Jabu Mabuza

1
PRESENTATIONTO THE PORTFOLIO COMMITTEEON TRADE
INDUSTRY
THE NEW NATIONAL BILL WHAT DOES IT MEAN FOR
EMPOWERMENT AND OTHER GOVERNMENT PRIORITIES IN
THE CASINO SECTOR ?
By

• Jabu Mabuza
• Chairman
• Casino Association of South Africa
• 19 September 2003

2
Introduction

• CASA endorses and welcomes many of the proposals
  contained in the new bill, including, and among
  others
• Rationalization of the roles of policy makers and
  regulators
• The need to respond to the issue of problem
  gambling
• CASA regrets that there was insufficient
  consultation with
• The gambling industry, including horse racing
• Empowerment stakeholders
• Organised labour
• Tourism bodies
• Organised commerce
• Financial community, especially international and
  local investors

3
The Urban Gambling Industry Prior To 1996

• Prior to 1996 A Substantial Illegal Industry
• Widespread up to 150 000 illegal machines in
  all urban centres
• Easy access to all no age restrictions
• Not regulated
• Public not protected
• Payout percentages manipulated
• Winnings often not paid
• Often associated with criminal elements (drugs,
  loan sharks, protection rackets)
• No taxes
• No responsible gambling programmes
• Almost totally controlled by whites no
  empowerment in equity, management, procurement,
  etc

4
Legal Gambling Industry Prior To 1996 The Rural
Resort Model

• Prior to 1996 The Legal Industry
• Limited to Homelands
• 15 casinos (six subsequently closed, three sold,
  six remain)
• Not widely accessible
• Only one operator, unlike today
• Largely self-regulated
• Including a responsible gambling element
• Limited empowerment components
• Mainly institutional investors
• 6 890 slot machines
• Significant tourism infrastructure contribution
  in rural areas
• Sun City, Wild Coast Sun, Thaba Nchu

5
New Dispensation Governments Mission
Accomplished (1)

• The Process Whereby the New Industry was
  Established
• Two government commissions, extensive
  consultation and thorough process
• National Gambling Bill 1996 US/Canada/Australia
  model of must see entertainment destinations
• And subsequent Provincial legislation
• Comprehensive regulatory framework
• Created a successful and well regulated casino
  industry
• Rigid probity standards and consumer protection
• Supply of gaming, out of control with previous
  government, now fixed and contained
• Highly competitive licensing process
• Delivered significant non-gaming infrastructure
  and meaningful public benefit projects
• Two world class convention centres and associated
  facilities
• Tourist attractions, eg Apartheid Museum, bird
  and wildlife centres, sports facilities
• Hotels
• Other physical infrastructure, such as roads,
  which has acted as a catalyst for other new
  investment

6
New Dispensation Governments Mission
Accomplished (2)

• Nearly R30-million p.a. in community social
  investment
• RFPs and subsequent regulations determined
  comprehensive response (NRGP) to the issue of
  problem gambling
• NRGP established as a public/private sector
  partnership of government regulators and industry
  with R10-million budget p.a.
• Internationally recognized as among the best in
  the world
• Stability and accountability

7
CASACasino Association of South Africa

• Voluntary association with legal standing
• All casino operators
• Representative of
• 30 657 employees
• Seven operators, four with international
  investors
• 30 casinos
• R12-billion in new investment since 1996
• 5 141 new hotel rooms since 1996
• R6-billion annual gross gaming revenue
• R1.7-billion annual tax bill
• R715-million annual pre-tax profits
• R2.5-billion spent with suppliers, 25 of whom
  are PDIs
• Black Economic Empowerment
• PDIs have 60 voting control, on average, in the
  casino sector
• PDIs have 38 economic interest, on average, in
  the casino sector

8
Asking The Question

• Given the achievements of this government in
  establishing a legal and regulated framework for
  gambling, and given the successes achieved by the
  new casino industry, both of which are much
  envied by the developed world, it begs the
  question
• Why was a totally new Bill necessary when the
  original objective was to rationalise control of
  policy between national and provincial
  governments?
• Why was there no research into, and consultation
  about, the new and unacceptable provisions which
  only appeared in draft 11, being the version of
  the Bill before you?
• Why was there no consultation at all with other
  vitally interested parties such as organised
  labour, the tourism sector, public safety
  agencies, Nedlac, not to mention critical sectors
  of the gambling industry, such as horse racing
• It is not good enough for the Department to
  expect the Portfolio Committee to take
  responsibility for this

9
Key Issues

• Ministerial discretion to increase the amount of
  available gambling in SA
• Removing ATMs from all casino complexes and
  entertainment centres, race tracks, etc.
• Making it illegal, after the fact, to have
  casinos located in undefined close proximity to
  schools
• Making credit illegal, including the use of
  credit cards and placing money on deposit
• Enforced six hour closures (coincidently a full
  shift)
• No discounted or complimentary hospitality
  services or tourism packages
• Requiring already-built casinos to retrofit so as
  to make gaming areas invisible

10
Likely Impact of the Bill In Its Present Form (1)

• Significant decline in casino revenues (up to
  25) leading to
• 8 000 to 10 000 jobs lost with the majority among
  less skilled workers
• Hugely reduced dividend stream and probable
  collapse of already fragile empowerment
  structures
• Certain breach of existing license conditions,
  especially in empowerment arena, leading to legal
  action in courts throughout the country
• Possible constitutional challenges
• Closure of marginal casino operations
• Cross-subsidisation of tourism events and
  infrastructure compromised
• Significant revenue loss ( R400m) for provinces
  and national treasuries

11
Likely Impact of the Bill In Its Present Form (2)

• Stakeholders (concessionaires, suppliers, etc)
  and indirect employment seriously affected
• New investments iced, and capex involved in
  retrofitting could mean mothballing of non-gaming
  facilities
• CSI affordability compromised
• Undermining South Africas image as a country
  where it is safe to invest and do business
• It is common cause that other sectors of the
  gambling industry, including major employers such
  as horse racing, will be devastated, with serious
  consequences for associated sectors such as
  agriculture

12
Casinos And The Poor

• Legitimate government concern for the welfare of
  poor South Africans, shared by industry
• Barriers to entry in the casino sector mean that
  the poor do not utilise casino facilities in
  meaningful numbers
• Cost of casino gambling
• Cost of non-gaming entertainment
• Entrance fees
• Cost of transport
• Measures in the Bill will not ameliorate the
  position of the poor, relative to casinos,
  because
• Poor people do not have credit cards, or qualify
  for credit
• Free and discounted services are only available
  to qualifying customers
• Research in South Africa demonstrates that
  casino-type gambling is predominantly a
  middle-class activity. It also shows that the
  poor favour other forms of gambling

13
Addressing The UnintendedConsequences Of The
Bill (1)

• Can we do more about addressing the issue of
  problem and compulsive gambling, and can we do
  things better? This will require a greater
  investment from industry, through the NRGP, in
  public education, and additional measures are in
  process to accomplish this with the SA
  Responsible Gambling Trust (SARGT)
• But perspective is needed. Why introduce
  measures that will
• Not fundamentally contribute to helping the 1 of
  people who are compulsive gamblers
• Inconvenience the vast majority of casino
  customers for whom gambling is harmless
  recreation
• Jeopardise the future of an industry which is an
  international success story for this government
• Give rise to a resurgence of illegal industry
  with no restrictions

14
Addressing The UnintendedConsequences Of The
Bill (2)

• Casino companies are obliged to protect
  shareholders, and will cut costs to maintain
  profitability
• Jobs are biggest variable cost
• Reduced purchasing from suppliers
• Reduced dividends to empowerment partners
• This government achieved considerable and
  internationally-acknowledged success with its
  gambling policy and framework. Dramatic policy
  changes, as in the new Bill, must result in
  government similarly assuming responsibility for
  the outcome and consequences

15
More Appropriate, Informed Way Forward

• Time for more perspective on the casino industry
• Research into commercial and socio-economic
  implications
• More in-depth consultation and understanding of
  stakeholders position
• Peoples rights in a free society
• Remove negative provisions from the bill
• Consult on measures
• That will not result in political, economic and
  thus social problems
• That will sustain tourism funding and investments
• Broaden and entrench sustainable BEE
• That will effectively minimise compulsive and
  problem gambling
• Go forward in partnership together to advance
  governments political objectives while
  maintaining a healthy, contributory industry