GAMING companies have been so stretched by the Covid-19 lockdown and related restrictions that the fate of the ‘second’ casino in the Cape Town metropole has almost been forgotten.
Not that the big casino operators – Sun International and Tsogo Sun Gaming -would be thinking about spending billions on developing a new casino in Cape Town when their respective balance sheets are labouring worryingly under a considerable debt load and while cash flows are staunched by trading restrictions associated with the lingering pandemic.
As it stands, Sun still enjoys an extended monopoly period with its GrandWest property – which officially saw its exclusivity arrangement end in 2013 – still the sole casino operating in the greater Cape Town area.
Officially, though, the Western Cape Twentieth Gambling and Racing Amendment Bill and the Western Cape Twenty-First Gambling and Racing Amendment Bill were both published in early May last year. This provides for the relocation of an “outlying casino licence” to the new Helderberg zone.
The outlying casino licences are Caledon, Mykonos, Garden Route – which are all owned by Tsogo – and the Golden Valley casino in Worcester, which is owned by Sun.
If these bills are enacted, GrandWest’s so-called exclusivity zone will be reduced from 75kms to 25kms.
Three years ago the prospect of a second casino licence being allowed in the Cape Town metropole would have caused a good deal of excitement.
But right now Covid-19 has rendered both Tsogo and Sun – who hold all the cards in the Western Cape casino segment – very vulnerable. With debt levels barely being serviced by cash flows the enthusiasm for splurging capital on a new casino development must be seriously lacking.
While the limited operating regime – no serving of alcohol and restricted trading hours under the curfew – must be frustrating, casinos did show some evidence of resilience in the second half of 2020.
Sun, for instance, reported that casino income for the month of July achieved 39% of income earned during the comparative month in 2019.
The group said it expected casino results to continue to recover strongly following the lifting of the lock-down. Sun disclosed that casino operations continued to post a strong recovery during August – achieving 56% of the prior corresponding period’s income.
Of course, that is off a low base. In the half-year to end June (including most of the stricter lockdown weeks), Sun’s flagship GrandWest casino could only muster R434 million in turnover compared with over R1 billion in 2019. Profits were markedly down at R80 million compared with R396 million in the 2019 interim period.
The Golden Valley casino in Worcester manged to scrape together revenue of R38 million (R82 million last year) – but went R8 million into the red.
In view of the poor performance by Golden Valley, it is interesting to note that Sun said it is weighing up a review of “the small unit operating model”
Significantly Sun recently disclosed that it sold its Carousel Casino licence in the North West province.
Whether Golden Valley may be put up for sale is debatable. With Sun already holding the GrandWest casino, it seems unlikely that the group will be allowed to shift the Golden Valley licence to the Helderberg area. That said, it a second casino does open up in the Cape Metropole – and closer to Worcester – then the viability of the Golden Valley casino does come into question.
Tsogo – in its last set of results for the six months to end September – reminded that with significant investment in infrastructure, high employment numbers and staff costs, casinos were not built to operate in a constrained environment. It stressed there was severe pressure being placed on the group’s cash flow and debt position in the interim period.
Tsogo said no major projects are planned for the next year – adding that investments and acquisitions in the industry and the possible sale of non-core assets would be continuously evaluated.
At this juncture Tsogo does not appear to be weighing up the sale of any small casinos – which would include Mykonos and Caledon – preferring to focus on the sale of surplus property.
Tsogo did indicate that the month of October delivered a solid performance and a further improvement as a result of the relaxation of the curfew being applicable for the full month.
The group argued that reduced levels of revenue (due to restricted trading) could be offset by a lower cost base. In addition lower capital expenditure and a halt on dividends gave management confidence that debt levels could be reduced significantly by September this year.
The clear and determined inward focus on surviving the side-effects and potential after-effects of the Covid-19 pandemic surely will mean that progress on establishing a second Cape Town metropole casino is at least a handful of years away.
It might be possible that a new casino venture can be pursued on a partnership basis – with private equity players probably chomping at the bit to make new investments.
But CBN would bet that any shuffling in the existing Western Cape casino licences will be a long game. Who knows, bets might even be completely off the table?