TO MERGE OR DEMERGE : THAT IS THE QUESTION
Tuesday, November 20, 2012 
The Competition Tribunal has issued its decision.
(Image : Senkook/Glogster/Protevangelium/Summerhill)
“Whether it was momentous or not, only time will tell,
but it was certainly historic.”
The Competition Tribunal has issued its decision on the appeal of the interested parties against a decision of the Competition Board to deny the demerger of the two components of Gold Circle (KZN and the Western Cape,) and the merger of Gold Circle Western Cape (now known as Kenilworth Racing) into Phumelela. As we see them, the implications are these:
- Gold Circle KZN has for many years considered the Western Cape division a liability, which is apparently borne out by the losses incurred in that region in that time. Clearly, because it’s by some measure the smaller of the two racing operators, Gold Circle KZN was less able to bear those losses than Phumelela. It must therefore be considered a good outcome for Gold Circle KZN.
- For almost as many years, Gold Circle Western Cape has wanted to be free of the entrenched dominance of Gold Circle KZN in terms of the original founding agreement, and this must therefore be a victory for them as well.
- The Phumelela perspective is not quite as easy to fathom. Unless it has to do with the economies of scale and the greater dominance of the horseracing betting market, and developing a new business model for the Western Cape, it’s difficult to work out the attraction in “acquiring” the Western Cape. The world “acquiring” is in inverted commas because the agreement between them is in the nature of a management deal secured by Kenilworth’s underlying assets, which have been placed in “trust” with the Racing Association, presumably to cover future losses. Of course, they may have a formula in mind which can turn around a region which has been bleeding money for as long as we can remember, but one thing is for sure, South Africa needs a thriving Western Cape racing environment, and if Phumelela can pull this one out of the bag, they’ll have done us all a great service.
There’ve been all sorts of theories put forward for the saving of Western Cape racing, one of which historically, is that the retail footprint served a minority community, and that they missed the boat with the rising affluence of the coloured and African middle classes. That may of course be true, and if it is so, they’ll need to do whatever it takes to make horseracing more accessible to these people, as well as winning their minds in an attempt to transform them from casino punters to racing bettors. Hassan Adams, a celebrated owner in the region and one-time chairman of Grand West Casino, will tell you that Grand West is one of the most profitable casinos in South Africa, which makes it all the more remarkable that horse racing has such little appeal as a betting medium in a vicinity which stages a world class show on the racecourse.
The other thing is, it’s apparent that most of the growth in betting in this country (even though it’s off a relatively new base) lies with cellphones and internet betting, which calls for a step up in technology against a considerable saving on the investment needed to build tote outlets in the old physical sense. It’s not only cost-efficient to go with technology, but it’s staff-efficient as well, and therein may lie something of a solution.
One thing the Western Cape has in abundance, is a body of enormously wealthy racing people, not only in the ranks of its owners, but especially those who have stud farms. Several of the country’s wealthiest families (think Plattner, Jooste, Kantor, Van Niekerk, Rupert, Opppenheimer (Slack), Rattray, Jacobs, Beck, Taberer, Kalmanson and may the good Lord forgive us if we’ve left anyone out) are heavily invested in the breeding business, and they have accumulated their wealth by dint of their astuteness at the office through decades of endevour. Their collective intellectual resources, coupled with those of their biggest owners, Adams, Shirtliff, Finch, Ressell et al, must be a source of salvation going forward.
Either way, it seems the Appeal Board’s decision will be beneficial in at least one very material respect. Each region has the liberty to stand or fall by their own choices, and that alone should make them better businesses.
From a purely parochial perspective, Gold Circle KZN is now spectacularly positioned. Without having to carry the losses of the Western Cape, it can leverage all of the benefits of the cash generated from the sale of Clairwood racecourse, and the prosperity which its racing generates in the normal course of business, and that provides the local operator with the opportunity to once again become the undisputed racing centre of choice on this continent. We’re told that maiden stakes will shortly catapult to R100,000, and if that’s the case, that’s talking!
