Considering the increased marketing presence of online gaming offerings, it might not be a bad time for a belated review of gaming giant Sun International’s hand.
Since the release of its interim numbers, Sun’s share price is up about 3%. In that period, the share price vacillated between a low of R44.71 and a high of R47.39.
Over three months the share price is up closer to 20%, suggesting the market is fairly satisfied with the interim outcome.
The issue for Sun, and its rival Tsogo Sun, is that the fastest-growing segment of the gaming sector — sports betting — is dominated by large players such as Hollywoodbets and Betway.
Sun, through its subsidiary SunBet, is one of the larger bit players. And there appear to be more than a few of these smaller contenders, whose hopes of thriving seem remote considering the market dominance of the big players.
Ironically, it’s at this point that Sun has decided to spend billions of rand on bricks-and-mortar casino group Peermont, when more than a few observers think a more concerted effort to build out the sports betting business would be far more worthwhile.
Peermont may prove a smarter move in the longer term, given that the sports betting growth trajectory will inevitably slow in ensuing years.
Let’s just clarify one thing. It’s not really sports betting attracting some extraordinary client volumes. Rather, it’s the online gaming offerings (including the incredibly popular plane crash games) that are pulling in the punters in droves.
There is a lot to be said for gambling from the comfort of your home computer or cellphone. There’s the saving on fuel and parking costs, or simply avoiding any stigma of regularly hanging around a casino.
Sun reported recently that SunBet had continued its “exceptional growth trajectory” and was exceeding its targets. Income was up about 72% to R512m for the interim period to end-June, with record adjusted earnings before interest, tax, depreciation and amortisation (ebitda) before management fees coming in 89% higher at R170m.
Just to give some perspective, SunBet generated more ebitda in the interim period than Sun’s sprawling Sun Slots limited-payout machine operations, as well as more than the combined ebitda donations from the well-established Carnival City (Brakpan) and Boardwalk (Gqeberha) casinos.
If the growth trajectory continues apace, it won’t be long before SunBet surpasses Sun City’s ebitda contribution (R191m in the interim period). Sun has reported growing numbers of active sports betting players, with more games being added.
The group reported 288,000 new sign-ups (2023: 146,000), with 105,000 first-time depositors (well ahead of the previous year’s 49,000). Deposits were up 74%, with the average cash deposits at R11.3m — a day.
The detailed breakdown of SunBet’s income is rather intriguing. Traditional sports betting represented about R102m (previously R77m) of interim revenue, with live casino games at R139m (R84m) and slots at R322m (R218m) accounting for a much bigger chunk.
The figure to watch, I reckon, is the fledgling crash games segment — which went from zero to R31m. For those not disposed to placing a wager or three, crash games basically involve betting on how long an aeroplane stays airborne before crashing or flying away.
Clearly it won’t take that many years for SunBet to be chipping in more than Sun’s flagship urban casinos
Every second the aircraft stays in the air, the sum that is bet is multiplied. But the punter loses everything if the bet is not cashed in before the aeroplane disappears. It’s more addictive than you may think, I hate to admit, especially if you cash out at three times your R5 bet and the aircraft stays in the air long enough to multiply your money 1,000 times (I kid you not).
I’d be very surprised if the crash game segment does not see income soar in the second half. For now, Sun is being smart in focusing intensely on retaining and winning customers by building up its SunBet brand.
Frankly, I don’t think there is too much brand loyalty at this juncture in the broader sports betting sphere — which, I see, Sun describes as “highly commoditised”.
But Sun is definitely able to leverage its well-known Sun International brand, and should be able to easily use its urban casino network for special loyalty offerings to SunBet clients. Bit of a win-win, I suppose.
The big question, of course, is whether Sun can gain enough market share to become one of the kingpins in the online gaming sector. At this point, it really does not have too much choice but to do the hard yards.
A meaningful bulk-up deal in the sports betting/online gaming space seems unlikely with the balance sheet needing to accommodate the Peermont acquisition.
The acquisition of a smaller player or two could be on the cards — but Sun, for now, might find it easier and more effective to win slivers of market share rather than buy them. Let’s assume, conservatively, that Sun increases SunBet’s revenue to R1bn by financial year-end and maintains the margin at about 33%. That’s a full-year ebitda of about R330m.
Clearly it won’t take that many years for SunBet — not forgetting the potential to expand into Africa and the possible launch of online poker — to be chipping in more than Sun’s flagship urban casinos such as Sibaya, Time Square and even the redoubtable GrandWest.
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