riaan du plessis interview with alec hogg

hibs please post it on the thread for us and highlight the question by alec hogg ...so its much better to bet through bookmakers at the moment?its on the s.post website....

Is this a new interview? because i posted an interview a month or two back

brand new

Is South Africa's horseracing in trouble?


ALEC HOGG: It’s Thursday April 19 2012 and in this Boardroom Talk special podcast, Rian du Plessis, the chief executive of Phumelela, is with us in studio. Six months to end January financial results, looking at the numbers there are some big swings all over the place, profit before tax international operations up 100%, local down 49%, not only there, pretty much everywhere you look big changes in the business. Maybe before we get bogged down by the numbers themselves, it was level pegging overall but within the business there seems to be different emphases.

RIAN DU PLESSIS: Yes, Alec, we had a storming six months internationally to be up 100%. We had an excellent six months in tote betting on other sports, so our soccer bets and our rugby bets are up by some 20%, LPM revenues up about 28%. Betting World, disappointingly, had a bit of a margin squeeze, the Cape racing season was tough, with almost all of the group one races and the graded races being won by favourites, including the Met where Igugu won.

ALEC HOGG: So the bookmakers take a hiding, I don’t think most people will worry about that but, of course, Phumelela, sure.

RIAN DU PLESSIS: Ja, look, when the favourites run in it impacts on the bookmakers’ margins. I’ve seen the year to date of late and it’s corrected itself pretty much, so long term we’re not really bothered by that but it did impact on the local profits as well. What is of the greatest concern is really the foundation, the core business that it was before it became Phumelela, club-owned, administering the sport of horseracing and local tote betting on that and if we hadn’t incorporated, listed on the JSE, put black empowerment in place and diversified, we would have made a R14m loss in the period under review. That is something that we’re taking up with government and with the Gambling Boards. Before casinos came to town and before there was the national lottery, 100% of the gambling rand went on horseracing. Where we are now total betting on horseracing is 5% of the total gambling and betting rand…

ALEC HOGG: So horseracing is in trouble in South Africa?

RIAN DU PLESSIS: …and tote betting is 60% of that so about 3%. We employ 12 times more people per R1m of gross gaming revenue than a casino would do. So we’re sitting down with government and saying, guys, we’ve got to save the sport here. Nobody in the administration of the sport of horseracing is making any money out of it. We’ve got to do something and we need to level the playing fields between the tote…

ALEC HOGG: How unlevel are they?

RIAN DU PLESSIS: Well, the playing fields between the tote and the bookmakers are not level and then there’s other…

ALEC HOGG: In what way? Just unpack that.

RIAN DU PLESSIS: Well, just to give you an example it’s costs us about R608m a year to put up the show, R300m of that is prize money and the R308m is the cost of maintaining the stadiums, subsidising transport, training, etc and the like. So it costs us R608m to put up the show, the contribution that we get from bookmarkers, via the bookmaker levy that they pay to the Gambling Boards, is R75m and they take 47% of the bets on horseracing. So with 47% of the bets they contribute 12% to the funding, with 53% of the bets taking place on the tote we contribute 88% to the funding of the sport.

ALEC HOGG: And the tote is owned by Phumelela?

RIAN DU PLESSIS: Yes, so we’re saying that the playing field needs to be leveled over there.

ALEC HOGG: Isn’t there a danger though that if you levy higher fees on the bookmakers, which is what I presume you’re aiming towards, the people will simply not bet on horseracing through bookmakers and go to other sports?

RIAN DU PLESSIS: Yes and the Parliamentary sub-committee that heard our presentations in the past six months did come to the conclusion and actually I can compliment them because they did come to the conclusion that all sports are entitled to leverage their intellectual property from betting operators in general. So that’s what the Parliamentary sub-committee has recommended to the Minister of Trade and Industry and that will apply to horseracing as well as other sports. They actually preempted this appeal court decision in New South Wales in Australia that has recently come out where the equivalent of our appellate division unanimously ruled with costs against Betfair that they must pay 1.5% of turnover just for the race card, it doesn’t include any picture, just for the race card.

ALEC HOGG: So it looks like it’s not a great place to be in bookmaking at the moment, yet you’ve got a big stake in bookmaking yourselves through Betting World.

RIAN DU PLESSIS: Well, we will put it to you that we are the biggest bookmaker in the country and we don’t want to see the demise of bookmaking. We just simply want a fair playing field that’s all. The proposals that we have tabled to the Parliamentary sub-committee not a single thing there would be negative to Betting World’s profitability, with the exception of asking bookmakers to fund their proportionate share of the National Horseracing Authority, which you may know is the policeman of the sport.

ALEC HOGG: But how if they’re going to fund that and how if they’re only funding 12% of the cake but taking almost half of the benefits will that not affect their profitability?

RIAN DU PLESSIS: Well, it depends, the taxes are indirectly paid by the punter, so if a punter bets with the tote there’s somewhere between a 20% and a 25% take-out. If he bet’s with the bookmaker, the bookmaker, he only pays out of his winnings and at the moment he pays 6% of which half goes to government and half comes to us in the form of a horseracing levy.

ALEC HOGG: So it’s much better to bet through bookmakers at the moment?

RIAN DU PLESSIS: Absolutely and that’s where we’re saying, guys, the playing field needs to be level because otherwise you’re also making the tote uncompetitive.

ALEC HOGG: But surely if you reduce the take-out from the tote, so you take it down from 20% to 25% that might be an incentive for people to bet through the tote more and you could get bigger volumes.

RIAN DU PLESSIS: Our research has shown that what drives tote betting is pool sizes, not the take-out and the sport needs the funding. You can see from our numbers if we drop our take-out and we don’t have a commensurate increase in betting then we really are in trouble.

ALEC HOGG: Phumelela itself, the company itself, as you mentioned earlier its core business or the business it was founded on is making a loss at the moment but as a whole you made still quite a healthy profit. Your headline earnings for the six months period level pegged with last year, slightly up from 43c to 45c. So clearly the strategies that you’ve employed in diversification are paying off quite handsomely.

RIAN DU PLESSIS: Yes, I’m actually quite excited by the future. We have recently launched Soccer10, which is fantastic for us. We’re doing soccer pools on a weekend now between R5m and R7m.

ALEC HOGG: Compared with how much on horseracing?

RIAN DU PLESSIS: Well, a good Saturday would be a R5m horserace.

ALEC HOGG: You’re doing as much out of soccer as you’re doing out of horseracing?

RIAN DU PLESSIS: Ja.

ALEC HOGG: And had you not gone into soccer, wow.

RIAN DU PLESSIS: Ja, it doesn’t cost us because we don’t have to put up the show for soccer. We do have an arrangement with the PSL where we pay the PSL 3% of…

ALEC HOGG: So you’re paying the PSL what the bookmakers are paying in horseracing?

RIAN DU PLESSIS: We do it on turnover, not on punters’ winnings.

ALEC HOGG: Big difference. Had you not gone into that though, let’s just say you hadn’t diversified, let’s just say that the racing clubs had stayed as they were and there was no Phumelela established, what would horseracing be looking like today?

RIAN DU PLESSIS: Well, we would have been loss making and we would have had to cut stakes. That’s a self-fulfilling prophecy because the more you cut stakes the more it becomes a disincentive and stakes is an industry term, it really is prize money. So the more you cut that the more it’s a disincentive for people to buy horses and keep them in training, it makes it that much more expensive.

ALEC HOGG: And you get into a downward spiral…

RIAN DU PLESSIS: Absolutely.

ALEC HOGG: …and that ends in possibly no sport…

RIAN DU PLESSIS: So you have less horses, less races, less betting opportunities. In theory if we didn’t stage any horseracing ourselves and just imported international racing and bet on that we would be more profitable. But that doesn’t serve the interests of the sport in South Africa and obviously our international business of exporting the picture and tote betting thereon would suffer as well, so those two are inextricably linked.

ALEC HOGG: Just on a few specifics, we weren’t able to get hold of you on the day that the Competition Commission came out with its finding on racing Western Cape, there was a proposal that that would become part of Phumelela, in fact, you’re managing it at the moment. The Competition Commission says that shouldn’t happen that another part should come into it. It seems like a strange decision for anyone to invest in a sector of an industry that isn’t doing that great but why are you so keen so appeal this decision and to bring Western Cape racing into the other part?

RIAN DU PLESSIS: Alec, firstly, I must put it into perspective, Phumelela is not acquiring the Western Cape racing or betting business. In fact, it was offered to us and we declined it because the losses are so big that we think that it could actually pull the whole of Phumelela down. We do, however, have the tote systems and the expertise etc and we have a vested interest in that number of meetings not falling away because it will impact on our international business. So we’ve offered to manage the Western Cape and we have made appeals to national as well as Western Cape provincial government for assistance to help us turn the Western Cape business around. But the deal that’s on the table is a simultaneous divorce between KwaZulu-Natal and the Western Cape and the marriage simultaneously – and these things are always difficult to consummate – a marriage with the Thoroughbred Trust. The Thoroughbred Trust has no profit motive and is there for the greater good of the sport of Thoroughbred horseracing. So they are taking over the Western Cape, they are the parties that are appealing because the divorce, as well as the marriage, was turned down. Frankly, as far as we’re concerned, we don’t fully understand the decision and we agree with the parties who are appealing to the tribunal. I think you can look at it on two bases, our business is founded on two pillars, there’s a sport and then there’s tote betting on the sport. Now the sport is just like any other sport and you cannot operate on a standalone basis. The sport is seasonal, you have a Western Cape, a KZN season and a Highveld season and your horses need to migrate and come up through the ranks and then eventually compete for the group one races and you can’t have all of your group one races at the same venue. So by definition the administrators of the sport, just like soccer and rugby and cricket, have to work together, schedule the events so that they don’t clash with one another and so that there’s a national programme of that. Now, the competition board seem to feel, no, you must compete with one another, which to my mind is about as absurd as saying to Loftus Versfeld you must now compete with Newlands, which is wrong, The Stormers compete with the Bulls and the horses of our owners compete with one another but Turffontein doesn’t compete with Kenilworth and that’s where I’m perplexed on the sport side. On the tote side we demonstrated to the Parliamentary sub-committee and offered to do so to the Competition Commission that if you were to wager R10 000 on a win on a single horse in the nationally commingled pool we showed them that you destroy the odds against yourself from 7-1 to 3-1. So now to argue that there should be ten or nine standalone totes, let alone more than one tote in any given province on an un-commingled basis doesn’t make sense. You don’t have that in Japan, France, Hong Kong, UK, Italy, Greece, all have one national tote. So now they want the totes to compete, I don’t understand it.

ALEC HOGG: Well, that’s going to appeal, as you said, and we will hear from the tribunal, which is the boss of the Competition Commission, how that’s all going to fall out. What do you make, though, of the unhappiness it seems that we’re getting from government with the whole betting sector? In the last two budgets we’ve had particular attention paid to gambling, the one was a betting tax for people who earn one more than R25 000 and the other one was a comprehensive betting tax of 1%.

RIAN DU PLESSIS: Yes, I think the last one will have an impact on our profits but it will be less damaging to the tote than the tax that was mooted a year ago. But yes, it is a sin business and when budgets, when ministers of finance are looking for additional money it’s normally the sin businesses, the alcohol, tobacco companies and the gambling guys who get it. I don’t think we’re the exception to the rule. I would, to be quite honest, problem gambling, to my mind, is something that should rather have been addressed and I’ve always been a proponent of saying that problem gambling comes with people being granted credit in order to gamble or to bet. I’m actually disappointed that that hasn’t been outlawed.

ALEC HOGG: Rian, just from your perspective, you’re a businessman, a business executive, RMB, the computer industry as well, how have you found this move into horseracing? Has it been what you expected?

RIAN DU PLESSIS: Well, I’ve learnt a lot I can tell you that but look, it’s a business with the same fundamental principles. The sport, we have a duty to the sport, so you can’t run it simply on a pure business principle and hence, it might have made sense for us to close two, three more racecourses and race more often at fewer venues but that starts really impacting on the ethos of the sport. So there are things that you have to do to keep the ethos of the sport because ultimately that’s what you bet upon.

ALEC HOGG: But what about shareholders in that context, if you’re competing, presumably, for people who are not really interested in the ethos of the sport, they’re just looking for the best returns when they invest in companies.

RIAN DU PLESSIS: Well, we have to balance the interest because if we destroy the sport then we destroy the business as well. So we’ve got to balance that.

ALEC HOGG: And the kind of shareholder who would be attracted to Phumelela?

RIAN DU PLESSIS: Somebody who likes good cash generating businesses that pays handsome dividends.

ALEC HOGG: Your share price hasn’t done much in the past year; you’ve been under a bit of pressure.

RIAN DU PLESSIS: No, it hasn’t…

ALEC HOGG: What caused that?

RIAN DU PLESSIS: I think our earnings have been flat and there’s a lot that’s now in the whole review of the Parliamentary sub-committee reviewing gambling. I think there are lots of people sitting, looking at what’s going to happen. There are quite a few positives that came out and then there are a few things that concern us. The Parliamentary sub-committee mooted that betting exchanges should be legalised. We have no problem with betting exchanges, what we do have a problem with is that the man in the street should not be allowed to lay a horse, he should be allowed to bet on a horse but we’re saying it must be a licensed operator that should be permitted, these are the only people that should be permitted to lay a horse and this is simply for the integrity of the sport. You don’t want owners to have an incentive to bet that their horse will not win or, for that matter, any punter.

ALEC HOGG: Well, it’s an interesting industry and certainly interesting developments there. You can watch it closely over the next few months and take your bets on whether Phumelela is the right place to be investing in. Rian du Plessis is the chief executive of Phumelela.

If you click the banner you can listen to the podcast

Why is the western cape in trouble?

seems to me horse racing only thrived due to a lack of competition as opposed to doing something right

Our man running racing (in stadiums.....lol) has a really good handle on what it's all about....."We have no problem with betting exchanges.........(just what they do)" a betting exchange without laying is a bookmaker...... duh.
His other point that may come back to haunt him is ,that if you believe that any business undertaken on the back of an activity should contribute to that activity(which I have to agree with),then he may find it less than pleasing when that converts to Saftote having to contribute to all soccer and rugby fixtures that they use for their exotics?
The danger is that this bloke convinces the state that he knows what he is talking about!

(BTW Mr Du Plessis,as a member of the board of the NHA I thought you might be aware of rule 72.4.1)

I would, to be quite honest, problem gambling, to my mind, is something that should rather have been addressed and I’ve always been a proponent of saying that problem gambling comes with people being granted credit in order to gamble or to bet. I’m actually disappointed that that hasn’t been outlawed.

does the tab not give certain people credit? (i may be wrong but i have seen people signing for bets at the tote)

I wonder if this wolly has ever been to a "Stadium" to watch a horse race, from his home in london???

mr hawaii Wrote:

---

> I would, to be quite honest, problem gambling, to
> my mind, is something that should rather have been
> addressed and I’ve always been a proponent of
> saying that problem gambling comes with people
> being granted credit in order to gamble or to bet.
> I’m actually disappointed that that hasn’t
> been outlawed.
>
> does the tab not give certain people credit? (i
> may be wrong but i have seen people signing for
> bets at the tote)

Some long standing telebet customers have credit extended to them if they request

He has no idea - Do you think Alcoholics and Drug Addicts , Food addicts, Sex Addicts etc all become addicted because of credit? This is the man that runs racing - WOW Don't touch me in my Stadium!

Interesting that RDuP's only concern about the integrity of the sport is the one which might impact on his T/O.
He is totally unconcerned about any of the other rules or regulations,in spite of his NHA position.
I have to say that Vee Moodly seems to be the one person amongst the management who seems to have the ability to balance economics with the interests of racing, including its customers.I also guess that he would be less tolerant of incompetence.
I hope he is being groomed to succeed ,and soon!