Q.& A. | Garron Whitesman, Attorney, South Africa

Garron Whitesman’s entrance into gambling law was much like casino games themselves -- an encounter of chance.

The owner of Whitesmans Attorneys in South Africa said that like many other lawyers in this industry, he had a previous life in commercial and corporate law. His transition into gaming began with a client seeking representation for a gaming operation: “They said, 'What do you think?' and I said, 'Nothing to be lost in doing so.' "

Seven years later, Mr. Whitesman has become an expert in South Africa’s nascent I-gaming sector. He calls the industry "very interesting" but something he never expected to become immersed in.

“It's remarkable how things take a turn, but I couldn't have asked for a better turn to be taken.”

As for South Africa, Mr. Whitesman believes the region has moved away from its former pariah status and nowadays has a lot going for it.

Last November the South African government published a draft of the Interactive Gambling Tax 2008 for public comment. Can you tell me the latest on this?

We have a bill currently before Parliament. I'm actually quite happy with the bill. We are looking at a 6 percent tax on gross gaming revenue. Gross gaming revenue is basically defined as wagers less payouts, and there are some other permitted deductions. It's pretty straightforward, and I'm comfortable at 6 percent. Although it's not at the same sort of rate as an offshore jurisdiction, for a highly regulated, effectively first-world gambling jurisdiction, this is extremely competitive and not inappropriate.

And what will this bill mean for I-gaming in South Africa?

I think that the bill itself is good; I think it's encouraging. There was talk during the parliamentary hearings on what the appropriate tax rate would be. Nothing had been set at that stage, but there were policy issues being debated about whether it should be low enough to attract a lot of people to come here and to possibly compete with offshore jurisdictions or whether it should be so high that in many senses it would be dissuasive and protectionist.

Some members of the parliamentary portfolio committee that were hearing the submissions had a concern that there was an over-proliferation of gambling in South Africa, and that a high tax rate would discourage a potential over-proliferation. I anticipate that the bill will go through unamended.

And when will that happen?

I don't see that bill being passed for at least the next six months -- possibly longer. But it will likely be no earlier than the passing of the draft regulations that have recently been released for discussion.

Is this the first type of I-gaming regulation that South Africa has seen?

Yes. What we currently have is a purported blanket prohibition on I-gaming under section 11 of the National Gambling Act 2004, but the Act created a framework in order to deal with the regulation of I-gaming going forward. The draft regulations to regulate I-gaming have just recently been published and will take some time to work their way through the parliamentary process before being promulgated. I expect some pretty healthy debate and some changes to take place before they are given the force of law.

In principle, however, until such time as I-gaming is regulated, it is considered by the gaming authorities to be prohibited. The question of whether the aforementioned prohibition applies to offshore-based and licensed operators offering their services into South Africa is unresolved under South African law.

Do any operators have licenses in the region?

No. None have South African licenses as the regulatory regime to issue licenses of such nature has not yet been finalized.

Now, I read that Sportingbet had an interest in South Africa.

Now there's a big distinction to be made between casino-style games and poker, which are regulated under the National Gambling Act, and the regulation of sports betting or bookmaking, which albeit primarily regulated under the national act are concurrently regulated under the various acts of the nine provinces in South Africa. Each province under delegated authority from the national regulator, and in terms of the national act, has concurrent jurisdiction with the national gambling board in respect to gambling activities that take place inside its province.

Under those various pieces of provincial legislation, there is a dispensation -- and this has been the case for the past 13 years -- for bookmakers to accept bets by telephone. And the provincial licensing boards have interpreted this to include acceptance of bets via the Internet and have issued bookmakers’ licenses, as we term them in South Africa, with authority to trade over the Internet. This allows such licensees to trade across the whole of South Africa, not just the province in which the license was issued.

There are a number of online bookmakers in South Africa, and I have no doubt that a number of people will make a substantial amount of money particularly pending the FIFA Soccer World Cup, which is taking place here next year in June.

And I have quote here from Andrew McIver of Sportingbet, and he said that "We see South Africa as akin to Australia in terms of the likely behavior of the demographics.” Do you see any similar characteristics?

Look, I think the two countries are extremely different. First of all, South Africa has a much larger population. We also have a population that is used to land-based casinos and going to the tote to bid on horses and other events. There's a substantial difference in the development between the two countries though with Australia being far more advanced and first-world in many ways. Only about 10 percent of South Africans actually have access to the Internet -- I would think that figure is much higher in Australia. I also think that, as a whole, Australia is a "wealthier” country than South Africa.

Will the gaming behavior be similar? Yes, I think that South Africans like to gamble. There's a very well-developed horse racing industry here and 36 land-based casinos around the country, some of them being extremely substantial casinos, more akin to a U.S.-style casino than, let's say, to a casino that you would find in Europe.

Poker has also become an extremely popular activity, both online and offline. There are also limited payout machines and bingo terminals in a number of provinces. I don't know what the Australians' habits are, so I can only really comment on the South Africans' habits. I think as the economy grows, as there's greater access to capital and greater access to redistribution of wealth, which is certainly taking place, more and more people will have computers, the cost of high-speed Internet lines and ADSL will continue to decline, so more and more people will likely gamble online.

On the land-based side we have seen steady growth in the industry for over a decade, and I expect this to continue with the possibility of slowing in the short-term due to the current international financial crisis and high-interest-rate regime that has been prevalent in South Africa for the past year or so.

What's appealing about the South African market to either those who can get in there now -- the bookmakers -- or possibly to the casino-style operators in the future?

I think we do have a gambling public, that's the first thing. The second thing is that there is a highly developed, well-run gambling regime in this country. One very seldom hears of issues relating to casinos or bookmakers -- in the sense of adverse issues here -- because the relationships that are maintained between the various boards and their licensees are extremely close and good.

The third thing is, I think the majority of costs comparatively -- other than taxes on corporations, if parties are used to offshore taxes -- are lower than what offshore operators would be used to. The cost of labor, the cost of rentals and premises, the cost of living . . . although I must say the cost of living in this country has gone up substantially over the last few years.

There are good professionals here to advise on doing business and help give effect to such businesses with all major accounting and auditing firms having national offices. Doing business here is not as -- how can I put it? -- as well-oiled sometimes as some of the major European states and in the U.S. But it is not by any stretch of the imagination third-world; it’s far closer, rather, to a first-world developed nation. South Africa has a very good legal system too.

For a foreign operator, we are generally just an overnight flight away from any central hub anywhere in the world. We have a growing middle class that has disposable income. We have a highly skilled I.T. and advertising industry, again, with the vast majority of international players in both having substantial presences in South Africa. South Africa is also the superpower of Africa and a substantial volume of business is undertaken with the rest of Africa from South Africa -- so there are opportunities to “move North,” so to speak, from a South African base.

I think that South Africa as well has emerged very much from the position of being a pariah state to being one of the more recognized states in the world for its achievements over the last 15 years or so. There's a lot going for it.