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Gloves off as lottery operator fights regulator over software

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The North Gauteng High Court in Pretoria is today set to hear a case pitting national lottery operator Ithuba against regulator the National Lottery Commission (NLC) over who should control the lottery operator’s software.

This, after the NLC last month launched an urgent interdict application at the courts to halt Ithuba replacing IGT, a global company that has provided software services to the lottery provider since 2015.

All was set for Ithuba to migrate its software platform to local software service provider Paytronix.

ITWeb understands a R250 million deal with Paytronix had been concluded before the court interdict by the NLC was launched at the 11th hour.

Since 2015, Paytronix has been the ICT solutions provider for SA’s third national lottery operator, Ithuba.

Within the first three years of being appointed, Paytronix Systems managed the data operations of more than 1.6 billion transactions on Ithuba’s behalf, with a transaction value of more than R19.5 billion.

The company designed and continues to manage Ithuba’s mobile e-commerce platform, which enables lottery players to enjoy the online player experience.

It is the NLC’s argument that by appointing Paytronix as the service provider, Ithuba acted illegally and breached the Lottery Technology Supply and Support (LTSS) agreement.

In the court papers seen by ITWeb, the regulator says it wants to interdict and restrain Ithuba from installing Paytronix from December 2021 and from ‘going live’ with its Paytronix Lottery System.

It also wants the lottery operator to comply with the licence agreement by reverting to the terms of its pre-existing arrangement with IGT. The NCL also wants Ithuba to pay the costs of the court application.

However, Ithuba is of the view that IGT is holding the national lottery operator to ransom, while elbowing out local players in the process.

In a 169-page answering affidavit, also seen by ITWeb, Charmaine Mabuza, CEO of Ithuba, says at the end of November 2021, Ithuba is scheduled to switch the software technology currently licensed to Ithuba under the LTSS agreement to the Paytronix Lottery System.

She notes the NLC argues that Ithuba may not switch to Paytronix until its board of directors approves Paytronix and its lottery software.

“The claims are premature on the facts and the law,” Mabuza says. “The matter is also not urgent. I accordingly ask the court to strike the matter for a lack of urgency.”

Charmaine Mabuza, CEO of Ithuba.
Charmaine Mabuza, CEO of Ithuba.

Bones of contention

She argues the matter is not urgent because the NLC identifies two primary instances of harm it alleges renders the matter urgent.

“It tells the Honourable Court that the switch to Paytronix may cause the national lottery to stop operating, which will (1) deprive the National Lottery Distribution Fund (NLDF) of its revenue; and (2) expose the personal information of lottery players.”

According to Mabuza, the claims are unsubstantiated and without merit.

“If Ithuba fails to perform its obligations under the licence agreement and it is culpable, the NLC will have a claim against Ithuba for its lost revenue. The claim is secured by a performance bond in the amount of R125 million.”

In the circumstances, she notes there is no risk that Paytronix will deprive the NLDF of its revenue.

Mabuza adds the Paytronix system does not store personal information of lottery players. “As a result, there is no risk the players’ personal information will be exposed if the Paytronix Lottery System does not operate properly.”

With a reputation of patent infringement lawsuits in the early 2000s and lottery tax evasions internationally, IGT is being backed by the lottery regulator in its attempts to hold SA’s lottery operator hostage for its lottery databases.

A source close to the matter tells ITWeb that in 2016, IGT faced US law violations for inaccurate financial reporting. The Centre for Collaborative Investigative Journalism in 2017 mentioned IGT as a lottery titan that operates jackpots in 100 countries in the world which for decades has been the subject of controversies, it adds.

Years earlier, in 2004, shareholders brought a class-action against G-TECH, what IGT was called at the time, for the technology glitches in its software it had concealed from UK lottery company, Camelot.

According to the source, arguably, IGT is the world’s biggest lottery operator, with revenue topping $6 billion.

“The international lottery titan has held the South African lottery operator to ransom, refusing to bow out of its lottery technology supply agreement,” says the insider.

“In the case of the South African lottery operator, part of Ithuba’s mandate is to fulfil its lottery licence as set out in clause 13.2, read with part two schedule four and clause 14, relating to technical infrastructure of its licence agreement.

“On instruction from the South African lottery regulator, the National Lottery Commission, at the 11th hour, the eve of the system going live, instructed IGT, an Ithuba supplier and international lottery software titan, that it is not to participate in the data migration as agreed with the operator contract.”

Meeting localisation goals

The source says the digital migration move to replace IGT with a local supplier is the South African lottery operator’s move to fulfil not only the government’s localisation goals but also those prescribed in the mandate of its lottery licence.

“In a strange move, the South African government has interdicted its own operator from going ahead with its own localisation policies.

“This has raised eyebrows during a time when the South African government has urged big business to set localisation as a priority.”

It says the licence agreement stipulates that when the digital migration process happens, the regulator should be simply notified and no approvals are set out as part of the required migration process.

It points out that when Ithuba bid for the licence, the NLC claimed the licensee must be selected by the minister to show “sufficient, appropriate knowledge or experience” to conduct the lottery.

“In an about-turn of events, the same regulator seems to be concerned about Ithuba’s capability to implement an ably capable central system when at its evaluation and the last six years of its operations it has had no qualms with its operations.”

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