A RECOMMENDATION by a Gambling Review Commission that the tote (TAB) be separated from South African horseracing operators Phumelela Gaming And Leisure Limited and Gold Circle could be the death knell of the sport if accepted by a Parliamentary Committee.

As part of the Department of Trade and Industry’s overall review of the gaming environment in South Africa, the Minister commissioned a gambling review in 2009 and its report was published in July this year.

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Rian du Plessis of Phumelela. (freeracer.co.za)

The report is now being considered by a Parliamentary Committee, which has requested written submissions followed by public hearings towards the end of this month.

Both JSE-listed Phumelela and Gold Circle have tendered submissions and requested an opportunity to address the Parliamentary Committee.

While the Commission has recommended an in-depth separate review of horseracing, which Phumelela welcomes, the report contains other recommendations about the sport.

One is that the tote be separated from the horseracing operators and this recommendation is of particular concern to Phumelela.

The current structure of the tote being vertically integrated under the control of the horseracing operators has evolved from a long history of separation, which proved unviable and threatened the sustainability of horseracing in South Africa.

Phumelela and later Gold Circle were established to create viable business models in an environment that was being opened to other forms of gaming and in which horseracing’s intellectual property was not properly remunerated or protected.

“The current structure flows from then Gauteng MEC Finance and Economic Affairs Jabu Moleketi’s directive in the mid-1990s for Gauteng horseracing to be corporatised,” said Phumelela Group CEO Rian du Plessis. (headline photo).

“At the time South African horseracing was poorly structured and struggling financially. Protracted negotiations between Gauteng Provincial Government and horseracing in the region then took place on how best to restructure the sport in order to ensure its sustainability in the face of competition from other forms of gambling,” he added.

“Various models were investigated and the outcome was that all elements of Gauteng horseracing, including the tote which was then a separate entity run by a board comprising horseracing and Provincial Government representatives, were incorporated into a single Black economically empowered JSE-listed company that was named Phumelela.

“Six other provinces subsequently joined Phumelela, while horseracing in KwaZulu-Natal and the Western Cape was corporatised under Gold Circle. These vertically integrated models have enabled horseracing to survive the introduction of other forms of gambling with the tote contributing 75% of the cost of running horseracing. These costs include prize money to owners, regulating the sport and the maintenance of racecourses and training tracks.”

Owners subsidise the remainder of the costs of running horseracing. This is unsustainable in the longer term and separating the tote from the racing operators would simply increase the shortfall in funding, which arises from the sport receiving insufficient commission from bets placed with fixed-odds operators and not being properly recompensed for use of its intellectual property rights.

Horseracing in South Africa makes a significant contribution to the economy and there are obvious risks in tampering with a structure that is utilised in the most successful horseracing countries in the world.

South African horseracing employs more than 16,000 people directly and some 100,000 people in related upstream and downstream industries.

Horseracing’s market share of gambling turnover in South Africa in 2009 was about 10%, according to a recent economic impact analysis, and the industry contributed R2.71 billion to the GDP and R694 million by way of taxation.

The most financially successful horseracing countries in the world include Singapore, Hong Kong, Japan and Korea and the principal reasons are that they are fully integrated and enjoy the total support of their governments.

A 2010 survey carried out by the International Federation of Horseracing Authorities (IFHA) showed that prize money covers 134% of the cost of racehorse ownership in Singapore, 105% in Hong Kong and 63% in Japan.

The IFHA survey showed that in South Africa the operators, who own the tote and most of the facilities, return prize money covering 45% of the cost of racehorse ownership.

This figure could be vastly improved by greater Government support and recognition of the value of horseracing to the country’s economy, as well as by what the Gambling Review Commission refers to as “a levelling of the playing fields”.

The danger of separating the tote from racing operators is best illustrated by UK horseracing.

In the UK, the British Horseracing Board (BHB) manages the sport nationally, but racecourses are owned and run independently. Historically the tote has been owned by government, but was recently sold to a private gaming concern, which has increased the fragmentation of UK horseracing with potentially dire consequences. Currently prize money in the UK covers only 22% of the cost of racehorse ownership.