Article by Ian Jayes entitled “Where is Julius Malema when Horseracing needs him”
I write in response to the abovementioned article recently published by you and hereby offer my comments:
1. “… corporatisation has … been an unmitigated disaster”
May I firstly point out that corporatisation of the sport of horseracing in Gauteng came about in the 1990’s at the insistence of the Gauteng provincial government and by agreement with the then different racing clubs in Gauteng.
Some 40 years ago, the sport of horseracing flourished as it was primarily funded by the Tote which was the only legal form of gambling and/or betting in South Africa.
Significant influences that have impacted on the Tote’s ability to fund the Sport since then include:
a) The growth of fixed odds bookmakers and the open bet;
b) The introduction of television in the seventies resulting in a material reduction in on-course attendance and concomitantly, gate monies;
c) The establishment of casino’s in what was then “Homelands”;
d) The introduction of the National Lottery in the 1990’s; and
e) The establishment of casino’s in the cities in the 1990’s.
The influences outlined above, inter alia, caused severe financial distress to the racing clubs in Gauteng and resulted in these clubs approaching the Gauteng provincial government for relief in the form of reduced Tote tax rates. As a pre-condition to reducing the Tote tax rates the Gauteng government insisted upon corporatisation, the introduction of appropriate broadly based black economic empowerment and that the company obtains a listing on the Johannesburg Stock Exchange. Corporatisation and listing on the JSE was a requisite in order to ensure proper corporate governance, true transparency and accountability and to enable meaningful B-BBEE at shareholder level.
By agreement with the Gauteng government:
i) The Gauteng racing club members merged into one owners’ representative association (the “Racing Association”);
ii) The Thoroughbred Horseracing Trust (the “Trust”) was formed with its main purpose being the promotion of the Sport of thoroughbred horseracing in South Africa and an ancillary purpose of promoting appropriate transformation within the sport. In terms of its constitution, the Trust has 7 Trustees, 5 of whom are nominated by the Racing Association and 2 by the government (these 2 Trustees are presently nominated by SASCOC, who also owns 5% of Phumelela);
iii) The Trust was given ownership of 35% of Phumelela and through its representation on the board of Trustees of the Trust now had a direct and ongoing input into the affairs of the sport;
iv) 27,5% of Phumelela’s shares were subscribed for by broadly based empowerment groups at 50 cents per share. At the present share price of some R11 per share this has proved to have been one of the most successful empowerment initiatives in South Africa to date and certainly an initiative of which the Gauteng provincial government and the then administrators of the Gauteng racing clubs can be proud.
Surely no one could possibly contend that the governance, transparency and accountability of a “collective” can favourably compare with that of a public company listed on the JSE?
How would Mr Jayes suggest meaningful B-BBEE at shareholder level could have otherwise have been achieved as had been the requirement of the Gauteng provincial government?
2. “Before the advent of Phumelela the sport of kings in South Africa flourished because it was owned by collectives”
Firstly Mr Jayes forgets or omits that in fact the sport in Gauteng was in such financial distress that it sought urgent relief from the government.
Secondly may I point out that:
a) at 31 July 2010, the Racing Association was financially sound, owning the land of Randjesfontein training centre (probably worth upwards of R188 million) and with some R74 million of cash on hand and no debt;
b) at 31 July 2010, the Trust was financially sound, owning 35% of Phumelela (worth around R300 million) and with some R12 million of cash on hand and no debt; and
c) at 31 January 2011, Phumelela was financially sound with a tangible net asset value of R399 million, including R99 million of cash on hand, no material debt and profits generated in the 6 months to 31 January 2011 in the amount of R35 million.
Stakes in Gauteng, compare favourably with stakes in other provinces, including those provinces where the sport is “owned by a collective”.
It is to be emphasised that, as a direct result of the corporatisation of the sport in Gauteng through Phumelela, South African horseracing was internationalised and Phumelela Gold International contributed R11,8 million of profits to Phumelela in the 6 months to 31 January 2011. Phumelela also successfully introduced soccer betting products contributing R14 million to its bottom line and R2,1 million into stakes in the 6 months to end January 2011. Phumelela’s shareholding in Betting World contributed R7 million to its bottom line in the 6 months to 31 January 2011. If Phumelela’s share of Betting World’s profits and the contribution from its soccer betting products are eliminated its horseracing and tote betting business is loss making. If the profits from its international initiatives (which it is submitted would not have been fully exploited had the sport in Gauteng continued as a “collective”) are eliminated, its losses are even greater.
Mr Jayes’ assertion that the sport would have flourished if it were owned by “collectives” is unsubstantiated.
The challenges facing the sport of horseracing are a worldwide phenomenon, excluding only those territories where the sport enjoys appropriate governmental protection from other forms of gambling and/or betting. In the USA, bookmakers are only legal in the state of Nevada and yet the sport is still in deep trouble with so called Racino’s now accounting for more than 50% of the funding of the sport. In the UK, mainly as a result of the introduction of betting exchanges and the exodus of local betting in favour of offshore tax haven operators the levy from bookmakers payable towards the funding of the sport has almost halved in recent years.
For the reasons set out above I put it to you that the sport has actually benefitted from corporatisation and that the challenges facing the sport are that the playing field is not level between the Tote and bookmakers, between the Tote and other forms of Gambling, and also because onerous licence conditions effectively prohibit the sport from charging a market related fee for its intellectual property. These issues were raised with the Gambling Review Commission which has recently reported, inter alia, that “The current funding models for the industry should be reviewed to ensure that the tax rates and levies paid to the industry are standardised across the board to create a level field.” Phumelela and Gold Circle are in the process of preparing detailed responses to the Gambling Review Commission report.
3. “Nationalisation may now be the only alternative to break the shareholders power and pernicious influence …”
The Trust with its 35% shareholding is Phumelela’s largest shareholder and certainly the shareholder with the most power. The Trust does not have outright control but certainly has significant influence. No other shareholder has anywhere close to the same number of votes.
Mr Jayes’ statement is therefore contradicted by the facts.
4. “Phumelela also took over the Eastern Cape and Northern Cape horseracing …”
Due to the same financial constraints, the members of these racing clubs decided democratically to join Phumelela.
5. “Phumelela … pays only 3% taxation on its betting turnovers”
It was the very high prevailing tax rates, originally determined when no other form of gambling or betting was legal, which forced the racing clubs in Gauteng to seek relief from the government.
The betting taxes that Phumelela pays approximates that which Gold Circle (a “collective”) pays.
The betting taxes that the Tote pays compare favourably with the net betting taxes (after the deduction of the 3% horseracing levy) that Bookmakers pay. The Bookmakers however, through the horseracing levy, contribute only some 17% to the costs of funding the sport whilst their turnover comprises approximately 46% of the betting on the sport. This is the real imbalance!
6. “Phumelela has benefited to the tune of almost R30 million of public money”
The HRDF monies cannot be described as being public money. In terms of the then Horse Racing and Betting Ordinance a levy on Tote betting was payable to the Fund which was formed to further the financing and development of the horse racing industry. The industry had, during the existence of the Fund, become totally dependent on the Fund for the industry’s operational and capital requirements, including stakes. Each racing club had to make application, motivate and lobby for grants from the HRDF. This sometimes led to grants being made which were not in the best interests of racing as a whole. At this time there were serious concerns about the continued viability of the racing industry in Gauteng and there was a strong possibility that the Newmarket Racecourse would ultimately be closed. At a meeting of the HRDF held on 16 July 1996, the Chairman, Mr J Moleketi, said that the Province’s consultants on privatisation of the industry had recommended that all capital expenditure be put on hold until completion of negotiations and that the whole stabling complex issue should be left for the new committee to finalise. Subsequently, Mr Moleketi confirmed that a grant for the building of stables would not be made as he felt that a material project of this nature should more properly be considered by the new corporatized industry. The statement by Mr Walters at a meeting of the Racing Association that there was no grant and that there were no terms and conditions attached to the proceeds on dissolution of the HRDF was therefore correct.
In response to the concerns expressed, in March 2005 the newly appointed Racing Association directors requested their attorneys, Sonnenberg Hoffman and Galombik to investigate if any irregularity had taken place, and they concluded that there was none.
7. “The sale of the Gosforth Park and Newmarket racecourses call out for an enquiry”
Gosforth Park was not sold for R 12 million. The selling price was R 18,5 million. The selling price of both Gosforth Park and Newmarket were based on the fair market values of the properties as determined by independent valuations. In Gosforth Park’s case the property was initially developed as a motor car raceway. This development was not successful and Phumelela only recovered the full purchase price after the initial developer resold the property to another developer. The Newmarket property was sold for R 22 million, also to a developer, but with Phumelela remaining as a tenant, which enabled it to continue racing at the venue. This development was also unsuccessful and was sold to another developer whose development plans did not allow for racing to continue. This allowed for the cancellation of Phumelela’s lease agreement to be negotiated at R 40 million. It is noteworthy that the lease agreement was bought back in August 2006 with racing ceasing at Newmarket in February 2007, and yet to date the property remains undeveloped. The sale of Newmarket and the subsequent cancellation of the lease were done in full consultation with the Racing Association. As a condition of the cancellation of the lease agreement it was agreed with the Racing Association that lights would be installed at Turffontein to allow for night racing.
8. “Phumelela’s supposed mission to substantially increase prize money ….. has a very hollow ring to it”
Please see the table attached which is self-explanatory.
9. “There has been a serious conflict of interest over the years as too many of the directors of the Racing Association have been major shareholders in Phumelela and also directors of Phumelela.”
I do not really know who these “many” directors of the Racing Association are who have been major shareholders and directors in Phumelela?
Of the present Phumelela board, only Messrs Jooste, van Niekerk and Walters have ever been directors of the Racing Association. Not one of these gentlemen has been on the board of the Racing Association for at least the last 3 years. Messrs Jooste and van Niekerk were nominated as Trustees of the Trust by the Racing Association (2 of their 5 nominees) and, in turn, nominated by the Trust as directors of Phumelela. The shareholding that any of these gentlemen may have, in value, is dwarfed by the amount that they have invested in horses as owners. Any allegation of a real or potential conflict of interest to the detriment of the greater good of the sport is therefore, simply, unfounded.
10. “The stakes agreement”
The stakes agreement between Phumelela and the Racing Association was concluded in order to determine the levels at which stakes are paid by Phumelela. At the time it was expected that additional racing clubs in other provinces would join the corporatisation process and that when that happened, the agreement would need to be amended to accommodate those racing clubs.
Subsequently the Free State, Northern Cape and Eastern Cape joined the corporatisation process and the stakes agreement was amended accordingly. The agreement allocates a percentage of revenue to stakes and in this way ensures that the level of stakes is aligned with growth in revenue irrespective of Phumelela’s controllable costs and overheads. In this way, both racehorse owners and shareholders benefit from the growth in turnovers. However, if turnovers remain flat or increase by a % below inflation (as has been the case in the last 3 years), Phumelela shareholders bear the brunt of the pain and serves as a cushion to stakes. In the event that turnovers decline stakes are reduced and owners will also both feel the effect of a downturn.
11. “Whose interests were they serving? How was the betterment of racing , the ethos of horseracing and the interests of owners and stakeholders, served by this betrayal of the conditions attached to the granting of the money”
As stated above, there was no grant from the HRDF. However, it must be noted that Phumelela has in any event spent far in excess of the R 17,5 million that Mr Jayes refers to. This includes building new stables for 400 horses at Turffontein (R 5,5 million), upgrading the grooms’ accommodation at Randjesfontein, building new stables at Fairview (R 20 million), upgrading stabling and tracks at Kimberley (R6,5 million) and currently extensively upgrading the grooms’ accommodation at the Vaal. With all of these projects Phumelela has consulted with owners, trainers and grooms to obtain their advice and to take into account as many of their concerns as possible.
12. “The loss of Gosforth Park, Newmarket and Bloemfontein racecourses has meant a dramatic loss of racing opportunities for our horses.”
The facts are as follows:-
In 1996 (the year prior to the establishment of Phumelela) there were 128 Highveld fixtures, 52 Eastern Cape fixtures, 30 Bloemfontein fixtures and 18 Kimberley fixtures – a total of 228 in what now forms “Phumelela country”. For the record in 2012 we now have 148 Highveld fixtures, 68 Eastern Cape fixtures and 36 Kimberley fixtures – a total of 252 in “Phumelela country”. Thus despite the loss of Gosforth Park, Newmarket and Bloemfontein Racecourses between these dates, the number of fixtures has in fact increased.
Whilst it may be argued that there has been a reduction in the number of horses allowed to start over certain distances at certain racecourses for safety reasons in the current scenario, this is more than compensated for by the increase in the number of fixtures. By way of illustration, the decision to split the Vaal turf straight course into two racecourses was made to better spread the wear and tear on the track (thereby increasing the number of turf race meetings that can be staged annually from 32 to 40) as well as enable the track to have its annual spring treatment in two stages thereby enabling racing to continue on the turf all year round at the venue. To facilitate this split, the field sizes had to be reduced from 16 to 14 runners per race, however there was actually an increase (of just on 400) in the number of horses able to start annually in the new scenario due to the increase the number of fixtures.
13. “By placing benchmarks on handicaps instead of using long handicaps and dividing them into 3 or more races, Phumelela is ensuring that the bulk of our horses are disadvantaged in getting opportunities to compete”.
There is no doubt that the merit rating system enables horses to be competitive for longer and enables someone who has bought a horse for a modest amount to compete with someone whose horse cost, say R1 million, and in theory has a better chance of success. It is a handicap system, independently determined by the National Horseracing Authority, similar to golf, that enables the man in the street to compete with the “Kings, Queens, Sheiks, gentry and wealthy”. For the purists this may be tough to digest, but for the sake of the transformation of the sport in South Africa this is necessary.
Phumelela remains committed to the changes required by the New South Africa and we refuse to be sucked back into the old, apartheid elitist system!
Mr Jayes is misinformed. Handicapping is determined by the National Horseracing Authority!
A Joint Race Programming Committee (with equal representation from the Racing Operator and Racing Association Members in the form of trainers who are best qualified to provide input) discuss and agree the appropriate splits of maiden races, handicap races and conditions races to be staged in each region and for each programming period. Currently on the Highveld annually approximately 80% of our races for winners are handicap races which favour the new (and hopefully also empowerment) owners to the sport as well as the smaller owners and trainers in the sport.
14. “For many years and to no avail, owners and trainers have been calling for an accurate and detailed census of horses in training on which to structure the racing programme”.
In consultation with the Racing Association, the Racing Operators believe that its current meticulous method of race planning, whereby the dynamic profile of the horse population in each region (contained on the SA Horseracing database) is used in conjunction with a thorough audit of past races staged in a given period to produce well researched principles and criteria on which to base the split in race types programmed. These principles and criteria are tweaked from time to time in response to trends seen in these audits as well as the online profile of the horse population. It is the view of the Racing Operator that a “census” of horses on training is not the way forward as it would be virtually out-dated the moment it is completed due to the significant horse movements that occur and further that its accuracy would be dependent on both the co-operation and subjective opinions of the trainers in completing it.
In any event, it would be detrimental to both the sport and the industry if we were to programme strictly to the horse population. When you consider that more than 60% of horses at any given time are maidens, and that the vast majority of horses are rated below 80, there would simply not be enough racing opportunities to develop and progress the better horses (the sport’s heroes) if the race programme followed the horse population to the letter. Further, to cater on this basis for the lower rated horses as suggested by Mr Jayes, would ultimately jeopardise the Highveld as a major racing centre. Horses that are not able to get a run (due to lowly ratings) or be competitive in the current programme should really be moved through the system to the lesser racing centres.
15. “Phumelela and its willing hand-maiden the Racing Association …”
As explained in 1. above, the Racing Association is not the “hand-maiden” of Phumelela. In fact quite the opposite. The Racing Association appoints the majority of Trustees on the Trust and in turn the Trust, through its significant shareholding in Phumelela, exercises significant influence over Phumelela. However, the most important protection mechanism for owners is the Stakes agreement between the Racing Association and Phumelela.
Mr Jayes has raised these same issues on many occasions over many years in the media. We suggest that a more constructive and effective approach is to use the communication channels available to all industry stakeholders. These include the Industry Liaison Committee which meets quarterly and the monthly meetings held at each racing/training facility with Trainer representatives.
I trust that this clarifies the matter.
Yours sincerely
Rian du Plessis, Group CEO
Article by Ian Jayes entitled “Where is Julius Malema when Horseracing needs him”
I write in response to the abovementioned article recently published by you and hereby offer my comments:
1. “… corporatisation has … been an unmitigated disaster”
May I firstly point out that corporatisation of the sport of horseracing in Gauteng came about in the 1990’s at the insistence of the Gauteng provincial government and by agreement with the then different racing clubs in Gauteng.
Some 40 years ago, the sport of horseracing flourished as it was primarily funded by the Tote which was the only legal form of gambling and/or betting in South Africa.
Significant influences that have impacted on the Tote’s ability to fund the Sport since then include:
a) The growth of fixed odds bookmakers and the open bet;
b) The introduction of television in the seventies resulting in a material reduction in on-course attendance and concomitantly, gate monies;
c) The establishment of casino’s in what was then “Homelands”;
d) The introduction of the National Lottery in the 1990’s; and
e) The establishment of casino’s in the cities in the 1990’s.
The influences outlined above, inter alia, caused severe financial distress to the racing clubs in Gauteng and resulted in these clubs approaching the Gauteng provincial government for relief in the form of reduced Tote tax rates. As a pre-condition to reducing the Tote tax rates the Gauteng government insisted upon
corporatisation, the introduction of appropriate broadly based black economic empowerment and that the company obtains a listing on the Johannesburg Stock Exchange. Corporatisation and listing on the JSE was a requisite in order to ensure proper corporate governance, true transparency and accountability and to enable meaningful B-BBEE at shareholder level.
By agreement with the Gauteng government:
i) The Gauteng racing club members merged into one owners’ representative association (the “Racing Association”);
ii) The Thoroughbred Horseracing Trust (the “Trust”) was formed with its main purpose being the promotion of the Sport of thoroughbred horseracing in South Africa and an ancillary purpose of promoting appropriate transformation within the sport. In terms of its constitution, the Trust has 7 Trustees, 5 of whom are nominated by the Racing Association and 2 by the government (these 2 Trustees are presently nominated by SASCOC, who also owns 5% of Phumelela);
iii) The Trust was given ownership of 35% of Phumelela and through its representation on the board of Trustees of the Trust now had a direct and ongoing input into the affairs of the sport;
iv) 27,5% of Phumelela’s shares were subscribed for by broadly based empowerment groups at 50 cents per share. At the present share price of some R11 per share this has proved to have been one of the most successful empowerment initiatives in South Africa to date and certainly an initiative of which the Gauteng provincial government and the then administrators of the Gauteng racing clubs can be proud.
Surely no one could possibly contend that the governance, transparency and accountability of a “collective” can favourably compare with that of a public company listed on the JSE?
How would Mr Jayes suggest meaningful B-BBEE at shareholder level could have otherwise have been achieved as had been the requirement of the Gauteng provincial government?
2. “Before the advent of Phumelela the sport of kings in South Africa flourished because it was owned by collectives”
Firstly Mr Jayes forgets or omits that in fact the sport in Gauteng was in such financial distress that it sought urgent relief from the government.
Secondly may I point out that:
a) at 31 July 2010, the Racing Association was financially sound, owning the land of Randjesfontein training centre (probably worth upwards of R188 million) and with some R74 million of cash on hand and no debt;
b) at 31 July 2010, the Trust was financially sound, owning 35% of Phumelela (worth around R300 million) and with some R12 million of cash on hand and no debt; and
c) at 31 January 2011, Phumelela was financially sound with a tangible net asset value of R399 million, including R99 million of cash on hand, no material debt and profits generated in the 6 months to 31 January 2011 in the amount of R35 million.
Stakes in Gauteng, compare favourably with stakes in other provinces, including those provinces where the sport is “owned by a collective”.
It is to be emphasised that, as a direct result of the corporatisation of the sport in Gauteng through Phumelela, South African horseracing was internationalised and Phumelela Gold International contributed R11,8 million of profits to Phumelela in the 6 months to 31 January 2011. Phumelela also successfully introduced soccer betting products contributing R14 million to its bottom line and R2,1 million into stakes in the 6 months to end January 2011. Phumelela’s shareholding in Betting World contributed R7 million to its bottom line in the 6 months to 31 January 2011. If Phumelela’s share of Betting World’s profits and the contribution from its soccer betting products are eliminated its horseracing and tote betting business is loss making. If the profits from its international initiatives (which it is submitted would not have been fully exploited had the sport in Gauteng continued as a “collective”) are eliminated, its losses are even greater.
Mr Jayes’ assertion that the sport would have flourished if it were owned by “collectives” is unsubstantiated.
The challenges facing the sport of horseracing are a worldwide phenomenon, excluding only those territories where the sport enjoys appropriate governmental protection from other forms of gambling and/or betting. In the USA, bookmakers are only legal in the state of Nevada and yet the sport is still in deep trouble with so called Racino’s now accounting for more than 50% of the funding of the sport. In the UK, mainly as a result of the introduction of betting exchanges and the exodus of local betting in favour of offshore tax haven operators the levy from bookmakers payable towards the funding of the sport has almost halved in recent years.
For the reasons set out above I put it to you that the sport has actually benefitted from corporatisation and that the challenges facing the sport are that the playing field is not level between the Tote and bookmakers, between the Tote and other forms of Gambling, and also because onerous licence conditions effectively prohibit the sport from charging a market related fee for its intellectual property. These issues were raised with the Gambling Review Commission which has recently reported, inter alia, that “The current funding models for the industry should be reviewed to ensure that the tax rates and levies paid to the industry are standardised across the board to create a level
field.” Phumelela and Gold Circle are in the process of preparing detailed responses to the Gambling Review Commission report.
3. “Nationalisation may now be the only alternative to break the shareholders power and pernicious influence …”
The Trust with its 35% shareholding is Phumelela’s largest shareholder and certainly the shareholder with the most power. The Trust does not have outright control but certainly has significant influence. No other shareholder has anywhere close to the same number of votes.
Mr Jayes’ statement is therefore contradicted by the facts.
4. “Phumelela also took over the Eastern Cape and Northern Cape horseracing …”
Due to the same financial constraints, the members of these racing clubs decided democratically to join Phumelela.
5. “Phumelela … pays only 3% taxation on its betting turnovers”
It was the very high prevailing tax rates, originally determined when no other form of gambling or betting was legal, which forced the racing clubs in Gauteng to seek relief from the government.
The betting taxes that Phumelela pays approximates that which Gold Circle (a “collective”) pays.
The betting taxes that the Tote pays compare favourably with the net betting taxes (after the deduction of the 3% horseracing levy) that Bookmakers pay. The Bookmakers however, through the horseracing levy, contribute only some 17% to the costs of funding the sport whilst their turnover comprises approximately 46% of the betting on the sport. This is the real imbalance!
6. “Phumelela has benefited to the tune of almost R30 million of public money”
The HRDF monies cannot be described as being public money. In terms of the then Horse Racing and Betting Ordinance a levy on Tote betting was payable to the Fund which was formed to further the financing and development of the horse racing industry. The industry had, during the existence of the Fund, become totally dependent on the Fund for the industry’s operational and capital requirements, including stakes. Each racing club had to make application, motivate and lobby for grants from the HRDF. This sometimes led to grants being made which were not in the best interests of racing as a whole. At this time there were serious concerns about the continued viability of the racing industry in Gauteng and there was a strong possibility that the Newmarket Racecourse would ultimately be closed. At a meeting of the HRDF held on 16 July 1996, the Chairman, Mr J Moleketi, said that the Province’s consultants on
privatisation of the industry had recommended that all capital expenditure be put on hold until completion of negotiations and that the whole stabling complex issue should be left for the new committee to finalise. Subsequently, Mr Moleketi confirmed that a grant for the building of stables would not be made as he felt that a material project of this nature should more properly be considered by the new corporatized industry. The statement by Mr Walters at a meeting of the Racing Association that there was no grant and that there were no terms and conditions attached to the proceeds on dissolution of the HRDF was therefore correct.
In response to the concerns expressed, in March 2005 the newly appointed Racing Association directors requested their attorneys, Sonnenberg Hoffman and Galombik to investigate if any irregularity had taken place, and they concluded that there was none.
7. “The sale of the Gosforth Park and Newmarket racecourses call out for an enquiry”
Gosforth Park was not sold for R 12 million. The selling price was R 18,5 million. The selling price of both Gosforth Park and Newmarket were based on the fair market values of the properties as determined by independent valuations. In Gosforth Park’s case the property was initially developed as a motor car raceway. This development was not successful and Phumelela only recovered the full purchase price after the initial developer resold the property to another developer. The Newmarket property was sold for R 22 million, also to a developer, but with Phumelela remaining as a tenant, which enabled it to continue racing at the venue. This development was also unsuccessful and was sold to another developer whose development plans did not allow for racing to continue. This allowed for the cancellation of Phumelela’s lease agreement to be negotiated at R 40 million. It is noteworthy that the lease agreement was bought back in August 2006 with racing ceasing at Newmarket in February 2007, and yet to date the property remains undeveloped. The sale of Newmarket and the subsequent cancellation of the lease were done in full consultation with the Racing Association. As a condition of the cancellation of the lease agreement it was agreed with the Racing Association that lights would be installed at Turffontein to allow for night racing.
8. “Phumelela’s supposed mission to substantially increase prize money ….. has a very hollow ring to it”
Please see the table attached which is self-explanatory.
9. “There has been a serious conflict of interest over the years as too many of the directors of the Racing Association have been major shareholders in Phumelela and also directors of Phumelela.”
I do not really know who these “many” directors of the Racing Association are who have been major shareholders and directors in Phumelela?
Of the present Phumelela board, only Messrs Jooste, van Niekerk and Walters have ever been directors of the Racing Association. Not one of these gentlemen has been on the board of the Racing Association for at least the last 3 years. Messrs Jooste and van Niekerk were nominated as Trustees of the Trust by the Racing Association (2 of their 5 nominees) and, in turn, nominated by the Trust as directors of Phumelela. The shareholding that any of these gentlemen may have, in value, is dwarfed by the amount that they have invested in horses as owners. Any allegation of a real or potential conflict of interest to the detriment of the greater good of the sport is therefore, simply, unfounded.
10. “The stakes agreement”
The stakes agreement between Phumelela and the Racing Association was concluded in order to determine the levels at which stakes are paid by Phumelela. At the time it was expected that additional racing clubs in other provinces would join the corporatisation process and that when that happened, the agreement would need to be amended to accommodate those racing clubs.
Subsequently the Free State, Northern Cape and Eastern Cape joined the corporatisation process and the stakes agreement was amended accordingly. The agreement allocates a percentage of revenue to stakes and in this way ensures that the level of stakes is aligned with growth in revenue irrespective of Phumelela’s controllable costs and overheads. In this way, both racehorse owners and shareholders benefit from the growth in turnovers. However, if turnovers remain flat or increase by a % below inflation (as has been the case in the last 3 years), Phumelela shareholders bear the brunt of the pain and serves as a cushion to stakes. In the event that turnovers decline stakes are reduced and owners will also both feel the effect of a downturn.
11. “Whose interests were they serving? How was the betterment of racing , the ethos of horseracing and the interests of owners and stakeholders, served by this betrayal of the conditions attached to the granting of the money”
As stated above, there was no grant from the HRDF. However, it must be noted that Phumelela has in any event spent far in excess of the R 17,5 million that Mr Jayes refers to. This includes building new stables for 400 horses at Turffontein (R 5,5 million), upgrading the grooms’ accommodation at Randjesfontein, building new stables at Fairview (R 20 million), upgrading stabling and tracks at Kimberley (R6,5 million) and currently extensively upgrading the grooms’ accommodation at the Vaal. With all of these projects Phumelela has consulted with owners, trainers and grooms to obtain their advice and to take into account as many of their concerns as possible.
12. “The loss of Gosforth Park, Newmarket and Bloemfontein racecourses has meant a dramatic loss of racing opportunities for our horses.”
The facts are as follows:-
In 1996 (the year prior to the establishment of Phumelela) there were 128 Highveld fixtures, 52 Eastern Cape fixtures, 30 Bloemfontein fixtures and 18 Kimberley fixtures – a total of 228 in what now forms “Phumelela country”. For the record in 2012 we now have 148 Highveld fixtures, 68 Eastern Cape fixtures and 36 Kimberley fixtures – a total of 252 in “Phumelela country”. Thus despite the loss of Gosforth Park, Newmarket and Bloemfontein Racecourses between these dates, the number of fixtures has in fact increased.
Whilst it may be argued that there has been a reduction in the number of horses allowed to start over certain distances at certain racecourses for safety reasons in the current scenario, this is more than compensated for by the increase in the number of fixtures. By way of illustration, the decision to split the Vaal turf straight course into two racecourses was made to better spread the wear and tear on the track (thereby increasing the number of turf race meetings that can be staged annually from 32 to 40) as well as enable the track to have its annual spring treatment in two stages thereby enabling racing to continue on the turf all year round at the venue. To facilitate this split, the field sizes had to be reduced from 16 to 14 runners per race, however there was actually an increase (of just on 400) in the number of horses able to start annually in the new scenario due to the increase the number of fixtures.
13. “By placing benchmarks on handicaps instead of using long handicaps and dividing them into 3 or more races, Phumelela is ensuring that the bulk of our horses are disadvantaged in getting opportunities to compete”.
There is no doubt that the merit rating system enables horses to be competitive for longer and enables someone who has bought a horse for a modest amount to compete with someone whose horse cost, say R1 million, and in theory has a better chance of success. It is a handicap system, independently determined by the National Horseracing Authority, similar to golf, that enables the man in the street to compete with the “Kings, Queens, Sheiks, gentry and wealthy”. For the purists this may be tough to digest, but for the sake of the transformation of the sport in South Africa this is necessary.
Phumelela remains committed to the changes required by the New South Africa and we refuse to be sucked back into the old, apartheid elitist system!
Mr Jayes is misinformed. Handicapping is determined by the National Horseracing Authority!
A Joint Race Programming Committee (with equal representation from the Racing Operator and Racing Association Members in the form of trainers who are best qualified to provide input) discuss and agree the appropriate splits of maiden races, handicap races and conditions races to be staged in each region and for each programming period. Currently on the Highveld annually approximately 80% of our races for winners are handicap races which favour the new (and hopefully also empowerment) owners to the sport as well as the smaller owners and trainers in the sport.
14. “For many years and to no avail, owners and trainers have been calling for an accurate and detailed census of horses in training on which to structure the racing programme”.
In consultation with the Racing Association, the Racing Operators believe that its current meticulous method of race planning, whereby the dynamic profile of the horse population in each region (contained on the SA Horseracing database) is used in conjunction with a thorough audit of past races staged in a given period to produce well researched principles and criteria on which to base the split in race types programmed. These principles and criteria are tweaked from time to time in response to trends seen in these audits as well as the online profile of the horse population. It is the view of the Racing Operator that a “census” of horses on training is not the way forward as it would be virtually out-dated the moment it is completed due to the significant horse movements that occur and further that its accuracy would be dependent on both the co-operation and subjective opinions of the trainers in completing it.
In any event, it would be detrimental to both the sport and the industry if we were to programme strictly to the horse population. When you consider that more than 60% of horses at any given time are maidens, and that the vast majority of horses are rated below 80, there would simply not be enough racing opportunities to develop and progress the better horses (the sport’s heroes) if the race programme followed the horse population to the letter. Further, to cater on this basis for the lower rated horses as suggested by Mr Jayes, would ultimately jeopardise the Highveld as a major racing centre. Horses that are not able to get a run (due to lowly ratings) or be competitive in the current programme should really be moved through the system to the lesser racing centres.
15. “Phumelela and its willing hand-maiden the Racing Association …”
As explained in 1. above, the Racing Association is not the “hand-maiden” of Phumelela. In fact quite the opposite. The Racing Association appoints the majority of Trustees on the Trust and in turn the Trust, through its significant shareholding in Phumelela, exercises significant influence over Phumelela. However, the most important protection mechanism for owners is the Stakes agreement between the Racing Association and Phumelela.
Mr Jayes has raised these same issues on many occasions over many years in the media. We suggest that a more constructive and effective approach is to use the communication channels available to all industry stakeholders. These include the Industry Liaison Committee which meets quarterly and the monthly meetings held at each racing/training facility with Trainer representatives.
I trust that this clarifies the matter.
Yours sincerely
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Rian du Plessis
Group CEO
