Phumelela Gaming & Leisure Limited has explained its decision to take the Gauteng MEC for Economic Development, Agriculture and Environment, to court over amendments to the Gauteng Gambling Regulations.
This litigation was instituted shortly before the amendments became effective but was pended to allow settlement discussions to take place.
However, following lengthy negotiations with the Gauteng Gambling Board, who have been acting on behalf of the MEC of Economic Development, Ms Morakane Mosupyoe (pictured below) and her two predecessors, the parties were unable to reach a mutually acceptable settlement and Phumelela decided to continue with its litigation.
Ms Mosupyoe said last week that she found it “unfortunate” that a breakdown had occurred in settlement negotiations with the racing operator, but Phumelela insists that it had no option but to continue with its review application.
Phumelela told Turf Talk that the amendment to the regulations represented a loss to the company amounting to approximately R75-million per year.
This is comprised of half of the 6% bookmakers’ levy on punters’ winnings on bets on horseracing. This levy was one of two funding mechanisms put in place in an MOU signed between the then MEC and the racing industry to help the industry to survive.
This MOU was concluded after the collapse of the industry following the legal introduction of other forms of wagering in the late 1990’s. The second funding mechanism was the understanding that Phumelela would effectively hold an exclusive tote licence.
John Stuart, Group CEO of Phumelela, commented: “There is more to this case than the MEC cares to reveal, starting with the fact that we’ve had to deal with three MEC’s in the last year following reshufflings in the Gauteng government, and ending with the MEC failing to accept an agreement reached between Phumelela and the Gauteng Gambling Board.
Stuart added: “We had numerous meetings with the Gauteng Gambling Board and a couple of interactions with the two previous MEC’s following the removal of the levy. This culminated in a settlement agreement being approved by the Gauteng Gambling Board and referred to the MEC for approval, in August 2019. This agreement included the reinstatement of the levy, alongside certain conditions such as, increasing B-BBEE shareholding in Phumelela to 26% and the setting up of a trust to enhance transformation. This agreement had previously been approved by the Phumelela Board.
“Thereafter we continued to engage with the Gauteng Gambling Board, but by mid-November 2019, the MEC had not reverted regarding the settlement agreement. At that stage we advised the MEC that the continued inaction left us no alternative but to continue with the pended legal action, noting however that our preferred option would be a settlement and requesting a meeting with her to discuss this.
“The MEC requested a further three weeks to review the records of her predecessors and we agreed to that with the proviso that there would be no more delays thereafter. We did not hear from her offices regarding a settlement meeting but in the meantime legal proceedings were in motion.
“Then, in December, we received a revised signed settlement agreement that differed substantially from the one that the Phumelela Board and Gauteng Gambling Board had agreed in August. If we had adhered to the revised terms of the agreement it would have put Phumelela into liquidation and a collapse of Phumelela would have a disastrous impact on the South African horse racing industry that employs approximately 43,000 people, on either a permanent or temporary basis. We therefore had no choice but to continue with litigation proceedings. Although, in subsequent communications to her office, we have reiterated that our preferred route is settlement.
“The withdrawal of the Gambling levy is the second major impact on the funding of the industry. In 2006, the courts ruled that the so-called “Open Bet”, which mimics the outcome of the tote, was lawful. The Open Bet has, over subsequent 14 years, cost the Industry billions of Rands.
“The withdrawal of the Gambling Levy has a major knock-on effect on horse racing directly. Approximately R22m of the R75m levy is applied to prize money in Phumelela regions. Together with the ongoing decline in tote turnovers, which drives the stakes pot, the withdrawal will result in a further reduction in stakes after the reduction of 17% already announced this year. Lower stakes result in fewer horses being bred and raced which will result in smaller fields and therefore lower tote turnovers, and so on. As already stated, this will have disastrous consequences for the industry and the 43,000 people it employs.
Phumelela’s Racing Executive Patrick Davis confirmed: “In effect, our regulators have removed the two funding mechanisms for the sport – agreed by government at the time of corporatisation back in the late 90’s. Phumelela has had to carry racing on its own, we’ve had to fund racing with little or no assistance from other industry stake holders.
Davis continued: “The annual cost of racing in Phumelela regions is approximately R450 million. Of this Stakes, riding fees and the NHA levy amount to R287 million. The balance is applied to inter alia, maintaining racing and training surfaces, racing and training centres, horse transport services, grooms quarters, security and the Jockeys Academy.
Davis added: “Phumelela also subsidises stake holders (predominantly trainers) to the tune of R50 million per annum, mostly on stabling and training tracks. In addition, Phumelela contributes around R2 million per annum to the National Horse Trust as one of its many CSI projects.
“Also, although Phumelela does not employ the grooms in the industry, it has spent in excess of R40 million on grooms’ accommodation over the past 15 years.”
Stuart concluded that “with the withdrawal of the two funding mechanisms Phumelela is virtually the sole contributor to horse racing and what we are doing now is trying to save the industry and the 43,000 jobs that go with it.”
- Turf Talk