1. Portfolio Committee Hearing 11 th September 2013 STATUS OF TRANSFORMATION BY HORSERACING INDUSTRY BY HORSERACING INDUSTRY Overview by Robin Bruss, Analyst Status Report by Denzil J Pillay, CE, NHA

2. Structure of Horseracing Industry BREEDERS SPORT OF RACING GAMBLING  Unique Structure  Breeders farm racehorses > AGRICULTURE  For the SPORT of racing  On which GAMBLING is organised –to fund the activity [AGRICULTURE] [SPORT] [ D.T.I.]

3. Its Structure is a Barrier to Transformation  R9 billion per annum is bet on horseracing and yet ALL THREE components are in DECLINE.  Most felt in the reduction in EMPLOYMENT  1995 : 100,000  2009 : 15,326 (Source : Econ Impact Study)  PRIME CAUSE : INDUSTRY IS UNDERFUNDED

4. (1) Breeding’s Contraction (1) Breeding’s Contraction Domestically : Prize money is too low to sustain Growth Internationally : We produce export quality animals but cant export owing to inability of DAF to meet required international standards The Thoroughbred Breeders Association posted a loss of R18m in 2011 and R4.5m in 2012.

5. An industry in decline Graphs Reduction in no of breeders Reduction in no of stallions Reduction in no of mares Consequent reduction in labour

6. No of registered breeders 1986-2010

7. No. of Stallions 1986-2010

8. No of broodmares 1986-2010

9. Exports Racing South Africa (comprising members of all three components – Breeders / Owners/ Gambling Operators) was set up to fund quarantine research and trade initiative, incl DTI registered Equine Trade Council, but its hamstrung by lack of funds and overwhelming problems: Just completed a 3 year ban in June Another 3 year ban commencing now DAF unable to pass international vet inspection by EU Trickle of exports via Mauritius with 6-7 month delivery R500m to R1bn export opportunity stymied Effects viability, hampers employment and is a Barrier to Transformation

10. (2) Sport of Racing / Owners (2) Sport of Racing / Owners EIS (2009) demonstrated that owners of racehorses lose R580m p.a. more than the available prize money pool in pursuance of the Sport of Racing. If most owners make a loss, there is little incentive to introduce persons of colour to become racehorse owners, other than the wealthy or elite who will willingly participate for the fun, know they will likely lose money. Very best horses make money (top 3%) and those able to race abroad. Compare VDJ : R3m Dubai World Cup : US$10m

11. Horse Racing v Other Sports Horse Racing v Other Sports Unique : We are traditionally funded by Gambling & Owner’s contribution Sponsorship is very small Not paid for their IP All Other Sports rely on multiple revenue streams OTHER THAN gambling Because of this structure - Transformation can only be sustained by the willingness of Owners to lose money !

12. (3) Gambling Operators PHUMULELA (a Public Company since 2002) GOLD CIRCLE ( an NPO) dedicated to the Sport Since 1995, any profits they have made in past decade have been largely driven by - Tax Dispensation when formed ◦ Rationalisation (job cuts) ◦ Closure of Racetracks and sale of land assets ◦ (From 14 tracks in 1995, 6 have been sold with ◦ attendant reduction in employment) ◦ Reliance on the uncompetitive Totalisator ◦ betting structure is the core problem

13. Tote struggles to compete Why ? Product of Britain’s colonial introduction around 1928 – and insufficiently modernised, archaic and cumbersome foundation, not easily changed through Provincial Gambling Boards Also Tote has to fund 3 major costs which other forms of betting do not : > Maintaining Live racing and putting on show > Provision of Purse Money (on which all participants depend, incl. all employees) > Cost of the N.H.A. integrity services NEEDS AN OVERHAUL !

14. Two Important Points : 1. Illustration of EFFECT of the way Tote Betting is taxed: According to NGB Stats ( March 2013), Betting on Horse Racing accounts of 7.2% of all Gambling Turnover BUT : Betting on Horse Racing pays 13.3% of all national Gambling TAX.

15. Betting on Horse Racing (yellow) = 7.2% of all Gambling Turnover Casinos account for 85.2% (Green) Source : NGB

16. Betting on Horse Racing (yellow) = 13.9% of all Gambling Tax Casinos account for 75.3% (Green)

17. Relationship between % Turnover/GGR/Taxation

19. Effect of this Distortion A shortage in the cash flow cycle which therefore contributes to the DECLINE felt all three core components of the industry The EIS (2009) indicated that horseracing employs 23 times as many people per gambling Rand as compared to Casinos, and mostly rural, and unskilled people, and therefore the most vulnerable to retrenchment.

21. Summary of Overview Summary of Overview Revision of the Tote’s business model, its taxation and its relationship to other forms of gambling is indicated. Transformation, as you will see, is being addressed by all aspects of the industry, but is very disadvantaged by the current structural issues.

22. The Way Forward 1. Racing must accept the recommendationsmade by the PPC as published in March 2012 and request implementation. 2.Racing must welcome the Minister’s intention to appoint a Commission of Inquiry to inform an appropriate and equitable dispensation leading to a sustainable growth path for ALL those who participate in this industry.

23. Status Report

24. -Thoroughbred Breeders’ Association - breeders (farmers) -TBA Employment – 50% people of colour -Upliftment/Education – Stud Farm Grooms School -50 grooms on the Cape programme -Intention to educate at least 40 employees per year -Intention to roll out programmes in KZN and Karoo -Training Programmes – School of Excellence -Participation – 10 Groom’s Co Ops with 7 members each (dti not DAF) -Voice of Grooms – Agricultural Labour Union Breeders

25. -Bookmakers - BEE? -Phumelela Gaming and Leisure Pty Ltd -Gambling Licence requirements – Level 2 by 2015 -BEE Score Card – Level 3 contributor, Need 3.5 points to move to level 2 status and are on track to reach this by October 2013 – 2 years ahead of time. -Gold Circle -Gambling Licence requirements – Level 2 by 2015 -BEE Score Card – Level 4 contributor – plans in place to achieve level 2 by 2015 Gambling

26. -National Horseracing Authority (NPO) Board members – previously all white board – now 4 persons of colour and 1 female Staff - 47% of staff are people of colour 3 positions created for transformational purposes – Trainees earn a Stipend during their development and training on the industry Licensing and Registration – open to all, recognition for prior learning, evaluations are either written or oral Rules have been amended to address assault and abuse of grooms. Future consideration – representation at Inquiries, registration of grooms Sport Regulator - NHA

27. -Racing Operator – Phumelela – Level 3 Contributor BBBEE Score - 81.5/100 -Racing Operator - Gold Circle – Level 4 Contributor BBBEE Score – 65.15% -Owners - Thoroughbred Racing Trust - BBBEE Ownership Certified Ownership in the Sport – Unprofitable – loss R580m -Trainers – 0.04% are people of colour -South African Jockeys Academy – 64% of SA students are people of colour Sport Regulator - NHA

28. Initiatives within the Industry Grooms Schools – Phillipi, Summerveld, Ashburton and Randjiesfontein Career training - SANEF Stable management, ABET numeracy and Literacy Learnerships - (Grounds Management Learnership) Work riders program – Western Cape and Gauteng - Teach grooms skills to ride on race track. Races programmed especially for Work riders Informal racing – promote and develop racing Eastern Cape and Northern Cape, Northern Natal Syndicates – to promote ownership of horses African Horse Sickness - ERC - to improve and promote health and welfare of horses Sport

29. Horseracing Industry Horseracing Industry -Actions of SAGA raise certain concerns: -Threatening strike action – Summer Cup and J&B Met -Threatening trainers and trainers’ lives -Demanding funding of R10m from racing operators -Unsubstantiated claims of theft of R17m -Announcements to grooms which is misleading and defamatory Surveys conducted in the racing indicate that of the 2197 grooms in WC, GP, NC and EC only 73 indicate an affiliation to SAGA and KZN, no grooms are affiliated to SAGA; however there were grooms in KZN and WC that indicated that they belong to other unions e.g. SATAWU & The Food and Allied Workers Union

30. Horseracing Industry Horseracing Industry -In exchanges with NHA – Issues raised by SAGA primarily addressed labour issues -Subsequent discussion – SAGA highlighted training and development of Grooms -Workshop in Cape Town in May 2013 – Highlighted that there were schools and education programs in place but the grooms were looking for career development programs

31. Horseracing Industry Horseracing Industry -The SA Grooms Association asked NHA to sign an RA but NHA cannot because it is not the employer - it is common cause that RAs – between an Employer and Labour Union -The NHA and the Industry recognises the contribution by the grooms. Issues raised by grooms, outside of Labour have resulted in the NHA amending its rules and drafting a Code of Conduct. -Furthermore representation at Inquiries and the registration of grooms is currently under consideration by the NHA.

32. Industry Support Industry Support Industry is in agreement that the recommendations of the Portfolio Committee report on the GRC be accepted and implemented. ___________________________________________ Proposal Interim - Grant statutory recognition to NHA - All Betting Operators must contribute towards the cost maintaining the Integrity of the Sport - Disallow the Open Bet Long term – Government to appoint a Commission of Inquiry into Horseracing to inform the restructuring and transformation of the industry

33. Thank you This report on the Horseracing Industry was presented Robin Bruss and Denzil J Pillay