Income from limited payout machines and electronic bingo terminals actually rivals some of the bigger casinos.

Casino and leisure giant Tsogo Sun’s bet on alternative gaming formats such as limited payout machines and electronic bingo terminals appears to be paying off as they become key profit spinners for the group.

Results released by Tsogo this week showed the Vukani limited payout machines business and Galaxy electronic bingo terminals operations generated almost R1.2bn in revenue in the half year to end September — representing a chunky 21% of total gaming revenue.

Tsogo is best known for its large urban casinos which include Montecasino and Gold Reef City in Gauteng as well as the sprawling Suncoast precinct in Durban.

In 2017 Tsogo — which is controlled by Hosken Consolidated Investments (HCI) — finalised the acquisition of Vukani and Galaxy from Niveus (an investment company also controlled by HCI).

The combined EBITDAR (earnings before interest, taxation, depreciation, amortisation and rentals) for Vukani and Galaxy was R324m — which means the alternative gaming hub is already generating similar profits to Suncoast (Tsogo’s second biggest casino).

Comparative figures were not provided by Tsogo, but Tsogo CEO Jacques Booysen disclosed that the Galaxy and Vukani gaming businesses accounted for 18.2% of the growth in group income and 14.7% of the growth in group EBITDAR for the interim period.

By way of comparison, Niveus’ full-year results to end March 2017 showed Vukani increased full-year EBITDAR to R343m, and Galaxy reported EBITDAR from fully developed sites of R152m. If the latest interim numbers are annualised, it seems the alternative gaming assets are managing to achieve sprightly growth.

A gaming sector insider, who asked not to be named, reckoned the LPM and EBT sector would continue to grow faster than traditional casinos.

“It’s all about convenience. There are no hassles with finding parking as these operations are usually well located in suburban hubs. The payout ratios are also better than the traditional casinos.”

EBTs are largely viewed as mini-casinos — with an advantage of considerably less development costs and maintenance spend. LPMs — which are usually located in pubs and eateries carry minimum single wager of R5 and a maximum payout of R500. But LPMs do allow multiple bets through ‘power plays’, and a compounding effect can effectively raise the wager and payout levels considerably.

The EBITDAR margin for Vukani and Galaxy sits at around 28%. This is well below the margins seen at Tsogo’s biggest casinos like Montecasino (42%) and Suncoast (41%) but better than smaller casinos like Hemmingways (East London), GoldFields (Welkom) and the Caledon.

At the end of the interim period Galaxy operated 3410 EBTs, 200 LPMs, 154 slots and two electronic tables, while Vukani operated 1139 sites with 6033 LPMs.

In an investment presentation, Tsogo stressed Vukani’s growth was dependent on continued rollout of limited payout machines sites and an improved gaming offering in terms of products and sites.

Galaxy had three undeveloped licences in KwaZulu-Natal, and there were a number of expansions and redevelopments planned at existing sites.

Tsogo reckoned there was also a possibility of new licences with electronic bingo terminalsnot yet licensed in the Western Cape, Northern Cape or Free State.

Source: Business Day Live – Marc Hasenfuss