It was not too long ago that the Limited Payout Machine (LPM) or ‘slots’ segment of the South African gaming market was considered the poor cousin of the slick casino sector.
Clearly that contention no longer holds so much water … not when casino giant Sun International recently confirmed it is coveting the highly profitable slots business of Cape Town-based empowerment company Grand Parade Investments (GPI.)
Last month, both companies issued advisories to their respective shareholders that discussions were underway that will presumably led to SunInt taking control of GPI’s slots business with the empowerment company retaining a minority stake.
SunInt is looking for a meaningful presence in the slots sector after seeing just how these alternative gaming assets are offering competition for its casinos – most notably in the competitive Gauteng market.
LPMs or slots are mostly located in suburban areas, offering patrons at pubs, clubs and restaurants a chance to have a little dabble in a more social atmosphere. GPI, in the last five years, has assembled a potent slots presence.
The company now owns and operates a total of five LPM gaming licences in South Africa (recently acquiring Hot Slots) – operating a possible 5,000 LPMs in the Western Cape, Gauteng, KwaZulu-Natal and Mpumalanga. GPI has also indicated a willingness to acquire electronic bingo licences – which are potentially more lucrative than slots as the minimum bet and maximum a payout is not as restrictive.
In the six months to end December, GPI’s slots business increased revenue 20% to R280m with the bulk of revenue being generated from the Western Cape-based GrandSlots operation, which contributed R160m in revenues for the interim period.
It seems likely that GPI could push revenue from the slots business through the R650m mark in the full year to end June 2014. The profitability of the slots business, however, is even more stunning coming in at R116.5m for the half-year to end December – which is already more than the R115m notched up in the year to end June 2013.
An obvious question would be why GPI would want to give away its crown jewel at this very promising juncture?
There could be several reasons – the first being that a generous cash offer by SunInt for a controlling stake in the slots business would provide the capital needed for GPI to hasten its expansion plans for its popular Burger King fast food franchise.
The second is that not only might GPI retain a significant minority stake (perhaps 25%) in the slots business, but there might be upside for the 85% owned joint venture, Grand Technology, which is being set up to manufacture slot machines in Retreat.
The third is that GPI is already significant shareholder in SunInt’s Cape Town-based
Should an existing Western Cape casino licence (either SunInt’s Worcester casino or Tsogos’ Mykonos or Caledon casinos) be allowed to move to the Cape Town Metropole, then at least GPI’s slots and bingo business can provide some suburban competition for the new casino (provided, of course, it’s not awarded to SunInt.)
By Jenni McCann