Casino Operators' Perspective on the Gambling Review Commission Report

THE Report OF THE GAMBLING REVIEW COMMISSION FROM THE PERSPECTIVE OF CASINO OPERATORS Remarks by Jabu Mabuza, Chairman of the Casino Association of South Africa and Chairman of Tourism SA to the PARLIAMENTARY PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY 9 November 2011

The Report of the Gambling Review Commission INTRODUCTION: Thank you to the Committee for the invitation to present today. We will deal with issues that CASA views as of concern, and which are more fully dealt with in the CASA submission which was conveyed to the Committee on 29 August 2011. All members of the Committee will therefore be familiar with the contents of the CASA submission. • CASA views the Report of the Gambling Review Commission (GRC) as presenting a balanced and realistic picture of gambling in South Africa. • From a casino perspective it is heartening that, for the first time, a definite distinction is drawn between the various forms of gambling, including the recognition of the existence of significant illegal and informal gambling, that exist in South Africa. • The single concentration on casino gambling as the only form of gambling that had to be contended with and which therefore had to bear the brunt of most, if not all, criticism against gambling and against which most, if not all, new regulatory practices were aimed, has disappeared. • It is to the credit of the GRC that it has identified and laid bare the causality between informal and illegal gambling, and the problems that are experienced by the poor as a result of their unfettered exposure to this type of gambling.

The Report of the Gambling Review Commission INTRODUCTION: (cont...) • It is encouraging that the GRC recognises that the development of sound public policy can only be achieved if such policy development is based on empirical research. However the GRC has unfortunately, in view of the time restriction with which it was encumbered and which has hampered research into critical issues, in a number of instances made recommendations or indicated policy directions that do not comply with the goals that it has set itself with regard to evidence-based policy making. • Examples are in respect of certain findings regarding further measures to control gambling activity, aspects of the work of the NRGP, many aspects in regard to advertising, as well as issues relating to the National Lottery and others. • CASA would not wish to see the implementation of further restrictive measures in respect of the casino industry and it is to be welcomed that the GRC Report is very cautious about the imposition of such measures in respect of casinos. • The Committee should also be aware that the casino industry operates within a very highly regulated environment and that its record of compliance to date has been exemplary. The GRC Report also alludes to this fact.

The Report of the Gambling Review Commission INTRODUCTION: (cont…) • Despite the many and onerous regulatory measures that already exist - including the possible imposition of a gambling withholding tax - and the serious impact that the economic downturn over the past years has had on the industry, it has taken measures that have safeguarded jobs (some 51 000) and other economically beneficial activities. • It would be unfortunate if new measures were to be imposed by the Committee that would force the casino industry to abandon these carefully balanced business strategies. • The imposition of more onerous regulations or other measures will undoubtedly lead to significant job losses and, for example, the curtailment of the upgrading and expansion of existing facilities. • It would also negatively affect the generation of gambling tax revenue for the provinces which, as the Report of the Commission points out, is the second largest generator of own income at provincial level. • I will now deal with a number of specific issues in the Report dealing with casino gambling and inform the Committee of the position of CASA in respect of each of these. The written CASA submission to the Committee contains an expanded discussion of these issues. The page numbers next to the subject heading indicates where in the Report the matter is addressed.

The Report of the Gambling Review Commission (I) The increase in the number of slot machines and tables (pp. 10, 49, 50, 131, and 134): • The GRC’s view that “there is a need to monitor the growth of slot machines and tables at casinos”, is a sweeping statement which is, moreover, not substantiated in any way or supported by the facts. • Much of the growth in question and to which the Report refers, was the result of the opening of new casinos which were licensed following competitive bid processes in which the socio-economic impact of each project was thoroughly canvassed. • The increase in slots and tables that has taken place at existing facilities and at a substantial cost per position, has not meant that the public is exposed to additional casino venues where gambling can take place. • Government cannot expect economic growth and job creation (or that current job numbers be maintained) without facilitating further investment (including permitting investment in additional gaming positions). Its role must be to create an enabling environment, which the current restrictive regime does not do. Its effect is, in fact, exactly the opposite – it is investment averse.

The Report of the Gambling Review Commission (I) The increase in the number of slot machines and tables (pp. 10, 49, 50, 131, and 134): (cont...) • The growth of sometimes uneconomic non-gaming facilities at casino complexes (such as hotels, theatres, restaurants, banqueting and conferencing facilities) and the growth of the broader regional economy since the initial award of casino licenses, has in many instances taken place without a commensurate increase in the number of gaming positions at that property. • The Provincial Gambling Regulatory Authorities (PGRAs) thus ought to retain their existing prerogative whether or not to permit an increased number of gaming positions, on a case-by-case basis determined on the merits of each application and which must also be reasonable and realistic, in order not to discourage and suppress investment. • A permitted increase would, importantly, stem the proliferation of informal and illegal gaming and would satisfy the increased demand for gaming by providing a legal, regulated, compliant and safe casino gaming environment (to the benefit of the fiscus, the economy and of society at large).

The Report of the Gambling Review Commission (II) EBTs (pp. 55, 56, 117, 137 and 162): • CASA welcomes and strongly supports the realistic findings and the definitive stand taken against the introduction, in bingo halls, of EBTs in their current form. However it is important to note that CASA has no objection to the use of electronic versions of the traditional game of bingo. • CASA would bring to the attention of the Committee the judgment of the North Gauteng High Court of July 2008 which declared the current EBTs that are to be found in bingo halls, and which the working group of the Committee has viewed, to be slot machines that are only permitted to be exposed for play at licensed casino premises. The judgment was never appealed. It should also be pointed out that Gauteng, without any consultation and within record time, summarily changed its legislation to accommodate and thereby legalise such machines following the High Court judgment. • CASA thus also welcomes the recommendation that provincial legislation in Gauteng be brought into line with national gambling legislation in respect of EBTs

The Report of the Gambling Review Commission (III) LPMs –The proliferation of high stake slot machines (pp. 64 and 136): • CASA is of the view that introducing a third category of slot machine in South Africa is totally inappropriate, as it would lead to the proliferation of high stakes gambling outside of casinos. • The recommendation is inconsistent with the overall stance of the Commission adopted in its Report and which aims to restrict the proliferation of gambling opportunities. • It is also inconsistent with the recommendation elsewhere in the Report that the number of casino tables and slots be capped. • The recommendation appears to be aimed at assisting forms of gambling that have clearly proven not to be economically viable. This would in effect amount to a form of subsidisation of other industry sectors which is not compatible with the principles of a free-market economy. • The GRC recommendation that “LPMs located in dedicated gambling venues (racetracks, tote outlets and bingo halls) should be allowed machines with higher stakes and payouts” of 40 such machines per site (the licensing of which is currently much restricted) has far reaching implications. These implications should be carefully considered by the Committee if it is not to deal a fatal blow to the carefully crafted and delicately balanced architecture of gambling in South Africa.

The Report of the Gambling Review Commission (III) LPMs –The proliferation of high stake slot machines (pp. 64 and 136): (cont...) • It is not understood how the introduction of higher stake LPMs square with the GRC’s stated intention of limiting the proliferation of gambling opportunities, specifically limiting the number and type of slots. • It is also likely that such “LPMs” would be made available to the public in easily accessible premises located in shopping malls. In this regard it should be pointed out that the vast majority of operational bingo halls are currently located in shopping malls, a development which the Report highlights as a concern and is at pains to discourage. • The Committee should also be aware that experience in other jurisdictions such as Australia has been that this type of convenience gambling carries a social cost which far outweighs any benefits that it may provide.

The Report of the Gambling Review Commission (IV) Participation by gambling mode (pp. 74, 76-77, 79, 83-87, 89, 131 and 132): • CASA has in the past consistently drawn attention to the significant contributory role of illegal and informal gambling to problem gambling in South Africa. • The GRC Report provides a clear and disturbing focus on the extent to which poorer people engage in informal, unlicensed gambling, which of course cannot be laid at the door of the licensed industry. • CASA welcomes the finding that casino gambling does not contribute significantly to the creation of problem gambling amongst the poor. It is clear from the Report that illegal and informal gambling is largely responsible for this unfortunate state of affairs. • CASA welcomes the call by the Report for the authorities (i.e. PGRAs and law enforcement agencies) to take decisive action against illegal operators . CASA has cooperated closely with the PGRAs, SAPS and SARS to close down unlicensed slot parlours and casinos in a number of provinces. This cooperation , which is ongoing, has involved significant legal costs for the members of CASA.

The Report of the Gambling Review Commission (V) Advertising (pp. 93-97 and 125): • The remarks in the Report of the GRC relating to casino advertising are disturbing, inasmuch as they suggest that licensed casinos are luring the elderly to gamble at licensed venues by providing chips as a component of junket-type packages. It should be clearly understood that casinos in South Africa do not make use of “junkets” to attract customers. • The assertion that casinos are “getting around” the provisions of the National Gambling Act is simply not the case, There is no concerted action, or any other action for that matter, by any casino that attempts to lure the elderly to its facilities with the objective of getting them to gamble. • It is unfortunate that the GRC apparently relied on anecdotal evidence to support this contention and has not provided any concrete evidence in support of its position. • The GRC does not take account of the restrictive measures that are currently in place and that severely limit the type of advertising that may be done by casinos • The provisions of Regulation 3 of the Regulations promulgated in terms of the National Gambling Act, 2004 reads as follows: “3. (1) Advertising in respect of gambling must not- (a) contain any lewd or indecent language, images or actions; (b) portray excessive play; (c) imply or portray an illegal activity (d) present any game, either directly or indirectly as a potential means of relievingfinancial difficulties;

The Report of the Gambling Review Commission (V) Advertising (pp. 93-97 and 125): (cont...) (e) exhort gambling as a means of recovering past gambling or other gambling losses; (f) contain claims or representations that persons who gamble are guaranteed personal, financial or socialsuccess; (g) represent or imply that- (i) gambling is an alternative to employment or a means of acquiring financial security; (ii) winning is the probable outcome of gambling; (iii) gambling primarily involves skill; (iv) gambling is a form of investment; (v) the more or longer one gambles, the greater the chanves of winning; or (vi) that gambling is likely to make players’ dreams a reality”. (Emphasis added) • There is no indication as to why the current provisions of Regulation 3 are considered to be “ineffective” (as opposed to not being enforced uniformly). • CASA does not believe that more regulation in this regard will provide any answers and believes that there may be constitutional grounds to challenge any further restrictions. • Moreover, given the findings of the GRC that casinos (or advertising by casinos) cannot be seen as being primarily responsible for problem gambling or gambling by the poor, it would be grossly unfair and counter-productive to insist that casino advertising be further curtailed.

The Report of the Gambling Review Commission (VI) The National Lottery and Lottery advertising (pp. 95, 102-103 and 134): • CASA strongly opposes the assertion in the Report of the GRC that there should be a distinction drawn between advertising under the so-called revenue generation and sumptuary models of gambling. • The postulation of two different models of gambling and the acceptance by government of one, at the expense of the other, appears to be an attempt to promote one form of gambling and to justify lottery advertising. This is totally unacceptable if one is seriously to deal with problem gambling. • The Portfolio Committee should be mindful of the fact that persons who develop problems with gambling do not have the luxury of distinguishing between whether the form of gambling in which they participate falls within the revenue generation or sumptuary model! • Differently put, the argument that government has chosen one model for the lottery that allows unfettered advertising which, amongst others, robustly promotes the proposition (to especially the poor) that the lottery can help gamblers to change their lives, calls into question its contention that it is concerned about problem gambling and that it is serious about dealing with the problem. • It should not further burden a responsible and already severely constrained casino industry with additional advertising restrictions because it is unable to deal with the results of its own actions in promoting the Lottery at all costs.

The Report of the Gambling Review Commission (VII) The number of casinos (p. 134): • With regard to the GRC’s position regarding the number of casinos in South Africa, CASA supports the existing cap on the number of licences as well as the current allocation of casinos per province. (VIII) NRGP and Research (pp. 138 – 139): • It was the casino industry that first recognised that problem gambling was an issue that needed to be dealt with and therefore put in place the programme that has subsequently developed into the internationally acclaimed NRGP. • It did so since casino operators shared the view that it is not in their interest to have problem gamblers at, or to encourage them to visit, their establishments. • There is general agreement that the percentage of problem gamblers in South Africa is less that 2%. This means that upwards of 98% of casino patrons do not have problems with this form of entertainment. • It is CASA’s view that the GRC Report provides the Portfolio Committee with the opportunity decisively and holistically to deal with the question of harm minimisation.

The Report of the Gambling Review Commission (VIII) NRGP and Research (pp. 138 – 139): (cont...) • It is most unfortunate that in its Report the GRC did not make a decisive recommendation to establishone comprehensive problem gambling programme for all forms of gambling. • The financial contribution of the National Lottery, which has resisted all attempts to secure its participation in and financial contribution to the NRGP, would be more than adequate to accommodate the additional costs involved in the expanded work that the GRC foresees for the NRGP. • Fragmenting of assistance to problem gamblers by allowing two (competing) programmes does not appear to be a good idea if for no other reason than that it spurns the excellent existing services and harm minimization protocols provided by an established and proven programme and presupposes the doubling of administrative costs that could be far better spent on the treatment of problem gamblers or the other elements of a single programme. • Moreover, the areas pointed out by Gidani as the “focus of the programme....to support people with gambling problems” have very little, if anything, to do with real harm minimisation and totally ignores other aspects of problem gambling.

The Report of the Gambling Review Commission (IX) Poker (pp. 162 -165): • CASA opposes the GRC recommendation in connection with poker. • Poker is a licensed game that may currently only be played in a casino. CASA is of the view that this position should be maintained and that poker should continue to be played only in licensed premises. • To allow other operators to offer poker at venues other than casinos pursuant to “occasional” licences … “to be obtained through a local government office” is seemingly to permit what are essentially unlicensed persons, whose probity has not been established (and who could well undermine the hard-earned image of the licensed industry), to compete with licensed casinos. CASA has serious concerns that implementing this proposal of the GRC will dramatically undermine the integrity of the current regulatory system. • In addition, this will involve a further approval process by a body (such as a local government agency) which is eminently unqualified to perform this function.

The Report of the Gambling Review Commission (X) Online Gambling (pp. 174 – 184): • In respect of online gambling, CASA remains of the view that online gambling should be regulated and that land-based casinos, because of their already licensed and regulated status, should be given priority to bid. • The regulation of the industry must however take place within clearly defined governmental policy objectives and within the parameters of its overall gambling policy and the latest international realities. • Because of significant changes in the approach to online gambling internationally, CASA believes that the existing legislation should first be reviewed in its entirety before further decisions are taken.

The Report of the Gambling Review Commission (XI) Casinos and B-BBEE (p. 53): • The observations of the GRC Report in respect of B-BEEE in respect of casinos are quite simply incorrect. (and probably also disingenuous). • When casino operator licence bids were successful in the first place, the Codes of Good Practice were not a feature of the landscape at all. • In any event, most bids most certainly did not drill down empowerment to the seven components now formalised in the Codes, but generally focused on equity ownership, employment composition and skills development as major components of B-BEEE, and certainly not in the level of detail subsequently provided by the Codes. • The “over-and-above” empowerment-related requirements imposed by PGRA’s typically do not find their origin in bid commitments at all. • Born of the new political dispensation post 1994, the casino industry has pioneered B-BBEE. Operators have recognized B-BEEE as a business imperative and one which contributes significantly to their continued success and sustainability.

The Report of the Gambling Review Commission (XI) Casinos and B-BBEE (p. 53): (cont...) • Before it became fashionable to do so and in the absence of a uniform B-BBEE policy, the casino industry had already proactively (and voluntarily) contributed significantly to B-BBEE by: creating value for B-BEEE groups through shareholding structures and management participation; facilitating favourable repayment schedules for debt (in some instances shareholding was allocated at no cost); creating thousands of direct and indirect job opportunities; ensuring that, on average, more than 80% of all jobs created were filled by previously disadvantaged individuals; contributing millions of rands to corporate social investment initiatives including the creation of broad-based community trusts; and ensuring that skills development and succession planning were given the highest priority. • At the time that casino licence applications were invited there was no national legislation in place as yet and the provincial licensing authorities thus individually dealt with their expectations with respect to B-BBEE. • CASA welcomed the Codes of Conduct as providing for an objective method of measuring B-BBEE and as early as June 2007, under the auspices of CASA, proactively commissioned Empowerdex to conduct an audit regarding the status of B-BBEE in the industry. This was done at considerable expense and despite the fact that this was not required by any regulatory authority.

The Report of the Gambling Review Commission (XI) Casinos and B-BBEE (p. 53): (cont...) • At that time the casino industry achieved a Level 6 rating on a National level , with 46% of all voting rights in licensed casino operators being in the hands of black people; the economic interest held by black people in licensed casino operators also amounted to 46%. • The audit also revealed that the levels of performance attained in respect of aspects such as shareholding, voting rights and economic interest were already significantly in excess of the targets set in the Codes. According to a study commissioned by the Presidential Black Business Working Group in 2007 (over the same period as that covered by the Empowerdex casino audit), the “large business sector” in South Africa achieved a Level 8 rating, which was significantly lower than that of the casino industry. • As a further measure of its commitment to B-BBEE the casino industry committed to working towards a target to attain a Level 4 rating by 2010. Individual members of CASA have developed training programmes and protocols to achieve this objective. Moreover, the members of CASA undertook to undergo another full industry audit to verify this achievement during 2011. This is a first for any industry in the country. The results of the 2011 audit of casinos by Empowerdex , received last week, reveals that no casino in South Africa has a rating lower than level 4 and that the national aggregate rating for casinos is level 2.

The Report of the Gambling Review Commission (XI) Casinos and B-BBEE (p. 53): (cont…) • The CASA achievement in respect of B-BEEE is threatened by several provincial gaming boards which have seen fit to subvert the B-BBEE measurement tools and National Gambling Policy Council resolutions into an inflexible and rigid target. • As if this were not bad enough, the Department of Trade and Industry has published notice of its intention to amend the Codes of Good Practice which will affect the criteria and method of scoring for purposes of the Codes. • Casino operators maintain that imposing B-BBEE targets as licence conditions is unnecessary, irrational and unreasonable. • Non-compliance with licence conditions constitutes grounds for revocation or suspension of the licence and the levying of fines or penalties on the licensee and, in some cases, permits the boards to call on the guarantees furnished by the licensee. It is also a criminal offence. • The significant risk that this now poses to a successfully empowered sector of the economy could not have been intended, nor foreseen by the Minister (nor by the Policy Council or the regulators).

The Report of the Gambling Review Commission (XII) Provincial gambling regulatory authorities (PGRAs) • The approach of the GRC in recommending a risk-based approach to gambling regulation is to be welcomed and is strongly supported by CASA. (XIII) Improving uniformity and accountability in the regulatory framework (p. 140) • CASA supports the very important recommendations made by the Report in the above regard.

The Report of the Gambling Review Commission CONCLUSION: • There is a need to guard against further over-regulating the casino industry, which is especially vulnerable to populist knee-jerk policies and changes to laws that are often based on mere anecdotal perceptions. There is no substitute for an empirical basis to the formulation and creation of sound public policy and legislation. • The temptation to over-tax the industry must be resisted. • Casino operators have an important contribution to make to the formulation of good policy and regulation and collectively have proven to be a reliable, accountable, trustworthy and reputable partner to government in achieving the successes of the industry to date. It is only through consultation, research and regular interaction between stakeholders that the industry will be able to prosper. • CASA proposes that a gambling industry summit between Government and its agencies and the gambling industry takes place as a matter of urgency in order that the development and progress of the industry can be placed on a sound footing and certainty created. • We wish to go forward in a renewed spirit of co-operation to advance government’s objectives whilst maintaining a viable casino industry Thank you!

Casino Operators' Perspective on the Gambling Review Commission Report