NEW GAMBLING TAX SHOCK
FINDING SOME GOOD IN THE BAD
A case of killing the goose that lays the golden egg? If one takes cognizance of the existing employment and taxes generated by South African horseracing, then this may well be the most appropriate means of describing Finance Minister Pravin Gordhan’s patently ill conceived and poorly researched effort to ‘discourage gambling’ and further boost state coffers with the introduction of a 15% withholding tax on winnings effective from April 2012. One wonders if the honourable Minister has ever had a punt or even understands the difference between the horse and a lotto ball or even the unique mindset or psyche of gamblers, big and small?
Watching Saturday night’s ‘live’ Lotto draw on SABC, I couldn’t help thinking how on earth horse racing administrators have ever seen this contrived kitch trumped up circus as a threat to the punting rand. Sure there are apparently plenty of new millionaires walking our streets courtesy of a dream or hunch of six colourful lucky numbers but there is absolutely no challenge in putting a winning combination together – it is pure and utter luck. Saturday’s draw particularly fascinated me as the main draw and the ‘plus’ draw immediately afterward, made from two entirely different ball sets and draw machines, managed to come up with five of the six numbers exactly the same. The main draw results produced 10, 19, 24, 27, 38, 49 and bonus 47, while the Plus draw produced 0: 25, 19, 24, 27, 38, 49 and bonus 7. If that is random then I really don’t know and the statistically possibilities of finding the six numbers are mind boggling as they stand – but getting five common numbers in two consecutive draws… Well nigh impossible the statisticians will tell you. Yet this circus sans credibility has been allowed to nibble away at the brain game’s betting turnovers and that is nothing more than a sad indictment of how badly horse racing has been marketed. The sport of kings did not, as an example, capitalize on the suspension of the lottery from March to September 2007, and interestingly statistics show that the lottery itself has never quite reached the dizzy heights achieved before that dark cloud. So where have those lotto players migrated?
NO WARNING
Horseracing is our concern, though, and we can criticize Gordhan’s budget speech sword-through-the-heart for all of its lack of industry consultation and apparent zero forethought on how, for example, the practical application will impact on customer attitudes – but who really cares?And then, we may have adjusted to Rica, but what about gambling processes at totes and bookmakers?
Or we can stand up and do something about it. It certainly appears ill conceived and the first thing that strikes me is the Minister’s stated motivation – that the tax is intended to ‘discourage excessive gambling.’ That is a vote of no confidence in my book in his own government and industry funded Responsible Gambling’ programme whose branding is plastered all over our totes and casinos and which allegedly works effectively according to the National Responsible Gambling Programme Executive Director Professor Peter Collins. Collins says that gross gambling revenues as supplied by the National Gambling Board’s Report to Parliament had only increased from R15,6 billion in 2008 to R15,9 billion in 2009. This excludes lottery gambling and the minor increase, when taking inflation into account, means that it is a decrease in real terms. Research statistics courtesy of the NGRP website tell an interesting story:
• Contrary to popular belief, when times are hard, people don’t tend to gamble more in the hope of getting out of financial difficulty: on the contrary, they tend to gamble less because they have less to spend generally on entertainment. This is well documented in relation to gambling revenues around the world, both past and present.
• Since 2005 there has been an increase in the number of people who report that they do not gamble at all. This number is now 47.9% of the adult population sampled. The number of people playing in casinos has decreased and regular (that is on a monthly or more frequent basis) slot machine play has dropped markedly, from 13.9% of the sample in 2005 to 3.7% of the sample in 2008. In contrast, the regular players of Fafi (a traditional township game) have increased from 4.0% to 5.1%. For the overwhelming majority of gamblers, gambling is only harmless entertainment.
DIFFERENT STROKES
Sadly for horse racing, Gordhan appears to have lumped all gambling options into one basket for the purposes of his rake. How dare this well paid civil servant compare a structured Pick Six bet to the pull of a fruit machine at a casino? It borders on the ridiculous. Ask me, I have done my life on both. And even the casino table players fall into a different category.
Seriously though, it is probably fair to surmise that horse racing punters and the average poker or roulette player are more serious and skilled, for want of a better word, than the guy who takes his chances on the mindless robotic machines or has a dip on the lotto. There are vastly differing elements of luck and skill at play. The 15% withholding tax seemingly applies to winnings of R25 000 and more and we don’t know the specifics . Will this mean, like in most aspects of state enforced regulated life, that punters and operators will find ways around it? Will punters be splitting tickets – fractional tote betting certainly provides options in that regard. Will bookmakers be forced to stretch their stretches to breaking point as the 6% becomes 21% on winnings of R25 000 and more? Taxed to death, I really cannot imagine bookmakers absorbing the tax. Their clientele pay 6% tax already on their winnings and the bookmakers pay income tax and vat. Unlike the average tote punter, who mostly obliviously pays away 22% , the structure and workings of which he probably wouldn’t understand anyway, and only really sees his nett payout.
HOME TRUTHS
The Sunday Times this past weekend declared rather dramatically that the new tax ‘will kill the fourth-largest sport in the country’. The article quoted Phumelela Group CEO Riaan Du Plessis, who said: “ We will seek an urgent meeting with the minister to explain that he would be destroying the fourth-largest sport in the country, along with thousands of jobs.”
Du Plessis went on to say that the sport was already in decline with operator profits down. He said that horseracing was largely funded by tote betting in which punters lay daily bets as low as R6 for sometimes 30 to 40 years in the hope of a payday. It doesn’t make for a great marketing slogan or a carrot for anybody who has never had a tote bet, but I can’t agree more with Mr Du Plessis on this score. I just didn’t realize anybody in authority in horse racing quite knew this and he must be the first guy of rank to admit this fact publicly.
The dedicated folk that Mr Du Plessis alludes to are a wide demographic group but are largely those near the bottom of the food chain and not exactly the group marked for attention by our racing marketing gods at anytime in the past century. Which brings me to an interesting piece I read recently about the poor being the ‘market of the future.’ Apparently this group number 4 billion globally. They have been marginalized and ignored as they are seen not to have significant spending power. Yet when one looks at their combined spending power of 5 trillion dollars a year, they suddenly become the world’s fourth largest economy – in terms of their GDP.
Looking at the South African picture, it is interesting to note that 31% of all TV sets, 30% of all fridges and 21% of all DVD players are bought by households where there is a per capita income of less than R20 per day. This shows an aspiration, despite the lack of disposable income, by these folk for a better life. They have, as one research analyst puts it, ‘latent unmet needs.’ He goes on to say: “ They wish to be treated with dignity and respect. They hope for a better future and their optimism is reflected in their hopes for their children.”
SERVICE
Reducing this little socio-economic story into the micro picture of horse racing and its customers means that Minister Gordhan’s outrageously onerous demand may yet serve as a wake-up call and could just have positive spin-offs for our punters who sit in dirty totes and are subjected to miserable service while they ply their passion. It may be a wealth tax but a focus on the poor could well provide the escape hatch. Industry mutterings say that Gold Circle will probably end up outsourcing their tote’s operations and management to Phumelela. Mr Gordhan may have unwittingly induced a new sense of urgency into that process. And if the customer ultimately benefits, then what else really matters?
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I will leave you with this thought from Jane Smiley’s , A Year At The Races:
“Here are smokers, here are men prematurely aged and impoverished by their addiction, here are people who seem to care nothing about the middle class and its values, here is the population to be stolen from, upon which the whole edifice rests – but I see the gambling differently. There are many easier ways of losing money gambling.
The bookmakers in England are always threatening to withdraw from horse racing entirely, because it is more lucrative for them to take bets on simpler contests, like football. The gambling dollar flows and will flow – to lotteries and numbers games and sports bets and Wall Street and poker games and casinos. Gamblers everywhere will always feel that Heaven reached down and touched them personally if they win.
And of course there are gamblers at the track who haven’t looked at a horse in the flesh in sixty years – who never even step into the sunshine. But it is always available to them to go out and watch the animals and their jockeys on the track eight or ten times a day, five or six days a week, all year round. It is always available to them to recognize that, in addition to money, there are horses; in addition to greed, there is beauty and talent and effort and joy and heartbreak.
Personally, I think the money is better spent supporting Santa Anita, with its gardens and flowers and Art Deco Façade, than supporting any hotel and casino in Las Vegas, because every hotel in Vegas is a fake something, and Santa Anita is a real racetrack.”
