Equity equivalence is a better alternative to giving away a significant chunk of equity in a good business to some undeserving party with the right lucky credentials, racial or political.
It has been used in SA before Starlink, as in the allocation of the original casino licences in the Western and Eastern Cape in the late 1990s. Bidders competing for the limited licences were required to qualify for them by offering the wider community valuable add-ons of their own invention. The support of Sun International for the establishment of the Cape Town Convention Centre helped win it the valuable right to operate the only casino in metropolitan Cape Town.
The same opportunity for the Gauteng government to establish what could have been a highly profitable monopoly casino in the Johannesburg city centre, with an accompanying and competitively determined large contribution extracted for the renovation and sustainability of the precinct, was proposed at the time. It was rejected as politically unacceptable given competing and powerful empowerment interests. En kyk hoe lyk dit nou.
Presumably, Starlink has attached value for its shareholders in the opportunity to supply its internet connections to rural SA, and is willing to pay up in advance in the form of conspicuous public benefits for the opportunity to earn these potential profits.
The same principle of equity equivalence could be, or could have been, applied to the award of the right to operate the state lottery. Clearly this right is a valuable one, judged by how much the contending parties have been willing to spend challenging the award in the courts.
How much better would it have been for the SA public and its taxpayers if the minister could choose between the contending and technically and racially qualified partners simply on how much cash, or better in equivalent benefits, they would have been willing to pay for the lottery licence?
Given that the ratio of lottery revenue to the cash paid out by the lottery to its winners is a mere 50%, the lottery is a poor gamble. The charities and others that receive grants paid for by the lottery — part of the 50% retained after salary and other expenses — can be regarded as a compensating public benefit the mostly low-income lottery players are paying for. Provided, that is, that the lottery grants are awarded on merit, which it appears, sadly, may not be the case.
The value of a licence to operate a casino, or a gambling machine in SA, has surely been competed away by internet-based gambling houses supplying a convenient phone-based and easily scalable service to gamblers, with exceptionally low fixed costs, and with minimal operating costs in the form of a few programmers using codes probably taken off the shelf.
And then there are the games that are now presumably even more easily enhanced with the aid of AI. The internet does not require an expensive-to-build and maintain physical casino, or to pay its croupiers, clerks and security officers, or provide prize money to keep horses racing so that gamblers can bet on them.
The gambling market in SA appears to be highly competitive, judged by the barrage of adverts directed at gamblers watching sporting events, encouraging them to join the action so easily through their cellphones and gambling accounts by a variety of licensed operators. Highly profitable businesses usually see their profits competed away, and I am confident this also will prove the case in time for the rapidly growing sports betting industry.
The competition for the bets made by the gambler takes place in part through the odds offered. Improve the gamblers’ odds of winning or losing less, reduce the share kept by the house, and the bets placed with a house will tend to increase. The highly competitive casino market in Las Vegas proves this point. Casinos there compete publicly on the odds offered.
Yes, the average gambler must lose to keep the house in business. But the average loser is surrounded by a presumably normal distribution of above-average winners and below-average losers, per day, year or even over a lifetime of what some presume is irrational gambling. You may just get lucky. And there is fun to be had in playing the odds — win or lose — as ever larger numbers of betters on sporting events confirm. Unfortunately, gambling and losing more than can be afforded can become dangerous to the addict.
For the internet gambling houses, their most important cost will be advertising and promoting their plays on TV. It may be of some consolation to the nongamblers to recognise that this spend on TV is in fact paying for the sport they are watching. It is the competitively determined — and rising value — of the TV rights to broadcast the games and advertise betting opportunities on them, that pays the wages of the players and determines the value of the clubs that hire them.
It also reduces the profits of the internet gambling house — provided there is no licensed monopoly to limit competition.
• Kantor is head of the research institute at Investec Wealth & Investment. He writes in his personal capacity.
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