South Africa’s High Court Decides on LottoStar Controversy
South Africa’s high court has put its foot down regarding the lottery side-hustling operation being undertaken by LottoStar. Fundamentally, a private company is offering betting lines on mapped onto the outcomes of a government-owned lottery game. As the court determined, this is in violation of the regulatory code. The decision brings the LottoStar venture to an abrupt end and the company now will have to pivot into a different direction or cease its operations entirely.
Lottery in South Africa has become a contentious issue – private companies offer money line odds on the outcome of the state-run version of the game. Often times under-cutting the real lottery and competing for the same customers. A high-court has now ruled against this type of operation, setting a new precedent for South Africa lottery. ©papazachariasa/Pixabay
The high court in Mpumalanga took distrust with the revenue models implemented by LottoStar. With their excessive use of the national lottery results on their platform, the court has ruled they are unlawfully generating profit off a lottery they do not own. By taking commissions on betting lines for lottery results, the LottoStar product couldn’t function without the national lottery and only exists as the firm isn’t allowed to make its own.
LottoStar does still hold a license to operate fixed-odds betting markets, these are lines that typical sportsbook enthusiasts will know very well. The firm has an extensive sportsbook that covers much of international and domestic football around the world, as well as numerous popular sports from basketball to ice hockey. It is the lottery side of the platform that has been banned under this ruling, forcing the firm to reevaluate its strategy for games and lottery ventures.
The specific law that LottoStar has been found to be in violation of is the South Africa Lotteries Act, this prohibits betting companies from providing online betting games that are entirely based upon the outcome of a real-world lottery game not managed by the same company. This so-called interactive betting activity will deny LottoStar the chance to offer markets that are a direct mirror of the government-run national lottery.
LottoStar Exploited Tax Laws to Secure Much Lower Rate
This case against LottoStar had been in the works since 2015, and to reach a settlement now that favors the state-run lottery and its partner companies will add some stability back to the sector. The National Lotteries Commission (NLC) had argued for a long time in court that they were competing for the same customers as LottoStar, and due to the low taxes levied against the operator (just 2% of gross ticket sales) they were able to offer more competitive odds. Essentially, the mirror betting proxy service outcompeted the original product.
The NLC’s operator is Ithuba Holdings, and this company has now publicly welcomed the new judgment against LottoStar. Ithuba and the NLC is the only joint-venture or private company now allowed to offer these services throughout the region. By reducing the market competition to zero, the government-backed entity will have free reign to provide its services unimpeded. One consideration will of course be maintaining high-quality service, with the lack of competition often comes an insensitivity and reluctance to improve the product.
Looking closer at the financials behind this deal, there were several vital comments entered into the discussion. One such comment focused on the allocation of government lottery funds to community welfare projects, by re-affirming the legal status of lottery offerings in South Africa, the regulator has indirectly benefited the National Lottery Distribution Trust Fund. When private companies have in the past illegally entered the market, they are in effect siphoning the revenue streams towards these important projects.
The outcome of this case sets a powerful precedent in South Africa and will completely eliminate the chances for rival lottery companies to set betting odds based on the outcomes of the national lottery. This unlawful practice has been directly hitting the bottom line of the National Lotteries Commission for several years, so now they will feel the benefits that arise from a more normalized cash flow.
Appeal is Expected to be Filed
With the business model very much decimated now for LottoStar enterprise, the firm will be looking at a multitude of options for how to move forward. Besides building a better offering of products that could potentially compete against the new market conditions, the company is likely to submit an appeal to the overarching authority in South Africa.
Under the ruling of the court, LottoStar must immediately cease offering fixed-odds bets from South African residents on its national lottery betting lines immediately. Additional liabilities are also incurred as LottoStar will need to cover the legal costs of the National Lotteries Commission – which following a 5-year battle in court could be quite substantial.
The National Lottery in South Africa is still a relatively new concept and hasn’t been truly integrated into South African society. The adoption of the government-run game was hindered in a big way by LottoStar. With the private company now removed from the equation, the hope and expectation are they will deliver a much more significant revenue volume for the next quarter.
