Sun International Challenged
Cape Business News
28 October 2009

While Sun International is celebrating the award of a new 15 year casino licence for its Boardwalk casino in Port Elizabeth, it seems as if the gaming giant’s dominant hand in Cape Town is set for a shuffling from a West Coast rival.

Last month Gold Reef Resorts – the owners of two Western Cape gaming licences in Mykonos and the Garden Route – signalled its intention to challenge Sun International’s exclusive casino licence in Cape Town.

The move, according to reports, would entail moving the Mykonos licence from its current location near Langebaan closer to Cape Town.

Such a move would have a major impact on Sun International, which scores substantial profits from its GrandWest casino in Goodwood.

In the year to end June 2009 the GrandWest casino – despite a fall in revenues and profits - generated turnover of more than R1.6 billion and R675 million in gross profits.

That means GrandWest accounts for 22% of Sun International’s annual revenue, and a chunky 28% of gross profits.

Currently Sun International holds the exclusive Cape Town licence until the end of 2010. Business Day quoted Gold Reef’s CEO Steven Joffe as saying he was “keen to explore the option of opening a casino nearer to Cape Town…”

Interestingly, Sun International also faced challenges to its dominant position in the Port Elizabeth market, where there were rumblings last year that other bidders could muscle into the windy city’s casino industry.

CBN notes that the renewal of Sun International’s Port Elizabeth licence comes at quite a cost – new investments of R1 billion, which will include a five star hotel, an international convention centre and a water tunnel (supposedly set to be the longest in the world).

Presumably the large amounts invested by Sun International into GrandWest will come into consideration when negotiations around exclusivity are tackled. No doubt future investments into GrandWest and surrounds will also be a key consideration.

Speaking to CBN, Joffe explains that Gold Reef will approach the Western Cape government with a scheme that requires gaming participants to pay for casino exclusivity in Cape Town after the end of 2010.

He suggests such a scheme will bolster government coffers in terms of social spending.

One can understand Gold Reef’s desire to bring its machines and tables closer to Cape Town. At the moment the West Coast economy is not looking terribly conducive to vibrant discretionary spending or as a location to attract swarms of well-heeled visitors.

Asked how Gold Reef would deal with a casino licence in Cape Town, Joffe says compensatory investments will need to be made in Mykonos.

He says this can entail Limited Payout Machines, bingo centres or the construction of a hotel. “We would have to make sure we take care of all staff.”

Commenting on Gold Reef’s interim results to end June, Joffe notes that the economy in the Western Cape is one of the hardest hit with the property and tourism sectors most significantly affected.

He adds that provincial gaming revenue dropped 8%.

Joffe says revenue at the Mykonos Casino fell 2% to R55 million, which he believes is an acceptable achievement considering the difficult market conditions as well as a decline in footfall of 15%.

He says the refurbishment of the casino has been completed and 22 slot machines have been added to the gaming floor.

Although Joffe says costs are well managed, gross profits from Mykonos dropped 8% to R22 million with the trading margin squeezed to 40%.

Interestingly, it is the Garden Route casino that actually did worse than the Mykonos casino in the stagnant Western Cape market.

Interim figures released by Gold Reef shows the Garden Route Casino near Mossel Bay dropping turnover by 6% to R76 million on the back of a 5% slowdown in footfalls. Gross profits slipped 15% to R34 million.

Despite the fall-off in revenue and profits the casino will go ahead with planned capital expenditure of R37 million to add 36 new slot machines as well as general improvements to the gaming floor and food/beverage facilities.

It’s quite possible that the Western Cape gaming pie has also been affected by Sun International’s recently opened Golden Valley casino in Worcester starting to hit its straps.

The Golden Valley casino turned over a not insubstantial R109 million in the year to June 2009, and managed operating profits of some R34 million.

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