It’s probably a stretch to suggest casinos are an antiquated business. Both Sun International and Tsogo Sun’s most recent results show reassuring cash generation and some resilient margins in earnings before interest, tax, depreciation and amortisation (ebitda).
But punters are polarised on the question of whether the two large casino groups are experiencing a “Capitec” moment — the shock that the launch of the technology-driven upstart appealing to a large swathe of unbanked people delivered to the complacent big four banks.
One argues: “Online gaming is most certainly disruptive ... like Capitec was to the banking industry, like fibreoptics are to fixed-line networks in the telecoms sector. The big casino companies could not divert from their bricks-and-mortar strategy. They wanted to protect their big investments. But it was reactive thinking. Now competition is hectic. What a big company like Betway takes to its punters in the form of marketing is very tough to match.”
One former gaming company executive reckons the casino groups are in a spot of bother. “It’s easy to see the convenience of online gaming. How long before you actually sit down in front of a slot machine in a casino? You need to drive there, park your car, go through security ...”
Even if Sun and Tsogo build a more formidable presence in the online gaming space, this effort could ultimately be to the detriment of their bricks-and-mortar casinos.
Some punters have different views. One maintains that Tsogo and Sun are still in a good position to keep traction with “their relative safety” of having both physical and virtual gaming offerings. He adds that the “cross-selling” opportunities across the various gambling platforms could be material in years to come — especially in terms of client retention.
SunBet CEO Simon Gregory believes that though online bookmakers and the online gaming industry exploded over the past five years, the experience in the US and Europe shows it is possible for the industry to coexist with physical casinos.
“The online business is not as easy as some might think ... Tsogo has limited revenues and PalaceBet has closed down its operation, so revenues are not easy to come by,” says Gregory. “At SunBet we concentrate on our own business with our eyes set on gaining further market share from the likes of Hollywoodbets, Betway and LottoStar. We’ll have to box clever as these three are substantial businesses with large budgets.”
Online gaming is most certainly disruptive … like Capitec was to the banking industry, like fibreoptics are to fixed-line networks in the telecoms sector
Casinos might well be regarded now more as “destination” properties, where adjoining facilities such as cinemas, recreational sports (ice-skating, 10-pin bowling), restaurants or rock concerts provide as much pull as the slot machines and poker tables.
Obviously Tsogo and Sun won’t abandon their bricks-and-mortar casino portfolios. But the online version offers many advantages both to the operator — most notably a much lighter capital expenditure burden — and to customers: a gambling option that eliminates transport expenses, lets them smoke if they want to, and, if they are appropriately equipped, is not prone to load-shedding disruption.
The low fixed costs of online operators enables them to spend more on marketing, sign-up bonuses, customer rewards and technology, which make them even more formidable competitors. Customer rewards and sign-up bonuses, especially, appear to be key drivers of customer acquisition and retention. The more sophisticated online operators have churn algorithms that enable them to reward customers before they leave.
Sun CEO Anthony Leeming raised the issue at the group’s investment presentation earlier this year. “Are urban casinos being cannibalised by online growth? Urban casinos have been resilient. Small regional casinos are battling ... big casinos are resilient.”
He added that casinos have had a better start to the new financial year. “Casinos are not disappearing, and are actually still incredibly strong cash generators.”
Sun is determined not to be a bit player in the online gaming space. “SunBet contributes 6% of our ebitda. It’s still small. But when you have gone from 1% to 6% it’s phenomenal. We expect that growth to continue ... we have positioned ourselves well.
“We may be a little behind in the online space, but doing better than our competitors. A lot of opportunity to grow market share.”
Tsogo is also making its move. CEO Chris du Toit says there have been improvements to and expansion of the group’s online betting businesses — playTsogo and Bet.co.za — including a bigger product offering. “Reinvestment for growth, while remaining largely self-funded, will be key focus areas for the 2025 financial year.”
Tsogo reported that income generated from online betting grew to about R200m for financial 2024. Du Toit says this was achieved with marginal positive adjusted ebitda for the year.
The new financial year has started well, with Du Toit stating that the online betting business generated about R21m income and R3m adjusted ebitda for April.
He says the online betting platforms provide exciting prospects for growth. “The group is in the process of resolving the regulatory frustrations it has faced in this space, thereby enabling it to focus on expediting growth more aggressively in the second half of the 2025 financial year.”
The breakdown Sun provides for SunBet’s gross gaming revenue (GGR) line is fascinating. Traditional sports betting dropped slightly to R189m (from R198m), but live casino games jumped from R124m to R214m. The game-changer was online slots, which saw a more than fivefold increase in revenue to R523m. SunBet’s revenue of R733m translated into ebitda of R221m — a margin of just over 30%. This means that though still slightly smaller in revenue terms than Sun’s Carnival City casino in Gauteng, SunBet is more profitable than the casino, one of the group’s mainstay properties.
The sprightly growth in SunBet contrasts with the static R6.1bn revenue line and 6% dip in ebitda to R2.4bn by Sun’s core casino portfolio.
Though the odds still look stacked, Sam Sithole, the CEO of Value Capital Partners — a major shareholder in Sun — believes Sun can make its mark on the online gaming space.
“Sun is laser-focused on growing online market share in South Africa to 10%-15%, and we are ahead of our five-year plan,” he tells the FM.
He believes the biggest winners will be those with well-known, trusted brands and a great management team. “We believe Sun is the most trusted brand in gaming, and hence the record growth of SunBet.”
He adds: “Lots of people have written large cheques, at obscene multiples, including some big local players, in this space. But it has not translated into profitable growth.”
Sithole believes Sun can pursue an online growth strategy as well as improve the quality of its physical casinos mix at the same time. “The latter is not going away but will grow at a slower pace than online. But the two are hugely complementary.”
Leeming points out that SunBet holds only 3.7% of the R25bn online gaming market. But a few numbers are stacking up promisingly. The average daily deposit rate — a key indicator of the propensity for customers to gamble — was up 162% to R8.2m at the end of 2023 and unique active players shot up 269% to 403,105.
Leeming says Sun has set a GGR revenue target of R3bn for financial 2028, with ebitda pencilled in at R900m on a 30% margin and a market share of 10%. That will most certainly mean taking the game more aggressively to the big three online betting players — who won’t exactly roll over and give up hard-earned market share.
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