WRITTEN SUBMISSION
BY BETFAIR LIMITED
(BETFAIR)
AT THE PUBLIC
HEARINGS OF THE PORTFOLIO COMMITTEE ON
ON TRADE &
INDUSTRY IN RESPECT OF
THE NATIONAL
GAMBLING AMENDMENT BILL, 2007 [B 31-2007]
HELD ON 22 AUGUST
2007
1.
INTRODUCTION
1.1.
Betfair is pleased to make this written submission in
respect of the National Gambling Amendment Bill 2007 (the “Bill”) which is
intended to amend the National Gambling Act, 2004 (the "Act").
1.2.
The submission will be presented in person by Elliott
Kernohan who is General Counsel at Betfair, and Lungile Mazwai of attorneys
Ledwaba Mazwai. Adheera Bodasing, a
consultant to Betfair whose name is listed in the agenda for the public
hearings, is unfortunately unable to attend the public hearing.
1.3.
This written submission is supported by a slide presentation
together with speaking notes for those presenting in person to the
Committee. All of these documents were
submitted to the Committee Secretary on Monday 20 August 2007. We will take the Committee through the slide
presentation in the hearing, but urge Honourable Members to consider the
further detail and analysis contained in this written submission.
1.4.
Our presentation begins with an introductory section:
summarising Betfair’s submissions and briefly introducing Betfair to the
Committee, in particular its credentials in relation to
2.
SUMMARY OF BETFAIR’S
SUBMISSION ON THE BILL
2.1.
Betfair supports the overriding regulatory objective of this
Bill, which is, as articulated by Fungai Sibanda, the Acting Deputy
Director-General of the Department of Trade and Industry (the "dti")
before this Committee on 8 August 2007, to regulate interactive gambling in the
public interest in order to protect and control.
2.2.
Betfair also supports the various policy objectives of the
Bill as set out in paragraph 1.6 of the Memorandum on the Objectives of the to
the Bill (the "Memorandum"), which include: effective and uniform
regulation of interactive gambling, the protection of persons who participate
in licensed gambling activities, and the protection of vulnerable persons.
2.3.
Notwithstanding our support of all of these objectives, this
submission is directed towards persuading this Committee to reject the Bill in its present form
because:
2.3.1.
the proposed exclusion of certain forms of interactive
gambling in the Bill seriously undermines the regulatory and policy objectives;
and
2.3.2.
the practical and combined effect
of various shortcomings in the drafting and application of the Bill in its
current draft is to prevent the policy objectives being achieved.
2.4.
Our recommendation to the Honourable Members is that the
Bill be sent back to the dti for further work to address these shortcomings.
3.
BRIEF INTRODUCTION OF
BETFAIR AND ITS BUSINESS
3.1.
Betfair is a major internet-based sports betting and gaming
company, based and licensed in the
3.2.
Betfair‘s business activities are conducted entirely through
various means of electronic communication and include a full range of online
gambling games and betting products, from online poker and casino, to
traditional multiple fixed odds betting on sports. Our core business, for which we are best
known, is the betting exchange; a highly advanced method or system for
accepting fixed odds bets that we developed ourselves. The combination of these activities from
multiple licensing jurisdictions makes Betfair one of the largest interactive
gambling operators in the world.
3.3.
By way of brief description, a betting exchange is a
technologically advanced method or system which is controlled by the licensed
provider for entering into fixed odds bets on sports and other events by which
every stake risked by one player is matched exactly by that of another
player. All players are known to the
operator, and their contact with each other is only through the medium of the
betting exchange.
3.4.
What makes Betfair’s betting exchange unique is its use of
highly advanced technology (software) to eliminate the operator’s risk on the
outcome of any betting event. This makes
the exchange method (which is a form of person-to-person gambling, discussed
below) a highly desirable one from the standpoint of player safety and fiscal
stability. Betfair’s understanding and
application of technology has also enabled it to set the global benchmark in
player protection and anti-money laundering measures, and is recognised as one
of the leading IT employers anywhere in the world.
3.5.
Betfair is proud that many of its longstanding systems and
procedures for the exclusion of minors and combating corruption in sport have
recently been adopted as the regulatory standard for the entire online gambling
industry in the
4.
BETFAIR’S ASPIRATIONS IN
4.1.
In support of Government’s long-standing policy of
regulation in preference to prohibition, Betfair has proactively sought to
become a licensed gambling operator in
4.2.
At the time of submitting this document Betfair was the only
offshore operator scheduled to appear before the Committee, and as far as it is
aware is the only major interactive gambling operator to have approached the
dti and the NGB to be regulated.
4.3.
Betfair fully supports Government’s objectives on
socio-economic development and legislation on Broad-based Black Economic
Empowerment, and after meeting a number of parties is already in advanced
discussions with a prospective black economic empowerment partner. Furthermore Betfair’s requirement for skilled
computer science graduates, call centre operators and business process
outsourcing (BPO) capacity puts it firmly within the industries targeted by
ASGISA.
4.4.
Betfair has identified several rural and urban projects to
promote socio-economic development within the sporting fraternity in
4.5.
In 2005 and 2006 Betfair initiated, designed and helped to
fund a life skills strategy for the National Gambling Responsible Programme
(NRGP) to address the serious problem of underage gambling in
5.
REGULATING GAMBLING ON
THE INTERNET
5.1.
What should be regulated
and why?
5.1.1.
The notional focus of this legislation is on all of the
various forms of gambling which take place via the internet, and the desirability
or otherwise of regulating in the public interest.
5.1.2.
The principal reasons why online gambling has merited
specific consideration by a number of governments are:
5.1.2.1.
its borderless nature makes it impossible to prohibit
effectively;
5.1.2.2.
the physical absence of players from the gambling premises,
and therefore the potential for player and operator anonymity, requires
internet-specific measures to address the serious, but familiar, concerns
regarding underage and compulsive gambling, the risks of fraud and money
laundering, and operational integrity;
5.1.2.3.
the traditionally prescriptive approach of governments to
gambling regulation means that legislation is inherently unable to keep pace
with technological advances.
5.1.3.
These reasons explain why many regulating governments
emphasise the need for regulation to be technology-neutral, and why it is
proposed in the present Bill (at paragraph 7 of the Bill amending section 5 of
the Act) that the Minister should have authority to prescribe regulations
applicable to specific interactive games, systems and methods. The alternative, which Mr Rasmeni noted in
the last hearing on the Bill, is for the dti to be constantly before this
Committee with every new form of activity.
5.2.
What has been regulated
elsewhere?
5.2.1.
Other than the very broad statement in the Memorandum, that
“interactive gambling is generally considered to mean all forms of remote
gambling conducted via the internet or related forms of telecommunication”,
nowhere in any document or policy statement presented to this Committee to date
has any attempt been made to describe the main forms of licensed commercialised
gambling that exist on the internet. The
following paragraphs attempt to do so.
5.2.2.
At a basic level, the internet is nothing more than a new
means of delivering gambling via the medium of electronic communication. Electronic communication does not change the
nature of gambling generally.
Accordingly, all the same forms of gambling available in a land-based
environment can be made available via the internet.
5.2.3.
This point is illustrated by the following graph which shows
a breakdown of the different online gambling undertaken in the
5.2.4.
The forms of gambling with which the Committee may be
familiar in a land-based environment (fixed odds and tote betting, and casino)
have a strong internet presence. In
addition, the speed and technology of the internet has enabled online poker in
particular to become predominant, and its growth currently outpaces other
forms.
5.2.5.
An increasingly prevalent feature of the global online
industry is the provision by a single operator of several forms of gambling
activity in order to appeal to customers over a longer period. Accordingly to regulate less than all of the
common forms, or regulate them differently, invites confusion in the minds of
players, and creates an incentive for operators to circumvent regulation (or an
incentive not to submit to licensing at all).
5.2.6.
The Memorandum introduces a concept that it describes as
“interactive gambling activities taking place between two or more persons that
are facilitated by a third party” (see paragraph 1.2 of the Memorandum). In industry terms this is referred to as
person-to-person gambling, or “P2P”. As
shown in the graphs above, P2P encompasses several different forms of gambling
which together account for at least 25% and possibly 40% of global interactive
gambling. The Memorandum and the text of the Bill seek to exclude P2P from the
proposed regulation.
5.2.7.
Honourable Members should note that no form of
person-to-person betting can take place without the approved technology for
that activity being provided and controlled by the licensed provider. Understanding this concept of P2P is central
to Betfair’s substantive submissions, below.
5.2.8.
It is also worth noting that in no jurisdiction of which
Betfair is aware has any government sought to exclude types of gambling
(player-to-player or otherwise) simply because they occur principally on the
internet: the focus is to regulate the internet as a delivery channel which
presents its unique risks uniformly across all modes of gambling.
5.2.9.
Online poker, like betting exchanges, is a gambling activity
provided by a licensed operator which enables players to gamble safely amongst
one another in a regulated environment.
It works identically to a poker tournament in a land-based casino, but
such tournaments rely on having a critical mass of players with similar risk
appetites simultaneously present at the casino.
5.2.10. Conversely, the internet
enables large numbers of players to congregate virtually at a website, and the
larger the number of registered players, the greater the likelihood that enough
players will be found at the same recreational spending level to enable a game
to begin. Player-to-player poker’s very appeal is the ability for players to
compete against each other rather than against the house (where the odds are
fixed in favour of the house). The
online form, because it is interactive between autonomous players, is also far
more a game of skill than the casino variant.
5.2.11. The betting exchange is
also in the ascendancy for the same reasons of community, skill and
competition: the licensed operator provides a safe platform for fixed odds
betting, rather than a card game.
5.2.12. We would also draw your
attention to the middle sections of the graph, which are grouped together
specifically to highlight that totalisator betting, which is and has been for
some time the main form of betting on horseracing and sport in South Africa, is
another form of player-to-player gambling which is made currently available on
the internet.[1]
5.2.13. All of the forms of
online gambling shown in the graph are common and already have a proven
consumer demand in
5.2.14. In order to safeguard all
players within the Republic and ensure that the risk of harm to individuals and
the community, it is therefore essential to apply regulation uniformly and not
to allow loopholes or exceptions of any kind.
5.3.
What is the effect of
prohibition?
5.3.1.
To address the Committee’s recent enquiry on the experience
of those countries that prohibit online gambling, the graph below is provided
to show the size of the illegal market globally, and emphasises that the two
countries that take a high profile prohibitive stance suffer the largest illegal
markets. Note that the table combines
online and land-based illegal activity, highlighting that prohibition makes it
difficult or impossible to adequately identify what is online and what is not.
5.3.2.
Although not illustrated in the table above GBGC predicts
that in the wake of the US prohibitive legislation specifically aimed at online
gambling in October last year, the global illegal market may have grown now to
ZAR2, 175bn, although accurate figures are not yet available.
5.3.3.
In concluding this section on prohibition we would make two
observations:
5.3.3.1.
GBGC estimates a 10-fold growth in online poker in
5.3.3.2.
GBGC’s empirical research proves what is perhaps
self-evident: the smaller the range of permitted online gambling opportunities,
the greater the size of the illegal market.
6.
INTRODUCTION TO
SUBSTANTIVE SUBMISSIONS
6.1.
Betfair’s substantive submissions on the Bill are based on
our experience of working in many jurisdictions, and comprise an analysis of
various aspects of the Bill in its current form which together result in the
Bill as a whole failing to meet the stated regulatory and policy objectives:
6.1.1.
Section 7 of this submission
argues that the proposed exclusion of certain forms of interactive gambling in
the Bill seriously undermines the regulatory objectives.
6.1.2.
Section 8 of this submission
argues that the practical and combined effect of various shortcomings in the
drafting and application of the Bill in its current draft is to prevent the
policy objectives being achieved.
6.2.
The policy background informing our analysis includes the
NGB’s Report on the Regulation of Interactive Gambling dated 10 October 2005,
which in turn informed the National Policy Framework document which the dti
presented to Cabinet along with the previous draft of this Bill in December
2006.
6.3.
For the purpose of the present submission we take the
overriding regulatory objective to be that set out in paragraph 2.1 above as
articulated by the Committee, and the relevant policy objectives to be those
set out in paragraph 1.6 of the Memorandum, which are –
6.3.1.
effective and uniform regulation, licensing and controlling
of interactive gambling;
6.3.2.
protection of persons who participate in licensed gambling
activities;
6.3.3.
protection of children and other vulnerable persons from
gambling;
6.3.4.
protection of society and the economy against
over-stimulation of demand for gambling;
6.3.5.
licensing of interactive gambling providers and registration
of players;
6.3.6.
conducting of interactive gambling activities in a
transparent, fair and equitable manner; and
6.3.7.
monitoring and control of interactive gambling.
7.
EXCLUSION OF CERTAIN
FORMS OF INTERACTIVE GAMBLING FROM THE BILL
7.1. Background to this part of our submission
7.1.1.
When the initial National Gambling Amendment Bill of
December 2006 was published for comment there was no mention or reference to
any form or forms of interactive gambling which would be excluded from
regulation.
7.1.2.
The current Bill was published in the Gazette on the last
day in July 2007 for public comment proposing the exclusion of interactive
gambling taking place between two or more persons that are facilitated by a
third party (which we have referred to in this submission as
"player-to-player" or "P2P") (see paragraph 1.2 of the
Memorandum and the definition in ‘interactive provider’ in the Bill).
7.1.3.
The precise nature and extent of the proposed exclusion of
player-to-player gambling activities is not explained or defined. When the Committee sought clarity on this
aspect at its hearing on 8 August 2007, the NGB on behalf of the dti explained
that the intention in the Bill was to make a prohibitory statement regarding
player-to-player betting exchanges, thus indicating that the exclusion is
intended only to apply to player-to-player betting exchanges.
7.1.4.
There is no reference in either the Memorandum or the text
of the Bill to betting exchanges.
7.1.5.
The Memorandum does, however, refer to an ongoing
investigation into P2P (which the NGB also told this Committee was now
completed). Having spoken to the NGB since
the statements to this Committee on 8 August 2007, Betfair now understands the NGB will conclude all
discussions with Provincial Licensing Authorities ("PLAs") in respect
of its completed findings on betting exchanges by 31 August 2007, and may propose
further amending legislation to this Committee to cater for betting exchanges
within 3 months from now.
7.1.6.
The proposed exclusion of P2P, whether in the wide or narrow
sense is unsatisfactory and confusing given the following observations –
7.1.6.1.
the dti at its presentation of the Bill to the Committee on
8 August 2007 did not bring to the attention of the Committee the proposed
exclusion of player-to-player gambling activities from regulation. The proposed exclusion was only addressed
following a question from the Committee;
7.1.6.2.
the Bill seeks to exclude from regulation an activity which
is already unlawful in terms s.8 of the Act.
The Committee is also referred to the enclosed notice number 002/2007
issued by the NGB on 16 April 2007 wherein the NGB confirms that interactive
gambling is prohibited;
7.1.6.3.
to the extent that a betting exchange (or any other form of
P2P) is a game, method or system for conducting an interactive gambling
activity, the Bill already proposes mechanisms to establish regulations in
respect of the same;
7.1.6.4.
the draft of the Bill made available for public consultation
in December 2006 did not contemplate the exclusion of any forms of interactive
gambling and no reference was made to any investigation into the implications
of player-to-player gambling activities; and
7.1.6.5.
at the date of this submission, only the December 2006 draft
of the Bill was available at the dti’s website, inviting public confusion as to
exactly what is intended.
7.1.7.
Regardless of the language used, the likely effect of a
legislative exclusion as proposed in the Bill is to prohibit, and Betfair’s
submission in respect of the proposed exclusion has been structured
accordingly.
7.2. Any exclusion undermines the objectives of regulation
7.2.1.
Paragraph 1.2 of the Memorandum states that the Bill
excludes interactive gambling taking place between two or more persons that are
facilitated by a third party.
7.2.2.
As noted in section 5 above, several forms of
player-to-player interactive gambling are made available on the internet, and
all fall within the description in the Memorandum and in the Act.
7.2.3.
If this description of P2P was to apply uniformly to such
activities, the Bill would fail to protect the players or impose regulatory
controls on 40% of online gambling activity, including poker, the single
activity for which consumer demand is growing fastest. Even if it were narrowed to address just
exchanges (and aside from issues of discrimination argued below) a material
break in the fence protecting South African players will have been
intentionally created by Parliament.
Such a result runs directly against the general and stated approach by
Government and the regulator to regulate rather than prohibit.
7.2.4.
To Betfair’s knowledge no other national jurisdiction in the
world excludes any form of P2P from its internet regulation. That of itself is no reason for
7.2.5.
Betfair’s submission on this aspect is that any exclusion
of an interactive gambling activity (whether 14% or 40%) impairs the
Government’s ability to pursue the policy objectives espoused in the Bill (see
paragraph 4 of the Bill inserting section 2A of the Act), and significantly
increases the risk that South African players will continue to be exposed to
the undesirable factors listed in paragraph 1.1 of the Memorandum.
7.3.
No policy
basis for the exclusion of certain forms of interactive gambling
7.3.1.
The rationale for excluding player-to-player gambling that
is given in the Memorandum is that the implications of this form of interactive
gambling are currently being investigated.
The essence of this rationale is, with respect, that ‘we ran out time’
in the investigation into the consequences of permitting player-to-player
interactive gambling – which investigation, it bears mention, began in 2004:
before the principal Act itself came into effect.
7.3.2.
If the decision is to exclude from regulation certain forms
of interactive gambling, being player-to-player interactive gambling, then the
legislature is enjoined in law (including section 9(3) of the Constitution and
sections 4(3) and 5 of the Promotion of Administrative Justice Act, 2000) to
have a cogent rationale clearly articulating the purpose and extent of the
exclusion, and to take into account representations made in respect thereof,
such as this submission by Betfair before determining whether or not to make an
exclusion.
7.3.3.
As noted above neither the Memorandum nor the Bill make
reference to betting exchanges, or to a prohibition or grounds for one. However when questioned by this Committee, the
NGB on behalf of the dti stated that the intention is to make a prohibitory
statement in respect of player-to-player betting exchanges specifically.
7.3.4.
No policy reasons have been articulated to date to this
Committee as to why:-
7.3.4.1.
any or all forms of P2P might merit consideration separately
from other forms of interactive
gambling,
7.3.4.2.
any or all forms of P2P merit exclusion from the Bill; or
7.3.4.3.
betting exchanges specifically merit a prohibition.
7.3.5.
Betfair’s submission on this aspect is that if there is to
be an exclusion of one or more interactive gambling activities, then the
purpose of the exclusion must be clearly established and extent of the
exclusion must be clearly defined. The
Bill in its current form does not with respect achieve any such clarity.
7.3.6.
Furthermore, as noted above, we are aware that the NGB
completed a study into the regulation of betting exchanges late last year or
earlier this year, which study concludes (we understand) that all stakeholder
concerns are capable of being addressed through regulation. The study referred to was undertaken by a
sub-committee formed especially to investigate betting exchanges and how they
are regulated in other jurisdictions. An earlier 2004 report and attendant
draft legislation were withdrawn by the NGB in 2005. This new sub-committee undertook detailed
investigation including comprehensive interviews with regulators and operators
in the
7.3.7.
On 14 June this year the NGB stated to Betfair that its
preference would have been to regulate betting exchanges in the Bill. Betfair now understands the NGB may propose
further amending legislation to this Committee to cater for betting exchanges
within 3 months from now.
7.3.8.
Our submission in light of the above is that there clearly
is no cogent policy basis offered to justify the exclusion or prohibition of
any form of player-to-player gambling, or specifically of betting
exchanges. Without such a basis, to
actively exclude or prohibit is inconsistent with the specific policy
objectives in the Bill, directly counter to long-standing government policy,
and is constitutionally unfounded.
7.4.
Exclusion of certain
forms of interactive gambling is discriminatory
7.4.1.
On 8 August 2007 the Committee was told by NGB that its
intention was to make a prohibitory statement in the Bill regarding
specifically P2P betting exchanges.
7.4.2.
Betfair operates the largest betting exchange, and is the
only offshore exchange seeking to be regulated in
7.4.3.
Betfair’s submissions on the developments between the
Gazetting of the initial Bill in December 2006 and the current Bill are –
7.4.3.1.
Betfair has not been afforded adequate opportunity to
comment on the Bill nor to consult with the dti on the Bill;
7.4.3.2.
Betfair was denied the opportunity to review and comment on
the Bill with the benefit of all information which it sought to obtain. In particular Betfair unsuccessfully engaged
the NGB from Monday 14 August 2007 to urgently obtain a copy of the NGB
Sub-committee’s Report on Betting Exchanges of 2006 and other documentation
related thereto. A copy of a letter sent to the NGB by Betfair’s advisers, and
NGB’s response thereto, are enclosed; and
7.4.3.3.
procedurally there has been inadequate public consultation
on the Bill[2] as noted
by the Committee on 8 August 2007 and acknowledged by the dti. This inadequate pubic consultation process is
exacerbated by the fact that as at 20 August 2007 the dti website home page had
a link to the Bill of December 2006, and not the Bill currently before the
Committee.
7.4.4.
The Constitution of the Republic of South Africa Act, 1996
which applies to the legislature provides at section 9(3) (read with the Promotion
of Equality and Prevention of Unfair Discrimination Act, 2000) that the state
may not unfairly discriminate, directly or indirectly, against anyone on any
one or more grounds. The manner in which
the Bill seeks to prohibit certain forms of interactive gambling activities
(whether all P2P or only betting exchanges) constitutes an unfair
discrimination by the state in the absence of a Constitutional basis for such
discrimination.
7.4.5.
The explanation of the proposed exclusion and the targeted
activity interpretation by the NGB is not backed up by the text of the Bill in
that:
7.4.5.1.
the Bill makes no reference to betting exchanges;
7.4.5.2.
the definition of ‘interactive provider’ in the Bill
prohibits a person, other than a bookmaker, from providing P2P gambling
activities. If there is indeed a cogent
policy basis for the exclusion of P2P, such policy is directly undermined in
the Bill, because the exclusion does not apply to bookmakers;
7.4.5.3.
whether or not any such policy basis is so undermined, a
discriminatory advantage is created in favour of bookmakers as against all
other licensed providers; and
7.4.5.4.
the discrimination, which is not accompanied by any lawful
basis or policy consideration, not only permits bookmakers to provide P2P
interactive gambling, but to do so without reference to or compliance with the
player registration and other protections in the Bill, which providers of
permissible interactive gambling activities would be required to comply with.
7.4.6.
The exclusion as it is presently expressed in both the Bill
and the Memorandum would effectively extend to the online businesses of the
Republic’s two licensed totalisators.
Phumelela Gaming and Leisure Limited, in particular, is currently the
largest licensed operator of P2P gambling activity in
7.5.
If exclusion is justified
on policy grounds, it can be circumvented
7.5.1.
If there is indeed a policy reason meriting a separate
treatment of P2P from other forms of interactive gambling, it bears mention
that such a policy consideration could be easily circumvented by an operator
characterising a single player-to-player transaction as two distinct and
separate transactions with the operator, where the first transaction is between
player 1 and the operator and the second transaction is between player 2 and
the operator.
7.5.2.
This highlights the often-repeated point that regulation
needs to be genuinely technology-neutral if it is to be effective. No form of interactive gambling occurs in a
vacuum: the licensed operator controls the approved gambling system and
regulates player activity like any land-based operator.
7.6.
Regulation of future
forms of interactive gambling activities
If the legislature is inclined to pass the Bill in its
current form, Betfair draws the Committee’s attention to the following issues
7.6.1.
there is no mechanism in the Bill through which the excluded
player-to-player interactive gambling will be resolved or determined once the
investigation being undertaken is completed; and therefore
7.6.2.
a mechanism needs to be provided for in the Bill to deal
with the outcome of the investigation of player-to-player interactive gambling,
and any future forms of gambling of activities driven by technology without in
every instance having to amend legislation.
8.
PRACTICAL IMPACT OF
CERTAIN PROVISIONS AND OMISSIONS IN THE BILL
This second substantive
part of Betfair’s submission highlights certain other aspects of the Bill that
in Betfair’s view give rise to the serious practical risks that the dti’s
policy objectives can never be achieved under the Bill as now drafted. What these aspects highlight is, with
respect, an apparent disconnection on the part of the dti as between the
objectives of regulatory policy, and the effect of the Bill itself on the
actual activity sought to be regulated.
8.1.
Player protections not
uniformly applied to all providers
8.1.1.
The player protections and operator safeguards set out in
the Bill, which collectively form the framework by which the Bill seeks to
protect the public and control interactive gambling, are not sought to be
imposed upon all licensed providers of gambling on the internet. Paragraph 6 in the Bill which amends section
4 of the Act expressly permits existing bookmakers and totalisators to provide
their licensed gambling activities by means of electronic communication (as
they currently already do) but it does not constitute them “interactive providers”
subject to the protective framework afforded by the Bill.
8.1.2.
We understand this is a deliberate, but unarticulated,
variation from the policy expressed in the Memorandum, based on the concurrent
competency of Provinces to license these forms of activity. However the risks to players which this
Committee is being asked to protect against apply to all forms of gambling on
the internet, and these risks do not abate at Provincial boundaries. Currently no provincial gambling laws provide
any player protections of the kind recommended under this Bill.
8.1.3.
We do not suggest that provincial competency be restricted
in the online context: to the contrary we respectfully submit that the
framework articulated in the Bill must be applied uniformly by the PLAs to all
providers whom they license, exactly as they are proposed to apply to national
licence holders.
8.1.4.
Without such uniformity, not only does the Bill extend a
competitive advantage to certain classes of operator, but more importantly it
creates a two-tier framework of player protections and industry controls which
exposes the dti’s policy to the risk of eventual failure.
8.2.
Bill is not
technology-neutral: favours activities of existing operators
8.2.1.
The current draft of the Bill has omitted the main provision
contained in the December 2006 draft that would have ensured that the framework
of player protections is technology-neutral.
8.2.2.
Paragraph 7 of the previous draft Bill inserted a new
subsection 5(1A) into the principal Act which cast the net of regulation across
all forms of gambling which take place using means of electronic
communication. Its sudden (and
unexplained) omission now means that the Bill relies for its scope exclusively
on the particular forms of gambling that are already authorised to be provided
by the incumbent licensees in the land-based environment under the Act.
8.2.3.
Specifically, it is the interaction between sections 4 and 5
of the principal Act which construct the distinction between casino activity
and betting and wagering in the land-based environment. They were not
considered adequate for the purposes of online regulation in 2004, yet after 2
years of policy research they remain the basis by which an interactive game is
defined. Accordingly if a new operator
seeks to submit to South African regulation an activity that was not
contemplated in 2004, it cannot be licensed under the Bill without further
detailed legislative amendment. [3]
8.2.4.
The effect of this omission, whether intended by the dti or
not, is to restrict the range of licenseable online activity to only those
activities that were already understood in the land-based environment in
2004. This in turn carries a significant
risk under the Bill that the existing operators will entrench their competitive
position, without the opportunity for regulation of the wider range of activity
which many South Africans already participate in.
8.2.5.
Such a handicap, to the extent the existing licensees may
retain their present exclusivity, will accordingly also limit the level of new BBBEE
investment, inward technology investment and skills transfer into
8.3.
Onshore server
requirement handicaps policy objectives
8.3.1.
Section 37(4) of the Bill imposes the obligation on the
licensed provider to locate all its interactive gambling equipment in the
Republic. Unlike the
8.3.2.
Such a stringent onshoring requirement fails to take account
of the fact that most of the operators at which this regulatory policy is
targeted have already made very significant investments in acquiring licences
in other jurisdictions. As the Bill is
currently drafted, those existing offshore operators will have to forego both
their investments and their other licences in order to submit to South African
regulation.
8.3.3.
The same observation applies to the suppliers of the
necessary technology and support systems to the interactive gambling industry,
who may now need to consider whether the opportunity to supply South African
providers merits relocating their business activities into the Republic.
8.3.4.
If every other jurisdiction in the world adopted the same
approach on this aspect, a regulatory regime would emerge which would seek to
place geographical boundaries to an environment which does not enjoy such
borders. In any event it would become
impossible for world class operators to have their equipment in every
jurisdiction – if
8.3.5.
This requirement also arguably creates an artificial
competitive advantage for the incumbent licensees whose existing technology is
already in the Republic, which offshore operators will find difficult to
overcome.
8.3.6.
The legislator’s (and the regulator’s) concern to exercise a
level of control over the operator and its equipment can be achieved, as is the
situation in other jurisdictions, without requiring the equipment to be in the
Republic. Such a requirement, while
perhaps desirable on its face and in the first instance, is able to be
dispensed with in practice (and therefore ought to be) if the regulator is
satisfied on a case by case basis that it may exercise its oversight through
other means.
8.4.
Player age verification
measures lack rigour
8.4.1.
The most important player protection that any government
seeks to impose on its gambling industry is the requirement to exclude minors
from accessing gambling facilities.
8.4.2.
In the
8.4.3.
By contrast, although in many other respects the player
protections articulated in the Bill set very high compliance thresholds,
section 11A(1)(b)(iii) of the Bill merely requires an interactive provider in
South Africa to obtain a statement from the player that he or she is 18 years
or older. It is very likely that most
operators will in practice automate the giving of this statement as part of the
player’s acceptance of terms and conditions, and will not bring it to the
attention of the player, let alone take positive steps to perform AV.
8.4.4.
This issue is exacerbated by the positive obligation imposed
on providers under the Bill to push all winnings beyond a stated amount
directly to the player’s bank account (discussed below).
8.5.
Nominated account
requirements undermine player retention and industry sustainability
8.5.1.
In Betfair’s respectful view the nominated account
provisions are more correctly the subject of secondary regulation and licence
conditions (as in the
8.5.2.
That view notwithstanding, in several respects the specific
requirements set out in the Bill are unclear, and on their face may impose
unnecessarily onerous barriers to player registration and retention within the
protective regulatory net:
8.5.2.1.
The definition of ‘nominated account’ implies (but does not
make clear) that the player may only be entitled to nominate and therefore only
use one account, rather than several. No
reference is made to the use of credit cards, although the dti submitted to
this Committee that it would be the principal form of payment. The habit of players is to use more than one
account and to register more than one credit card with any given provider. Provided each player is verified to be the
owner of each separate payment method and (at appropriate spending levels
consistent with FICA) each source of funds, to restrict players to one account
serves no practical or regulatory purpose.
8.5.2.2.
Section 11A(1)(a)(iii) is unclear as to whether the player
spending limit may be changed as his circumstances change, or whether it renews
periodically to enable the player to continue funding his player account. In practice, any spending limit is unlikely
to be attractive to the majority of players.
Rather, what players expect and benefit most from is the ability to set
voluntary spending limits or self-exclusion limits, subject to cooling off
periods in the event they may wish to change them.
8.5.2.3.
Betfair does not provide credit to individual players, and
accordingly as an operator is neutral on the subject. However, in our view the restriction on
providing credit to players is unnecessary, so long as the provision of credit
and those providing it are subjected to existing consumer credit
legislation. To a significant degree if
a player is likely to become over-extended on credit, it is preferable from a
responsible gambling point of view if the operator itself has oversight and
financial exposure to that credit risk.
The prohibition on operators providing credit is in any event at odds
with the predominant method of payment for interactive gambling services, which
is the credit card.
8.5.3.
Section 11A(1)(c) requires the provider to immediately
transfer back to the player’s bank account (ie. outside the gaming environment)
funds in excess of the player’s spending limit.
While perhaps desirable from a player protection point of view, this
ignores the recycling principle which is at the heart of the sustainable
provision of regulated gambling – it drives the fundamental Return To Player
calculation. If players may not recycle
their winnings the operator will not have enough money to pay other
winners. Losing players will lose more
quickly. Winning players will abandon
licensed operators for offshore providers who do permit recycling. If recycling is impaired, the fundamental
objective of this regulation is at risk.
8.5.4.
In isolation these provisions rightly reflect genuine
concerns with regard to protecting players and the vulnerable. However they address those concerns in a
manner and to an extent not necessary to achieve the policy objective. Industry experience informs us that players
will readily prefer to seek other operators and gamble outside the regulated
environment if their experience of participating is needlessly procedure-bound.
8.5.5.
Accordingly if the Bill is to capture the activity of
existing and future online players within the protective regulatory net,
further work by the dti is adviseable to ensure the player protections required
by the Bill will actually be acceptable to consumers in the marketplace.
8.6.
Drafting of the Bill
creates uncertainty
8.6.1.
To the extent that different forms of interactive gambling
activity are regulated differently, the lack of uniformity will create
uncertainty that will influence the actions of all stakeholders, not least in
the minds of the public who will be the last to appreciate the subtleties of
different regulatory standards.
8.6.2.
We have already referred in section 7 above to the different
treatment of player-to-player gambling, and in section 8.1 above to the
different treatment of operators already licensed in the online
environment.
8.6.3.
The effect of the wording used to define “interactive
provider” creates uncertainty as to what activity is included in the regulation
and what is not. On the basis of the
plain language used, it would appear that a bookmaker (but no other person, not
even a licensed interactive provider) may provide P2P, and may do so freely
outside the scope of the player protections and other mechanisms imposed on
those regulated as interactive providers.
;
8.6.4.
Paragraph 3 of the Bill amending Section 2 of the Act
(Application of Act) makes no mention of the intention to exclude certain forms
of interactive gambling. Rather, it
seems from the language used that the Bill is intended only to apply to
licensed forms of gambling, and not unlicensed forms;
8.6.5.
Paragraph 4 of the Bill inserting Section 2A(a) of the Act
(Purpose of Act) makes no mention of the intention to exclude certain forms of
interactive gambling.
9.
CONCLUSION
9.1.
The policy framework informing the Bill is both sound and
achievable. Whilst the initial Bill of
December 2006 has its own shortcomings, its articulation of the policy
objectives was preferable to the current Bill.
9.2.
The shortcomings and inadequacies of the Bill demonstrate a
less than comprehensive understanding of both policy and operational issues,
perhaps occasioned by the incomplete investigation on all matters pertaining to
the regulation of interactive gambling.
9.3.
The cumulative effect of the proposed exclusion of P2P
(discussed in section 7 above) and shortcomings of certain provisions of the
Bill on operational matters (discussed in section 8 above) is that the
Bill fails to convert its policy objectives into legislative provisions to
enable the achievement of those objectives.
9.4.
The high level solutions which Betfair would propose be
considered to address its substantive submissions in section 7 and 8 above are
the following:
9.4.1.
avoid any form of exclusion or prohibition, whether broad or
narrow, which would in turn obviate loopholes and confusion. It is infinitely preferable to regulate the
internet (which is what carries the risk of harm) rather than to attempt to
discriminate against specific technologies, systems or methods the control of
which is already catered for in the Bill;
9.4.2.
apply the player protections and regulatory requirements
uniformly to all forms of interactive gambling, including bookmakers,
totalisators, exchanges, poker, and so forth, and not just the one. Reintroduce (with minor amendment) paragraph
7 of the initial Bill defining the criteria of interactive gambling, in order
to ensure regulation protects the players of all interactive gambling
activities, and does not entrench the activities of existing licensees;
9.4.3.
protect those who do choose to participate by removing the
obstacles to customer retention; and
9.4.4.
apply measures to enable rather than prevent existing
offshore providers to submit to South African jurisdiction.
9.5.
Betfair proposes that the Bill be rejected in its current
form to enable the current shortcomings and inadequacies to be resolved and to
implement the solutions proposed.
10.
We thank the Honourable Members
for their consideration of our submission, and shall be pleased to respond to
any questions or clarify any aspect of the presentation which Honourable
members would like us to.
Submitted by:
Elliott
Kernohan
General
Counsel – Corporate M&A
Betfair
Limited
Winslow
Road
London
W6 9HP
United
Kingdom
t: +44 20 8834 8221
m:
+27 (0) 82 904 9796
ENCLOSURE - NOTICE NUMBER 002/2007 ISSUED BY THE NGB ON 16 APRIL 2007
(referenced
in section 7.1.6.2
of the written submission)
ENCLOSURE – LETTER
ADDRESSED ON BEHALF OF BETFAIR TO NGB
AND RESPONSE BY NGB
(referenced
in section 7.4.3.2 of the written submission)
