Persistent complaints to the Competition Commission by Phindi Kema, South Africa’s only female African racehorse breeder, have sparked an inquiry into alleged collusion between the two major players in the horse-racing industry, Phumelela Gaming and Leisure and Gold Circle.
Some industry insiders claimed that the two companies have undermined transformation and the growth of horse racing in the country, whereas Phumelela said it is keeping afloat a sport that is unprofitable and in decline not just in South Africa but also worldwide.
Kevin Weeks, divisional manager of enforcement and exemptions at the commission, said that it had decided to push ahead with a full inquiry after a preliminary assessment.
Weeks said a major concern was the “mere fact of competitors making joint decisions as opposed to competing”.
Gold Circle and Phumelela, although two separate entities, operate several racing and betting partnerships.
“We’re very concerned that there are only two players in the whole country and that it is so difficult for a new person to enter the field — We would want to investigate that,” Weeks said.
The commission would also investigate provincial and national gambling authorities and their role in giving newcomers access to the sport, he said.
Provincial gambling boards issue licences to racetrack owners permitting them to operate tracks.
Kema, the chief executive of African Racing International, said she had decided to approach the commission after trying to buy the Arlington racecourse in Port Elizabeth from Phumelela. She said she was willing to pay the R50-million asking price and was going to sign the deed of sale, but Phumelela told her that it would oppose any application she might lodge for a totalisator licence.
Phumelela told the Mail & Guardian that it had applied to the Eastern Cape Gambling Board for permission to stage races only at Port Elizabeth’s other course, Fairview. Kema was shocked by this and said that she had been under the impression that she would continue staging the 36 races that take place at Arlington each year.
In effect, she would be buying an empty shell.
“I accepted the R50-million offer in good faith,” she said, “but they imposed ridiculous terms, demanding that I don’t apply for a totalisator licence.”
The big fish
Phumelela and Gold Circle own all the major racecourses in South Africa — the former owns and operates five racetracks in Gauteng, the Free State, Eastern Cape and Northern Cape and the smaller Gold Circle owns and operates five courses in the Western Cape and KwaZulu-Natal. They hold totalisator licences for each province in which they run racetracks, allowing them to take tote bets, for which they alone are equipped.
There are different betting systems. Phumelela takes a cut of the tote, which pays out according to the total sum bet by punters and does not offer odds — if a punter’s horse wins, the size of the dividend paid out is proportional to the size of the bet, with bigger bets making more money.
The alternative betting channel — the bookmakers (or bookies) — operates independently of Phumelela and Gold Circle. Bookies provide fixed odds and can refuse bets if the odds are such that paying out winnings could wipe out their cash reserves.
Phumelela chief executive Riaan du Plessis said that it and Gold Circle alone should hold totalisator licences, which he claimed was international practice and the only viable system in South Africa.
“If the government permitted the province to issue stand-alone tote licences without a similar funding obligation to the sport [as Phumelela and Gold Circle have], there would be wholesale job losses in a sport that is already struggling to survive,” Du Plessis said.
But Phumelela also owns Betting World, a bookmaking operation with about 200 outlets nationally.
Joint ventures and partnerships
Phumelela and Gold Circle’s influence in the industry goes further. In theory, they are competitors but they have forged partnerships that control tote betting and race-industry broadcasting in South Africa.
They have joined forces to commingle all tote bets in South Africa, creating a national betting pool. Under this operation, called the Totalisator Agency Board (TAB), bets can be taken online, by telephone or at one of TAB’s 400 outlets. In addition, they have formed Phumelela Gold Enterprises (PGE), which holds the domestic and international broadcasting and information rights to South African horse racing, according to Phumelela’s website.
Phumelela manages PGE, which also owns Tellytrack, the only local horse-racing channel on television. It also owns TV channel Racing International, which broadcasts South African horse races internationally.
PGE also sets the fixtures for all racecourses owned by Phumelela and Gold Circle — in other words, all South Africa’s major courses.
Case of the bookmakers
In 2006 the Constitutional Court ruled that bookmakers should be allowed to take “open bets” — in effect, to run their own individual totes.
Phumelela tried to stop bookmakers from using its racing results and tote dividends to lay the foundation for open betting by taking bookmakers André Gründlingh and Ulrich Osmond Shüler to the North Gauteng High Court. Phumelela won this case but the Constitutional Court ruled against it, determining that the bookmakers’ actions did not amount to unlawful competition.
But Shüler said this week that taking legal action against a large company such as Phumelela was costly, which smaller operators could not afford.
This year Greco Capital obtained a totalisator licence in Mpumalanga, where no racecourses operate, making it the first operator other than Phumelela and Gold Circle to hold a licence since the industry was corporatised in 1998. But Phumelela has won a court interdict against Greco, preventing it from operating totes in the province.
National Horse Racing Authority
The National Horse Racing Authority is the primary regulator of horse racing and its rule book makes it clear that it can grant, refuse or renew jockeys’ licences and those of trainers and apprentice trainers.
The authority also monitors routine drug testing of horses after races and can impose fines if a horse tests positive for dope. Most importantly, it has the power to cancel or suspend the licence of any racing operator or racecourse. It can also suspend a horse from racing or disqualify it from a race.
According to the authority’s 2010 annual report, the authority is funded “to a substantial extent” by the racing operators — in short, Phumelela and Gold Circle, which also have access to the authority’s budgets and approve them before they are submitted to the authority’s board. The annual report says that meetings to discuss expenditure are held with the operators, which give input on cost items.
Du Plessis said that the operators contributed about R40-million a year to the authority, which Denzil Pillay, the authority’s racing control manager, said amounted to 70% of its budget.
But Pillay said that the authority’s rules and constitution ensured its independence. Contradicting the 2010 annual report, he said that the operators did not approve the final budget but acted only in an advisory capacity. They also had only one member each on the authority’s 14-member board, so they could not wield undue influence over board matters.
Du Plessis said that, although the authority was funded primarily by the two entities that it was set up to regulate, “they don’t dance to our whim. They’re an independent board and independent organisation. Although we provide the funding, they act independently.”
Responding to Kema’s allegations, he said that she was free to apply for her own racing licence at Arlington.
He said: “Miss Kema has made absolutely no effort to join the sport from within — In fact, she has decided to establish a rival sporting code, much as [broadcast baron] Kerry Packer did in Australian cricket in the 1970s. In this regard we wish her the best of success.”
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