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You think things are bad in NZ - they may be terminal in South Africa!


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Phumelela gets cash lifeline after filing for bankruptcy protection

Steven Stradbrooke Steven Stradbrooke

phumelela-gaming-bankruptcy-racing-bettingSouth African race and sports betting operator Phumelela Gaming & Leisure has filed for a form of bankruptcy protection as the pandemic pushed the already teetering company over a financial cliff.

Last Friday, Phumelela’s board of directors alerted investors that it had suspended trading in its shares on the Johannesburg Stock Exchange and viewed “the best option to ensure the long-term survival of the company and the sport of horseracing is to implement a business rescue plan.”

Business rescue allows struggling firms temporary relief from their creditors in order to give a company time to restructure its operations. Phumelela said it has appointed a Mr. John Evans as its “business rescue practitioner.”

Phumelela is coming off the “worst year” in its 22-year history following regulatory changes in Gauteng province that eliminated the company’s share of the mandatory 6% levy imposed on racing bettors’ winnings. This was compounded by the recent suspension of all South African racing due to the COVID-19 pandemic, which led Phumelela to warn last month that it couldn’t carry on much longer under current conditions.

However, Phumelela’s business review announcement indicated that it was conducting “ongoing negotiations with a third party regarding the provision of loan finance,” and had “received a signed proposal” from the unidentified third party.

South African media subsequently reported that Phumelela’s white knight was Mary Oppenheimer Daughters, a company run by the nation’s richest family. The group has reportedly agreed to provide a R100m (US$5.4m) lifeline that should give Phumelela “safe space for about six months or so,” according to Mary Oppenheimer Daughters board member Wehann Smith.

Smith said the R100m lifeline was “not an attempt to save Phumelela as a company or to invest in Phumelela,” but was intended to ensure “the sustainability of the [racing] industry as a whole.”

The Oppenheimer family has a longstanding connection with South Africa’s racing sector, having bred and owned multiple top-performing horses. Mary Oppenheimer Daughters previously donated R1b to South Africa’s Solidarity Fund to aid the country’s campaign to battle COVID-19.

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Betfred bid for bankrupt Phumelela refused

Ted Menmuir Ted Menmuir
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Betfred is reported to have been rejected in its last-minute attempt to acquire bankrupt South African heritage wagering and racetrack operator Phumelela Gaming & Leisure

South African racing news sources reported that Phumelela’s bankruptcy auditor refused to review Betfred’s ZAR 900 million (€45m) counteroffer submitted at the end of August as Phumelela closed its window for rescue proposals. 

Stating its intent to acquire Phumelela outright, Betfred tabled a rescue package at double the value of Phumelela’s only alternative a ZAR 500 million (€26m) deal offered by ‘Mary Oppenheimer Daughters’ (MOD) – the private investment fund of Mary Oppenheimer-Slack and her daughter Jessica Jell, members of South Africa’s richest mining family.

Betfred’s significantly larger proposal underlined that the UK bookmaker would pay off Phumelela’s ZAR 677 million debtors instantly, whilst maintaining all of the firm’s staff for an intended overhaul of the South African operator’s racetrack properties which would be upgraded to its Tote wagering systems. 

On Tuesday, Phumelela’s auditor closed its hearings, declaring MOD as the firm’s preferred rescue plan and postponing all options to investigate further investment opportunities.

The auditor defended MOD’s original proposal, stating that its offer had previously secured an outright backing by Phumelela creditors and that Betfred had merely stated its intentions to acquire Phumelela but had not submitted a legally binding proposal.

Oppenheimer’s MOD fund had been registered as one of Phumelela’s creditors having issued the company a ZAR 100 million loan at the start of the coronavirus pandemic.

Under MOD’s rescue plan, the Oppenheimer family will pay ZAR 480 million to acquire Phumelela’s racetrack and broadcast properties, separating the assets from the firm’s leisure and property holdings.

MOD will also launch a ‘post-conflict-fund’ of ZAR 550 million, guaranteeing a payment plan for the company’s existing creditors which currently total a combined  ZAR 1.17 billion (€55m).

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By the look of it, South African got rid of racing clubs and set up a listed company to run their racecourses. Now the company is bankrupt. In New Zealand we set up the Racing Authority/Racing Industry Board/Racing Board to run racing. A $72.5 million support package has saved it from collapse. Same mistake in both countries. Racing is not a business: it is the king of sports.

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9 hours ago, Delta Bro said:

By the look of it, South African got rid of racing clubs and set up a listed company to run their racecourses. Now the company is bankrupt. In New Zealand we set up the Racing Authority/Racing Industry Board/Racing Board to run racing. A $72.5 million support package has saved it from collapse. Same mistake in both countries. Racing is not a business: it is the king of sports.

Racing IS A BUSINESS however protecting the gambling arm from market forces doesn't work.

History of Phumelela:

Phumelela Gaming and Leisure Limited is a JSE-listed, level 4 B-BBEE business, which is licensed to operate horseracing and totalisator betting in seven of South Africa’s nine provinces.

Horseracing in Gauteng was corporatised and totally restructured in 1997. Phumelela was formed that year and later listed on the JSE in June 2002 in order to facilitate the “corporatisation” of horseracing in Gauteng.

“Corporatisation” came about at the behest of the Gauteng Provincial Government in order for the sport to remain competitive within a burgeoning gambling market that was about to legalise casinos and a national lottery in South Africa.

A critical element of the restructuring was a commitment to rationalise the horseracing infrastructure in order to, inter alia, “facilitate transformation, transparency, accountability and create a sustainable business model”.

The three racing clubs that had run racing in the region until then transferred their assets to the new company, Phumelela, which took over the management of the sport in the province.

Phumelela’s main shareholder, the Thoroughbred Horseracing Trust (26.72% shareholder), is a not-for-profit entity which was formed at the insistence of the Gauteng Provincial Government.

The principal objective of the Trust is to “promote the interest of all persons interested in, and affected by, the sport of thoroughbred horseracing in South Africa with a view to the long-term viability of the sport”.

Additional objectives relate to the promotion of B-BBEE initiatives and affirmative action schemes with the intention of facilitating transformation within horseracing.

Horseracing in the Northern Cape, the Free State and Eastern Cape, subsequently joined the corporatisation process under the Phumelela umbrella. The tote business in North West Province was acquired by Phumelela shortly thereafter.

The racing clubs in KwaZulu-Natal and the Western Cape joined in the corporatisation process by rationalising their operations under the banner of Gold Circle in 2000. They demerged in 2013 and since then Phumelela has managed horseracing and tote betting in the Western Cape on behalf of Kenilworth Racing with Gold Circle continuing in KwaZulu-Natal.

The corporatisation process was a financial and competitive imperative given the significant challenges that faced the sport at the time, in particular the cycle of decline in betting turnovers, owners, horses, trainers, jockeys, prize money and financial reserves, all exacerbated by high betting taxes and the imminent legalisation of other forms of gambling, notably casinos and a national lottery.

It is important to record that it was a political imperative imposed by government with a goal to transform the sport to a “transparent, accountable, professionally managed, governed and profit-driven enterprise with appropriate black economic empowerment credentials”.

The Racing Association, with a membership comprising owners and former racing club members, was established to represent the interests of owners.

The Racing Association is run by a board of directors elected from the ranks of its members. The directors appoint five of the seven trustees to the Thoroughbred Horseracing Trust, which holds racing’s 26.72% share in Phumelela. Two trustees are appointed by SASCOC.
 

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