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Government – Phumelela Fire Back

Authorities appear to be strangling the industry

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.

John Stuart

John Stuart – setting record straight

“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.

Patrick Davis (pic: hamishNIVENPhotography)

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.”

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18 comments on “Government – Phumelela Fire Back

  1. Cecil Pienaar says:

    I am genuinely surprised that Phumelela and The Govt don’t get on like a house on fire. They so much alike…

    They F….. d up such nice businesses that once flourished….

    True Story

  2. D. A. Pienaar says:

    Just like the President says that the Public Protector had no right to force the government to pass laws to regulate horse racing, the Gauteng Gambling Board had no right to conclude an agreement with Phumelela without the MEC first having approved of it. It looks like Phumelela is running with the hare and hunting with the hounds. I am the horse. I see it all.

    This fundamentally skewed attitude of entitlement to the 3% bookmakers levies that Phumelela demands ownership of, is one of the reasons why Phumelela has few friends and supporters in and out of Government.

    Corporatisation of horse racing took place at the turn of the c
    Century. Phumelela made BEE promises to the Government that were not kept. It is now 20 years too late for Phumelela to start.

    I end off with this question.
    What gives Phumelela a greater right than anyone else to claim half of the 6% Goverment revenue earned on winning bookmaker horse racing bets?

  3. karel says:

    Phumelela should explain how as a battling business (‘the open bet cost billions’) they were able for decades to declare massive dividends.

  4. Harry G says:

    I like the way Davis disingenously says that 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’.
    Ja, us owners put nothing in at all.

    He doesn’t mention fatcat salaries and low output at management level either.

    How the majority of these guys keep their jobs is an indictment on the Phumelela board.

    Same old defensive ‘poor us’ argument every time.

  5. Brendon says:

    In an Announcement issued by Phumelela Gaming & Leisure Ltd on 8 August 2019, Phumelela stated the following:

    “t is estimated that between 120,000 and 180,000 people, many of whom are breadwinners for their families, are employed within the industry in South Africa.”

    vs this article that states:

    “the South African horse racing industry that employs approximately 43,000 people, on either a permanent or temporary basis”

    Based on Phumelela’s numbers, between August 2019 and February 2020 (<7 months) the horse racing industry has shed between 77,000 and 137,000 jobs!!!

    Based on the Phumelela AFS from 2009 to 2018 (10 years), Phumelela benefitted from the receipt of R549,6 million in the form of the 3% Gambling Board Levies. In the same period, Phumelela paid R669,0 million in dividends to shareholders. This illustrates that the 3% contribution from the taxpayer (being the punter) that should have been deployed by Phumelela to develop a more sustainable horse racing was, in its entirety, distributed to Phumelela shareholders as dividends.

    Is Phumelela’s confused on the status of the 3% Gambling Board Levies and the fact that legislation was gazetted to eliminate their entitlement to the 3%? No representative of the GGB or MEC has the authority or mandate override legislation passed by the Gauteng Provincial Government.

    It is my understanding that the amendment to section 276 of the Gauteng Gambling Regulations was gazetted on 28 March 2019 and as such Phumelela effectively lost their 3% of the betting taxes that GGB previously paid over to Phumelela.

    Stuart is saying that Phumelela had negotiated a settlement agreement with GGB in August 2019 (7 months ago) which had:

    “certain conditions such as, increasing B-BBEE shareholding in Phumelela to 26% and the setting up of a trust to enhance transformation”

    WHY HAS PHUMELELA NOT ADDRESSED THESE CONDITIONS IN THE LAST SEVEN MONTHS? OR THE LAST 10 YEARS? Because Phumelela's Execs and Board members were committed to another agenda to promote narrow interest of a few stakeholders and one of self preservation.

  6. WILLIAM MILKOVITCH says:

    What movie would best describe how you feel about the state of SA racing ?

    You might have to nominate a movie for each separate region of our racing demographic….

    Jhbg – The Firm

    1. Editor says:

      Hangover 2

  7. WILLIAM MILKOVITCH says:

    Haaaa Mr. Editor, that’s funny

    I’ll say Cape Racing reminds me of – The English Patient

  8. WILLIAM MILKOVITCH says:

    Kip – Vee Moodley – the police/bomb defuser

    Count Amasi & Caravaggio – Robert Bloomberg and/or Mark Currie, perhaps

    Katharine Clifton – Gaynor Rupert

    I’d like to play the part of the sand storm

  9. Carl says:

    I have not yet obtained confirmation. Apparently the Public Protector and the Gauteng Provincial Authorities are looking at obtaining confirmation from the Courts that Jabu Moleketi had no right to gift Phumelela Gaming and Leisure Limited with fifty percentile of the gambling levies payable on winning horse racing bets taken by Bookmakers. Apparently the Gauteng Gambling Act only allows the MEC to prescribe the amount of the levy to be paid and not to dish it out to any licensee. Apparently, the challenge of Phumelela Gaming and Leisure Limited may end up with egg on the faces of the lawyers and directors and it could end up being held responsible to pay back half a billion Rand to the Gauteng Provincial Goverment in respect of the levies it should never have been gifted. Interesting times.

  10. Ernst says:

    At last the truth emerges for Owners.

    I am an owner in a company that is not a RA member.

    The RA has been as adept as ever to conceal from non RA Owners that stakes were reduced by a whopping amount of 17%.

    In the 20 years since Phum has been around, it has never ever increased stakes by more than 10%.

    In one fell swoop, the RA agrees with Phum to hurt the pockets of all Owners by this massive reduction.

    Why should I and my fellow shareholders go and buy horses at Sales without knowing the future of stakes and horse racing? Owners need assurances from the RA and Phum.

    “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” Words such as these show me that we are being treated like prisoners by Phum. They feed us what they want and expect us to eat it up. It seems to me that Phum may be on the brink of bankruptcy.

    What is the next gruel that we will be served up.

  11. MGram says:

    I find it “gruelling” when Phumelela change facts to suit their agenda.

    How many people rely on horseracing? Ads to counter the open bet stated over 100 000 a very short time back. Now we claim 43 000. I cant believe even these drastically reduced figures the number will be closer to half of this. The only employment they are concerned about is their own pockets look at that bloated executive!

  12. Gerh says:

    @ Ernst,
    Your answer lies in the same article.
    Phumelela has made it crystal clear to every owner that the withdrawal of the 3% “will result in a further reduction in stakes”. It is bad news for every owner and the RA has not said anything to us about this. Who is looking after owners?

  13. Debi Vogt says:

    The RA is a laugh a minute….

  14. WILLIAM MILKOVITCH says:

    The enigste raad wat ek kan gee is die volgende :

    ’n Mens sny ’n hasi oop en druk die water uit di blaas in ’n flessi en dan 2 maal per dag 2 druppels in die oor te doen, en ’n pluisi fan di hasiwater in di oor steek en gedurig nat maak.

  15. Graham HJ says:

    “Phumelela is vitally the sole contributor to SA racing”….ok, so where did the 3% of that 6% originate from Mr Stuart ? So how much is the revenue that generated that tax ?…its called the punter. Mr Stuart you have taken the punters money and handed it to your shareholders……do you see the problem ?

  16. Cecil Pienaar says:

    LoL William….

    Well done with the PA yesterday. It wasn’t easy, but excellent racing.

    Kimberly 10 races, but just a small JP for me, lost all my Windhoek money yesterday

  17. WILLIAM MILKOVITCH says:

    Mr Pienaar, that’s not right, there should be law or a rebate scheme in place to ensure punters get back there beer money.

    If to many favourites win, then I lose my drinking money ?

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