Gross gambling and casino revenues showed subdued growth in 2013 in the wake of a faltering economy. Gross gambling increased only 4.3%. The slowdown in gross gambling revenue was centered on casinos, the largest category at 76% of the market or R16.5 billion.
Some casino operators in certain regions believe the slowdown in 2013 was due in part to growing competition from electronic bingo terminals, limited payout machines (LPMs) and sports betting shops, which are becoming more prevalent in the industry.
These are some of the highlights of PwC’s third annual edition on the gambling industry entitled ‘Raising the stakes in Africa: Gambling outlook 2014-2018 (South Africa – Nigeria – Kenya). The publication focuses on segments within the gambling industry with detailed forecasts and analysis. The National Gambling Board of South Africa is the source for South African historical data.
Of the three countries included in the analysis, South Africa has the largest overall gambling market as well as the largest land-based casino gambling market. Gross land-based casino gambling revenues totaled R16.5 billion in South Africa in 2013 compared with only R428 million in Nigeria and R195 million in Kenya.
Nikki Forster, PwC Hospitality and Gambling Industry Leader for South Africa, says: “The South African gambling industry is a vibrant and dynamic sector, but is facing the challenges of a slow economic climate and a changing regulatory environment. In particular the casino sector is facing increasing competition from other gambling facilities.
“We expect slower economic growth to lead to slower gross casino gambling revenues in Nigeria and Kenya and continued slow growth over the next two years. We then look for a pick-up in growth in each country as economic conditions improve,” adds Forster.
The South African gambling market
Casinos are by far the largest component of the gambling industry with 76% of total gross gambling revenue. To counter the slower growth, casino upgrades and expansions to existing facilities are expected to boost a growth in revenue.
Bingo, the smallest category, continued to be the fastest-growing category in 2013 with gross gambling revenues rising 67.5%, the result of the introduction of bingo in Mpumalanga, the North West and the Eastern Cape. LPMs increased 17.8% and sports betting rose 18.5% in 2013 compared with 4.6% growth for horse racing.
“Gross gambling revenues as a whole are expected to expand from R21.8 billion in 2013 to R29.5 billion in 2018, a 6.2% compound annual increase,” says Forster.
Gambling taxes and levies
Gambling taxes and levies totalled R2.2 billion in 2013, up 6.6% from 2012. Most of the gambling taxes and levies in 2013 were generated in Gauteng (R848 million), KwaZulu-Natal (R535 million) and the Western Cape (R459 million), which together accounted for 82% of the total. Eastern Cape at R122 million was the only other province above R100 million in 2013.
The estimated deemed output VAT collected on gambling revenues from casinos in 2013 amounted to R1.8 billion, or 11% of gross gambling revenue.
Gauteng was the leading province in casino gross gambling revenues at R7 billion in 2013, down from R7.2 billion in 2012. KwaZulu-Natal and the Western Cape were next at R3.1 billion and R2.5 billion, respectively, each up from 2012. These three provinces accounted for 76.4% of total casino gross gambling revenues.
“Improving economic conditions and casino upgrades and expansions are anticipated to lead to faster increases during 2016 to 2018,” adds Forster. For the forecast period as a whole, growth will average 3.9% compounded annually to R20 billion in 2018.
Limited payout machines
LPMs, primarily located in bars, clubs and restaurants, accounted for 8% of gross gambling revenues in 2013, up from 7% in 2012. Continued installation of LPM machines in new locations is expected to expand the market. However, competition from electronic bingo terminals is likely to lead to slower LPM growth during the latter part of the forecast period.
In contrast with the casino market, Gauteng ranked only third in LPM in gross gambling revenues at R287 million in 2013, representing 16.5% of the total. The Western Cape had the largest market in 2013 at R551 million with KwaZulu-Natal next at R404 million.
Horse racing is the dominant component of the sports betting market with R1.8 billion gross gambling revenues in 2013, compared with R1 billion for betting on other sports events. “Horse racing is a relatively mature market with growth during the past three years at less than 5% annually. On the other hand, sports betting has been expanding rapidly, rising by 18.5% in 2013 and more than five fold since 2009. “The proliferation of sport betting shops and online wagering is driving this market. We expect sports betting to overtake horse racing within the next five years,” Forster adds.
Aided by a boost in FIFA World Cup wagering in 2014 and 2018 and the Rugby World Cup in 2015, gross gambling revenues are projected to expand at a 12% compound annual rate to an estimated R5 billion in 2018 from R2.8 billion in 2013.
Bingo is the smallest category accounting for only 3% of total gross gambling revenue, a 2% increase from 2012. In July 2014, 12 shopping malls applied for licenses to install electronic bingo terminals. These applications have been challenged by anti-gambling campaigners who contend that access to these terminals will contribute to gambling addiction. It is expected that electronic bingo terminals will continue to expand in the provinces where they are already available.
Bingo is projected to become the fastest-growing category during the next five years with a projected 19% compound annual increase in gross gambling revenues from R732 million in 2013 to R1.8 billion in 2018.
The National Lottery is expected to remain the slowest growing category in the industry. Gross gambling revenues are projected to rise from R2.4 billion in 2013 to a projected R2.5 billion in 2018, a 1.2% compound annual increase. A new operator takes over in 2015.
Casino gambling in Nigeria
Currently there are three licensed casinos in Nigeria. Most forms of gambling are illegal, other than skill-based card games, backgammon, and the national online lottery. Casino gross gambling revenues have grown at double-digit rates during the past three years, including a 19.4% increase in 2013.
As a result of a slowing in the economic growth rate and the adverse impact on tourism due to the Ebola outbreak in that country, slower growth is expected in the industry. Growth is expected to drop to 5% in 2014 and to 4.5% in 2015. For the forecast period as a whole, gross gambling revenues will expand at a projected 7.7% compound annual rate to USD58 million in 2018.
Casino gambling in Kenya
Almost all forms of gambling are permitted in Kenya, including online and mobile gambling. The casino market held up well in 2013 despite concerns about terrorism, particularly after the Westgate shopping mall attack in September 2013. Gross gambling revenue rose 7.6%, an improvement over the 5.6% increase in 2012, but well below the double-digit gains recorded in 2009-11.
Casino gambling revenue growth is expected to drop to 4.9% in 2014 and to 4.1% in 2015 following the imposition of a withholding tax on gambling winnings and slower economic growth. For the forecast period as a whole, gross gambling revenue growth will average 6.8% on a compound annual basis, rising from USD18.4 million in 2013 to USD25.6 million in 2018.
Casinos never sleep, nor should digital
South Africans are increasingly attracted to land-based casinos and large shopping malls. This, together with a rise in the number of shopping centers, has resulted in a convergence in the retail, restaurant and gambling industries. There is a heightened need for casinos to find the best way to gain the competitive edge on their rivals and ultimately increase revenues. Nowadays it is essential that casinos are ‘on’. Being ‘on’ means creating 24/7 virtual open networks in the form of free Wi-Fi spots that connect people on the floor to casinos.
In addition, casinos need to adopt a scientific approach to their marketing and customer service strategies by analyzing and identifying their ‘key players’ and understanding how best to engage with them.
Forster concludes: “Overall, the gambling industry is vibrant and dynamic. However, as a business the margins are low, a large portion of the costs are fixed, regulatory compliance is stringent and profitability depends on volume.
“On the whole, the outlook for the industry is positive, with the further rollout of LPMs and electronic bingo machines in the pipeline that will further contribute to the expected growth in revenues.”