Revenues from all forms of gambling in South Africa have increased this year in spite of the economic slowdown, according to the latest survey by PwC, released last week.
Although Sun International reported earlier this month that its casinos had been affected by the ban on smoking, which had resulted in fewer customers since it came into force, its profit was still up on last year.
According to Nikki Forster, PwC’s gambling leader, casinos “are by far the largest component” of the industry, with the market for limited pay-out machines (LPMs) still “far below its potential”, with plenty of opportunity for more to be installed.
Almost 14 percent, or R836 million, of the total income from gaming taxes and levies was generated in Gauteng last year, with the Western Cape and KwaZulu-Natal each providing more than R400m.
According to the report, 78 percent of gross gambling revenue of R16.4 billion came from casinos last year. This represented 71 percent of the total gambling market, including the national lottery.
“The casino market has virtually reached its maturity with 38 out of a possible 40 casinos already licenced and 37 in operation,” the report says. “As a result, expansion in the number of casinos will not drive growth for this segment. Instead, casino operators are investing in their existing facilities in order to boost revenue.
“Sports betting and horse racing gross gambling revenue totalled R2.6bn in 2012, the largest category behind casinos. Bingo was the fastest-growing category with an 86 percent increase, the result of the introduction of bingo into Mpumalanga.
“Gross gambling revenue for LPMs rose to R1.5bn.”
Gambling taxes and levies totalled R2.1bn in 2012, up 14.3 percent from 2011, benefiting from the 13.4 percent increase in gross gambling revenues and a slight increase in payments. The increase in payments refers to the percentage of gross gambling revenue accounted for by taxes and levies. In 2011, that percentage was 9.953 percent and in 2012 it edged up to 10.032 percent.
A tax rate increase for casinos in the Western Cape of 2 percentage points took effect in September.
Overall gambling taxes and levies are expected to expand by 10.7 percent compounded annually, from R2.1bn in 2012 to R3.5bn in 2017.
Casinos also pay deemed output VAT on the gross gambling revenues that they earn. This is a direct cost to casino operators, and any increase in the VAT rate would reduce a casino’s income.
The estimated deemed output VAT collected from casinos last year amounted to R2bn. Casinos paid R3.6bn in gambling taxes, levies and deemed output VAT last year. Taxes, levies and VAT amounted to 22 percent of casino gross gambling revenues in 2012.
While there has been high growth in the number of LPMs “the market remains well below its potential as only a fraction of the authorised machines are in place”, according to the report.
“A total of 50 000 machines are authorised in two roll-out phases of 25 000 each. As at mid-2013, there were about 10 000 LPMs installed out of 25 000 in the first roll-out. As a result, the number of LPMs in place represent about 20 percent of the total authorisation.”
As LPM machines continue to be installed in new locations and with the possibility of increases in the maximum bet and payout, there is ample room for growth in this sector.
Sports betting includes bookmaking and pari-mutuel wagering on horseracing and other sports events. This is the only category where online gambling is permitted.
Horseracing is the dominant component of the market with R1.8bn in gross gambling revenues in 2012, more than twice the R819m for traditional sports events. However, sports betting has been the faster growing category with gross gambling revenues rising by 71.3 percent last year compared with the 4.5 percent increase for horseracing.
“The proliferation of sports betting shops and online wagering are driving this component of the market. It is expected that sports betting will surpass horseracing within the next five years,” Forster said.
Bingo is a small category but the introduction of licensed bingo in Mpumalanga last year propelled the market. Applications for licences have been submitted and accepted in KwaZulu-Natal and the North West, with bingo expected to be introduced in these provinces within the next five years.
Bingo is also expected to continue to be the fastest-growing category during the next five years as it expands into other provinces. Gross gambling revenues are projected to rise from R437m last year to R1.4bn in 2017.
The national lottery has been the slowest-growing segment in recent years. Slow growth in Lotto ticket sales is expected for this year, reflecting the slowing economy, with sales growth picking up from next year as the economy is expected to improve.
Lottery ticket sales rose by 3 percent last year, a slower increase than overall growth in gambling. The national lottery is expected to remain a slow-growing category with turnover rising 3.4 percent on a compound annual basis.