Inside Asian Gaming

39 38 T Rising Up A growing economy and vibrant middle class have buoyed the South African casino industry A robust economy and an emerging middle class have reinvigorated the South African gaming marketplace, redevelopment of existing properties is occurring at a rapid rate, and with the few remaining casino li- censes available being snapped up,everyone wonders if this surge can last.The answer, say casino operators and pundits alike,is yes.And to illustrate their confidence in the market, they point to the massive investments made in infrastructure and training in the gaming industry over the past few years — an invest- ment they believe is necessary, not only to meet growing demand for South African’s increased leisure spend, but also as a vote of confidence in a sector of the economy that is helping to drive the economy through job creation and tax generation. For example, large casino operators, such as Sun International, Tsogo Sun Gaming and Gold Reef Casino Resorts, have embarked upon multimillion-rand refurbishment projects to take advantage of the gaming public’s increased leisure spend and several operators, such as Peermont Global, have embarked upon shopping sprees to buy up as many gaming opportunities as possible. Most recently, a gaming and hospitality train- ing academy was launched in Cape Town to meet the growing demand for skilled em- ployees within the gaming sector. Even on a regional level, the South Afri- can gaming economy is booming. Gold Reef Casino, situated adjacent to Soweto, is one of the country’s premier tourist attractions. The casino has recently completed the sec- ond phase of a US$33 million upgrade,which added a new smoking casino, two new res- taurants, a fast-food court and an arcade. Further attractions in the form of a theatre and more table games are planned for phase three. “We’ve been operating in the sweet spot of a growing economy, one driven by rising discretionary consumer spend,” said Steven Joffe, CEO of Gold Reef Resorts, operator of Gold Reef Casino. “The buoyant economy, coupled with the licensing of new casinos, has driven growth of the national gross gam- ing revenue over the past four years to more than 18%. We have enjoyed a similar growth rate,”he said. Joffe sees no reason for the current high to change,providing the country’s regulatory environment remains stable and the casino industry maintains a good relationship with regulators. “We expect that revenue growth will con- tinue to exceed the increase in nominal GDP. Even though the monetary environment has tightened over the past fewmonths,consum- er spend remains robust, the black middle class continues to grow, and infrastructure spend and tax breaks are putting more mon- ey in people’s pockets. These are all positive factors for our business. The risks we face in- clude a weakening exchange rate and higher energy costs, which may cause inflation and interest rates to rise,”said Joffe, who is never- theless upbeat about the future. “Our investments into building new casi- nos and refurbishing existing properties are a vote of confidence in the future of South Africa’s gambling industry,” Joffe added. “By the end of this year, Gold Reef City Casino will offer a wonderful new experience to our patrons, the majority of whom are from the black middle class, the so-called ‘black dia- monds.’” The expansion frenzy is not unique to Gold Reef Casino.On the other side of the city of Johannesburg, Montecasino – one of the country’s two largest casinos – also recently unveiled its US$46.5 million extension, offer- ing Montecasino Piazza, an outdoor Italian- style park capable of hosting 4,000 people, a 1,900-seat lyric theatre, a 180-room hotel, a 4,200-square-foot function facility, five new restaurants, and additional parking. Rob Collins, managing director of Tsogo Sun Gaming, which operates Montecasino in the affluent suburbs of Johannesburg, and whose five operations throughout the coun- try cater to the casino entertainment needs of 22 million people each year, believes that the present growth spurt, while welcome, should be viewed within the context of the casino industry reaching a maturing phase. “I believe we’re reaching a maturation phase of the market and, given that we’re ap- proaching the tenth year since the deregula- tion of the gaming industry,the activity we’re seeing is simply due to the fact that the casino operators are settling down and ascertaining what works and doesn’t work,” Collins said. “Coincidentally, the casinos have reached the point in their life-cycle where they’re upgrad- ing and refurbishing their properties, largely due to the fact that we cater predominantly for the suburban market, which represents regular, repeat clientele.” Attraction business Besides the core business of gaming, many casinos are adding variety to their offerings, as can be seen from a number of gaming destinations adding theatres, conferencing facilities and other attractions to their enter- tainment amenities. “Our extension to Montecasino was based on strategic influences,” Collins said. “What we were lacking was an outside en- vironment that took advantage of our ideal climate in Gauteng and, in part, one big cata- lytic footfall driver. Added to this was the fact that the Palazzo InterContinental Hotel was operating at capacity on a regular basis and, given the entertainment nature of Monteca- sino, there was significant demand for more restaurants.Also,the enormous demand for a conference and banqueting venue was such that we needed a ballroom. “Given that Montecasino is the premier entertainment destination in South Africa, we decided that we wanted to bring big mu- sical shows to the country,and it was obvious that we would need something like a theatre house, which would allow us to continually change content and to bring around 2,000 extra people through our doors every day,” Collins added. Tsogo’s decision to expand Montecasi- no’s entertainment amenities has proved a prudent one: “The restaurants are showing phenomenal success; the bookings for the ballroom and our other banqueting facili- ties are unprecedented; before the first per- formance of “The Lion King” opened to the public we had sold more tickets than any other show in the history of South Africa, at the end of its run; the hotel has been trading at exceptionally high occupancy levels, de- spite having had very little advertising, and is experiencing 100% occupancy on many nights of the week,” Collins said.“Overall, we are absolutely delighted with the phenom- enal success that the extension to Monte- casino has enjoyed since it opened a few months ago.” Grandwest, South Africa’s other mega-ca- sino, situated in Cape Town has not been left behind in the expansion race. According to operator Sun International’s latest financial results,it posted a gross profit of US$46.6 mil- lion, making the unit the most successful in the country, outstripping other destination favourites such as Sun City. But, according to GrandWest general manager, Graham Vass, more than 67% of visitors to the complex are attracted by en- tertainment over and above the casino expe- oasted internationally as the “rainbow nation” for its success in harmoniously bring- ing together various races following its divi- sive apartheid history, South Africa has made great strides in becoming a powerhouse on the African continent both economically and politically. As such, it can be argued that the pot of gold at the end of this rainbow is the country’s emerging casino industry.Indeed,if casino fortunes here, as in other jurisdictions, can be viewed as a barometer of a nation’s overall economic climate, then the business forecast for South Africa calls for fine weather ahead. Their cup runneth over South Africa casino operators searching for the next big business boost need look no farther than 2010 when the soccer World Cup, arguably the world’s largest sporting and media event, will be hosted in South Africa. Bringing billions of rands in tourism spend into the country, the World Cup is sure to have a phenomenal impact on the casino industry, which will gear itself up well in advance for such an event, not only in terms of wagering, but the atten- dant entertainment and hotel offerings. “With the 2010 World Cup around the corner and the ensuing development and tourism influx, we are excited about our prospects in the gaming industry,” said Steven Joffe, CEO of Gold Reef Re- sorts, operator of Gold Reef Casino. Lottery crisis continues South Africa’s National Lottery remains suspended indefinitely due to a high court order forcing the country’s trade minister to review the process used to award the lotto license to the Gidani con- sortium. Incumbent lotto operator Uthingo challenged the government’s decision, citing political interference, and the courts agreed that the award process was fundamentally flawed. While the lotto playing public re- mains in limbo as the government at- tempts to sort out the shambles, other forms of low-stakes gambling such as sports betting are benefiting. Phumelela Gaming & Leisure, the company which runs Gauteng racing as well as Soccer 6 pools, has confirmed that their turnover for the latter had risen sharply once the National Lottery, and its Sportstake soc- cer bet, went dark at the end of March. The fountain entrance at Durban’s Suncoast Casino