KZN Racing will not only be rescued by the proposals which the Gold Circle members will vote on, but it will be improved. (Gameplan Media Photograph).
Gold Circle have revealed in a letter to members that a R500 million rescue infusion from Holywoodbets and Greg Bortz will be on the condition that the latter two entities then take over the control of the company.
Hollywoodbets will provide a R400 million capital contribution in exchange for the transfer of the shares and loan accounts currently held by the Gold Circle Racing Club to Hollywood Sportsbook Holdings (Pty) Ltd (or a nominated wholly-owned subsidiary company).
Bortz intends to exercise his option to convert his loan of R100 million into 20% of the equity in the company.
Hollywoodbets’ and Mr Bortz’s rationale for making their capital contributions to Gold Circle is not only for the purposes of sustaining racing but also to improve it.
The letter to the members is published in its entirity below.
24 August 2023
Dear Member
As previously reported on several occasions, Gold Circle is experiencing severe trading difficulties.
Losses for the year ended 31 July 2023 are expected to breach R80m while the projected losses for 2024 will in all likelihood exceed R100m. These figures include the loss of the 3% Bookmakers Tax which is subject to legal proceedings. The following graph provides the company’s annual profitability
since 2017:
The Company has depleted its cash resources and but for the arrangement advised below, would have to motivate and request for drawdowns from the “Members ring-fenced funds” to be able to operate for the next financial year. Based on current projections, those ring-fenced funds will be depleted by 31 December 2024.
Gold Circle as a racing operator is not alone in facing severe trading difficulties. Phumelela was placed under business rescue in 2020 and Kenilworth Racing faced bankruptcy in 2022. Racing in both these racing jurisdictions was rescued with cash injections by Mary Oppenheimer & Daughters and Hollywoodbets together with Mr Gregory Bortz, respectively.
Hollywoodbets and Mr Bortz have offered to rescue horseracing in KZN. Firstly, Mr Bortz has offered to lend Gold Circle R100m to allow the Company to operate until 31 July 2024. The Board has approved the loan which is guaranteed by Natal Racing Properties (Pty) Ltd. The loan bears interest at 2% below the prime rate and has a term of twelve months. Secondly, Hollywoodbets has offered a capital contribution of R400m to the Company in exchange for the transfer of the shares and loan accounts currently held by the Gold Circle Racing Club to Hollywood Sportsbook Holdings (Pty) Ltd (or a nominated wholly-owned subsidiary company).
Collectively, this represents a much-needed cash infusion into the company of R500m. Should the Hollywoodbets acquisition ultimately be approved by the members and the appropriate regulatory bodies, Mr. Bortz intends to exercise his option (details
of which were previously communicated to members) to convert his loan into 20% of the equity in the company. Upon exercise of this option by Mr Bortz, the ownership of the company will be 80%
Hollywoodbets or its nominee, and 20% by Mr Bortz or his nominee. Hollywoodbets’ and Mr Bortz’s rationale for making their capital contributions to Gold Circle is to promote the principal objectives of:
• Stabilizing the horseracing industry
• Preserving the Company’s Champions Season as the premier racing season in the country, highlighted by Africa’s most prestigious race, the Hollywoodbets Durban July
• Boosting stakes in KZN
• Preserving and creating jobs in the horseracing industry and ancillary sectors including direct employees of the Company
• Investing in and improving the facilities at the racecourses operated by the Company
• Upgrading and enhancing the betting experience enjoyed by all the patrons of horseracing in KZN and around the country
• Attracting new local and international owners into KZN
• Endeavouring to create more attractive and sustainable prospects in the industry to revitalize and ensure the long-term future of horseracing in KZN and South Africa generally.
The offer is subject to the following conditions:
• Approval by Members
• Approval by Competition Authorities
• Approval by the KZN Gaming & Betting Board and any other regulatory authorities
• Approval, if necessary, by the eThekwini and Msunduzi Municipalities of the continuation of the leases held by Gold Circle on the Hollywoodbets Greyville and Hollywoodbets Scottsville
racecourses. The Hollywoodbets R400 million capital contribution will be separated into two distinct categories. In the first instance, it will “match” the Members’ ring-fenced funds at the date of closing of the transaction. To put this into perspective, it is estimated that the ring-fenced funds will approximate R235m at that date.
Assuming the estimate is accurate, that means that the ring-fenced funds will double to R470m. These funds will be utilised solely for future stakes and incentives to Owners (i.e., a “stakes pot” of approximately R470m will be put in place). The balance of the R400m (±R165m) will be used to enhance and maintain the Gold Circle Group operations (along with the R100m from Mr Bortz). The R400m capital contribution has been guaranteed by Hollywoodbets and the agreement provides that the Purchaser will not make any withdrawals from its funding for at least five years. To simplify the narrative, a company that is currently facing imminent closure will then have in excess of R600m in the bank and will confidently be pursuing the principal objectives outlined above. In addition, the huge capital injection will provide its own revenue stream through investment income, delivering crucially needed funding for capital projects and essential restoration of deteriorating facilities.
Members of the Gold Circle Racing Club (GCRC) will continue to be highly valued and subject to a formal usage agreement with the Company, will enjoy the same facilities they have had over the years.
However, GCRC members will no longer have voting rights or delegated rights related to the election of directors to the Board of Gold Circle. Of course, this is a natural consequence of the transaction, as GCRC will no longer hold the shares in Gold Circle.
The Gold Circle Board has considered the collective proposals and has unanimously approved them as it guarantees the sustainability of horseracing in KZN. Gold Circle on its own would not be able to
sustain its operations for more than eighteen months, after which it would have no choice but to close its doors.
The Board’s decision was underpinned by the turn-around in the Western Cape where Mr Bortz and Hollywoodbets have made giant steps in enhancing not only the racing product but the livelihoods of all horseracing stakeholders in the Western Cape. Furthermore, the Board was comforted by the fact that Hollywoodbets, being a licensed fixed odds betting operator, has an underlying commercial interest in the sustainability of the horseracing industry in KZN.
Without any doubt, this is the most important meeting of the Gold Circle Racing Club since its formation some twenty-five years ago. The Board unanimously and strongly recommends the acceptance of the proposed transaction. Your directors look forward to your support and participation at the Special General Meeting scheduled for Tuesday, 19 September 2023 in the Classic Room at Hollywoodbets Greyville at 17h00.
