Cape casino capers

Cape casino capers

The cards in lucrative Cape casino industry will not be re-shuffled as planned by gaming giants Tsogo Sun and Sun International. Sun and Tsogo – with the help of Grand Parade Investments (GPI) – last year proposed a deal that would have diplomatically spread the ownership of the Western Cape casino segment – purportedly to preclude any hostilities developing around a much mooted second casino licence for Cape Town.

What was envisaged was that Sun would buy back GPI’s empowerment stake in SunWest – the company that operates the cash spinning GrandWest casino in Goodwood and the smaller Worcester casino. Sun would then offer a 40% stake in GrandWest and Worcester to Tsogo – which already controls the other three provincial licences in the Mykonos, Garden Route and Caledon casinos. The arrangement would have meant Tsogo having influence over all five Western Cape casino licences.

The proposed arrangement was smart, because it effectively removed any incentive to either Sun or Tsogo to compete for a second casino licence in Cape Town. The mooted second casino licence would not be a new licence, but allow for the transfer of the existing licence of either one of the Mykonos, Garden Route, Caledon or Worcester casinos to Cape Town.

Gaming industry sources argued that neither Sun or Tsogo really relished building another casino in Cape Town – especially since casino spending has been flat of late. If a licence needed to be transferred at some stage, the proposed arrangement would at least hedge the vulnerable Sun, as Tsogo would not really want to diminish its investment in GrandWest by supporting a new casino development in Cape Town.

And if a second licence for Cape Town became a reality then presumably the ‘shared’ Worcester licence would have been the obvious candidate to transfer to Cape Town – allowing both Sun and Tsogo to benefit from profit flows (and to share the not insubstantial development costs.)

Unfortunately this rather convenient arrangement fell afoul of the competition authorities, and before the Competition Tribunal could make a final ruling the companies called off the proposed deal.

What happens now depends on the provincial government decision around allowing a second casino licence. There has been no official word on the matter, and CBN suspects any progress on a second licence will be driven by the merits of whether a second Cape Town casino will actually increase tax revenues for the provincial (and national) government.

There is an argument that the Cape Town casino market will not grow with a second casino, but rather the existing gambling pie will merely be split between GrandWest and the new casino. Others believe if a second casino is pitched at an upmarket boutique casino, then a new development would harness a new gaming segment rather than cannibalise the existing gaming and entertainment spend at GrandWest.

What will be fascinating to gauge in the interim is whether Sun – which is increasingly looking offshore for growth opportunities - and Tsogo can revisit their proposed deal in a different form.

Currently it seems like Sun will have to return GPI’s significant minority shareholding in SunWest. Would there then be a possibility that Tsogo could buy GPI’s valuable stake in SunWest directly without the competition authorities raising red flags?

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