Portfolio Committee HearingPortfolio Committee Hearing1111thth September 2013 September 2013

STATUS OF TRANSFORMATION STATUS OF TRANSFORMATION BY HORSERACING INDUSTRYBY HORSERACING INDUSTRY

Overview by Robin Bruss, AnalystOverview by Robin Bruss, AnalystStatus Report by Denzil J Pillay, CE, NHAStatus Report by Denzil J Pillay, CE, NHA

Structure of Horseracing Structure of Horseracing IndustryIndustry

BREEDERS SPORT OF RACING

GAMBLING

Unique Structure Breeders farm racehorses > AGRICULTURE For the SPORT of racing On which GAMBLING is organised –to fund the activity

[AGRICULTURE] [SPORT] [ D.T.I.]

Its Structure is a Barrier to Its Structure is a Barrier to TransformationTransformation

R9 billion per annum is bet on horseracing and yet ALL THREE components are in DECLINE.

Most felt in the reduction in EMPLOYMENT 1995 : 100,000 2009 : 15,326 (Source : Econ Impact

Study)

PRIME CAUSE : INDUSTRY IS UNDERFUNDED

(1) Breeding’s (1) Breeding’s ContractionContraction

Domestically : Prize money is too low to sustain

Growth Internationally : We produce export quality animals but cant export owing to inability of DAF to meet required international standards

The Thoroughbred Breeders Association posted a

loss of R18m in 2011 and R4.5m in 2012.

An industry in declineAn industry in declineGraphsReduction in no of breedersReduction in no of stallionsReduction in no of maresConsequent reduction in labour

No of registered breeders 1986-2010No of registered breeders 1986-2010

No. of Stallions 1986-2010No. of Stallions 1986-2010

No of broodmares 1986-2010No of broodmares 1986-2010

Exports Exports

Racing South Africa (comprising members of all three components – Breeders / Owners/ Gambling Operators) was set up to fund quarantine research and trade initiative, incl DTI registered Equine Trade Council, but its hamstrung by lack of funds and overwhelming problems:

Just completed a 3 year ban in June Another 3 year ban commencing now DAF unable to pass international vet inspection by

EU Trickle of exports via Mauritius with 6-7 month

delivery R500m to R1bn export opportunity stymied Effects viability, hampers employment and is a

Barrier to Transformation

(2) Sport of Racing / (2) Sport of Racing / OwnersOwners

EIS (2009) demonstrated that owners of racehorses lose R580m p.a. more than the available prize money pool in pursuance of the Sport of Racing.

If most owners make a loss, there is little incentive to introduce persons of colour to become racehorse owners, other than the wealthy or elite who will willingly participate for the fun, know they will likely lose money.

Very best horses make money (top 3%) and those able to race abroad. Compare VDJ : R3m

Dubai World Cup : US$10m

Horse Racing v Other Horse Racing v Other SportsSports

Unique : We are traditionally funded by Gambling & Owner’s contribution

Sponsorship is very small Not paid for their IPAll Other Sports rely on multiple

revenue streams OTHER THAN gamblingBecause of this structure -

Transformation can only be sustained by the willingness of Owners to lose money !

(3) Gambling Operators(3) Gambling OperatorsPHUMULELA (a Public Company since 2002)GOLD CIRCLE ( an NPO) dedicated to the Sport

Since 1995, any profits they have made in past decade have been largely driven by -

Tax Dispensation when formed◦ Rationalisation (job cuts)◦ Closure of Racetracks and sale of land assets◦ (From 14 tracks in 1995, 6 have been sold

with◦ attendant reduction in employment)◦ Reliance on the uncompetitive Totalisator ◦ betting structure is the core problem

Tote struggles to competeTote struggles to competeWhy ?Product of Britain’s colonial introduction

around 1928 – and insufficiently modernised, archaic and cumbersome foundation, not easily changed through Provincial Gambling Boards

Also Tote has to fund 3 major costs which other forms of betting do not :

> Maintaining Live racing and putting on show

> Provision of Purse Money (on which all participants depend, incl. all employees) > Cost of the N.H.A. integrity servicesNEEDS AN OVERHAUL !

Two Important Points :Two Important Points :1. Illustration of EFFECT of the way Tote

Betting is taxed:

According to NGB Stats ( March 2013),Betting on Horse Racing accounts of 7.2% of all

Gambling TurnoverBUT :Betting on Horse Racing pays 13.3% of all

national Gambling TAX.

Betting on Horse Racing (yellow) = 7.2% of all Gambling TurnoverCasinos account for 85.2% (Green)

Source : NGB

Betting on Horse Racing (yellow) = 13.9% of all Gambling Tax

Casinos account for 75.3% (Green)

Relationship between % Relationship between % Turnover/GGR/TaxationTurnover/GGR/Taxation

Relationship between % Relationship between % Turnover/GGR/TaxationTurnover/GGR/Taxation

Effect of this DistortionEffect of this DistortionA shortage in the cash flow cycle which

therefore contributes to the DECLINE felt all three core components of the industry

The EIS (2009) indicated that horseracing employs 23 times as many people per gambling Rand as compared to Casinos, and mostly rural, and unskilled people, and therefore the most vulnerable to retrenchment.

Summary of OverviewSummary of Overview

Revision of the Tote’s business model, its taxation and its relationship to other forms of gambling is indicated.

Transformation, as you will see, is being addressed by all aspects of the industry, but is very disadvantaged by the current structural issues.

The Way ForwardThe Way Forward1. Racing must accept the

recommendations made by the PPC as published in March 2012 and request implementation.

2. Racing must welcome the Minister’s intention to appoint a Commission of Inquiry to inform an appropriate and equitable dispensation leading to a sustainable growth path for ALL those who participate in this industry.

Status Report

- Thoroughbred Breeders’ Association - breeders (farmers)

- TBA Employment – 50% people of colour

- Upliftment/Education – Stud Farm Grooms School - 50 grooms on the Cape programme - Intention to educate at least 40 employees per year- Intention to roll out programmes in KZN and Karoo

- Training Programmes – School of Excellence

- Participation – 10 Groom’s Co Ops with 7 members each (dti not DAF)

- Voice of Grooms – Agricultural Labour Union

Breeders

- Bookmakers - BEE?

- Phumelela Gaming and Leisure Pty Ltd - Gambling Licence requirements – Level 2 by 2015- BEE Score Card – Level 3 contributor, Need 3.5 points

to move to level 2 status and are on track to reach this by October 2013 – 2 years ahead of time.

- Gold Circle - Gambling Licence requirements – Level 2 by 2015- BEE Score Card – Level 4 contributor – plans in place to

achieve level 2 by 2015

Gambling

- National Horseracing Authority (NPO)

Board members – previously all white board – now 4 persons of colour and 1 female

Staff - 47% of staff are people of colour

3 positions created for transformational purposes – Trainees earn a Stipend during their development and training on the industry

Licensing and Registration – open to all, recognition for prior learning, evaluations are either written or oral

Rules have been amended to address assault and abuse of grooms. Future consideration – representation at Inquiries, registration of grooms

Sport Regulator - NHA

- Racing Operator – Phumelela – Level 3 Contributor BBBEE Score - 81.5/100

- Racing Operator - Gold Circle – Level 4 Contributor BBBEE Score – 65.15%

- Owners - Thoroughbred Racing Trust - BBBEE Ownership

Certified Ownership in the Sport – Unprofitable – loss R580m

- Trainers – 0.04% are people of colour

- South African Jockeys Academy – 64% of SA students are people of colour

Sport Regulator - NHA

Initiatives within the Industry

Grooms Schools – Phillipi, Summerveld, Ashburton and Randjiesfontein

Career training - SANEF Stable management, ABET numeracy and Literacy

Learnerships - (Grounds Management Learnership)

Work riders program – Western Cape and Gauteng - Teach grooms skills to ride on race track. Races programmed especially for Work riders

Informal racing – promote and develop racing Eastern Cape and Northern Cape, Northern Natal

Syndicates – to promote ownership of horses

African Horse Sickness - ERC - to improve and promote health and welfare of horses

Sport

Horseracing IndustryHorseracing Industry

- Actions of SAGA raise certain concerns:- Threatening strike action – Summer Cup and

J&B Met- Threatening trainers and trainers’ lives- Demanding funding of R10m from racing

operators - Unsubstantiated claims of theft of R17m- Announcements to grooms which is misleading

and defamatory

Surveys conducted in the racing indicate that of the 2197 grooms in WC, GP, NC and EC only 73 indicate an affiliation to SAGA and KZN, no grooms are affiliated to SAGA; however there were grooms in KZN and WC that indicated that they belong to other unions e.g. SATAWU & The Food and Allied Workers Union

Horseracing IndustryHorseracing Industry

- In exchanges with NHA – Issues raised by SAGA primarily addressed labour issues

- Subsequent discussion – SAGA highlighted training and development of Grooms

- Workshop in Cape Town in May 2013 – Highlighted that there were schools and education programs in place but the grooms were looking for career development programs

Horseracing IndustryHorseracing Industry

- The SA Grooms Association asked NHA to sign an RA but NHA cannot because it is not the employer - it is common cause that RAs – between an Employer and Labour Union

- The NHA and the Industry recognises the contribution by the grooms. Issues raised by grooms, outside of Labour have resulted in the NHA amending its rules and drafting a Code of Conduct.

- Furthermore representation at Inquiries and the registration of grooms is currently under consideration by the NHA.

Industry SupportIndustry SupportIndustry is in agreement that the recommendations of the Portfolio Committee report on the GRC be accepted and implemented. ___________________________________________Proposal

Interim - Grant statutory recognition to NHA- All Betting Operators must contribute

towards the cost maintaining the Integrity of the Sport

- Disallow the Open Bet

Long term – Government to appoint a Commission of Inquiry into Horseracing to inform the restructuring and transformation of the industry

Thank you

This report on the Horseracing Industry

was presented

Robin Bruss and Denzil J Pillay