South Africa: Are Penny Auctions Gambling?

New regulations anxiously expected

This week a new, largely promising announcement came from the South African government’s Department of Trade and Industry, stating that the law in its current draft form would effectively bring internet auctions under proposed gambling regulations. This came as an addition to the recent legal expert’s assessments that online penny-auction sites, which are plentiful in South Africa, could be adverse to consumer protection regulations and draft gambling laws.

“Penny auction sites make their money not on the price a 'winner' pays for an item advertised; they make the vast majority of their cash from the fact that every bid placed costs the individual placing it a far larger sum of money than just the single penny added to the final price of the item,” the DTI specified, adding that “a regulation ruling that non-refundable fees may not be charged to participate in an auction means that penny-auctions actually operate in contravention of the proposed regulations.”

“Having considered the way these auctions are conducted it is now clear that this is similar to gambling and can be regulated under gambling regulations,” the DTI told MyBroadband.

Online gambling was proclaimed illegal in the country last year, when the Northern Gauteng High Court passed its contentious ruling, which the National Gambling Board commented in the following way: “…unlicensed interactive gambling activities significantly undermine national policy, legislation and threaten licensed gambling operations by creating an unregulated and untaxed competition.”

In this case, since the NGB makes a difference between ‘interactive gambling’ and ‘online betting,’ penny auction sites would fall under ‘interactive betting’ which is a currently illegal category in the country.

In addition, the DTI also explained, further complicating the issue: “….any form of online/interactive gambling is illegal in South Africa until the National Gambling Amendment Act of 2008 comes into effect.”

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