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WINNER TAKES ALL – NEW LICENCES

Expansion in SA’s casino market is limited. The National Gambling Act permits 40 licensed casinos, and there are 37 operating casinos plus a licence pending in Limpopo, applied for by Peermont .

Nikki Forster, a PwC director specialising in the hospitality sector, notes that though casino upgrades and a new casino licence will enhance the local casino market, there will be relatively little growth from new casinos between now and the end of 2015.

With this in mind, proposals by the Western Cape government to accommodate a second casino licence in Cape Town — where Sun International’s (SunInt) 10-year exclusivity agreement has ended — are being watched closely.

The proposals, which remain under consideration, do not envisage the awarding of a new licence, but rather allow an existing Western Cape-based casino operator to transfer its licence to Cape Town.

It’s really a two-horse race.

Tsogo Sun holds three of the four regional casino licences outside Cape Town: Mykonos, Caledon and the Garden Route. SunInt , which holds the existing Cape Town casino licence in GrandWest, holds another Western Cape licence in the Worcester casino.

On paper, a second casino licence in Cape Town seems justified; after all, the Johannesburg market is contested by three large casinos, and Durban has two.

SunInt may not agree, having invested substantially in infrastructure on the Cape Town Foreshore (most notably the Cape Town International Convention Centre) as part of its exclusivity agreement.

There’s no doubt a second Cape Town licence will hurt SunInt’s flagship GrandWest operation, which is by far its most profitable casino.

Prescient Securities gaming analyst Cheree Dyers suggests a second Cape Town casino would lower GrandWest’s Ebitda margin to 39% (currently at 41,6%) on account of the venue losing critical mass.

But there are gaming sources that question whether Cape Town — and specifically the Waterfront area, which is rumoured to be the venue for the new casino — will provide enough customers to sustain it.

There is a valid question whether a tourist destination really provides a captive market for a large-scale casino operation . One response is that the plans may stipulate a small casino aimed at the high roller, inside a large leisure property development.

Though speculation is rife about the nature of the casino, it could be a long wait before any plans for a second Cape Town licence are finalised.

One casino industry insider believes the Western Cape government will be meticulous in its deliberations. “It’s going to be slow and very methodical, to preclude any easy challenges in court.”

Assuming the Western Cape government presses ahead with plans to shift a regional licence to Cape Town, there are some intriguing permutations. There is absolutely no doubt Tsogo — whose strong Cape presence follows the takeover and merger activity at Century Star and Gold Reef Resorts — will be a bidder.

At this stage it would seem a near certainty that the licence belonging to Mykonos casino near Langebaan would be shifted to Cape Town.

Tsogo’s other Cape casinos have large chunks of infrastructure attached, which would certainly diminish in appeal and value should the gaming element be removed.

Obviously Mykonos, located in an economically fragile region, would need some form of developmental compensation for the loss of the casino.

SunInt is damned if it applies for the second casino licence (forking out for a casino that essentially detracts from its flagship development), and damned if it doesn’t (allowing a rival to snatch a sizeable chunk of market share).

Source: Financial Mail – Marc Hasenfuss