Thank you for the opportunity afforded us by your committee to submit comments on the National Gambling Bill 2003. We look forward to making a presentation on this subject to your colleagues and yourself in due course and would appreciate an indication of when such hearings are to take place.
At the outset, it needs to be said that the Casino Association of South Africa (CASA) endorses and welcomes many of the proposals contained in the new Bill. Furthermore, we have long supported the underlying political objectives which inspired this draft legislation, not least of which the rationalisation of the obviously different roles and functions of policy makers and regulators, and the harmonization of national and provincial legislation and regulations. We also share government’s concern in terms of problem gambling.
General Observations
The Process
We regret the fact that there has been insufficient consultation with our industry and other stakeholders regarding many of the commercial and socio-economic implications of the new Bill, some of which, we believe, have not been given adequate consideration.
Despite the three-year evolution of the new Bill, and repeated approaches to the department and the Minister going back over a year, we have been offered only extremely limited opportunities to participate in the process, such as when a meeting was called, unfortunately with only three days notice, in July 2003. Stakeholders were given three weeks only to submit written submissions on what was then the 10th draft of the Bill. Clearly, this was not enough time to develop a full understanding of all the implications of proposals contained in the Bill, and then to comment constructively.
Moreover, the horse racing industry, labour, and directly affected organisations, institutions and structures in the tourism industry, for example, were, to our best knowledge, never informed of the Bill, given sight of it, or the opportunity to participate.
Given the obvious impact of the Bill on these and other stakeholders, this regrettable omission raises important questions about the process and the sudden haste with which the Bill has been advanced. As it transpires, our hurriedly crafted submission in July 2003 was rendered substantially superfluous when a much-changed further draft, the 11th, reached us on 11 August 2003. This is the Bill sent to your committee for consideration.
As much as we recognise that the hearings to be undertaken by your committee are, of themselves, part of the consultation process, it is unfortunate that in the preparation of the Bill greater cognisance was not taken of the constructive contribution which might have been made by other government departments, as well as a wide variety of interested stakeholders from civil society. Thus the description of the process, contained in DTI’s Explanatory Memorandum, is consequently misleading to the extent that it suggests that the new Bill was developed after, and as a consequence of, adequate consultation.
The consultation which has informed this Bill, regrettably, could not be described as adequate in terms of the norms of parliamentary democracy, nor could the process followed to date generally be accounted transparent, fair or sensible. Ironically, in Chapter 6, Section 87(4)(a)(ii) of the new Bill, it is stated that the Minister should "publish the proposed regulations for comment for a minimum of 90 days", the spirit of which has not been followed in the consultation process of the very Bill itself.
The Retrospective Effect of the Bill
Some of the proposals contained in the Bill are clearly unjust to the extent that they will, in practical terms, operate retrospectively. For example: the casino sector, following the enactment by Parliament of the 1996 Act, took investment decisions which were made in relation to judgements about future costs and revenues in an operating environment which national and provincial governments had prescribed in legislation, regulations and requests for proposals.
The Bill before your committee, however, introduces new proposals that will objectively undermine these R12-billion investments by fundamentally changing that operating environment in a profound way, after these investments have been made.
By any yardstick, this is unfair and one must expect that it will have a negative impact on national and international investor confidence in the country.
Evidence-based Policy-making
It is widely accepted in government that good policy-making should be evidence-based. This Bill, to the extent that it has the desirable objective, among others, of seeking to ameliorate the impact of both compulsive and problem gambling, shows unfortunately insufficient awareness of either the relevant international research, or international best practice in this area. It offers no research evidence of its own for certain proposals which may well have no positive effect on the development of a culture of responsible gambling, and may even make existing problems worse.
Ambit and Applicability
This Bill aims to regulate particularly the horse racing, limited payout machine, bingo and casino sectors of the industry, but appears not to recognise that gambling in South Africa is an industry in which the National Lottery is a significant player.
Recent and extensive research conducted at the University of Cape Town, and by the National Gambling Board, empirically demonstrates that more South Africans gamble on the lottery than do on all other forms of gambling combined, and pertinently, it is the form of gambling which is demonstrably the most accessible, and which poorer South Africans are most inclined to patronise.
This research also shows that there has been little real growth in casino-type gambling since 1996, with the number of slot machines in South Africa reducing from up to 150 000 illegal machines in 1996 to less than 20 000 regulated devices today. In 2002, for example, the casino sector has generated R6-billion in terms of gross gaming revenue (GGR). But prior to 1996, casino-type gambling, at illegal casinos and those in the then ‘homelands’, was worth an estimated R3.5-billion in GGR. Allowing for inflation, the size of the slot machine market can be considered not to have grown in real terms over the period.
What comparatively little growth there has been, in both gambling and problem gambling in South Africa, is thus largely attributable to other new forms of gambling. Research produced by the National Gambling Board, conducted by the Bureau for Market Research, among others, shows that while over 70% of adult South Africans gamble on the lottery, approximately 19% of adults in urban areas visit casinos.
Moreover, research into the incidence of compulsive and problem gambling in this country shows that the growth of this phenomenon is directly linked to the affordability and convenience of lottery-style gambling, including readily-available scratch cards.
There are also incorrect perceptions in some quarters about how much South Africans spend on gambling. The Bureau for Market Research, on behalf of the National Gambling Board, researched this issue and found that South Africans who gamble spend on average of R84 per month doing so, and 60%, in fact, spend less than R50
per month. Only one in ten people who gamble spends more than R150 per month.
For these reasons, stakeholders in the horse racing, bingo, limited payout machine and casino sectors of the industry, unsurprisingly, take the view that the Bill fails to recognise the actual nature and extent of the gambling industry in South Africa, and as a result, targets these industries unfairly.
Consequences for Public Policy
CASA is able to demonstrate to your committee that some of the provisions of the Bill will have unintended and damaging socio-economic consequences that, presumably, are not the objective of important public policy such as this.
In summary, and evidence will be provided for each of these issues, the following are likely to be the consequences of the Bill if passed in its present form:
It should also be mentioned that CASA has consulted with its legal representatives who have expressed the view that it is possible that some of the provisions of the Bill may be vulnerable to legal challenge on constitutional grounds, among others.
The Structure and Expense of Regulation
As much as CASA welcomes the clarity which the Bill brings to the very different roles of policy maker and regulator, it believes that good public policy would have been served better had the Bill also addressed the issue of the cost, borne by taxpayers, of regulating gambling in South Africa.
It is common cause that there are in South Africa an inordinate number of people involved in the regulation of gambling in relation to the size of its industry. Estimates vary, but it is thought that the cost of 11 gambling boards, excluding DTI’s structures, exceeds R250-million per annum.
The Bill before your committee does not adequately address this issue and, in fact, adds a new layer of regulation. Good and efficient governance would also have been served had the Bill made provision to bring about greater uniformity in provincial policy, legislation and regulation.
Specific Observations
Section 12(4) A person referred to in sub-section (3) must take reasonable measures to determine accurately whether or not a person is a minor, before permitting that person to do anything contemplated in sub-section (3)(a) to (d)
Existing national and provincial regulations already require operators to provide strict security at all entrances to gambling areas, specifically to prevent minors from gaining entrance. If in doubt, security personal are instructed to obtain verification of age.
Section 13(1) A person licensed to make any gambling activity available to the public must not -
(a) extend credit, in the name of the licensee or a third party, to any person for the purpose of gambling
(b) Permit a person to place funds on deposit with the licensee, or pay for a gambling activity, directly or indirectly, by credit card or charge card
(c) offer or provide accommodation, meals, drinks, other refreshments, or any similar service free of charge or at a discounted price
of this provision would be to place a significant constraint on the marketing efforts of casinos with a consequential impact on revenues and viability.
This is normal business practice throughout the world, and this provision is direct interference with a legitimate economic activity within a free market society, and is discriminatory to the gaming as well as the non-gaming part of the casino business where hotels and tourism facilities are present.
A new provision is introduced in the Bill to afford a person the opportunity to exclude him or herself by applying to the National Gambling Board. Similarly, an interested party may apply to the High Court for an order to have a person registered as an excluded person (one presumes with the National Gambling Board). It further provides for the excluded person to apply to the National Gambling Board to have the registration lifted or to the High Court to have the order set aside.
This provision may have unintended legal consequences including individual and class action suits against the government and regulators. International precedence in this regard already exists. It is also a fact that casinos already go to considerable lengths to keep self-excluded persons out of the casinos, but it is none-the-less particularly difficult to do this effectively.
Section 17 Standards for gambling premises
The term "gambling premises", as used in the heading, is not defined in the Bill but the term "licensed premises" is used in context of the Section. Certain prohibitions are enacted in terms of "licensed premises". These are:
Section 17(1) No person may operate any licensed premises within the prescribed distance from a school
Section 17(2) No person may place or operate a cash-dispensing machine within any licensed premises
It is worth noting that international research in this area, such as that conducted by the Nevada Resort Association, shows that more than 60% of cash withdrawn at casino resort complexes finds its way not to the gambling floor, but is expended on souvenirs, in restaurants, cinemas, and on other non-gambling entertainment.
Section 17(3) Every licensee operating licensed premises at which a gambling activity is conducted must close those premises for a continuous period of at least six hours during every period of 24 hours
Section 17(5) A person licensed to engage in, conduct, or make available licensed activities in, on, or from particular licensed premises must comply with prescribed standards for the design, use, and maintenance of such licensed premises
Current casino developments in South Africa were physically designed with the approval of competent licensing authorities, and within the framework of provincial regulations and policy, and were subject to appropriate local authority approvals.
Sub-Section 5, however, in addition to the authority provided to the Minister to prescribe minimum standards in relation to the design, use and maintenance of licensed premises, current and future, imposes on the Minister the obligation to include provisions to guard against the over stimulation of gambling and to protect minors from exposure to gambling activities. These provisions have far reaching consequences for existing licensed premises in that:
Section 26 Limited pay-out machines
This section may result in the proliferation of uncontrolled mini-casinos, sharply increasing public access to more gambling. This was never envisaged in government’s original policy.
Section 45 Maximum number of casino licences
The provisions of this section, dealing specifically with casino licences, provides the Minister with significant powers to determine, by way of regulation, the maximum number of casino licences for the Republic and for each province. The previous fixed number of casino licences that may be awarded in the Republic and in each province is to be scrapped.
This section may, in effect, have the presumably unintended consequence of actually increasing the amount of gambling in our society.
the detriment of investment-scarce rural areas where current casino resorts have effectively drawn customers and other economic benefits out of more advantaged urban centres, and created significant numbers of jobs.
For example, in Gauteng where under current legislation the number of casinos is capped at six, the Minister could use his discretion and increase the cap with serious consequences to the viability of existing casino operations that represent a total investment in excess of R5.5-billion.
The potential for costly and lengthy litigation should also be borne in mind.
Section 53 Economic and social development issues to be considered
Sub-Section 2 places an obligation on the provincial licensing authority to review, on every anniversary of an issued licence, the licensee’s achievements in regard to black economic empowerment and measures to address compulsive gambling. It further provides a provincial licensing authority with the power to impose further conditions of licence to achieve, one presumes, the licensee’s commitments in this regard.
If there is a change imposed from the original commitments, then this could have a detrimental effect on existing licenses.
Sub-Section 2 introduces the value of an administrative penalty not to exceed 10% of the annual turnover of a licensee.
R100-million in some cases. What offence or breach of a license condition could ever warrant such an enormous penalty?
The authority and wide discretion to be afforded to the Minister, by way of regulation to make decisions, may be imprudent and is contrary to any notion of fair regulatory practices. This provision creates uncertainty and will undermine this Government’s own policy objectives in respect of the industry. The casino sector, in particular, will be affected if a future Minister acts irresponsibly and does not consult with all stakeholders, and does not consider all the consequences equally.
Financial Implications For The Casino Sector
There appears to be a popular misconception about the so-called ‘super profits’
generated by the casino industry. As PriceWaterhouseCoopers will attest, the facts are that the casino industry achieves a 9.5% profit on revenue before tax. This compares to retail, for example, at 6.1%, mining at 16.8%, non-cyclical consumer goods (beer, soft drinks, wine) at 11.4%, and banks at 24%.
Casino revenues are distributed as follows:
In addition, R2.5-billion is paid to suppliers (of which some 25% are from the emerging sector) for materials and services.
CASA has undertaken a detailed analysis of the financial implications for its members of certain of the provisions contained in the new Bill. The association is quite willing to share its methodology and workings with the committee, and indeed the department, if so requested.
SMMEs, concessionaires, contractors and vendors (some 25% of whom are BEE businesses) will be more seriously affected, lacking the capacity of casino operators to absorb the costs and losses implicit in the new Bill. It is anticipated that many of these businesses will be forced into closure, with concomitant financial and employment losses in the emerging sector.
Significant additional costs are expected, for example in terms of security and crime prevention. The concept of ‘cash only’ is in direct conflict with the local and international banking sectors’ attempts to reduce cash transactions, and has serious implications for new crime, including robbery of patrons, and an obvious increase in illegal money lending in and around casinos, with the resultant need for dramatically enhanced, and costly, security. Consultation with the SAPS on this issue would be judicious.
Achieving Government’s Political Aims
CASA strongly supports the two primary political objectives of the Bill, which are to enhance policy making in respect of gambling, and secondly, to address the question of problem and compulsive gambling.
In respect of the first, the Bill goes a long way toward the accomplishment of this aim, although it must be said that while the previously confusing relationship between policy makers and regulators has been resolved to an extent, there are still issues to be addressed in the national/provincial nexus.
We are less confident that the second aim will be achieved by the Bill.
Many of the proposals relating to problem and compulsive gambling show little sense of proportion or understanding for their practical considerations, and unfortunately, ignore the wide body of available international and local research that demonstrates that measures such as these have not been successful in minimising the negative consequences of problem and compulsive gambling in other jurisdictions.
Of concern to CASA is that some of these measures may give the ultimately false impression that government is taking substantial and dramatic steps to curb problem and compulsive gambling, when in fact, these measures are, at best, cosmetic and
their more obvious consequence will be to inconvenience the vast majority of casino visitors who do not exhibit problems with their gambling.
Central to this issue is a perception that problem and compulsive gambling in South Africa is approaching epidemic proportions. None of the available research supports this view, and those who claim, for example, that 50% of gamblers in South Africa are addicted, obviously never provide any evidence to substantiate this assertion, one that certainly cannot withstand normal scientific and scholarly scrutiny.
However, what the research, for example, does reveal is that the incidence of compulsive gambling in South Africa is in line with international norms, being 1% of regular gamblers and 0.38% of the population as a whole. Problem gamblers constitute some 5% of regular gamblers.
None of this is to say that we in South Africa have any reason to be complacent, as compulsive and problem gambling is a serious issue by any yardstick, but, what is needed is some perspective: the damage caused by alcoholism and alcohol abuse, for example, is much greater than the damage caused by problem gambling.
It also seems to us that the drafters of the Bill were not fully aware of how much has been done in South Africa already to address the issue of problem and compulsive gambling.
Provincial gambling boards provided strict and vigorous guidelines on this subject in their policy determinations and regulations, and in RFP's required applicants to articulate a programme to deal with the incidence of problem and compulsive gambling. Measures that have been subsequently undertaken by industry are subject to strict and regular audit by gambling boards, and compliance has been achieved.
Furthermore, three years ago, the National Responsible Gambling Programme (NRGP) was founded, and today this public/private sector partnership is acknowledged internationally to be a comprehensive and workable approach to the question of problem and compulsive gambling.
With structural oversight by the public sector, and funded largely, but not exclusively, by industry, the NRGP is accountable through the SA Responsible Gambling Trust (SARGT) to the SA Advisory Council on Responsible Gambling (SAACREG), which was formed by the National Gambling Board and on which sits representatives of both industry and all 11 regulatory authorities in South Africa.
It is the only programme of its type in the world structured in this way, and the only one internationally in which research, treatment, and prevention are integrated within a single organisation. Moreover, it is a model whose success has been recognised internationally, and which other jurisdictions intend to replicate, not least of which the United Kingdom where the Home Office-appointed commission chaired by Sir Frank Budd advised the British Government to adopt South Africa’s approach.
In the past three years, and quoting from the 2003 NRGP annual report:
(0800 006 008), and 2 369 callers referred for free treatment by a medical professional, on average some 80 per month. More than 2 500 have received assistance telephonically.
Conclusion
In terms of the public interest, the situation pertaining to gambling in South Africa today is infinitely better than that which existed prior to the passage of the National Gambling Act in 1996.
One must recognise that South Africa’s new casino industry, a product of this government’s policy, did not evolve against a background that was virginal in respect of casino-type gambling. On the contrary, the main reason for government’s introduction of the new gambling dispensation was the existence of a flourishing illegal casino industry in every town and city in the country.
It was estimated that as recently as 1995, there were up to 150 000 illegal slot machines in South Africa, paying no tax, employing very few people, and providing a platform for associated criminal behaviour such as prostitution and drug dealing. Moreover, this vast illegal industry was one almost entirely controlled by whites, offered players no protection against fraud, was readily accessible to minors, and totally ignored problems associated with compulsive and problem gambling.
Today this situation has been replaced by a rigorously and effectively-regulated legal industry which has contributed very substantially to the public purse, and which has funded public infrastructure to a considerable amount, including critically needed new tourism plant, such as convention centres and over 5 000 new hotel rooms since 1996, among other non-gaming investments.
In just six years, the country’s new casino industry – which today has fewer than
20 000 slot machines - has been responsible for some R12-billion in new investment, which means a multiplied contribution to South Africa’s GDP, according to National Gambling Board research, of more than R36-billion in terms of accepted economic
multipliers. In this time, it has created over 30 000 direct jobs and (calculated again using National Gambling Board data) 64 500 indirect new jobs, many for first time workers. Last year alone, it accounted for over R1.7-billion in national and provincial taxes, made up as follows:
Moreover, the casino sector has substantially advanced government’s transformation agenda in respect of the tourism and leisure industry. Previously disadvantaged shareholders enjoy substantial control (just over 60% of voting shares on average) in the casino industry, while these same shareholders have, also on average, a 38% effective economic interest in South African casinos. On both counts, this exceeds comparable economic sectors. It should also be noted that our members’ fulfilment of obligations in terms of black economic empowerment through recruiting, procurement, outsourcing and other measures, is audited regularly by the authorities.
As a consequence of the strict regulatory environment in South Africa, the casino sector is subject to tightly enforced controls in terms of player protection, the exclusion of minors, probity standards, and other compliance measures, including its substantial funding of the internationally-acknowledged National Responsible Gambling Programme (NRGP).
It is telling to note that recent research by the National Gambling Board shows that 73% of South Africans approve of the country’s regulated gambling industry, and 87.8% do not have philosophical, moral or religious objections to gambling. Public opinion, then, is not defined by those lobbyists who would have this government dramatically change the policies and approach to the industry that it established only seven years ago.
It also must be said that if the Bill is passed into law in this form, the casino sector will have no option but to take steps to mitigate its impact on the industry’s full spectrum of stakeholders. This will necessarily involve engaging provincial governments and gambling boards to re-negotiate current conditions of license, and bid commitments, many of which will be rendered unaffordable because of the harsh provisions contained in the Bill. This could result in unprecedented legal disputes in courts throughout the country over such obligations.
Therefore all of the affected stakeholders, in the public sector and civil society, have strong reasons to come together to contribute in a constructive way to ensure that the Bill meets government’s needs, but without the unintended economic, political and social upheaval which may well result from an otherwise worthwhile piece of legislation.
In conclusion, CASA wishes to reiterate that it is committed to supporting government’s aims in terms of the industry, and it will continue to play a constructive and positive role in the evolution of good public policy and good governance in respect of the industry.