The Gauteng local government has failed in a bid in its long-running dispute with operator Phumelela Gaming and Leisure, after it appealed against a High Court ruling that found it unlawfully ended a levy to the local industry. This could mean the government has to pay about R500m it unlawfully denied to racing companies.
The local government must now restore the levy, benefiting the local industry and possibly other operators around SA, which are engaged in similar tussles with local gambling boards.
The court specifically noted the benefit must flow to Phumelela, the designated provincial operator at the time, and its new licence holder, 4Racing, after Phumelela went into business rescue. Phumelela estimated it is owed about R500m.
In May, Johannesburg high court judge Stuart Wilson set aside the provincial government’s decision to amend regulation 276 of the Gauteng Gambling Regulations. The case involved Phumelela, 4Racing, the MEC for economic development, environment, agriculture and rural development, the premier of Gauteng and the Gauteng Gambling Board.
In 2021, 4Racing took over Phumelela’s totalisator and race-meeting licences in Gauteng after Phumelela went into business rescue in 2020, partially as a result of the Covid-19 pandemic.
Phumelela had been the totalisator operator for Gauteng, Mpumalanga, Limpopo, North West, Northern Cape, Eastern Cape and the Free State. Phumelela operated race courses, training centres and more than 200 betting outlets.
It was later implicated in a public protector report by then public protector Busisiwe Mkhwebane, who investigated allegations of maladministration and improper conduct in connection with the privatisation of the SA horse racing industry in the late 1990s. One of her recommendations was the gambling board stop paying the levy that the regulator receives from the bookmakers’ levy. The board did so but it was this implementation that was challenged.
The impugned regulation provided that 6% of the winnings of punters on horse racing placed with bookmakers would be paid in the following proportions: 3% as a tax and 3% as a levy to racing companies, who held totalisator licences. Gauteng MEC Lebogang Maile, however, decided to end 3% going back to the horse racing companies.
As a result of the court’s May’s ruling, however, the 3% had to be reinstated.
Following the ruling, Maile and the gambling board soon sought leave to appeal to the Supreme Court of Appeal (SCA). Their appeal bid suspended the reinstatement of the betting levy.
Wilson dismissed the MEC and gambling board’s appeal this week.
“I am not persuaded that the appeal now proposed stands reasonable prospects of success,” he wrote.
Wilson said the basis of his May ruling was that the MEC “was not entitled to withdraw the regulation … without directly engaging with Phumelela”. The MEC did not engage. As a result, the MEC’s amendment to the regulation was “neither procedurally fair nor procedurally rational”.
During the appeal bid, government appellants argued there had been a meeting between the Gambling Board and Phumelela. But, Wilson said, the “Board and the MEC are separate entities” and it was the MEC who made the decision.
Wilson therefore dismissed the appeal bid and the government must pay back an estimated R500m to Phumelela and 4Racing.
The ruling is precedent around SA for other operators who may face similar regulatory disputes with local government. However, government may still appeal directly to the SCA and Constitutional Court.
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