SportPesa’s Sponsorship Withdrawal – Biggest Gamble

2018 Cometh……

2017 has been one momentous year for the country. Even in the world of sport, it has been a well mix in the basket. Talking of baskets, tongues are wagging about the biggest sponsors of sport in Kenya – SportPesa – who are thinking of pulling back their bountiful offering, effectively reducing its involvement in sports in Kenya. What does this portend for sports in 2018?

We got the world...(image courtesy of SportPesa)
We got the world…(image courtesy of SportPesa)

A few posts ago, we predicted the impact of sports betting companies on our sports scene. A casual look at Kenyan sport in the last 3 years has seen a major impact both directly and indirectly on how we consume and interact with sport.
A PwC report on Kenya Entertainment and Media 2013-17 , revenues from sports betting were projected to rise from US$ 11.7 million (2012) to $17.3 million (2017).
As of writing this post, there are about 25 sports betting (and gambling )companies registered in Kenya. The biggest and easily recognisable is SportPesa – operating BCLB (Betting Control & Licensing Board) license no. 673 through Pevans EA Ltd.

Conservative estimates of sports betting and its impact to the economy are at between KES 635-700 million p.a. This is mainly in sports sponsorship, direct spending in improving sports facilities and teams, as well as employment. Add another KES. 2.4 billion in media spend (various media research reports in 2017) – from digital, print, radio and TV – as well as daily spends and we’re talking of billions of shillings!

The synergy enjoyed by both betting and telecoms companies have seen the mobile money in Kenya grow to daily transactions worth KES 18.4 billion! A good fraction of the monies are from your common man on the street, to the discerning campus student and many in blue-collar jobs who review their odds every other morning to make the winnings.

SportPesa Success

Back to SportPesa, the upsurge of sports betting in Kenya can be attributed to its adeptness and adaptability to their audience. As aptly summarised by BetMoran on the post titled ‘ Why SportPesa is very successful‘ the main points include;

  • Consumer spend – 50,000 users spending an average of KES. 500 = KES 25 million per month;
  • High and engaged web audience – an average of 16-18 million users every month (if using Google AdSense-this is another revenue stream);
  • Consumer education – when launching in 2014 just in time for the World Cup, SportPesa has continually educated its target audience on its various betting platforms and options;
  • Mobile technology – as noted above, riding the wave of over 25 million unique mobile phone connections, SportPesa was able to ride the wave of mobile money and making it integral in its platforms;
  • Media spend and engagement- as of Aug 2017, SportPesa was the biggest ad spending firm in media in Kenya rivalling telecoms and FMCGs such as Safaricom, Coca-Cola and P&G that have traditionally been high spenders in these.
  • Timing – launching in time for the 2014 World Cup, the brand was able to take advantage of the biggest sports extravaganza in the world. Pray they’re already looking forward to the 2018 one…

Enter GoK’s hand

In May/June 2017, the Treasury CS tabled proposals to tax sports betting firms in Kenya as high as +50% of the daily collections. While it is not our forte in matters taxation, with the numbers mentioned above, it would be foolhardy to assume this would not attract the Treasury technocrats. Given its agenda to invest in infrastructure including the now-on-then-off stadia development, the GoK has had a tough year in looking to bridge the budget deficit.

Sports betting firms did what is becoming our typical litigious selves in Kenya and took to court to stop the tax measures. The case to nullify the tax measures was dismissed last week, effectively attracting a 35% tax cap on the gross earnings of the sports betting firms effective January 2019.

As of close of 2017, the tax percentages were as follows;

  • 5% of lottery sales;
  • 7.5% for betting firms and bookmakers;
  • 12% for casino gambling and
  • 15% for raffles.
  • Additional taxes include 30% corporate tax and 25% of their total sales dedicated to social causes, including sports activities.

SportPesa is currently involved in major sporting disciplines including;

a) Football – FKF, Premier League, Super 8 , Gor Mahia FC, AFC Leopards FC and Nakuru All Stars FC

b) Rugby – through KRU, National 7s team and Kenya Harlequins;

c) Boxing – Boxing Association of Kenya and boxer Fatima Zarika;

d) Rallying – by sponsoring Leonardo Varese.

Other sponsorship includes shirt sponsoring Everton FC; sports partnership with Arsenal FC, Southampton FC and Hull City as well as La Liga in Spain.

All these associations are likely to be affected in one way or the other once the firm confirms its future role in sponsoring sports in Kenya and overseas too.

Having started expanding its geographical reach in the region to both Uganda and Tanzania, the main market still remains the local scene. The firm’s perceived close links within the GoK will also be exploring ways of either reducing the burden of taxation or enjoying tax holidays for a little longer than the prescribed date.

Way Out?

  1. National Sports Lottery – the establishment of this lottery is long overdue. The GoK through the Ministry of Culture and Sports ought to have fast-tracked this in the last 3 years. Among the many options would be to push for all betting and gambling companies to remit part of their monthly revenues to this common Fund. The monies raised would be apportioned to the sports associations proportionate to the scope of the sport and planned activities for the year. This has worked successfully in countries such as the UK.
  2. Commensurate Social Responsibility – in South Africa, betting and gambling companies have to engage a fair amount of their revenues to corporate social responsibility. While it may not be a sustainable business model for sports business, it is a means to the end of sports development in parts of the world as this.
  3. Lobbying – while we are not privy to what may have happened along the corridors of Parliament and the delays in confirmation of respective committees, it would serve them well to lobby the legislators to reduce the impact of the taxation on their revenues. Alternatively they can give their options of tax regime or tax holiday for those setting up to their 2nd or 3rd year upon which the applicable tax kicks in.

As of 1st January 2018, SportPesa had sought to appeal the ruling in the courts seeking to overturn the ruling. In the meantime, all local sponsorship stands suspended.

To managing the taxman and his demands, a lot still needs to be done to reach a consensus. For the sports organisations likely to be affected, a common ground on appealing to those in Government can be pursued.

It remains to be seen how the biggest gamble will finally play out in 2018.

 

Leave a Reply

Your email address will not be published. Required fields are marked *