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Jabu MabuzaChairman

Casino Association of South Africa

19 September 2003

Jabu MabuzaChairman

Casino Association of South Africa

19 September 2003

ByBy

THE NEW NATIONAL BILL: WHAT DOES IT MEAN FOR EMPOWERMENT

AND OTHER GOVERNMENT PRIORITIES IN THE CASINO SECTOR ?

THE NEW NATIONAL BILL: WHAT DOES IT MEAN FOR EMPOWERMENT

AND OTHER GOVERNMENT PRIORITIES IN THE CASINO SECTOR ?

PRESENTATIONTO THE PORTFOLIO COMMITTEE

ON TRADE & INDUSTRY

PRESENTATIONTO THE PORTFOLIO COMMITTEE

ON TRADE & INDUSTRY

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IntroductionIntroduction

CASA endorses and welcomes many of the proposals contained

in the new bill, including, and among others:

– Rationalization of the roles of policy makers and regulators

– The need to respond to the issue of problem gambling

CASA regrets that there was insufficient consultation with:

– The gambling industry, including horse racing

– Empowerment stakeholders

– Organised labour

– Tourism bodies

– Organised commerce

– Financial community, especially international and local investors

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The Urban Gambling Industry

Prior To 1996

The Urban Gambling Industry

Prior To 1996Prior to 1996: A Substantial Illegal Industry

– Widespread: up to 150 000 illegal machines in all urban centres

– Easy access to all & no age restrictions

– Not regulated

– Public not protected

– Payout percentages manipulated

– Winnings often not paid

– Often associated with criminal elements (drugs, loan sharks,

protection rackets)

– No taxes

– No responsible gambling programmes

– Almost totally controlled by whites: no empowerment in equity,

management, procurement, etc

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Legal Gambling Industry Prior To 1996: The Rural Resort

Model

Legal Gambling Industry Prior To 1996: The Rural Resort

ModelPrior to 1996: The Legal Industry

– Limited to “Homelands”

• 15 casinos (six subsequently closed, three sold, six remain)

• Not widely accessible

– Only one operator, unlike today

– Largely self-regulated

• Including a responsible gambling element

– Limited empowerment components

• Mainly institutional investors

– 6 890 slot machines

– Significant tourism infrastructure contribution in rural areas:

• Sun City, Wild Coast Sun, Thaba N’chu

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New Dispensation: Government’s Mission Accomplished (1)

New Dispensation: Government’s Mission Accomplished (1)

The Process Whereby the New Industry was Established:• Two government commissions, extensive consultation and thorough process• National Gambling Bill 1996: US/Canada/Australia model of “must see”

entertainment destinations– And subsequent Provincial legislation

• Comprehensive regulatory framework– Created a successful and well regulated casino industry– Rigid probity standards and consumer protection

• Supply of gaming, out of control with previous government, now fixed and contained

• Highly competitive licensing process• Delivered significant non-gaming infrastructure and meaningful public benefit

projects:– Two world class convention centres and associated facilities– Tourist attractions, eg Apartheid Museum, bird and wildlife centres,

sports facilities– Hotels– Other physical infrastructure, such as roads, which

has acted as a catalyst for other new investment

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New Dispensation: Government’s

Mission Accomplished (2)

New Dispensation: Government’s

Mission Accomplished (2)Nearly R30-million p.a. in community social investment

• RFPs and subsequent regulations determined comprehensive

response (NRGP) to the issue of problem gambling:

– NRGP established as a public/private sector partnership of

government regulators and industry with R10-million budget p.a.

– Internationally recognized as among the best in the world

Stability and accountability

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CASACasino Association of South Africa

CASACasino Association of South Africa

Voluntary association with legal standing– All casino operators

Representative of– 30 657 employees– Seven operators, four with international investors– 30 casinos – R12-billion in new investment since 1996– 5 141 new hotel rooms since 1996– R6-billion annual gross gaming revenue– R1.7-billion annual tax bill– R715-million annual pre-tax profits– R2.5-billion spent with suppliers, 25% of whom are PDIs

Black Economic Empowerment– PDIs have 60% voting control, on average, in the casino sector– PDIs have 38% economic interest, on average, in the

casino sector

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Asking The QuestionAsking The QuestionGiven the achievements of this government in establishing a legal

and regulated framework for gambling, and given the successes

achieved by the new casino industry, both of which are much

envied by the developed world, it begs the question:

– Why was a totally new Bill necessary when the original objective

was to rationalise control of policy between national and provincial

governments?

– Why was there no research into, and consultation about, the new

and unacceptable provisions which only appeared in draft 11,

being the version of the Bill before you?

– Why was there no consultation at all with other vitally interested

parties such as organised labour, the tourism sector, public safety

agencies, Nedlac, not to mention critical sectors of the gambling

industry, such as horse racing

It is not good enough for the Department to expect the Portfolio

Committee to take responsibility for this

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Key IssuesKey IssuesMinisterial discretion to increase the amount of available gambling in SA

Removing ATMs from all casino complexes and entertainment centres, race tracks, etc.

Making it illegal, after the fact, to have casinos located in undefined close proximity to schools

Making credit illegal, including the use of credit cards and placing money on deposit

Enforced six hour closures (coincidently a full shift)

No discounted or complimentary hospitality services or tourism packages

Requiring already-built casinos to retrofit so as to make gaming areas invisible

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Likely Impact of the Bill In Its Present Form (1)

Likely Impact of the Bill In Its Present Form (1)

Significant decline in casino revenues (up to 25%) leading to- 8 000 to 10 000 jobs lost with the majority among less skilled

workers

- Hugely reduced dividend stream and probable collapse of already fragile empowerment structures

- Certain breach of existing license conditions, especially in empowerment arena, leading to legal action in courts throughout the country

- Possible constitutional challenges

- Closure of marginal casino operations

- Cross-subsidisation of tourism events and infrastructure compromised

- Significant revenue loss (± R400m) for provinces and national treasuries

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Likely Impact of the Bill In Its Present Form (2)

Likely Impact of the Bill In Its Present Form (2)

- Stakeholders (concessionaires, suppliers, etc) and

indirect employment seriously affected

- New investments iced, and capex involved in retrofitting

could mean mothballing of non-gaming facilities

- CSI affordability compromised

- Undermining South Africa’s image as a country where it

is safe to invest and do business

It is common cause that other sectors of the gambling industry,

including major employers such as horse racing, will be

devastated, with serious consequences for associated sectors

such as agriculture

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Casinos And The PoorCasinos And The PoorLegitimate government concern for the welfare of poor South Africans, shared by industry

Barriers to entry in the casino sector mean that the poor do not utilise casino facilities in meaningful numbers

– Cost of casino gambling

– Cost of non-gaming entertainment

– Entrance fees

– Cost of transport

Measures in the Bill will not ameliorate the position of the poor, relative to casinos, because:

– Poor people do not have credit cards, or qualify for credit

– Free and discounted services are only available to qualifying customers

Research in South Africa demonstrates that casino-type gambling is predominantly a middle-class activity. It also shows that the poor favour other forms of gambling

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Addressing The UnintendedConsequences Of The Bill (1)Addressing The UnintendedConsequences Of The Bill (1)

Can we do more about addressing the issue of problem and compulsive gambling, and can we do things better? This will require a greater investment from industry, through the NRGP, in public education, and additional measures are in process to accomplish this with the SA Responsible Gambling Trust (SARGT)

But perspective is needed. Why introduce measures that will:

– Not fundamentally contribute to helping the 1% of people who are compulsive gamblers

– Inconvenience the vast majority of casino customers for whom gambling is harmless recreation

– Jeopardise the future of an industry which is an international success story for this government

– Give rise to a resurgence of illegal industry with no restrictions

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Casino companies are obliged to protect shareholders, and

will cut costs to maintain profitability

– Jobs are biggest variable cost

– Reduced purchasing from suppliers

– Reduced dividends to empowerment partners

This government achieved considerable and internationally-

acknowledged success with its gambling policy and framework.

Dramatic policy changes, as in the new Bill, must result in

government similarly assuming responsibility for the outcome

and consequences

Addressing The UnintendedConsequences Of The Bill (2)Addressing The UnintendedConsequences Of The Bill (2)

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More Appropriate, Informed Way Forward

More Appropriate, Informed Way Forward

Time for more perspective on the casino industry

Research into commercial and socio-economic implications

More in-depth consultation and understanding of stakeholders’ position

Peoples’ rights in a free society

Remove negative provisions from the bill

Consult on measures

– That will not result in political, economic and thus social problems

– That will sustain tourism funding and investments

– Broaden and entrench sustainable BEE

– That will effectively minimise compulsive and problem gambling

Go forward in partnership together to advance government’s political objectives while maintaining a healthy, contributory industry