) An important function of the Board is the protection of the lottery players. This relates to ensuring that there is security around the prize payout and there is sufficient funds for the prize payout. Until the prize payment system is developed the money will be kept in trust at Syfrets to ensure that there are funds to pay out the winners of the first draw.

2) It has also been arranged that counselling be provided for winners (if they wish) to assist them with handling (investing, and so on) the money that they have won.

3) The Board is also working with the Gambling Board to combat the problem of compulsive gambling.

4) It is also the Lottery Board's function to administer the National Lottery Distribution Trust Fund (NLDTF) when it comes into existence. Thirty percent of the money received from tickets sold will go to the NLDTF. They are currently looking at which bank they will choose to handle this business. They are in the process of getting quotes from various bidders, and, on the basis of this information, they will then make their choice.

The main problem that the Lottery Board has with the Act at present, is the fact that too many people are excluded from participating in the lottery. At present, for example, all employees of Spar, and the Post Office are prevented from participating in the lottery. The Board feels that this provision, which excludes thousands, is in fact counter-productive. They recommended that this provision be amended.

Mr Foster concluded by saying that the Board will have a computer linked to the banking account of the company running the lottery so that they can monitor all the traffic on that account. The Board will also have a computer link access to view number of tickets sold and at which outlets.

Discussion
A committee member asked about ticket cost, the procedure for winning, as well as what consideration had been given to giving this money to civil society and NGOs to distribute, instead of giving it directly to government departments for distribution.

Mr Foster replied that the tickets would cost R2,50 each. The procedure would be that the player could choose 6 numbers out of 49. The retailer would then enter the player's choice into the machine terminal which would then issue that ticket. A player could win a prize with a minimum of three matching numbers (different prizes are awarded in accordance with the number of matching numbers).

Responding to the second question, he said that government departments were not involved as this was prohibited by the Act. The Minister of Welfare and the Minister of Trade and Industry will appoint a distributing agency to distribute the money. This distributing agency would be an independent board and could even be an organisation. Mr Foster noted that he felt that it should have as few people as possible as these people would have to be paid.

Mr Bruce (DP) said that if the Lottery Board had the monopoly of power then that would mean that the smaller lotteries would have greater hardship. He asked for an explanation and why Syfrets was currently involved in looking after the money.

Mr Foster said that he had heard stories that once this Act came into being, not even school bazaars would be able to operate. He dismissed such remarks as being ridiculous. Currently, regulations, which are subject to the Minister, are being reviewed. He noted that charities could access money from the lottery by sending an application for a grant to the distribution agent.

Regarding the Syfrets matter, he said that they were currently looking after the available money as they had submitted the lowest tender.

Dr Davies (ANC) asked if there had been a social impact assessment and Professor Ram replied that many consumer studies had been done.

Mr Moosa (ANC) noted that their processes (for example, the security they provide) must be very expensive. He asked how they would be regulated in the future. Would the lottery or the State pay these expenses?

Mr Foster replied that there were three companies who had made a bid for the licence. Each company had to pay an amount of R1.5 million, plus VAT for this opportunity. The Act provides that the Board can take a percentage of the money to run itself. Mr Foster said however, that they would prefer to be entitled to use the interest from the fund, rather than being given a particular percentage.
They were in the process of asking the Minister to give effect to this request. He concluded by saying that the Auditor General would audit the Board's accounts annually.

Appendix 1:
The South African National Lottery
A Presentation by The National Lotteries Board

Joe Foster (Chairman)
Vevek Ram (CEO)

Presentation Format
Technical & Security Aspects of the Lottery
· · The Lotteries Act and functions of the National Lotteries Board

Technical & Security Aspects of the Lottery
What is a Lottery?
· · Lottery Systems & Networks
· Lottery Security

What is a Lottery?
includes any game, scheme, arrangement, system, plan, promotional competition or device for distributing prizes by lot or chance
Raffle
· Lottery · · Fafie (M'China)

Elements of a Successful Lottery
Reliable Method of Recording Wagers
· · Accessibility
· Fair/Impartial Draw
· Prizes

Online Lotteries
Recording the Transactions (Wagers)

Central mainframe : Retailer terminal

The Lottery Network
[ Ed Note: Diagram not included]

The Draw
[Ed Note: Table not included]

Lottery Security
Ticket Security
· - Counterfeit Avoidance & Detection
- Tracking
· System Security
- Multiple Logging & Audit Trails
- Validation Controls
- Game Cut off
- Encryption of Transactions
· Physical Security
- Access Control and Surveillance

Lottery Security
[Ed note: diagram not included]

· Retailer terminal - Transaction processor - Central system (linked to Independent Verification System) - Backup System.

The National Lotteries Act and the National Lotteries Board
The Lotteries Act
· · The Board and its Functions
· The Licence to operate the National Lottery
· The National Lottery Distribution Trust Fund
· Allocations from the NLDTF
· Projected Revenue
· Forthcoming Attractions

The National Lotteries Act
Establishes the National Lotteries Board
· · Sets up the process for awarding the licence
· Establishes the National Lottery Distribution Trust Fund (NLDTF)
· Sets up the process of Distribution
· Sets up process for monitoring & Regulating
- Private & Society Lotteries
- Promotional Competitions

The National Lotteries Board
Functions of the Board
· Advise the Minister
- on the issuing of the Licence
- on the percentages allocated
- on the efficacy of Legislation related to Lotteries
· Protection of Players
· Maximise proceeds to good causes
· Administer NLDTF
· Monitor & Regulate Other Lotteries

Process of Awarding the Licence
RFP
· · Receipt of Bids
· Oral Presentations
· Evaluation Process
· Site Visits
· Preferred Bidder
· Negotiating terms of Licence
· Licence Award
The National Lotteries Distribution Trust Fund
(NLDTF)
· The fund is held in trust and is administered by the Board
· Monies not immediately required can be invested by the Board

Payments to the NLDTF
[Ed note: graph not included]
· Prizes 50%
· NLDTF 30%
· Costs 13%
· Commission 5%
· Taxes 1%
· Profit 1%

Allocations from NLDTF
RDP
· · Sports and Recreation
· Arts, Culture and Heritage
· Welfare
· Miscellaneous

Projected Revenues:
Over the Seven Year Licence Term
· National Lottery Sales
R50 billion over the licence term (inc. VAT)
Over R6 billion per annum on average
· Retailers
R2.2 billion in commissions
Average annual income over R35 000 per retailer
· Suppliers
Over R8 billion in goods and services
0ver 80% to South African businesses
· Prizes to Players
R24 billion in prizes
Over 500 000 winners per week
· Other Benefits
R500 million from other taxes
R800 million earned by new SMMEs
327 new jobs in Uthingo
Over 50 000 other new jobs
Flow on benefits over R50 billion
· NLDTF
R13.3 billion in contributions
R1.9 billion in VAT
Return over 40% on all sales over R6 billion

Events
March 2000: Launch of Online LOTTO
· - First Draw on the 11th
· September 2000 Midweek Draw
· August 2000: Launch of Instant Games
· August 2001: Launch of Sports Pools

Appendix 2:
Portfolio Committee on Trade and Industry:
Provisional Partial Programme to 20/3/2000.
9/2/2000 11.00 am
Briefing on National Lottery

14/2/2000 10.00 am
Meeting with Members of British house of Commons Development Committee

16/2/2000 11.00 am
Meeting and Briefing: DG Dr Alastair Ruiters

21/2/2000 10.30 am
Meeting with Danish Parliamentary Group

22/2/2000 9.00 am (Joint meeting with Finance)
Briefing on Micro-Finance Regulation, Mr Allan Hirsch

29/2/2000 11.00 am
Briefing on DTI Budget

1/3/2000 11.00 am
Possible briefing by SARS on Trade Agreements and customs administration

Legislation that may be tabled in quarter and which will be dealt with when tabled:
1. Competition A/B (Bill no 9): before Cabinet 9/2/2000
2. Lotteries A/B (Bill no 11)