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Tellytrack and Phumelela Gaming

By SuperUser Account
This press release is published in answer to the press release published by the Kwazulu-Natal Bookmakers’ Society (“KZNBS”) on Monday, 17 March 2014. 

It is noted that complaints have been lodged by certain bookmakers and their association/s with gambling boards, applications have been made to the High Court/s for interdict/s and complaints are allegedly in the process of being lodged with the competition authorities against Tellytrack, Phumelela, Gold Circle and Kenilworth Racing (among others). Tellytrack does not have its own website and therefore benefits from Phumelela publishing relevant news related articles in respect of itself, its subsidiaries and partnerships on the Phumelela website (www.phumelela.com). The relevant complaints and applications, together with responses thereto have been posted on the Phumelela website and are accessible by any interested party. It is therefore not considered necessary to deal in detail in this press release with the matters which have been complained of or applied for, and which have been answered. It is further noted that certain matters remain sub judice and our legal advisers have advised that these matters should not be canvassed publicly prior to the legal proceedings having run their course.

Mindful of the aforegoing, we hereby wish to offer the following comments on the KZNBS press release:

1.     The present dispute between certain bookmakers, their associations and Tellytrack centres around Tellytrack’s proposed new license fee for bookmakers to permit them to display and commercially exploit live racing content in their Licensed Betting Outlets (‘LBO’s”). However, the dispute is deeply rooted in bookmakers’ outright refusal over many years to address the imbalance between funds generated for the funding of the sport from punters’ bets placed with the Tote versus with bookmakers. We place on record that a bet placed in any province with a bookmaker, if the bookmaker wins, generates nothing towards the funding of the sport. Bets placed with a bookmaker in Limpopo, Mpumalanga, and North West provinces similarly generate nothing towards the sport even if the punter wins. Bets placed with bookmakers in the other provinces, if the punter wins, indirectly contributes 3% of punters’ winnings (not turnover) toward the funding of the sport. By contrast, no less than 16% of a bet placed with the Tote in all provinces has been contributed to the funding of the sport. Furthermore, bets on horse racing placed with bookmakers amount to more than 50% of total bets placed on horse racing, yet the funding indirectly derived from these bets, together with bookmakers’ payments for Tellytrack, contributed less than 20% of the cost of staging the races concerned;

2.     Phumelela does not directly or indirectly control Kenilworth Racing. Kenilworth Racing is wholly owned by the Thoroughbred Trust, a not-for-profit organisation that has its main objective the promotion of the sport of thoroughbred racing in South Africa. The majority of Trustees of the Trust are appointed by the Racing Association, which represents its members (all of whom are owners of thoroughbred horses). Two thirds of the board members of Kenilworth Racing can be appointed by the Trust and one third by the Western Cape chapter of the Racing Association. Phumelela manages the day-to-day operations of Kenilworth Racing under the guidance and control of the board of Kenilworth Racing;

3.     If it is correct that, when Tellytrack was started an agreement was reached with bookmakers to merely recover costs to broadcast South African race meetings (which is not admitted), no such agreement was ever agreed to in respect of international races displayed on Tellytrack. Furthermore, neither Tellytrack nor any of its partners committed to supply the channel nor any part thereof to bookmakers on a break even basis in perpetuity;

4.     Tellytrack has not DEMANDED anything from bookmakers. Tellytrack has INVITED any and all bookmakers, who wish to display and commercially exploit its content in their LBO’s, to conclude a contract with Tellytrack;

5.     All bookmakers who do not see commercial value in concluding a license agreement with Tellytrack are legally entitled to continue to take bets on horse racing without displaying the picture in their LBO’s. The pricing of Tellytrack therefore has nothing to do with who takes (more) risk and who does not. It simply boils down to who is prepared to pay the license fee for the luxury of exploiting the picture in an LBO and who does not;

6.     The KZNBS press release, conveniently, omits to disclose that Phumelela has offered to make visual broadcasts of its race meetings available to bookmakers at cost. This cost, if considered by bookmakers to be too high in respect of races taking place at Turffontein and Fairview, has been offered to be submitted to the Gauteng and Eastern Cape Gambling boards respectively for final determination. If the costs attributed to making the races available at the Vaal and Kimberley are considered too expensive, Phumelela has indicated that it is prepared to permit a reasonable number of additional bookmaker contracted film crews to come on-course and film the races for display in their LBO’s;

7.     The 3% fee proposed by Tellytrack is the international norm, rather than the exception, when licensing betting operators to display and commercially exploit live racing in an LBO. Phumelela, Gold Circle and Kenilworth Racing pay 3% for the right to bet on one another’s racing. They also pay 3% to the suppliers of the international content;

8.     Tellytrack’s proposed license fee of 3% was communicated on or about 1 August 2013 and was initially scheduled to be effective 1 October 2013. To afford bookmakers additional time to explore their alternatives and to make alternative proposals (which would still enable Tellytrack to earn a fair economic return) extension at the old pricing was granted monthly till the end of January. The KZNBS terminated their agreement with Tellytrack with effect from October 2013, the Western Cape Bookmakers’ Association (“WCBA”) with effect from the end of December 2013 and the Gauteng Off-Course Bookmakers Association (“Goba”) from the end of January 2014. Despite the termination of these agreements by the bookmaker associations themselves, their members have continued to display and commercially exploit Tellytrack in their LBO’s; 

9.     In the UK, certain bookmakers are paying 4% of turnover (and more) for USA racing;

10. In the year to 31 March 2013, publicly available information shows that UK bookmakers did GBP4,9 billion OTC turnover on horse racing and OTC gross margin of GBP697 million (14,15%). Our reliable information indicates that the total fees paid by UK bookmakers for the LBO rights in the UK amounts to between GBP 170 million and GBP204 million. Although these amounts comprise fixed monthly payments per shop, the total annual sum translates into a cost to bookmakers of between 3,45% and 4,14% of OTC turnover on horse racing and between 24,37% and 29,27% of their OTC gross margin on horse racing. This is hardly out of line with the fee proposed by Tellytrack;

11. At the R5 500 per month fee which applied until September and assuming that there are 350 LBO’s in South Africa all subscribing for Tellytrack, the bookmakers in the year ended 31 March 2013 would have paid approximately 0,39% of their horse racing turnover and 3,48% of their horse racing gross margin for Tellytrack. Using these assumptions and further estimating that 75% of bookmakers’ horse racing turnover is OTC, bookmakers would have paid 0,52% of OTC turnover and 4,64% of OTC gross margin on horse racing for Tellytrack. The Tellytrack fee as a % of Gauteng’s 93 bookmakers’ gross margin on horse racing would have amounted to 0,96% and in respect of the estimated OTC gross margin 1,28%;   

12. The UK LBO rights fees are completely separate and must be distinguished from the UK bookmaker levies, which in turn are similar to the local provincial levies collected from punters’ winnings in certain provinces and paid over to the gambling boards.

13. Phumelela competes actively for market share in its chosen markets. Like bookmakers, it has a profit motive for which it does not apologise. Phumelela submits that there is no merit whatsoever in bookmakers’ argument that only bookmakers are entitled to earn profits out of the sport. Phumelela further denies any and all allegations of predation, exclusion, abuse of dominance, excessive pricing and any other alleged anti-competitive behaviour and is ready to answer all these allegations in the appropriate forum if and to the extent required;

14. Betting World pays the same license fee for Tellytrack as other bookmakers. Phumelela indirectly bears 100% of all costs borne by Betting World, whilst it indirectly only enjoys 60% of any revenues earned by Tellytrack;

15. The Multichoice notice, which terminates the Tellytrack agreement with effect from 27 March 2014, cited as its reason that “the channel is not performing to its satisfaction”. The allegation that Multichoice did so with some other motive is unsubstantiated;

16. In conclusion we must point out that, since our letter of 1 August 2013 to date, the highest offer that Tellytrack has to date received (as an alternative to the proposed 3%) for the rights to display and commercially exploit the live racing content of the 440 race meetings per annum staged in South Africa, does not exceed R7 000 per month per LBO. We find that such a fee is totally irreconcilable with the argument that Tellytrack is an “essential facility” and actually confirms our position that Tellytrack is a very valuable, but not essential facility. Despite our numerous invitations, we have received no substantiation whatsoever corroborating why our proposed fee might be considered excessive.

Tellytrack and its partners remain committed to doing their utmost to make South African (and such other international racing as it is permitted to) live racing available freely to as many home consumers as possible.

Tellytrack and its partners are however adamant that they deserve a fair economic return from those persons who seek to display and commercially exploit their intellectual property in LBO’s. We remain prepared to consider any alternative proposals that might have a reasonable prospect of achieving this.