1. The South African gambling industry and its regulation Presentation of the Portfolio Committee on Trade and Industry 10 August 2011

2. Gambling Review Commission Members Mr. Clement Mannya Dr. Stephen Louw Prof. Sphiwe Nzimande Ms. Adheera Bodasing Ms. Astrid Ludin 2

3. Gambling Review Commission Terms of Reference  A holistic review of the industry since 1996  Assess social and economic impact of the industry, taking into account  Who gambles  Gambling addiction and problem gambling,  Youth gambling,  Effectiveness of measures to mitigate negative effects of gambling.  Assess the proliferation of the gambling in South Africa, taking into account  Legal and illegal gambling activities;  Technological developments;  Viability of roll-outs of new activities (such as animal racing, person-to-person betting, etc.);  Expansion of already existing gambling activities.  Determine whether regulatory bodies are effectively achieving legislative objectives  Benchmark with other jurisdictions on best-policy approaches  Recommend policy positions 3

4. Gambling Review Commission The process ActivitiesTimeframes Appointment of Commissioners and Ministerial briefing December 2009 Desktop research and site visitsJanuary – February 2010 Public hearings/engagementsMarch – April 2010 Further research and report writingMay – June 2010 Initial draft report30 June 2010 International study tripJuly 2010 First complete draft of report30 July 2010 Limited stakeholder engagementAugust 2010 Submission of final reportSeptember 2010 4

5. Gambling Review Commission The Approach  Evaluated the evolution of the industry since 1996, its social impact, the regulatory framework and possible new forms of gambling.  Assessed evolution of industry and its regulation against objectives set out by the Wiehahn Commission:  The protection of society from the over-stimulation of latent gambling through the limitation of gambling opportunities;  The protection of players and integrity and fairness of the industry through the strict control and supervision of the industry;  The uniformity and harmonization of policy and legislation at all levels of government and across provinces through minimum norms and standards and co-operation and co-ordination;  The generation of revenue and taxes for provincial government and for good causes;  The economic empowerment of the historically disadvantaged;  The promotion of economic growth, development and employment 5

6. Gambling Review Commission Conceptual framework ModelObjectivePromotionProduct varietyPayout RevenueMaximise government revenues Few restrictionsUnlimitedLow ConsumerMaximise consumer welfare Truth-in advertising restrictions UnlimitedHigh SumptuaryAccommodate existing demand while discouraging excessive involvement Informational messages and warnings LimitedLow Other gambling modes Lottery 6 Policy implied in Wiehahn Commission (and implemented subsequently) combined different approaches for the lottery and for other gambling modes.

7. Findings Gambling industry  Gambling is a mature, well established industry.  Industry has doubled its turnover between 2001 and 2009. This must be seen in the context of the industry coming off a low base in 1996.  Industry offers direct employment to 59,958 (86% comes from the casino industry) and through casinos has made substantial infrastructural investments.  Despite the maturity of the industry, an entrenched illegal component remains in place. 7

8. Findings Gambling industry  Casinos and lottery are established, popular forms of gambling.  Lottery accounts for 12% of revenue and 48% of taxes.  Bingo, LPMs and Betting are struggling (or have struggled).  Betting and Bingo are sectors under pressure internationally due to competition from other forms of gambling, esp. on-line. Requires modernisation and complementary forms of gambling revenues. RSA therefore consistent with international trend.  Although LPMs are doing well elsewhere. Particular constraints in the SA market explored further * Figure only includes transfers to funding for good causes; Increases to R1,923 million if VAT is included, making total % age 56% 8 Gambling mode ‘09 %GGR R’ mill %Taxes R’mill Casinos74%13,50141%1,247 LPMs4% 6693%77 Betting9% 1,6407%200 Bingo1% 1271%15 Total88%15,92152%1,539 Lottery12%2,20848%1,442* Total18,1292,981

9.  While there are limits imposed on number of casinos, casinos are growing in size, esp. with regard to slot machines.  This must be contrasted to an LPM rollout of 5,300 over 10-year period and 1,200 EBT over 3-year period.  Shows that LPM industry is under pressure and is facing competition from other slot machines.  EBT’s present unplanned and unfair competition to both LPMs and casinos – not subject to the rigorous requirements for LPMs or casinos.  International experience shows need for Bingo halls to have additional revenue sources for viability, but place strict limit on number of machines and payouts that are permitted.  RSA still has relatively low no of slot machines per population. 9 No of CasinosNo of Tables No of Slot Machines 2004-52008-92004-52008-92004-52008-9 Eastern Cape 3446571,5551,766 Free State 342434547830 Gauteng 572703235.6508,742 KwaZulu-Natal 551191243,0773,303 Limpopo 221822397524 Mpumalanga 3339441,0711,137 North West 5485782.3981,730 Northern Cape 12915212398 Western Cape 45901032,5743,776 Total 313670080017,48122,206 Findings Gambling industry

10. Findings Social Impact  Gambling and income are correlated: the lower the income, the less gambling takes place.  People on lower incomes tend to gamble on lottery and scratch cards.  Small segment of lowest income group also frequent casinos – to be examined further by casinos.  More gambling occurs where more formal gambling opportunities exist and incomes are higher.  Problem gambling appears to have stabilised since 2005 at 4.8%.  For low-income groups, it is mostly associated with informal gambling – a rising trend.  Internationally, RSA problem gambling is higher than European levels and around the same as other middle-income countries (Singapore, Hong Kong).  While there are no immediate grounds for concern about levels of problem gambling, we cannot be complacent and need to reinforce existing policy measures and education, treatment and prevention. 10

11. Findings Social Impact  No underage gambling crisis in South Africa, but a troubling and possibly growing trend.  Of great concern are reports that some youth in impoverished areas claim that they gamble in order to buy basic necessities and pay schools fees.  Illegal gambling and underage gambling appears to be linked, with dice being played most frequently. Dice associated with criminal elements.  Another concern is that minors are getting significant access to the lottery.  School education programme of NRGP to be welcomed – outreach will be critical.  Regulatory measures aligned with international practice –could be enhanced, but may not be necessary at this stage; need to be implemented more effectively and should be monitored through mystery shopping independently performed.  Problems for treatment and education:  No overarching strategy to guide different role players.  No funding for independent research and treatment organsiations.  Lack of clarity on effectiveness of the lottery programme. 11

12. Findings Regulatory Framework  NGB and NLB have struggled to fulfill key parts of their mandate  NLB: grant-making and distribution. limited attention to sports pools.  NGB: oversight and ensuring uniformity.  NGPC not effective in resolving disputes or reaching agreement on policy matters, due to different motivations of provincial and national government.  PGBs largely effective at monitoring compliance.  Mixed evidence on enforcing illegal gambling.  Varying efficiencies among regulators;  Revenue maximisation mandates, not strong on assessing social impacts.  Well regulated and respected jurisdiction.  High levels of day-to-day compliance.  Entrenched illegal industry in areas – continuous enforcement required.  Inefficiencies in the system and greater targeting of resources desirable. 12

13. Conclusions  Policy of managed expansion of gambling has been effective, as we have avoided excesses apparent in jurisdictions such as Australia and UK  Limits on gambling opportunities effective in areas where imposed, but creeping proliferation where there are no limits (EBTs, no of Bingo halls, no of slot machines and tables at casinos).  Limits on gambling opportunities has contained social impact.  Industry has generated substantial tax revenues (R15.3 bn in provincial tax revenues and R1.9 bn for good causes and taxes) and employment with 56,958 direct jobs created, mostly from casinos (51,317), then Betting, LPMs, Bingo.  Incidence of problem gambling steady since 2005, but we are in the same category as other middle-income countries (higher than Europe) – 4,8% for RSA as opposed to 0.6% for UK.  Impact of legal gambling on poor not very big (only lottery) but growing illegal gambling cause for concern.  Regulatory measures adequate, but to be implemented more rigorously – esp. maintaining distinction between public places and gambling venues.  Overall, there is no immediate need for concern regarding social impact, but also no space for complacency – continued vigilance required. 13

14. Conclusions  PGBs disregard national norms and standards, resulting in inconsistencies across provinces.  NGB and Policy Council not effective in ensuring consistency, adherence to national norms and standards or resolution of disputes.  National gambling policy on gambling undermined by some provincial licensing decisions (e.g. casino tables, EBTs).  Lottery’s revenue maximisation mandate undermined by conflicting policy impetus and by enduring problems with distribution of funds.  Need for professionalised grant making to overcome enduring problems with speed of distribution of funds.  Overall, Wiehahn objectives have been substantially met and policy approach has been successful, but need for vigilance and tightening of some controls. 14

15. Recommendations Overall policy  Commission believes that existing models and approaches should be continued - sumptuary approach for gambling, revenue model for lottery.  On the basis of sumptuary model, existing demand for certain activities should be satisfied, allowing for the limited introduction of new activities and the deepening of existing activities.  Clear limits to be set for all gambling activity:  Maintain existing limits for casinos and LPMs.  Introduce new limits for bingo halls, tables, seats and slots at casinos and bingo halls, sports pools. 15

16. Recommendations Existing forms of gambling Casinos  Casino CSI to be benchmarked against other sectors – also to include contributions to NGRP in that calculation.  Introduce 5-yearly license review, which will consider license conditions, social impact, BB-BEE, harm minimisation efforts.  Maintain destination approach and distinctions between public and private spaces. Bingo  EBTs to be removed and medium-stake slots to be permitted; consideration for other sources of gambling revenue eg. Poker.  Clear limits on number of licenses per province and limits on number of gaming machines permitted in each venue. Bingo  Provincial rollout strategy to be developed (like LPMs).  Same principles should apply as to casinos with separate entrances. LPMs  Allow for medium-stake slots in some venues.  Otherwise increase max payout slightly.  Iron out inefficiencies at provincial and local level – recommend development of licensing guidelines, as in UK.  Reduce requirements for PDI sites in low- income areas – not viable and socially undesirable.  Decisive action against illegal slots and EBTs. 16

17. Recommendations Existing forms of gambling Horseracing and betting  Ownership of race courses and tote to be split.  Funding model for race courses to be reviewed (tote, bookmakers and on-line operators).  Closing down and relocation of race courses to be considered.  Integration with other forms of gambling e.g. medium-stake slots or LPMs.  Industry structure to be holistically reviewed – current simple regulatory. Lottery  Current revenue maximisation model to be continued.  Amend legislation to define sports pool more clearly and to remove any ambiguity about the responsibility – need to develop this aspect of gambling more.  Grant-making to be professionalised. 17

18. Recommendations New forms of gambling Dog racing  There appears to be limited, localised demand for the activity.  Major animal rights concerns relate to the over breeding and retirement of animals.  Even in jurisdictions with a well regulated sector such as the UK, over-breeding, retirement and traceability of the animals remain issues.  Commission therefore does not believe dogracing should be legalised.  Need to enforce a prohibition.  A set of requirements for a regulatory regime are proposed, should the Minister decide to legalise the industry. Bushracing  The key issue in respect of bush racing appears to be the regulation of actual races and the treatment of animals by owners.  Breeding and traceability issues are already dealt with through the horseracing regulation.  Commission of the view that regulation of bush racing as an activity could be considered (UK model):  Informal nature retained by allowing for limited number of races from certain venues per year – occasional licenses.  Races to be notified to local authority and to NSPCA.  Fee to be paid to NSPCA to cover costs.  Only licensed betting operators may take bets. 18

19. Recommendations New forms of gambling Fafhee, dice and cards  Further research to be conducted into Fahfee, cards and dice to allow better understanding; Poker  Propose licensing of poker tournament organisers.  Licensed operators should be able to run poker tournaments, organised by licensed organisers.  In addition, occasional licenses should be issued by local authorities for hosting of tournaments at non-gambling venues such as restaurants for a limited number of times e.g. once a month.  Rules for poker and rake should be regulated – should apply equally to land- based and on-line poker games  Standalone poker houses should not be permitted. On-line gambling  Prohibition is not effective anywhere – quick action is required before illegal operators become too entrenched and have no incentive to become licensed.  Regulation to be national and to be broadened beyond interactive gambling to include on-line betting, betting exchanges, on-line poker and other forms of mobile gambling.  Licensing framework to be introduced with limits on initial licenses (Italy put initial limit at 200 as opposed to our 10).  Advertising should be linked to license and must be strictly enforced.  Clear enforcement mechanisms, that include a bigger role for banks, to be considered.  Measures to require identity checking and limits for play by punters should be mandatory. 19

20. Recommendations Social impact  National strategy for responsible gambling to be developed by national and provincial government, regulators, industry and civil society.  Industry funding to be based on budgetary requirement of strategy.  Funding for independent treatment organisations in partnership model with NRGP (beyond existing network).  Fund for independent research – through independent panel under NRGP or another institution.  Consider creating single industry programme (incl. lottery).  Retain voluntary nature of programme.  Prevention of entry of minors and self- excluded persons from gambling premises to be more tightly monitored by operators.  Advertising to be monitored at an overarching level, as it is critical to sumptuary model.  Advertising for lottery to be retained, but some alignment with other gambling advertising rules could be explored (advertising critical to the model). 20

21. Recommendations Regulatory framework  Need for clearer delineation of roles of national and provincial government.  Provincial role: licensing and regulation of land-based gambling activities within framework of national norms and standards; introduce requirements for compliance with norms and standards to be audited and to be submitted to provincial and national legislatures.  National role: licensing and regulation of lottery, sports pools, on-line gambling, national registers and CEMs.  Propose that national regulators be combined, with administration of NLDTF transferred to an independent grant- making body.  New role for Policy Council: only policy discussion, including matters relating to limits imposed on gambling modes; no decision-making.  Local authorities: issuance of occasional licenses, zoning and business licenses. Guidelines for licensing to be issued and training and awareness campaigns to be planned in from beginning.  Parliament to have oversight role over national policy, with PGBs accountable to national legislature regarding compliance. 21

22. Current framework Licensing & regulation Oversight & harmonisation Policy NLB NGB NGPC dti PGBs Proposed framework Licensing & regulation Oversight & harmonisation Policy NGB & NLB Parliament NGPC dti PGBs Local gov’t 22 Recommendations Regulatory framework

23. Thank you 23