Online gambling sucking millions away from casinos

24 May 2015 - 02:00 By ADELE SHEVEL

Online gambling may be illegal in South Africa, but it is a thriving industry that is sucking millions of rands away from licensed casinos. This is a thorn in the flesh of companies such as Sun International, Peermont Global, and Tsogo Sun, which owns Montecasino.The definition of online gaming is surprisingly broad: it encompasses any game played on the internet for which there is a bet or payment made, in the hope of winning in return.The outcome must be determined on the internet, like a virtual slot machine. It is not sports betting, where the outcome takes place at a match happening elsewhere.The issue had long been a grey area, but in 2011, after Piggs Peak asked the Supreme Court of Appeal to clarify this, the court confirmed that online gambling is illegal. Since then, Piggs Peak has closed its online operations, but still operates a casino in Swaziland.And yet, there are plenty of websites offering online gambling to South Africans, some of which accept bets in rands. One of the sites even has a link to the national gambling regulator.Themba Ngobese, the CEO of the Casino Association South Africa, said that "in the past, we'd always be worried about illegal activity, but now these are becoming serious businesses and are competing with legalised operations".block_quotes_start You’re not guaranteed you will be paid, and you do not have recourse. And if authorities get wind of it, [they] can confiscate your winnings block_quotes_endHe said these illegal operations were not just breaking the law - they were robbing the fiscus of taxes on casino revenue .The casino industry has estimated that up to March 2014, about R110-million was lost in tax revenue to these operators. This is a large sum, considering that national gambling statistics show that casinos made 75% of the R21.8-billion in gross gambling revenue last year, paying R2.2-billion in taxes on that money."We're not for or against online gaming, but if it's going to be kept illegal then the government has an obligation to make sure it doesn't happen. Or pass a law and make sure it's properly controlled and regulated," said Ngobese.Chris Becker, an economist at African Alliance Securities, compared the persistence of online gaming with that of dealing in illegal drugs. "Where there's demand there will be supply. Markets always find ways around these regulations," he said.Hence the proliferation of websites - such as silversandsonlinecasino, which says it has been around since 1999, casinomidas and playcasino - most of which have e-mail addresses and toll-free numbers but no direct telephone lines.On the outskirts of big cities such as Pretoria and Johannesburg, internet cafes or entertainment lounges have mushroomed that offer only online gaming. What sets them apart from authentic internet cafes is that they tend to have dark windows and you have to be accredited before entering; you cannot just walk in off the street.Marcel von Aulock, CEO of Tsogo Sun, said that while he was not particularly worried about online gambling, such internet cafes were a bigger problem.story_article_left1"These are fly-by-night operators that act as internet cafes but actually run illegal computer-based gambling," he said.Von Aulock said Tsogo had no plans to compete on the internet. "There is little likelihood of online gaming being allowed in South Africa in the foreseeable future," he said."We would be very surprised if the bill to introduce online gambling succeeds."Von Aulock said online gambling had not had a major impact on Tsogo because it catered to a different type of market."It was quite active a few years ago from operators that based themselves in Swaziland, but that was effectively closed down once the banks cracked down on credit card transactions with these operators."Clearly, there is self-interest in casinos complaining about this illegal trade, but Ngobese pointed out some valid pitfalls of playing in the black market. In a legal casino, when you win, your payout is guaranteed. Playing online, the operators are foreign-based."You're not guaranteed you will be paid, and you do not have recourse about this. And if you do get paid and authorities get wind of it, [they] can confiscate your winnings."The National Gambling Board has warned that punters who gamble illegally could have their winnings forfeited to the state. And anyone found guilty faces 10 years in prison, a R10-million fine, or both.Ngobese said since the association was started, there had been at least three raids and three sites had been shut down - two in Krugersdorp, Gauteng, and one near Louis Trichardt, Limpopo.But he said there should be more: "The agencies that are empowered by legislation have not prioritised this."At this stage, the government is not considering legalising online gaming, although the DA has tabled a bill to try to legalise it, which is before parliament. "Whether it will pass or not, the jury is still out."What makes the issue all the more urgent for legal operators is that their margins are under pressure.story_article_right2Last year, casino revenue grew only 0.6% - a dramatic drop from the 10.4% growth of the year before.There are no credible statistics on online gambling in South Africa, but experts estimate that if it makes 5% of what the legal gambling industry does, this would mean that state coffers lost R110-million in potential taxes.But some suggest the online industry is bigger. In Europe, where online gambling is legal, its share has risen to between 26% and 28% of the industry, according to Forbes magazine in 2013.Most online operators are based in Europe, while only four states in the US have legalised online gambling. In Europe, France, Italy and Germany have legalised online gambling. It is illegal in Russia, China, Brazil and Asia."Most governments would be driven either by the need to collect the gaming taxes, or some arguments are that it's better to legalise than leave it in the illegal sphere," Ngobese said.Becker said casinos were protected by laws that prevented other casinos from opening near them."If online gaming becomes legal, they'd be forced to compete in a free and fair marketplace like other businesses that are forced to innovate and improve their products on an ongoing basis. So they should already be preparing for the potential legalisation of online gaming if they are to benefit from both online and land gaming."The Department of Trade and Industry warned about the social ills associated with gambling, "especially online gambling, which occurs in unregulated and unsupervised locations"."In our view, no amount of control will adequately curb the harm that may be caused to South African citizens by online gambling, hence we reiterate that it must remain a banned activity."..

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