THE focus on Western Cape-based casinos has intensified since a diplomatic attempt to divide up the region’s gambling pie was stymied by prolonged deliberations with the competition authorities. Readers may remember that last year Tsogo Sun’s proposal to acquire a 40% stake in the Sun International controlled SunWest – the owner of the cash spinning GrandWest casino in Cape Town) and Worcester casino was cancelled by mutual agreement as the implementation date of end August could not be achieved. The parties concluded that it was not possible to extend the date again “as the commercial metrics agreed had changed due to the effluxion of time.”
What the proposed arrangement between Tsogo and Sun International would have created was compromise situation where neither party would lose out if the provincial government ever gave the green light for a second casino in the Cape Town metropole. Indications are that such a development would entail transferring one of the existing Western Cape casino licences – either Mykonos, Garden Route, Worcester or Caledon – to Cape Town.
Sun International – which owns GrandWest (effectively still operating under an exclusivity agreement that expired in 2103) – owns the Worcester casino, while the other three licences are held by Tsogo.
Tsogo noted at the release of its financial results recently that the potential to bid for the relocation of one of the smaller casino in the Western Cape to the Cape metropole remained “an opportunity for the group should the provincial authorities allow such a process.”
On the other hand, Sun International launched court action to set aside the decision of the Western Cape Government to allow relocation of an outlying casino to the metropole. Sun International’s tactic is understandable. GrandWest’s revenue in the year to end June was 7% ahead of last year at R2.15bn. Profits were up 10% to R915m, and the trading margin increased 1,3% to 42,5%.
By local casino standards – remembering that discretionary consumer spending has been badly squeezed – GrandWest’s profit performance has come up trumps. The question, of course, is which smaller Western Cape casino licence would be deemed suitable for transferring to the Cape Town metropole, should cards being shuffled for so long by the relevant authorities fall into place around a second casino licence bid?
Certainly Sun International’s Worcester casino would be a prime candidate as this property is nowhere near as viable as other smaller casinos scattered around the country. Worcester generated R163m in revenues in the year to end June 2015, but operated on a margin of only 17,4% (less than half of GrandWest) to leave just R26m on the profit line. It seems unlikely, though, that the Worcester licence would be an odds-on favourite for transferring to Cape Town. This would mean Sun International would control both casinos in Cape Town – something that the competition authorities might frown on.
If Tsogo is the favourite to transfer an existing Western Cape licence to Cape Town, then the company has quite a quandary deciding which licence is most suitable for shifting. For Tsogo the Western Cape reported a growth in provincial gaming win of 3,3% for the six months to end September 2015. The company reported that the Caledon Casino, Garden Route Casino in Mossel Bay and Mykonos Casino in Langebaan reported growths of 13%, 18,4% and 6,9% respectively - reflecting a strong performance of the leisure markets in these areas. The Garden Route was the star performer, reflecting income up 16% to R97m on an attractive margin of close to 40%.
It would seem then that Tsogo’s candidates for ‘licence transferring’ would be a toss up between Caledon and Mykonos. Caledon – which also owns a spa and a hotel – is slightly larger with income in the half-year to end September of R79m. But the margin is only 25%.
The Mykonos boasted interim income of R73m, but earned these profits on an extremely good margin of 42% after the refurbishment of the casino floor (completed in August 2015.) If the second casino transfer is allowed, does Tsogo shift – as is widely expected – the Mykonos licence to Cape Town. Although this would entail the minimum infrastructural disruption, Tsogo might have an eye on efforts to economically uplift the West Coast with the Industrial Development Zone in Saldanha Bay. Perhaps then would be smarter to move the Caledon licence – a development that would probably require Tsogo to make a heavy compensatory investment to bolster the Caledon property’s spa and hotel facilities.