Phumelela explains the facts behind its Tellytrack plans

Proposed changes to the terms and conditions under which bookmakers in South Africa will be allowed to display Tellytrack in their outlets have garnered a fair amount of controversy in racing circles. Punters are used to seeing the races running live in outlets, and the proposed changes and fee increases have angered many. However, as Phumelela chief executive Rian du Plessis explains below, the changes are intended to improve the profitability of the bookmaking part of the horse racing industry. While Phumelela’s international operations are delivering a solid bottom-line performance, its domestic business is much closer to breakeven, and some restructuring is probably in order. Other than needing some domestic shakeups, Phumelela is generally performing very well. Its international business is thriving, and topline growth has been solid across the board. It seems that the general consumer spending slow-down isn’t slowing people’s appetite for taking a punt on the ponies. – FD

RIAN DU PLESSIS:  We benefitted to the tune of about 20 percent from a weak Rand, which is always helpful, but the weak Rand aside, we’re quite pleased with the performance.  Our international operations, in constant currency, we’re actually up 48 percent, of which we’re very proud.

ALEC HOGG:  What do they account for now – the Total Group?

RIAN DU PLESSIS:  The bottom-line profit, local breaks square and all of our profits have made abroad

ALEC HOGG:  So it’s just as well, you decided to go – when you did – with that strategy some time back.

RIAN DU PLESSIS:  Absolutely.  I think if we had stayed as pure horseracing administer and tote betting operator, we would have been in dire straits.  Internationalisation and diversification paid off very well for us.

ALEC HOGG:  We’ll get into that in some detail in a moment, but the big story here in South Africa, amongst people who are obsessed about horseracing, is the goings on at Teletrack.  What is the actual story there?  You hear so many sides.

RIAN DU PLESSIS:  Alec, firstly, Phumelela and none of the partners at Teletrack have it in for the bookmaker.  In fact, Phumelela is one of the biggest bookmakers in the country and we grew our retail footprint by 35 percent in the period under review.  Its concrete proof that we have no intention to seek the demise of bookmaking in the country.  The simple practical hard facts are that bets placed with a bookmaker need to generate more for the sport and to come more in line with what the tote pays.  The contribution from bets placed with bookmakers is approximately two-point-eight percent and bets placed with a tote operator contributes a minimum of 17 percent.  In the past, Teletrack would supply on a cost recovery basis, and when these contracts ended, we started discussions with bookmakers.  We insisted on saying that we would like to earn a fairly economic return.  It’s not remotely the product it used to be many years ago.  When we started and concluded the first agreements with bookmakers, it comprised South African Racing alone, and Teletrack, up until the 10th of March has transformed into a completely produced betting product comprising 75 percent international racing.  There’s no harm intended here.  The simple practical hard facts are that we see Teletrack as a very valuable resource for bookmakers, for which fair economic value should be paid.

ALEC HOGG:  Is the signal currently going into the bookmaking outlets?

RIAN DU PLESSIS:  Yes, it was offered to bookmakers and we have acceptances as of yesterday.  Just over 100 bookmaker subscribed and that is of an estimated 300 operating bookmakers in the country.  Yes, there is a take-up.

ALEC HOGG:  One third…  What is the difference between what they will be paying in future and what they paid in the past?

RIAN DU PLESSIS:  In the past, they paid R5600.00 and then there was the last increase to R6000.00.  We priced it at three percent of over the counter turnover Alec, which is in line with what the tote pays one another when it bets on the racing, and it’s also in line with other international norms.  Notably, bookmakers in the U.K. pay more than four percent to bet on U.S.A. racing, so there is a precedent but it is in line with market precedents elsewhere and it is very much in line with what the tote pays.  The base fee, which has the benefit that the smaller bookmaker can also afford it and the big bookmaker, obviously, should be able to afford it because he’s doing more turnover.  What we did on Monday was we offered a fixed fee alternative to bookmakers, which is reengineered backwards from the three percent, based on the bookmakers’ R5bn-odd turnover.  That amounts to R24, 000.00-odd for the South African service and R9000.00-odd for the international service.

ALEC HOGG:  It’s a long way from R6000.00 – R33, 000.00.  When you said before that bookmakers pay a two-point-eight percent contribution of their turnover and now you’re asking them for three percent: do they pay more over and above the three percent you want?

RIAN DU PLESSIS:  No Alec, these are apples and pears.  The two-point-eight percent the sport receives from bets placed with bookmakers comes via the six percent Betting Tax levied on punters winning.

ALEC HOGG:  I have it.  Okay.

RIAN DU PLESSIS:  That is paid over to the gambling boards and the gambling boards in certain provinces (not in all provinces, but in certain provinces) pay half of it over to the racing operator to help fund the local racing operator.

ALEC HOGG:  I have it.  That stays intact.  They’ll continue to pay whatever that tax is, whereas on this side, the contributions they make to Phumelela for the Teletrack service will rise from R6000.00 to either three percent of turnover or R33, 000.00 if they take the whole package.  What will that do to your bottom-line next year?  What’s it like?  Have you looked at possible declines in turnover as a result of this?

RIAN DU PLESSIS:  Very much so, and let’s be clear: nobody needs to take it because bookmakers are perfectly entitled to take bets on horseracing without displaying the picture.  Nobody should be doing the sums on the basis that all 300 bookmakers are going to take the picture.  It should only be those bookmakers, who find that they would be able to attract sufficiently more customers to justify the cost of the service.  They should take it.  The people who don’t shouldn’t take it.  We don’t all own exactly the same pairs of shoes and if we did, nobody would be prepared to pay anything for it.  It is a differentiator and that’s where we perhaps have a difference of opinion with certain bookmakers.  We’re saying it’s a very valuable resource, but it’s not an essential facility.  You can take bets on horseracing without the picture.  However, we believe you will attract more punters to your shop and they will stay longer and enjoy the fact that there’s live racing displayed in your shop.  For that right, if you want it you need to pay fair economic value.

ALEC HOGG:  What is it doing to the bottom-line though?  Your projections, no doubt, have been worked very carefully.

RIAN DU PLESSIS:  Look, it’s difficult to say.  I would be disappointed if it’s harmful to our bottom-line; because you could find that bookmakers simply turn around and say, ‘we’re out of it.  We’re not betting on horseracing anymore’ and then we would lose elsewhere.  I would be disappointed if that were to happen, so I do believe that it would have a positive contribution to the sport and its funding, and it will also have a positive contribution to Phumelela.

ALEC HOGG:  You’re rebalancing, as it were, something that was out of kilter.  In the international environment however, you’ve been aggressive in generating revenues and generating profits as you mentioned right up front, from that area.  What’s the future looking like?

RIAN DU PLESSIS:  The future is bright, Alec.  You’ll be pleased to know that our horseracing seems to have turned the corner and we believe that horseracing is back and growing again.  We’ve seen our on-course attendance as up by somewhere between ten and 15 percent, and betting on-course is up by north of 20 percent, so that’s always a very good indicator.  The recent sale in the Cape was up 40 percent, so the sport seems to have turned the corner, which is good for our business.  Internationally, there’s continued and buoyant demand for our racing, for betting on our racing, and paying us for the picture rights thereof.  Locally, we’re growing Betting World and our soccer pools are growing, too.  In the six months under review, our soccer pools grew by 30 percent and we see further good growth for the soccer pools as well.

ALEC HOGG:  It’s looking rather bright.  You are a regulated monopoly as well, because you do have that license, which not too many other people can get.  Your relationship with Gold Circle, the only other licensee of horseracing in the country…

RIAN DU PLESSIS:  We consider them our valued partners and our relationship is good.

ALEC HOGG:  So its full steam ahead for you, Rian, and the record share price is fully justified, it appears.

RIAN DU PLESSIS:  Well, the job is never done, so the treadmill has already started running again.  We’ll continue to do our best.

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