SOUTH AFRICAS CASINO INDUSTRY TEN YEARS ON

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SOUTH AFRICAS CASINO INDUSTRY TEN YEARS ON

• ACHIEVEMENTS, ISSUES AND CHALLENGES
• A PRESENTATION BY MR DEREK AURET
• Lake Tahoe,
• Nevada 30 May 2006

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Introduction

• Landmark decision to legalize gambling in 1996
  through National Gambling Act
• Highlighted that gambling was a leisure activity
  that was considered to be desirable by a
  significant percentage of the population of South
  Africa
• Government consciously decided that South
  Africans should enjoy the right to choose whether
  or not they wished to participate in this form of
  entertainment
• Act thus recognised the maturity of the
  individual in South African society to decide for
  him/herself and to provide freedom of choice and
  to eliminate widespread illegal gambling and its
  harmful consequences

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The South African Gambling Industry Prior To 1996

• Prior to 1996 a substantial illegal industry
• Widespread up to 150 000 illegal machines in
  all urban areas
• 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, money laundering, protection
  rackets)
• No taxes
• No responsible gambling programmes
• Almost totally controlled by whites no
  empowerment in equity, management, procurement,
  etc
• 17 self-regulated rural resort casinos

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The New Dispensation After 1996

• 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
• Subsequent Provincial legislation (nine different
  laws) and new Act in 2004
• 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

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New Dispensation Social Priorities

• Nearly R90-million p.a. in community social
  investment
• RFPs and subsequent regulations determined
  comprehensive response (National Responsible
  Gambling Programme - 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
• Casinos are subject to tight controls in terms of
  player protection, the exclusion of
• minors, probity standards and other compliance
  measures, including industrys
• substantial funding of the National Responsible
  Gambling Programme

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SOUTH AFRICAS GAMBLING INDUSTRY

• A mature industry
• Principal gambling activities are lottery, slots,
  scratch cards and horses in that order
• National gross gaming revenue has grown from
  1.5-billion (2003) to 1.93-billion in 2006 on
  the back of a bouyant local economy
• 50 of South Africans never gamble
• 1.7 of household income spent on gambling
• Gambling industry represents 1 of SAs GDP
• 80.6 of South Africans approve of the industry,
  with 19.4 opposed to gambling

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SOUTH AFRICAS CASINO SECTOR

• 33 Casinos in nine provinces
• Accounts for over 80 of GGR in the gambling
  industry, with casino GGR nearly doubling in past
  four years
• 2.5-billion invested since 1996
• 100 000 direct and indirect new jobs
• 450-billion paid to government in 2005 in
  various forms of tax
• Has funded millions of dollars in public interest
  infrastructure, including two international
  convention centres, 5 000 new hotel rooms,
  wellness centres, eco-tourism facilities, golf
  resorts, etc
• Exceptional returns for shareholders

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Who Benefits?
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SOCIAL ISSUESProblem Gambling in SA 2001, 2003,
2005

• 2001 5800 sampled 221 problem gamblers in total
  sample, giving a problem gambler prevalence rate
  of 4.2
• 2003 5816 sampled 270 problem gamblers 6.2
  prevalence rate
• 2005 3000 samples only 144 problem gamblers
  4.8 prevalence rate
• Conclusion problem gambling levels have
  declined

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SOCIAL ISSUESThe Lottery Story in SA

• Lottery remains the safest form of gambling,
  but
• By international standards an abnormally large
  number of problem gamblers are lottery-only
  players 200117.6 of problem gamblers 2003
  32.2 2005 25.7
• Increase in problem gambling between 2001 and
  2003 wholly due to lottery
• of problem gamblers lottery-only players in
  2001 in SA 1,7 compared with 0.1 in UK in
  1999
• Explanations proximity, cheapness,
  attractiveness to the poor and less educated
  regulatory weakness not Uthingo, not the fact
  that the lottery does contribute to the NRGP!

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SOCIAL ISSUESIncreasing Availability and
Increasing the Prevalence of Problem Gambling

• SA seems to show that increases in problem
  gambling are not primarily related to increases
  in the availability of commercial gambling
  opportunities and that PG rates may come down
  after extensions of gambling opportunities. This
  surprising conclusion supported by
• Shaffer Survey of Surveys. 1 and 5
• Nevada
• New Zealand
• Rachel Vollberg and 4 states in USA
• All the evidence suggests that they key to stable
  or reduced numbers is ensuring that the public
  understands the dangers of gambling and how to
  avoid them

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SOCIAL ISSUESPoverty and Problem Gambling

• Survey of 1000 people living in areas designated
  as exceptionally deprived
• 78.7 play lottery regularly 19.5 play scratch
  cards 8.4 play fafi 4.9 play slots (but
  where?) i.e. the poor gamble more than the
  average, mostly on the lottery
• 6.9 problem gamblers, i.e. more than 40 higher
  than national average of 4.8 6.1 of lottery
  only gamblers are problem gamblers 9.6 are any
  form of non-lottery gambling usually together
  with lottery gambling
• Full-blown gambling addicts constitute 0.52
  (NGB Research 2006)

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SOCIAL ISSUESTransformation

• Strict protocols to advance black economic
  empowerment
• 60 of voting control in casino sector held by
  previously disadvantaged shareholders, and also
  38 effective economic interest
• Requirements in respect of recruiting,
  procurement, etc

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LESSONS FROM THE SOUTH AFRICAN EXPERIENCE

• Industry can only flourish where it has a
  constructive partnership with government in a
  mutually beneficial policy framework
• Policy based on achieving equilibrium between
  governments need for economic development and
  its role as a social guardian
• Matrix has emerged in SA of mutual obligations
  and legitimate expectations that has delivered a
  regime that mixes state control and self control
• Achievement of stable and consistent operating
  environment which has strongly encouraged
  investment and resulted in a sustainable industry

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CHALLENGES FOR GOVERNMENTS

• Heavily-regulated and capital-intensive industry
  like the casino sector is especially vulnerable
  to populist politics profitability depends on
  political climate
• Government should ensure lowest possible costs of
  doing business (realistic tax levels, low fees
  and regulatory costs) and guarantee security
  against unexpected and harmful changes of the
  rules
• Resisting temptation to over-tax
• Introduction post-facto of racinos, widespread
  VLTs/LPMs, real-touch bingo machines which
  undermine investments in casinos and alienate
  public opinion
• Necessity for empirical evidence in policy
  formulation
• Consistency and certainty in the trading
  environment

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CHALLENGES FOR INDUSTRY

• Must be seen to serve the public interest
• Must be reliable, accountable and reputable
  partner for government
• Must be responsible corporate citizen, especially
  regarding sensitive social issues
• Must anticipate policy changes and constructively
  contribute to public debate
• Must demonstrate its contribution to
  socio-economic development

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The Future

• Time for more perspective on the casino industry
• Champion commercial and socio-economic relevance
• More consultation between government and industry
  and understanding of stakeholders position
• Champion peoples rights in a free society
• Only through consultation, research and regular
  interaction between all stakeholders that the
  industry will be able to continue to present
  gambling for what it ought be a form of
  entertainment that can be enjoyed by all
• Therefore go forward in partnership together to
  advance governments political objectives while
  maintaining a healthy, contributory industry