KZN Bookies state their case

PRESS SUBMISSION
1. A substantial dispute has arisen between the various bookmakers in the
provinces of Kwa-Zulu Natal, Gauteng and Western Cape Province and a
partnership known as Tellytrack in relation to the Tellytrack channel. That is a
television channel which deals exclusively with horse racing and which has been
broadcast by Multichoice under channel number 239.

2. The dispute arises out of a demand by Tellytrack for a very substantially
increased fee from bookmakers to enable bookmakers to display the Tellytrack
channel in their various betting premises known, colloquially, as “shops”.

3. Although there have been historical changes, for some time and at present the
bookmakers in RSA have been and are organized into three separate
bookmakers associations (“the Associations”) being

? The Kwa-Zulu Natal Bookmakers Society (“KZNBS”)
? The Gauteng Off Course Bookmakers Association (“GOBA”)
? The Western Cape Bookmakers Association (“WCBA”).

4. The Tellytrack channel in its varying forms has been broadcast in South Africa
since 1992. Essentially Tellytrack took over the television broadcasting of horse
racing from an organization known as IGN. What happened was that IGN went
into liquidation and Phumelela Gaming & Leisure Limited (“Phumelela”) and the
various Associations which represented the bookmakers in RSA reached an
arrangement under which Phumelela in co-operation with Gold Circle (Pty) Ltd
(“Gold Circle”) would procure the broadcasting of the Tellytrack channel and all of
the bookmakers would subscribe for and pay for that channel.

5. The only two owners and operators of race courses in RSA, namely Phumelela
and Gold Circle, formed a partnership for purposes of establishing and
broadcasting the Tellytrack channel. The partnership itself is also called
Tellytrack.

It is important to understand that horse racing and the race courses in RSA are
controlled by those two entities. Gold Circle controls horse racing in KZN – it
owns or leases and operates the only three race courses in KZN. Phumelela
indirectly controls horse racing in the Western Cape Province through Kenilworth
Racing (Pty) Ltd and it directly controls horse racing in every other province in
RSA – in other words it directly or indirectly either owns or controls and operates
all the other seven race courses in RSA.

6. Historically and factually the understanding of the bookmakers is that that
arrangement was that Tellytrack would be operated on a break even basis to
benefit the sport of horseracing and bookmakers would contribute their
proportionate share to the costs of operating Tellytrack. This flows from various
meetings held from time to time between the Associations and Phumelela and
Tellytrack.

7. Initially Tellytrack was distributed through decoders supplied by Tellytrack itself.
In 2006 Tellytrack arranged for MultiChoice to broadcast the Tellytrack channel
and, over a period of time, from that date, the various bookmakers, while paying
Tellytrack a direct contribution towards the costs of the Tellytrack channel, also
concluded arrangements with MultiChoice, for what is known as the Pubs and
Clubs Package and purchased the relevant decoders and smart cards from
MultiChoice to enable the Tellytrack channel to be received by and displayed at
each for the bookmakers shops.

8. Notwithstanding the arrangements with MultiChoice the bookmakers continued to
pay directly to Tellytrack a fee which they believed was to cover, on a break even
basis, the costs of the Tellytrack channel. For those purposes each of the
relevant Associations, in the case of Kwa-Zulu Natal, the Kwa-Zulu Natal
Bookmakers Society (“KZNBS”) from time to time concluded agreements with the
Tellytrack partnership in accordance with which the Associations paid an
aggregate monthly sum to Tellytrack and in turn collected from its bookmaker
members an amount to cover the payment made to Tellytrack.

9. The initial amount payable by each bookmaker to Tellytrack (via the relevant
Association) for the Tellytrack channel was determined in accordance with
discussions between Tellytrack and those Associations and was thereafter
negotiated from time to time in the same way. Written agreements were
concluded between Tellytrack and the Associations which generally ran for
periods of five years. A fee based on costs to produce the channel would be
settled by negotiation at the commencement of each agreement and then would
escalate in an agreed manner until the end of the agreement whereupon a
revised fee would again be negotiated between Tellytrack and the Associations.
The underlying emphasis of all of those negotiations was that Tellytrack would be
operated on a break even basis and that is how the fees payable by the
bookmakers were to be determined.


10. In accordance with those principles, agreements were entered into between
Tellytrack and each of the Associations. The last five year agreement expired in
September 2013 and, at the date of expiry, the various bookmakers in KZN had
been paying a monthly amount equal to R5 500 per bookmaking shop. Tellytrack
are now demanding that each bookmaker must conclude a separate contract
with Tellytrack which contract will provide for payment by each bookmaker in
respect of each shop operated by the bookmaker of a fee equal to 3% of over the
counter horse racing turnover in the relevant shop. This fee is a very substantial
increase over the fee previously payable and is extortionistic in the extreme.
While the ratio of the increase will vary from shop to shop the aggregate of that
increase is approximately ten times (namely 1000%) over the fee previously
payable.

11. Tellytrack argues that it is entitled to receive, from the bookmakers, a fee equal
to 3% of turnover because this is the international rate charged between
suppliers and receivers country to country of televised horse racing content.
However Tellytrack ignores

? the fact that in the United Kingdom, the largest supplier to bookmakers of
a similar horse racing channel does not charge its bookmaker customers
3% of turnover but charges them a flat fee per shop,

? the fact that the international rate payable from one supplier to another in
cases where the same bodies frequently both supply and receive from one
another does not constitute a market rate appropriate for the supply of
such content to individual customers such as bookmakers or tote
operators,

? an economically viable fee in RSA must have regard not only to what the
supplier regards as being reasonable but also as to what is affordable by
the relevant customers. In this case the bookmakers are the only true
customers because, in so far as concerns all of the off course totes, those
are either owned or controlled (or licenced in the case of the tote agents)
by the respective partners in Tellytrack.

? The fact that they supply the RSA racing content to international betting
shops on a fixed fee per shop as opposed to a turnover basis.

12. The impact of such an increase will in a large number of cases, cause the
relevant operations to become unprofitable and those shops will go under.Even
in the case where the size of the bookmaker will enable it to survive such an
increase it has a very negative impact on the operations of the bookmaker
including, in respect of bookmakers which have a number of shops, the necessity
to close those shops which are unprofitable.

13. Tellytrack has taken steps to split the content of the Tellytrack channel into
international racing and local racing. However Tellytrack is still demanding a fee
equal to 3% of the relevant horse racing turnover in respect of each of those two
channels, and the impact thereof remains the same.

14. That impact must be seen in the light of the following background and particularly
the dominance of Phumelela both as a race course owner and operator and also
as the major partner in the Tellytrack channel. The Tellytrack channel is, of
course, a pure monopoly – there is no other similar and competitive offering in
South Africa to which the bookmakers can turn for a horse racing channel. Until
Gold Circle disposed of its Western Cape horse racing operations to Kenilworth
Racing (Pty) Ltd (“Kenilworth Racing”) the only partners in the Tellytrack
partnership were Phumelela and Gold Circle. When Gold Circle sold its Western
Cape horse racing operations the Tellytrack partnership was, we understand,
restructured so that the partners are currently Phumelela (63%), Kenilworth
Racing (17%) and Gold Circle (20%). In as much as we believe that Phumelela
indirectly controls Kenilworth Racing, Phumelela holds the major interest and is
the dominant partner in the Tellytrack partnership.

15. Phumelela is, consequently, dominant in RSA as an owner and operator of race
courses and dominant in the Tellytrack partnership. Additionally Phumelela owns
the largest betting operation in RSA namely Betting World which has 53 betting
shops in RSA.

16. Phumelela has pushed very hard to dominate the betting market, not only
through its acquisition of Betting World but also through steps which it took to
seek to prevent bookmakers from laying the open bet. Without going into too
much historical detail Phumelela sued bookmakers in Gauteng to seek to prevent
them from laying the open bet. The case itself, which was a test case, ultimately
ended in the Constitutional Court which held that it was perfectly legal for
bookmakers to lay the open bet. Phumelela has continued, in making
representations to various gambling authorities, to seek to establish a legal
monopoly over the open bet by the race course owners and operators namely
Phumelela, Kenilworth Racing and Gold Circle.

17. In KZN the aggregate of the horse racing bets placed by punters is shared
approximately equally between bookmakers (on the one hand) and the tote
including the on course tote, the off course totes and the tote agents (on the
other hand). By legislation, and in KZN, Gold Circle is the only entity which is
entitled to operate any of the totes or to appoint any tote agents to do so. It
consequently has a monopoly over those betting avenues. Kenilworth Racing
and Phumelela enjoy the same monopolies in the Western Cape and the rest of
South African respectively and, as indicated previously, we believe, as did the
Competition Commission in its investigation into the Kenilworth Racing merger,
that Phumelela controls Kenilworth Racing.

18. A tote bet is, from the point of view of the tote itself, absolutely risk free. The tote
takes all the bets placed on a particular event, accumulates the bets into a gross
pool and deducts what is referred to as a “take out” which by law can be as high
as 25% of the amount wagered and pays out the balance to the winning punters.
The tote consequently operates at a legally protected risk free monopoly gross
profit which, based on the 2013 fiscal year published statistics, provided a gross
gaming revenue return on turnover of 24%.

19. Bookmakers, on the other hand, make an undertaking to a punter to pay a
predetermined amount to the winning punter. That is generally expressed as a
function of the bet placed for example 10 to 1 (10/1). In this event, if the punter
wins, the bookmaker pays to the punter the number wagered (in this case 1) plus
the factor agreed (in this case 10) but is obliged, by the Gambling Board in KZN,
to deduct 6% of the winning bet which is in turn paid to the Gambling Board. The
Gambling Board pays 50% of the amount received over to the licenced tote
operator, in the case of KZN, to Gold Circle. In other words of the 6% betting tax
3% of the winning bet is paid over to Gold Circle.

Bookmakers, because they undertake in advance to pay out the agreed amount,
are very much at risk. In other words being a bookmaker is not a risk free
business. Furthermore, because they do not have the luxury of a predetermined
take out and compete with one another for the punters custom, they work to a
much lower profit margin one which is, averaged over a lengthy period, of the
order of 11% (as reflected in the same 2013 fiscal year published statistics).
Consequently, when compared with the tote, bookmakers run a business which
results in a substantially higher return to punter than is the case in respect of the
tote. The return to punter from a bookmaker is of the order of 89% and the return
to punter from the tote is of the order of 75%. Furthermore bookmakers do this at
risk and not all bookmakers survive.


20. The various off course totes and tote agents do not compete with one another on
the price or return offered to their customers because that is determined by the
very nature of pari-mutuel betting, after the event, and the deduction of the take
out determined by the tote. The bookmakers on the other hand do compete with
one another and with the off course totes and this competition is reflected in the
lower rate of return earned by the bookmakers. Furthermore bookmakers can
and do negotiate with customers the relevant price (effectively the odds offered)
on a particular bet. True competition only manifests itself through the
bookmakers. The totes and all of the off course tote operations operate under a
legislated monopoly.

21. Phumelela and Tellytrack seek to justify the exhorbitant Tellytrack fee which is
now demanded by them on the basis that bookmakers should (for reasons which
are not altogether clear) be obliged to pay more to contribute to the sport of
horse racing. This, however, ignores certain factors and provides a smoke
screen for the very real competitive danger which flow from those proposals.
What is ignored is the fact that bookmakers are at risk when they run their
businesses (as opposed to the risk free operation of a tote), that they offer a
punter a better alternative than having to place a bet with a tote and that they can
be and are flexible, when dealing with punters, in deciding on the odds offered on
any particular bet.

22. The danger, to which reference is made, is the following.

For very many bookmakers an increase in the Tellytrack fee from the previous
amount of approximately R5 500 per shop per month to a fee equal to 3% of over
the counter horse racing turnover is too excessive to permit the bookmakers
operation to survive. In other words the bookmaker is driven into a loss and will
have to close. The only practical solution for bookmakers placed in that position
is to try and find a purchaser of the relevant business. However, at the reduced
level of profitability caused by the massive increase in the Tellytrack fee, the only
real customers for the acquisition of the relevant insolvent shop will either be very
large bookmakers such as Betting World or the tote operator itself (Phumelela or
Kenilworth Racing or Gold Circle) because there is nothing which prevents a
licenced tote operator from also conducting a bookmaking business (as
evidenced for example by Phumelela’s ownership and control of Betting World).


This is equally true in relation to the larger bookmakers which may have a large
number of shops and which may not be driven out of business but will likely also
be forced to sell one or more of their existing shops.

23. There is little doubt that, in order for the bookmakers to compete with the off
course totes and Phumelela’s wholly owned fixed odds operator Betting World,
they need to be in a position to show the same horse racing content as that
shown by the off course totes and Betting World. In the real world they just do not
have the option of refusing to pay the requested fee and not taking the channel
itself. In other words a refusal by bookmakers to take, or by Tellytrack to supply,
the Tellytrack channel will have the same commercial impacts on the businesses
of the bookmakers. Without the channel they will also be squeezed out of
business.

24. The bookmakers consequently believe that the steps being taken by Phumelela,
and which Phumelela argue are for the benefit of horse racing are, in fact, for the
benefit of Phumelela in that it will, in so far as concerns the surviving
bookmakers, very substantially increase the cash flow to Phumelela, and in so
far as concerns the bookmakers which cannot survive offer Phumelela an
opportunity to increase its dominance in the betting market by enabling it to either
acquire and then operate the bookmaking businesses concerned or to acquire
the relevant premises and to operate enlarged off course totes. The latter is
obviously the case in relation to the whole of South Africa other than KZN
(bearing in mind the fact that Phumelela controls Kenilworth Racing) and in so far
as concerns KZN is equally for the benefit of Gold Circle.

25. There is a specific reason for the bookmakers concerns. As indicated above
Betting World operates 53 shops in RSA. However Betting World “manages or
unofficially owns” two shops in KZN, (the subject of which is under enquiry by
the Provincial Gambling Board) and this is as a result of the fact that the
provincial government and bookmaking licencing authority in KZN controls, in
accordance with its own parameters, the grant to bookmaking licences. Thus
neither Phumelela or Betting World have not been able to establish the same foot
print in KZN as they have been able to establish in the rest of RSA. However, to
the extent to which the increased Tellytrack fee has the effects referred to above
this will open further opportunities for Phumelela and Betting World to acquire
further bookmaker shops and to increase its dominance in the betting market.

26. Gold Circle’s agreement to sell its Western Cape horse racing operations to
Kenilworth Racing constituted a merger which required investigation by the
Competition Commission and the approval of the Competition Tribunal. The
Competition Commission prohibited the merger. In its prohibition it made
reference to documentation which relates to the very fears discussed above. The
following are direct quotations from the Competition Commission’s prohibition of
the merger in on 19 March 2012 under its Notice CC16.

“In particular, Phumelela can leverage its dominance from the horse
racing administration market into the media rights market and thereafter
the betting markets. There are several strategy documents alluding to
Phumelela’s keen interest in single handedly controlling the entire horse
racing industry in South Africa”, and
“In various Betting World board minutes there are suggestions that
Phumelela could use a media rights feed (Tellytrack) to squeeze rival
bookmakers that offer the open bet”.

27. Although the Tribunal overruled the Competition Commission’s prohibition of the
merger it did not, in its reasons, refute the statements which appeared in the
Competition Commissions prohibition and which are quoted above.

28. The threat posed by the Tellytrack proposals has caused GOBA to institute
action against the race course owners under the provincial legislation and tote
licence applicable in Gauteng. That litigation is still ongoing.

29. MultiChoice has recently and publicly announced that it has terminated its
broadcasting arrangements in respect of the Tellytrack channel. It is believed,
although this is not affirmed by MultiChoice, that MultiChoice did not wish to be
caught in the middle of a dispute between the race course owners/tote operators
on the one hand and the bookmakers on the other hand. It is not known, at this
point in time, what alternate arrangements are to be put in place by Tellytrack or
indeed whether, if sense were to prevail, MultiChoice might be prepared to
continue to broadcast the Tellytrack channel.

30. It is important to bear in mind at this juncture, that the racing industry is the only
industry in this country that is directly funded by Government taxation. The 3% of
government taxes amounted to R 82 million in the 2013 fiscal year. The racing
operator continues to receive taxation subsidies generated on international
racing events that they do not produce themselves but merely broadcast. In
certain provinces they continue to receive taxation subsidies generated by
bookmakers on sporting events like soccer, cricket and rugby.


31. The bookmakers accept that Tellytrack is entitled to a reasonable fee in respect
of the channel. However they are firmly of the view that such a fee cannot be so
onerous as to put them out of business or, even when they may be able to
survive, severely curtail their income and accordingly their ability to offer
reasonable services to their customers.

32. KZNBS has been forced to take legal advice in relation to the Tellytrack
proposals, and has been advised that those proposals constitute practices
prohibited by the Competition Act and that KZNBS should lodge a complaint with
the Competition Commission.

33. KZNBS has also advised Tellytrack that it would be prepared to negotiate with
Tellytrack in an endeavor to reach an accommodation and that it would be
prepared to accept what it believed was an offer from Tellytrack to mediate but
was advised by Tellytrack that Tellytrack would not mediate with KZNBS, nor
seek to negotiate with KZNBS and would only do so with individual bookmakers.
This clearly has unfortunate administrative and cost impacts on the bookmakers
but some of them have already advised Tellytrack that they are prepared to
mediate.

34. KZNBS is also in discussion with Gold Circle in an endeavor to find an
accommodation appropriate for this province and the persons involved in horse
racing in KZN. As a result of these discussions neither KZNBS nor any individual
bookmaker which is a member of KZNBS has as yet taken any steps to lodge a
complaint with the Competition Commission but Tellytrack is aware of the views
of KZNBS and its members and that they are contemplating and may take that
action.


35. The bookmakers would prefer to reach a reasonable accommodation with Gold
Circle and Tellytrack rather than to be forced to take action under the
Competition Act or on any other basis, and are hopeful that this may still occur.
The matter is ongoing.

One can hardly blame the bookmakers for putting up a fight. Whatever the merits of the argument could Phumelela be that stupid to think they could bully the bookmakers into giving away 3% of turnover without any resistance ?

Bookmakers have become useless, a shadow of what they were and are so full of one way restrictions and limits on Punters, that they have become blinded.

Betting World does not stand the open bet, yet they survive and make a profit. Betting World would have to pay the same as all other bookmakers for Tellytrack, so whats the problem ?

louisg Wrote:

---

> Bookmakers have become useless, a shadow of what
> they were and are so full of one way restrictions
> and limits on Punters, that they have become
> blinded.
>
> Betting World does not stand the open bet, yet
> they survive and make a profit. Betting World
> would have to pay the same as all other bookmakers
> for Tellytrack, so whats the problem ?


Betting world offer swingers,trifectas,exacta,quatets. They just call them another name,like any 2 from 3 is the swinger.they offer odds which is similar to the tote.often at totes i see people comparing the tote will pay and betting world will pay on swingers and exactas.its a loop hole for open bet.

Lol, Bettingworld are owned by Phumelela so any charge is just a book entry. I would love to see good old Louis reaction if Phumelela increased the cost of his boxes by a couple of hundred percent !

They wont increase the cost of my boxes because I dont stand the open bet, Harris.

Thanks for the info, Batman - I didnt realise that Phumelela's Betting World is streets ahead in that dept.(tu)

Louis, every time you light up a cigarette the warning on the box says 'SMOKING CAUSES CANCER' but you make the choice. The bookmaker offers the open bet but it is the punter making the choice. I seldom bet on the tote but when I do I bet into the tote pools. My reason is that if I am going to have a special day I want to win that one ticket Pick 6 and win the max. Others do not see it that way. Its for the tote to win them over.

I will give you an example of how poor the totes are. I live in Knysna. We have a tote and a Hollywood. They are directly across the road from each other. I drove past the tote on Sunday. On the window on a normal A4 size sheet in black and whit it is written, 'UK RACING SHOWN HERE.' Now please believe me that the tote shop does not have a single sign anywhere outside with any branding to indicate it is actually a tote. Not one sign anywhere.

Then you see Hollywood with huge signs outside and you can be pretty certain where the punter will go. You cannot blame the open bet for that !
I will actually post pictures tomorrow. Phumelela need to be humiliated.

Honestly at the end of the day whatever happens must now happen so many of us can make up our minds and stay or get out, I will be very happy if no TT to not own or bet on horses and rather bet on the soccer, rugby etc

oscar Wrote:

---

> Honestly at the end of the day whatever happens
> must now happen so many of us can make up our
> minds and stay or get out, I will be very happy if
> no TT to not own or bet on horses and rather bet
> on the soccer, rugby etc


maybe you should sponsors the Lions instead Oscar...

Harris, thanks your confirmation that the OPEN BET has limitations and restrictions and that with same money on, you can NEVER win more than the actual tote dividend, only LESS, most of the time.

Your pics, with the intention of humiliating Phumelela will surely tell a story.....
Just be sure that it is a Branch and not an Agency....

TELLYTRACK AND PHUMELELA JOINT PRESS RELEASE

Press release: Tellytrack and Phumelela Gaming

Date: 18 March 2014

This press release is published in answer to the press release published by the Kwazulu-Natal Bookmakers’ Society (“KZNBS”) on Monday, 17 March 2017.

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.

Is it just me, or do both parties feel they are being wronged, and hence neither party seems as if they are interested in backing down, and convening to the negotiating table.

Death knell for Horse Racing?