Horseracing in South Africa remains untransformed, benefits a white minority grouping led by Phumelela Gaming and Leisure, all to the total exclusion of black people, Public Protector Advocate Busisiwe Mkhwebane has found.
The preliminary findings by Mkhwebane are a culmination of a marathon investigation which was started in 2012 by her predecessor, Advocate Thuli Madonsela.
The investigation followed a complaint by businesswoman Phindi Kema that a 1997 decision by the Gauteng provincial government to corporatise and restructure the horseracing sector in the province was illegitimate.
Further, Kema had complained that the decision to corporatise the industry and the memorandum of understanding (MOU) which effected the decision created Phumelela Gaming and Leisure and gave the company, free of charge, all horse racing courses in Gauteng and their movable and immovable property as well as the Totalisator Agency Board (TAB).
The agency issues licences to companies wanting to host horseracing and also runs the platforms on which horse-betting across the country takes place. Kema argued that handing the agency over to private hands for free meant that no other company could ever enter the space.
In 2011, the United Kingdom government disposed of a similar agency, selling it for over £265 million.
As part of the restructuring deal, Phumelela also acquired the Turffontein, Gosforth Park and the Newmarket racecourses as well as Highveld Racing Authority and the North Rand Training Centre and all their assets.
Mkhwebane’s report found that Phumelela used the Gauteng province’s decision to corporatise the sector to strong-arm other provinces to follow suit.
This led to Phumelela also acquiring, for close to nothing, the Fairview and Arlington racecourses in the Nelson Mandela Bay, Eastern Cape and the Vaal and the Bloemfontein racecourses in the Free State as well as the Griqualand West Racing Club in the Northern Cape.
Kema contends that Phumelela is now using the Totalisator Agency Board and all the race courses, which it received for free during the corporatisation and restructuring period, to monopolise the sector and prevent other potential players from accessing the industry.
Phumelela runs and control all races in all provinces, except KwaZulu-Natal and the Western Cape.
The company is also involved in racing in the Western Cape, albeit through various partnerships.
Before corporatisation the various racecourses across the country were independent, and were licensed to host their own different races.
Mkhwebane’s report also reveals that since the corporatisation of the sector in 1997, Phumelela has received R711 million from taxes which are levied on punters’ winnings.
A 6% tax is levied on all punters’ winnings and the Gauteng provincial government donates half of all those taxes to Phumelela.
When the agreement to corporatise was signed, the agreement was that the money would be donated to the industry for development of horseracing.
But Mkhwebane’s investigation has resulted in authorities making a decision to withdraw the donations and late last month Phumelela filed, and later withdrew, an urgent application to stop the provincial government from cutting off the subsidy.
In her preliminary report, Mkhwebane said: “It may be concluded that the corporatisation of the horseracing industry in the Gauteng Province was not in the best interest of the public who were affectionate of horseracing in the republic. Instead, the privatisation of the sport was for the benefit of a white minority group of shareholders of Phumelela Gaming and Leisure. It can be concluded that the corporatisation of the horseracing industry in the republic was never intended to ensure participation of black people in the sport.
“It has and continues to be dominated by one minority race group, in particular whites, at the expense of the black majority citizens and constituencies who would otherwise be interested in the sport. The intentions and purposes of the restructuring of the industry were not realised. It appears that the whole restructuring process was never intended to attract other racial groups into the sport of horseracing but to maintain the sport by one racial group which is the white minority group, at the expense of the black majority.”
Inclusivity and having a certain percentage in the hands of black groups were not achieved, Mkhwebane found.
She added that it was not in dispute that the decision to corporatise the sector resulted in various assets being “bequeathed to Phumelela at no cost to them and only for the benefit of the entity’s shareholders. As a result of the memorandum of understanding, Phumelela was in a position to coerce other provinces such as the Free State and the Eastern Cape to follow suit and join the corporatisation of the horseracing industry in the republic”.
This, she said, was not in line with the initial ideal to corporatise the industry in Gauteng only.
“However, it appears as though the agreement was used to attract other provinces into similar arrangements. The entire restructuring of the horseracing industry which was initiated in the Gauteng Province culminated in other provinces following suit was not in the best interest of the members of the public.”
In response to Mkhwebane’s preliminary report, which the company has received, Phumelela requested the Public Protector to give an undertaking before Thursday that she will not release the final report before forwarding to it all records, information, transcripts, recordings and all documents which she used to arrive at the preliminary findings.
Further, through its lawyers, the company requested to cross examine all witnesses who gave evidence during the investigation.
The company has warned that if it doesn’t get such an undertaking from Mkhwebane, it will rush to court to interdict her from publishing the final report until it has received all the requested information, cross examines all witnesses and makes further submissions.
In a written response, Phumelela said the findings that the industry has not transformed is baseless.
“Phumelela was required, upon listing, to comply with a minimum black shareholding. This requirement was met, and Phumelela has at all relevant times since complied with the applicable empowerment requirements.”
However, the company said it doesn’t control the entire industry and should not be held accountable for other stakeholders’ failure to transform.
The levy which Phumelela receives from the provincial government in Gauteng, a company spokesperson said in a statement, is used to subsidise the staging and hosting of races.
“The very purpose of the levy on betting tax agreed to between the racing industry and the Gauteng government was to provide financial support for the losses that were, and continue to be, incurred in the staging of thoroughbred horseracing. The payment to Phumelela of this levy on betting taxes was legislated in terms of provincial legislation and regulations. The betting tax received by Phumelela forms part of its annual income, out of which it funds its operations. This includes the staging of horseracing, the cost of which amounts to approximately R800 million per year, and which is undertaken at a big loss.”
The company said it was within its rights to go to court to oppose the provincial government’s decision to withdraw the levy.
“The staging of horseracing is a loss-making endeavour and the taxes are used, in part, to contribute to the cost of racing. Horseracing stimulates a significant amount of economic activity and provides many direct and indirect jobs. Racing generates tax for the benefit of the provincial fiscus. Without the levy on betting taxes, Phumelela will be unable to sustain the staging of horseracing. Phumelela is opposing the withdrawal of the levy on betting tax on the basis that it constitutes irrational and unconstitutional administrative action. Phumelela, like all citizens of South Africa, has a constitutional right to fair administrative action.”
Further, the spokesperson said other race clubs in other provinces joined the corporatisation and restructuring voluntarily.
“Racing clubs in other provinces voluntarily joined the corporatisation of the industry through arm’s length negotiations and agreements with Phumelela in terms of which their assets and loss-making businesses were transferred to Phumelela in exchange for assumption of their liabilities and losses and membership for their members of the Racing Association.”
In response to Mkhwebane’s finding that the company was handed the assets of all the racecourses for free, Phumelela said: “Phumelela not only received assets during the corporatisation process. It also assumed all the liabilities of the various racing clubs and entities and has been undertaking the loss-making activities of the clubs ever since. In addition, the club members received the benefit of becoming members of the Racing Association. It is perfectly normal business practice to acquire the entire loss-making business of a party, including all of its assets and liabilities, for a nominal consideration.”
The company also refuted Kema’s allegation that it had received the Totalisator Agency Board for free.
“Phumelela did not receive the Totalisator Agency Board ‘for free’. As stated above, it assumed the liabilities of the entities which were restructured into one entity in terms of the MOU, and took over the staging of loss-making thoroughbred horseracing in Gauteng. It was an express term of the restructuring MOU that the tote licence would be awarded to Phumelela on an exclusive basis for an initial period. This exclusivity has long expired, and it is open to any interested party to apply for a tote licence.”
Mkhwebane also found that the National Horseracing Association, which regulates the industry, was funded by Phumelela. This, she said, was not desirable.
The Department of Economic Development in Gauteng said “it has received Mkhwebane’s preliminary findings”.
Spokesperson Nondumiso Mabuza said: “We have provided our responses, supported by evidence, to the Public Protector clarifying some of the preliminary findings. We believe that it would not be prudent at this stage to comment on the matter which is still being considered by the Public Protector. We are waiting for her to consider the submissions and finalise the matter accordingly”.
Mabuza declined to comment on the department’s decision to withdraw Phumelela’s subsidy, saying the matter is sub judice.