COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM158Dec22
In the matter between:
Hollywood Sportsbook Holdings Proprietary
Limited
Acquiring Firm
and
Kenilworth Racing Proprietary Limited Target Firm
REASONS FOR DECISION
Approval
[1] On 24 April 2023, the Competition Tribunal (“the Tribunal”) conditionally approved the
large merger wherein Hollywood Sportsbook Holdings Proprietary Limited (“Hollywood”)
intends to acquire all issued ordinary shares of Kenilworth Racing Proprietary Limited
(“Kenilworth”) from the Thoroughbred Horseracing Trust (“the Trust”). Post-transaction,
Hollywood will acquire sole control over Kenilworth in terms of section 12(2)(a) of the
Competition Act 89 of 1998, as amended (“the Act”).
The Parties
Primary acquiring group
[2] The primary acquiring group is Hollywood Sportsbook Holdings Proprietary Limited
(“Hollywood”), which is controlled as to 73.62% by Owen Brian Heffer. The balance of
the shares in Hollywood are held by Masabe Empowerment Investments Proprietary
Limited (“Masabe Empowerment”). Masabe Empowerment is 100% owned by Zandile
Pearl Maseko. Hollywood controls several entities in South Africa. Hollywood, all the
entities it controls and the entities that control it will be referred to as the Acquiring
Group.
Primary target firm
[3] The primary target firm is Kenilworth Racing Proprietary Limited, which is wholly owned
by the Trust. The trustees of the Trust are Mark Angus Currie, Bradley Cecil Ralph,
Barry Eugene Hendricks, Clayton Trevor Vetter, Qondisa Cecil Ngwenya, Kevin Paul
Sommerville and Vidrik Thurling. Kenilworth does not directly or indirectly control any
firm.
Proposed transaction and rationale
Transaction
[4] In terms of the Share Purchase Agreement, the Acquiring Group will acquire from the
Trust all the issued ordinary shares of Kenilworth and all the Trust’s claims against
Kenilworth. Upon implementation of the proposed transaction Hollywood will have sole
control over Kenilworth as envisaged by section 12(2)(a) of the Act.
Rationale for the transaction
[5] The Acquiring Group submits that it wishes to pursue the proposed transaction with the
intention of: (i) returning Kenilworth to a financially stable and robust position, (ii)
reinvigorating Kenilworth's business, (iii) re-establishing Kenilworth as a sustainable
going concern and, ultimately, (iv) preserving and growing the horseracing industry in
the Western Cape.
[6] Further, the Acquiring Firm’s rationale for pursuing the proposed transaction is to
promote the principal objectives of (i) revitalising the horseracing industry in the Western
Cape, (ii) facilitating a boost in the horse population in the Western Cape, (iii) boosting
stakes (prize money for racehorse owners) in the Western Cape, (iv) preserving and, if
practicable, creating jobs in the horseracing industry and ancillary sectors, including
direct employees of Kenilworth Racing as well as ancillary service providers in the
horseracing industry such as trainers, jockeys, grooms, farriers, vets, transportation
companies, feed suppliers, bedding suppliers, and (iv) investing in and substantially
companies, feed suppliers, bedding suppliers, and (iv) investing in and substantially
upgrading the facilities at the Kenilworth Racecourse, Durbanville Racecourse and
Milnerton training centre.
[7] The Target Firm submits that, but for the proposed transaction, it would have already
been in business rescue or facing liquidation. Absent the successful conclusion of the
proposed transaction, the Target Firm may be forced to imminently cease operations.
In the light of these critical issues, the Trustees of the Trust and the Target Firm’s
Board have been working to identify immediate and sustainable sources of liquidity to
enable racing to continue in the short term, as well as solutions to ensure the long-
term viability and health of racing in the Western Cape.
Activities of the Parties
[8] The Acquiring Group is a licensed sports betting operator with a national footprint in
South Africa which operates 98 retail outlets and conducts online betting operations. It
also has a mobile site. The Acquiring Group has licensed betting operations in all
provinces in South Africa, except for the North-West and Northern Cape. The Acquiring
Group is licensed to operate a fixed odds betting system. It does not have a license to
operate as a totalisator (“Tote”).
[9] The Acquiring Group offers local and international horseracing betting, as well as an
extensive range of sports betting (such as soccer, rugby, etc.) and a ‘Lucky Numbers’
international lottery offering. It also provides live betting with Live In-Play and Betgames
Africa options. The Acquiring Group also owns and operates limited payout machines
(“LPMs”).
[10] The Target Firm is primarily involved in the horseracing industry as a racecourse
operator. In this regard, it owns and operates the following racecourses: Kenilworth
Racecourse and Durbanville Racecourse, collectively referred to as the “Kenilworth
Racecourses”.
[11] The Kenilworth Racecourses are located in the Western Cape. Kenilworth hosts horse
racing meetings at these two racecourses. The parties indicate that Kenilworth, through
the Kenilworth Racecourses, hosts the World Sports Betting Met Horserace (“The Met
the Kenilworth Racecourses, hosts the World Sports Betting Met Horserace (“The Met
Horserace”). This race meeting is one of the most publicly recognised, attended, and
marketed events in South Africa. The Target Firm also derives revenue from renting out
some properties within the Kenilworth Racecourses. This includes the space rented to
bookmakers who wish to conduct betting services inside the Kenilworth Racecourses
on race days. Kenilworth also provides sports betting services on horseracing and
soccer. In this regard, the Target Firm has a Tote betting license. The Target Firm
provides Tote betting services through physical outlets and on-course bets also known
as Over the Counter (“OTC”) bets and through digital platforms and telephone betting
(i.e., non-OTC channels). The Target Firm also owns and operates limited payout
machines (“LPMs”).
Relevant markets
[12] The Competition Commission (“the Commission”) does not conclude on the exact
relevant market. However, the Commission assessed the horizontal overlap between
the activities of the merging parties in the following markets:
12.1. The broad market for Over the Counter betting services in the Western
Cape.
12.1.1. The narrow market for OTC betting services relating to
horseracing; and
12.1.2. The narrow market for OTC betting services relating to soccer.
12.2. The broad market for non-OTC services in South Africa.
12.2.1. The narrow market for the provision of non-OTC betting services
relating to horseracing; and
12.2.2. The narrow market for the provision of non-OTC betting services
relating to soccer.
12.3. The broad market for the provision of Limited Pay-out Machines in the Western
Cape.
[13] The Commission assessed the vertical overlap between the activities of the merging
parties in the upstream market for the provision of horseracing racecourses in Western
Cape and the downstream market for the provision of OTC betting services relating to
horseracing in the Western Cape.
Competition assessment
[14] In its assessment of the proposed transaction, the Commission considered the activities
of the merging parties and found that the proposed transaction gives rise to both a
horizontal overlap and a vertical overlap. The horizontal overlap occurs in that the
merging parties are both active in the provision of betting services, particularly in the
OTC and the non-OTC bets and LPMs.
[15] The vertical overlap occurs in that Kenilworth operates the Kenilworth Racecourses
wherein it hosts horseracing meetings. During race meetings, bookmakers such as
Hollywood Group rent a space within the Kenilworth Racecourses to establish cubicles
for on-course betting activities. The Commission understands that bookmakers rely on
owners and operators of racecourses such as the Kenilworth Racecourses to provide
on-course bookmaking activities.
OTC betting in the Western Cape
[16] In calculating the market shares for OTC betting in the Western Cape, the Commission
used data from the National Gambling Board Statistics for the year ended March 2022.
The market shares for OTC betting in the Western Cape are shown in the table below.
Table 1: Market shares for OTC betting in the Western Cape1
All OTC Bets Racing OTC Soccer OTC
Hollywood Group % % %
Kenilworth % % %
Combined post-
merger market share % % %
[17] The Commission is cognisant of the fact that post-merger, the merged entity will have
high market shares in the above betting categories. However, there are several players
active in these markets including Marshalls World ( %), Betfred ( %), World Sports
Betting ( %), Somerset West Tattersalls ( %), VBetSA ( %), LottoStar (less than %)
and Sportingbet (less than %).
[18] The Commission also found that the merging parties are not close competitors as the
Hollywood Group has a license to operate fixed odds betting whereas Kenilworth has a
license to offer tote betting. In terms of tote betting it is not possible for the punter to
determine the amount of the winnings when placing a bet. This is because the amount
of winnings is determined by the size of the pool (i.e., number and size of bets) as well
as the number of other punters that placed a bet on the same outcome. With a fixed
1 The Commission’s report page 6.
odd bet, the winnings are fixed as soon as the bet is placed, and the punter is fully
aware of how much they stand to win if they have predicted the right outcome. A punter
who prefers fixed odds betting is likely to consider other fixed odd betting operators as
close alternatives. Thus, it is unlikely that a punter who would like to do fixed odd betting
will consider tote betting as a close substitute.
[19] In addition, the competitors of the merging parties did not raise any concerns relating to
the proposed merger as they believe that the market is fragmented. In this regard,
VBetSa submitted that the market is fragmented and entry into this market is easy.
VBetSa further submitted that it took about three months to enter and effectively
compete in the OTC and the non-OTC betting. It further submitted that it has no
concerns with the proposed transaction.
[20] The Commission also contacted the top five competitors of the merging parties to get
their views on the transaction. The Commission did not receive any feedback despite
numerous attempts.
[21] Considering the above, the Tribunal concurs with the Commission’s finding that the
proposed merger is unlikely to substantially prevent or lessen competition in the OTC
betting markets.
Non-OTC betting in South Africa
[22] The Commission found that the merging parties will have relatively high market shares
in the non-OTC betting services in South Africa (Table 2). However, the merger is
unlikely to significantly alter the structure of these markets as the market share accretion
remains low at less than %.
Table 2: Market shares for non-OTC betting in South Africa23
All non- OTC Bets Racing non- OTC Soccer non-OTC
Hollywood Group % % %
Kenilworth % % %
Combined post-
merger market
share
% % %
[23] Based on the above, we find that the proposed transaction is unlikely to substantially
prevent or lessen competition in the relevant market.
Assessment of a horizontal overlap relating to LPMs
[24] Kenilworth hosts LPMs in the Western Cape while the Hollywood Group hosts
LPMs. Post merger, the merged entity will host 100 LPMs in the Western Cape.
Considering that there are approximately in operation in Western Cape,
the merged entity will have a combined post-merger market share of approximately %.
[25] Considering the above, we are of the view that the proposed transaction is unlikely to
substantially prevent or lessen competition in any market.
Assessment of vertical overlap - Input foreclosure assessment
[26] The Commission received a concern from World Sports Betting Proprietary Limited
("WSB"), who indicated that it requires the Kenilworth Racecourses to provide oncourse
bookmaking services. WSB indicated that it has established cubicles at the Kenilworth
Racecourses and has a lease agreement with Kenilworth which expires on
. WSB is concerned that the merged entity will, post-merger, refuse to
grant it access to the Kenilworth Racecourses or it will seek to renegotiate access on
unreasonable financial terms or conditions which will prevent WSB from conducting its
business activities at those premises.
[27] The Commission considered the fact that Kenilworth is the only operator of racecourses
in the Western Cape. In assessing input foreclosure, the Commission assessed
2 The Commission’s report page 6.
3 The Commission’s report page 8.
whether the racecourses are an important input in the provision of bookmaking services.
It found that on-course bookmaking services account for less than 1% of WSB’s
revenue derived from the provision of the OTC betting services relating to horseracing
in the Western Cape. The balance of WSB’s revenue is derived from OTC operations
conducted from its own premises.
[28] The Commission took the view that this vertical overlap is unlikely to result in any
substantial input foreclosure concerns as bookmakers derive negligible revenue from
operating at the Kenilworth Racecourses relative to revenue derived from daily
operations in their own outlets. Furthermore, the Commission is of the view that the
proposed merger does not give the merging parties any incentive to foreclose other
bookmakers access to the Kenilworth Racecourses. This is because pre-merger,
Kenilworth operated its bookmaking services from the Kenilworth Racecourses and
allowed WSB, the Acquiring Group and several other bookmakers access to the
Kenilworth Racecourse to provide on-course bookmaking services, and would have an
incentive to continue to do so post-merger given the difficult financial position of the
Target Firm.
[29] The Tribunal requested clarification as to why the commitment to maintain access to
the Kenilworth Racecourses for competing providers of on-course bookmaking services
had not been made an explicit condition in the merger conditions proposed, given that
the Acquiring Group is a competing provider of various betting services in competition
with WSB and others. The Acquiring Group submitted that it aims to attract as many
bookmakers to the Racecourses as possible, on reasonable, practical, and competitive
terms and as such, did not object to the request by WSB that competing providers of
on-course bookmaking services are not foreclosed access to the Kenilworth
Racecourses. In reply, the Commission submitted that it did not make this a condition
Racecourses. In reply, the Commission submitted that it did not make this a condition
as it was of the view that the concern raised relating to access to Kenilworth
Racecourses is unlikely to raise substantial competition concerns as on-course
bookmaking services account for a very small proportion of the revenue derived by
bookmakers for OTC services. The Commission also found that the parties will not have
an incentive to restrict bookmakers access to their Kenilworth Racecourses.
[30] We concur with this finding and are of the view that the proposed merger does not give
the merging parties any incentive to foreclose other bookmakers’ access to the
Kenilworth Racecourses.
Public interest
Effect on employment
[31] The merging parties have provided an unequivocal statement that no merger related
retrenchments or job losses will occur because of the proposed transaction. The
Commission contacted employee representatives and no concerns were raised.
[32] The Commission contacted the South African Commercial Catering and Allied Workers
Union (“SACCAWU”) and did not receive any response. The Commission also
contacted Agricultural Food and Allied Democratic Workers Union (“AFADWU”) and did
not receive any response. The Commission contacted the General Industries Workers
Union of South Africa (“GIWUSA”) and received the following proposed interventions: a
moratorium on any retrenchments for at least 3 years; a condition for a minimum of 100
sustainable jobs to be created over the next 18 months and at least 50% of these jobs
reserved for immediate relatives of Kenilworth employees; disclosure of the loan
amount and conditions granted by the Hollywood Group to Kenilworth; disclosure of the
annual turnover and asset value of Kenilworth; disclosure of what the Hollywood Group
is willing and / proposing to spend on the acquisition of Kenilworth; and that the merging
parties provide clarity on how the proposed transaction will contribute to the
transformation of the gambling and racing industry and what plans the parties have in
place to address the issue of transformation in the industry.
[33] The merging parties responded to GIWUSA’s demands by providing an undertaking not
to retrench any employees as a result of the proposed transaction for a period of 3
(three) years, as set out in the conditions to the approval of the transaction.
[34] Regarding the request to create 100 jobs, the merging parties submitted that the
business of Kenilworth is in severe financial distress and is making losses. In this
regard, the Commission found that Kenilworth has been making losses for several
years. Kenilworth made a loss of R , R , and R in 2020,
years. Kenilworth made a loss of R , R , and R in 2020,
2021, and 2022, respectively. The current liabilities of Kenilworth exceed current assets
by R . Kenilworth has secured an emergency loan of R from GMB
Liquidity Cooperation (Pty) Ltd (“GMB”) in order to assist Kenilworth to meet its working
capital requirements. According to the parties, without this loan from GMB, Kenilworth
would already be in business rescue or liquidated.
[35] Regarding the transformation of the gambling and racing industry, the merging parties
submitted that Kenilworth currently has no HDP shareholding. Post-merger, Kenilworth
will be owned by an entity that has an HDP shareholding of %.
[36] The Commission noted the merging parties’ submission that they will not retrench any
employees as a result of the proposed merger for a period of 36 months. The
Commission is of the view that the conditions proposed by the merging parties are likely
to address any employment concerns resulting from the proposed merger. We concur
with the Commission’s finding.
Spread of ownership
[37] The Hollywood Group has a shareholding of % by historically disadvantaged
persons (“HDPs”). Kenilworth does not have any HDP shareholding. Post-merger, the
HDP ownership of Kenilworth will move from 0% to % as the Hollywood Group
has an effective HDP shareholding of %.
[38] Noting that the merger will significantly increase the aggregate HDP ownership of the
Target Firm, the Tribunal concurs with the Commission’s finding that the proposed
transaction is unlikely to have a negative impact on the spread of ownership and that
the proposed transaction raises no further public interest concerns.
Conclusion
[39] For the above reasons, we find that the proposed transaction is unlikely to substantially
prevent or lessen competition in any relevant market. We approve the proposed
transaction subject to the conditions attached hereto as Annexure “A”.
17 May 2023
Geoff Budlender SC Date
Prof Fiona Tregenna and Dr Thando Vilakazi concurring
Tribunal Case Manager: Theodora Michaletos
For the Merging Parties: Susan Meyer of Cliffe Dekker Hofmeyr Inc
For the Commission: Yolanda Okharedia and Themba Mahlangu
Signed by:Geoff Budlender
Signed at:2023-05-17 13:00:43 +02:00
Reason:Witnessing Geoff Budlender