Dealmaking doyen Brian Joffe famously contended, just as the pandemic was taking hold in 2020, that gyms were “yesterday’s news”. Five years after that pronouncement, Virgin Active, arguably the best-known gym chain in South Africa, is still alive and well and starting to flex its profit muscle again.
Today, more than a few observers are as dismissive about the continued relevance of large urban casinos as Joffe was then about gyms. And more might share that view after reading our cover story this week, which makes plain just how fast the local gaming industry is changing. The long-held dominance of large casino groups such as Sun International and Tsogo Sun has been undermined by the surge in online games, packaged by the large sports betting businesses such as Hollywoodbets and Betway.
The option of gambling on your smartphone or laptop offers considerable advantage for punters who, these days, are more wary of fuel costs, travelling time, security and the cost of parking. Even the social stigma in some communities of regular jaunts to the casino is entirely removed when gambling from a phone or laptop.
This week’s cover story confirms just how dominant this new gaming segment has become, perhaps to a point where traditional gaming giants Sun and Tsogo risk being relegated to the also-ran category.
Sun’s final results, released last week, are instructive in how bricks-and-mortar casino groups are having to adjust to radical market shifts.
While Sun has adapted well to the new trends (compared with rival Tsogo), it remains more than a few furlongs behind Hollywoodbets and Betway. Sun will probably not be challenging for market dominance in the short to medium term. It cannot contemplate taking over one of the bigger sports betting players nor can it acquire enough smaller players to build a dominant presence. Both options would add considerable risk to Sun’s prospects — the former introducing balance sheet strain and the latter, execution snags.
Under the circumstances, Sun has done rather well. The group’s sports betting business — where the main money-spinner is online betting on the popular “crash games” Aviator, Skyward, JetX and Spaceman — is growing rapidly and earning a reassuring margin of well over 30% on earnings before interest, tax, depreciation and amortisation (ebitda).
The average cash deposits per day (yes, per day!) were R13.5m — up 65%, with total deposits hitting R4.9bn
Outgoing Sun CEO Anthony Leeming reported that income from the group’s sports betting subsidiary, SunBet, has been boosted by more than 60%, with crash games having been introduced to the games portfolio in February last year. The concept of crash games is brutally simple. A bet is placed on an aircraft or spaceman, which is launched into the sky or orbit. The longer the launch lasts, the more the winning bet multiplies. But — and this is often the case — the punter loses the amount entirely if the plane or spaceman crashes before the multiplied winnings have been cashed out.
To emphasise SunBet’s growing importance to Sun, it’s worth noting that the R1.2bn generated in revenue is more than the collective top-line contribution from five of the group’s smaller casino properties — the Boardwalk in Gqeberha, Meropa (Polokwane), the Windmill (Bloemfontein), Flamingo (Kimberley) and Golden Valley in Worcester.
SunBet generated R363m in adjusted ebitda — up 64% on the previous year. This makes it Sun’s fifth-biggest gaming operation. But if growth rates are maintained for the next three years SunBet could rank close to, or better than, the flagship GrandWest casino in terms of ebitda. SunBet chipped in more to Sun’s ebitda than alternative gaming business Sun Slots, which managed R346m off revenue of more than R1.4bn.
Leeming disclosed some startling statistics for Sun Slots. He indicated there were 648,000 new sign-ups (well up on the previous year’s 450,000) with 259,000 converted to first-time depositors (2023: 176,000).
The average cash deposits per day (yes, per day!) were R13.5m — up 65%, with total deposits hitting R4.9bn.
While SunBet is looking impressive, the bulk of Sun’s ebitda is still generated from the sluggish urban casino core. The group’s four biggest properties — GrandWest (Cape Town), Sibaya (Durban), Time Square (Pretoria) and Sun City — collectively generate about 68% of group ebitda. This ratio could ratchet up markedly if Sun’s proposed deal to take over casino group Peermont — the owner of Emperors Palace in Kempton Park — does eventually get the green light from the competition authorities.
Perhaps it won’t be the worst outcome for Sun if the competition authorities continue resisting the Peermont takeover. More capital could then be mobilised for growing the online gaming business, possibly looking at selected acquisitions to bulk up the offering and make a move into African markets. Leeming tells the FM that a couple of acquisition opportunities have been considered, but these would not have given SunBet the growth strides it needed.
With Leeming unexpectedly retiring early, the appointment of Ulrik Bengtsson as CEO, with effect from July, could be an interesting development. Bengtsson has leadership experience in the international gaming sector, with Sun highlighting his “proven track record of driving business transformations, scaling omnichannel platform businesses … as well as in-depth knowledge of the global land-based and online gaming markets”. Most notably, Bengtsson was group CEO of UK gaming group William Hill. He led a turnaround that saw the group sold to US-based Caesars Entertainment for £2.9bn, and later the sale of William Hill’s European assets to 888 Holdings for €2.3bn.
Bengtsson also previously had a successful stint as president and CEO of Swedish-listed online gaming group Betsson, and is chair of gaming businesses Raketech and Gamenation. The leadership change, while surprising, is all the more intriguing for Leeming’s mention of an online poker launch being in the pipeline for Sun. Now there’s a real game-changer in the offing.
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