While South Africa’s gaming market has shed most of its hypocritical moralism of the apartheid years, the industry remains behind the country’s acclaimed liberal post-apartheid order. Regulators happily embrace the job-creation and tax contributions of the industry, but their “war” against the “harmful effects of gaming” is hampering the development of non-traditional side of the market. Recent regulatory and court decisions within and outside the country suggest a positive end to this long-drawn ostrich play.
The SA gaming market is governed by the National Gambling Act No. 7 of 2004 and other forms of delegated legislation under the oversight of the National Gambling Policy Council. The market is made up of lotteries (governed by the National Lotteries Board), casinos, horse racing, poker, limited pay-out and slot machines, dice and card games; and a slew of “non-traditional” or “illegal” gaming activities such as online casinos, limited range of dog racing and “fahfee,” a long-established game of chance involving betting on numbers and symbols, often inspired by dreams. Ironically, Fahfee has been taken over by gangs from mainland China, who invest their takings in abalone smuggling. There are also hundreds of small-time gamblers that turn to illegal gambling to satisfy their gaming needs who create so much social problems often used as excuse to tarnish the entire industry.
Gambling is a very lucrative and pervasive economic activity in South Africa. Between 2004 and 2010, the market attracted more than R16bn investment in gambling and related activities, such as casinos, hotels and horse-racing activities. It contributed more than R4bn in taxes during this period (excluding general business taxes, which are VAT and company tax). The gaming industry is therefore seen as one of the sectors that can advance broad-based black economic empowerment (BEE) quicker.
The SA licit gaming market, like other economic sectors, is concentrated in Guateng Province. Johannesburg alone has four gambling facilities comprised of casinos and horse tracks (Caesars Gauteng Hotel, Casino and Convention Resort, Gold Reef City Casino, and MonteCasino) with a total of about 9,600 gaming machines and 192 total table games. Other casinos in Gauteng are Silverstar in Muldersdrift, Emperor’s Palace in Kempton Park, Carnival City in Brakpan, and the Carousel in Pretoria. Sun City Resort Casino Complex in Sun City, a good three-hour drive north of Johannesburg, is “the original South African casino” and still the country’s most famous and most popular, with an immense range of other entertainment on offer.
Gauteng is the highest contributor to the growth and constraints of the industry simply because the province’s GDP (35%, 2007) has increased significantly over the years, followed by KZN (17%) and the Western Cape (15%). At 42%, Gauteng remains by far the largest contributor to the R4bn gaming tax revenue, followed by KwaZulu-Natal (19%), and Western Cape (16%). Recently, small rural towns have been granted restricted gambling permits for limited payout slot machines. Mahikeng in North West is the first to ever be so honored, the North West Gambling Board and Department of Economic Development and Tourism arguing that this will provide new recreational and entertainment facilities in the province. Unlike casinos, limited payout machines will be distributed more widely throughout the province. The criminalization of online casinos has led to the establishment of limited payout machines as an alternative for those who can’t afford to play at a land-based casino, yet still want to gamble.
The SA gaming market faces a number of governance risk factors, such as the proliferation of poker (illegal outside casinos), electronic bingo machines with unlimited payouts in easily accessible venues such as shopping malls, and online gambling. Lack of better law enforcement to ensure public spaces and gambling spaces remained separate including separate entrances so shoppers didn’t accidentally come across gambling would help. Illegal establishments often remained open owing to a province’s lack of political will, and sometimes lack of capacity, to close them down. Rising public anger inevitably pushes the police to raid some of these establishments—86 police raids and smashing of 350 online gambling and 30 year old decrepit slot machines and decade old servers—in 2010. Rising popular anger also pushed the South African government to restrict TV adverts of gambling services to late-night slots, a move which has sports teams that are sponsored by internet sports betting companies very concerned. By 2010, there was a 9% decline in revenue in the racing and betting fraternity.
Local internet service providers (ISPs) that aid internet gambling in South Africa could face fines up to R10m (€1m). According to the Pretoria High Court, any entity (including ISPs) that “facilitates the provision of online gambling” could be fined. South African ISPs’ insistence that it is not their job to police the internet, a task that would require spending millions on a new infrastructure, failed on appeal at the court. Ironically, South African laws regard ISPs as content carriers, not content providers, meaning they cannot be held responsible for data they transmit.
The SA government also sees the industry as a cash-cow, with gambling being the second most important source of revenue. Starting April 2012, a new 15% withholding tax on all winnings over R25,000 (€2,200) will take effect, to the dismay, anger and fear of gambling industry executives, industry associations as well as casual gamblers. The new tax hike, in conjunction with strict South African gambling laws, may cause massive job cuts and severely damage the country’s gaming sector, especially horse racing and poker. The new “ridiculous” tax, coming even as players already pay a 6% provincial gambling tax as well as the VAT, was put forward without any consultation with industry players, as well as approval of Parliament.
The investment risks arising from each of these lapses are being heightened by the SA Gaming Board as it pursues its strategic objective to align the domestic gaming market with continental and international markets, especially in terms of standards of compliance. In that vein, it has promised regulatory changes that will certainly affect business bottom line, namely (a) efforts to evaluate all provincial gambling boards in terms of compliance monitoring of licensees; (b) assessment of accredited gaming laboratories; (c) evaluation of gambling technical standards; and (d) putting into effect the Financial Intelligence Centre Act to ascertain the status of money laundering practice compliance.
Perhaps, the most important regulatory issue with potentially high risks is the development of comprehensive broad-based black economic empowerment (BBBEE) guidelines for the various sectors of the gambling industry. The push for 15-25% black ownership and management of the market is a very emotive issue that has tasked the industry since 2001.
A number of recent developments suggest that there may be light at the end of the SA gaming market. In late August 2011, the SA Gambling Review Commission finally told the parliamentary committee on trade and industry that every form of online gambling in South Africa (as well as poker) should be regulated, taxed and licensed, instead of outright criminalization that drives it underground. The commission recommended Italy as the model for online gambling regulation in South Africa. A small number of online gambling licenses will be offered first, along with advertising rights. Banks will enforcers the new gambling laws by withholding transactions from online gambling establishments in South Africa without a valid gambling license. Hitherto, South Africans saw all online casinos as illegal despite the passage of the National Gambling Amendment Act with a provision to license South African internet casino industry overwhelmingly approved back in 2008.
In the case of horse racing, the commission proposed a clear separation of racecourse ownership from that of totes, and tightening of regulations on financing and taxing of bookmakers, totes and other betting offices. The commission also recommended the merger of the National Lotteries and the National Gambling boards to give oversight to the National Gambling Policy Council and establish a “professional”, independent body to distribute lottery funds as grants to charities in an effort to separate the grant-making and compliance enforcement functions.
In a similar vein, a recent Australian federal court ruling overturned the Victoria Territory gaming law banning online betting kiosks. This particular case unfolded around Betbox, an internet betting kiosk operated by Sportsbet. The kiosk allowed punters to connect to the Sportsbet website from land-based locations such as shops, malls and restaurants and was classified as a form of online gambling. The legal precedent resulting from this case for other Australian states also resonates with the struggle between the government and internet service providers (ISPs) and online bookers and the entire tourism industry in South Africa.
The court’s ruling could potentially open up the market to online sportsbooks using similar technology, not only in Australia but also in South Africa. It’s worth noting that SportsBet, the company at the center of the Betbox case, is South Africa’s biggest sportsbook. In 2010, South Africa-facing online casino Piggs Peak indicated they wouldn’t be continuing service in the country in light of the 2010 Pretoria High Court ruling affirming the illegality of online gambling in 2011. SA gaming regulators may see the Australian decision as a legal template for implementing the Review Commission’s recent recommendation for regulatory oversight and taxation of online gaming, rather than banning it outright. Should these changes take root, the market outlook or prospects for growth in the SA gaming market—both within-country trends and in comparison with its neighbors, especially Botswana—look favorable.
Article Analyzed: “Gambling Commission Endorses Regulating South African Online Casinos”