Call for inquiry into awarding of tote licences
Accusations of anti-competitiveness, conflicts of interest, missing funds and questionable sales of racecourses have dogged the horse racing and betting industry.
Breeder Phindi Kema, who has been trying to buy Arlington racecourse in the Eastern Cape for R50-million, has been the industry's most vocal critic.
Kema's complaints to the Competition Commission have led to an inquiry into alleged collusion between Phumelela and Gold Circle.
She also approached the Public Protector to investigate how Phumelela came to own its racing assets in Gauteng and why Phumelela and Gold Circle have exclusive and extended tote licences.
Kema said there is great unhappiness in the racing fraternity about Phumelela's sale of Gosforth Park racecourse near Germiston and Newmarket racecourse in Alberton in 2002 and 2005 respectively.
Rian du Plessis, Phumelela CEO, said that in 1998 horse racing was being increasingly sidelined as casinos sprang up. The hefty tax burden it had borne until then was no longer sustainable and an agreement was made with Jabu Moleketi, then Gauteng MEC for finance and economic affairs, to drop the taxes in return for corporatising Gauteng racing and creating a listed, black economic empowered company to manage it.
Gauteng then made the racecourses and the upkeep thereof part of the new company, which was named Phumelela. The two courses were sold to consolidate assets as racing increasingly lost ground and maintenance costs soared.
One of the people questioning the sale of the Newmarket and Gosforth Park tracks is trainer Ian Jayes. He said a commission of inquiry should be established to find out why Gosforth Park was sold for R18.5-million and Newmarket for R22-million when they are prime sites and "the main grandstand alone at Gosforth was worth that". To put things into a perspective, Jayes said, Clairwood in Durban has been sold for R350-million.
Du Plessis said Gosforth Park and Newmarket were sold at prices based on fair market values as determined by independent valuations.
Jayes claimed conflicts of interest threaten the independent operations of bodies within the racing structures. The Racing Association is supposed to look after the interests of owners but there has always been a conflict of interest because directors have been large shareholders of Phumelela, he said.
It is therefore no surprise that "things have been done to the main advantage of Phumelela shareholders at the expense of owners and other role players", he said.
Another owner, who wants to remain anonymous, also cited conflicts of interest as problematic in the independent functioning of the different bodies. He said this will be exacerbated if a planned Cape deal, in which the Thoroughbred Horse Racing Trust aims to acquire Gold Circle Western Cape, goes through because the assets of Western Cape racing will then reside in the Thoroughbred Horse Racing Trust, the biggest shareholder in Phumelela.
These will not be disposed of unless the trustees decide otherwise. However, some of the trustees - Markus Jooste and Chris van Niekerk - are also directors of Phumelela and it follows that a firesale of some of the Cape assets could significantly bump up the company's bottom line.
Jayes has long claimed that millions of rands intended for the improvement of grooms' quarters at the Newmarket race course disappeared into Phumelela's profits. The Horse Racing Development Fund (HRDF) was set up out of tote taxes before corporatisation took place in 1998. Created to facilitate capital payments and develop infrastructure, the HRDF was worth about R50-million when Phumelela was set up.
Jayes said Andrew Feinstein, Moleketi's adviser at the time, was apparently horrified at the state of the grooms' quarters at Newmarket and assigned R17.5-million for these to be upgraded. He said when the decision was taken to sell Newmarket the money was vested in the Racing Association, the directors of whom had to okay any expenditure. Jayes claimed that, once again, a conflict of interest arose because some of these directors were also shareholders and directors in Phumelela. Ultimately, R3.9-million was used to extend the stables at the Vaal racetrack, but the balance, just less than R13-million, went into Phumelela profits.
Du Plessis said that in March 2005 the Racing Association's directors requested their attorneys, Sonnenberg, Hoffman and Galombik, to investigate if any irregularity had taken place and they concluded that none had.
Overseas ops to the rescue
Phumelela's fortunes were rescued by its international operations and betting other than on horse racing.
Phumelela said in its results for the six months to January this week that its domestic pre-tax profit fell 49% to R18.9-million. But international pre-tax profits were up 100% and tote betting other than on horse racing was up 20%. This lifted Phumelela's after-tax profits 2% to R35.6-million.
Earnings a share were up 11% and headline earnings up 4%.
CEO Rian du Plessis said domestic horse racing operations suffered losses. All local profit was driven by fixed-odds operations, tote sports bets, limited payout machines (one-armed bandits) and bingo revenue. Diversification, internationalisation and incorporation saved the company from a loss of about R14-million.
Last year, Australia-based international tote operator Tabcorp entered a strategic partnership with Phumelela Gold Enterprises (PGE), a joint venture of Phumelela and SA's other horse racing and tote betting operator, Gold Circle. The partnership meant PGE and Tabcorp could jointly operate the tote gateway business Premier Gateway International.
The Isle of Man's contribution to profit before tax rose 14% to R11.2-million.
Income from other international operations rose 57% to R39.7-million, driven by increased revenue from Australia (19%), Italy (19%), the UK (97%), Turkey (180%) and Zimbabwe (253%). Phumelela's share of profit from its Mauritian equity-accounted investment, Automatic Systems, rose 13% to R465000. Phumelela declared a dividend of 25c a share.
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