Outlook for South Africa’s gaming industry remains positive, says PwC report
South Africans wagered R257.6 billion on gambling in 2011, which equates to more than R8 000 per adult (18 years and older). Overall turnover, the total amount wagered, for all types of gambling rose 10.6% in 2011 following the 8% increase in 2010. Turnover is projected to increase at a 6.3% compound annual rate during the next five years to R349.6 billion in 2016.
These are some of the findings PwC’s inaugural edition on the gaming industry entitled: ‘
’. The publication focuses on segments within the gaming industry with detailed forecasts and analysis. Each segment details the key trends observed as well as key challenges and future prospects. The National Gambling Board of South Africa is the source for historical data.
Nikki Forster, PwC Gaming Industry Leader for South Africa, says: “The gaming industry is often associated with glamour, high rollers, opulent settings and the trappings of wealth. As a business, however, the margins are low, a large portion of the costs are fixed, regulatory compliance is stringent and profitability depends on volume.”
The South African gaming market
Casino gaming is by far the largest category, generating R14.9 billion in gross gaming revenues, the amount gambled less that returned to the gambler, in 2011, 80.7% of the total. Sports betting is next at R2.2 billion. Limited payout machines (LPMs) and bingo have been the two fastest-growing components of the market albeit off a low base, in both cases more than doubling between 2007 and 2011. LPMs contributed R1.2 billion to the total in 2011, while bingo accounted for R235 million.
Most of the gambling activity occurs in Gauteng, KwaZulu-Natal and the Western Cape, which together comprised nearly 77% of total gross gaming revenues in 2011.
“Gambling like most other industries is affected by the economy,” says Forster. As the economy began to slow in 2008, gross betting or turnover growth slowed to a virtual halt. Turnover fell in 2009 as the economy weakened further but recovered strongly in 2010 as the economy improved and as the FIFA World Cup boosted betting. “We expect a steadier economic profile during the next five years and steadier turnover growth.”
Gaming taxes and levies
Direct gaming taxes and levies, excluding corporate taxes and VAT, totalled R1.8 billion in 2011, up 9.8% from 2010. Casino gaming accounted for 76.7% of the total, which was less than its 80.7% share of gross gaming revenue.
For casino operations, VAT is an expense and cannot be passed on to the gambler, therefore adding to the tax burden.
“The expected imposition of a 1% tax on casino gross gaming revenues to be introduced in 2013 will lead to a 16.9% increase in taxes and levies for casinos in 2013 and a 16.1% overall increase in taxes and levies when compared to 2012,” says Forster. Gaming taxes and levies are forecast to increase at an 8.6% compound annual rate to R2.8 billion in 2016.
Casino gaming
Casino gross gaming revenues in 2011 recorded the largest gain since 2007 at 5.8%. With the expectation of slow economic growth in the near term, turnover and gross gaming are forecast to grow at low rates during the next five years. Casino gross gaming revenues will rise at a 5.3% compound annual rate to R19.2 billion in 2016 from R14.9 billion in 2011. Casino taxes and levies totalled R1.4 billion in 2011.
Limited payout machines
LPMs are licensed to route operators who manage and operate LPMs in conjunction with site operators. A total of 50 000 LPMs are authorised to be rolled out nationally in two phases of 25 000 each. However, installations have proceeded at a much slower rate than originally anticipated with only about 7 500 LPMs having been installed by mid-2012.
In contrast with the casino market, Gauteng ranked only third in LPM gross gaming revenues at R157 million, representing only 13.4% of the total. The Western Cape had the largest LPM market in 2011 at R423 million, with KwaZulu-Natal next at R274 million. The Eastern Cape at R137 million was the only other province to generate revenue of more than R100 million.
With only a fraction of authorised LPMs in place, there is ample room for growth and LPM turnover is projected to expand at a 17.7% compound annual rate to R27 billion in 2016 from R12 billion in 2011. Gross gaming revenues will reach R2.6 billion in 2016, up 17.6% compounded annually from R1.2 billion in 2011.
Sports betting
Sports betting includes bookmaking and pari-mutuel wagering on horseracing and other events. Wagering totalled R17.7 billion in 2011, generating gross gaming revenues of R2.2 billion.
Horseracing is the dominant component of the market with R1.7 billion in gross gaming revenues in 2011, 78% of the total. Sports betting has been the faster-growing category with gross gaming revenues rising by 35.8% in 2011 compared with the 1.5% increase for horseracing.
Sports shown on television tends to generate the most betting activity. Soccer is the leading betting category, while cricket and rugby, particularly Super Rugby, also generates substantial wagering. Betting on the 2010 FIFA World Cup and the ICC Cricket World Cup in early 2011 boosted gross gaming revenues by 24.5% to more than R2 billion. In 2011, the launch of sports online betting outlets and wagering associated with the Rugby World Cup contributed to a 7.5% increase in gross gaming revenues.
The 2014 FIFA World Cup is expected to lead to a 20.9% increase in gross gaming with a further 9.1% advance in 2015 related to the Rugby World Cup.
For the forecast period as whole, turnover is expected to increase at a 6.5% compound annual rate to reach R24.2 billion by 2016.
Bingo
Bingo is a small category that is currently available only in Gauteng but is expected to be introduced in KwaZulu-Natal, Mpumalanga and the North West during the next five years. Bingo is also expected to be the fastest-growing category during the next five years with a projected 20% compound annual increase in turnover to R8.4 billion by 2016 from R3.4 billion in 2011. Gross gaming revenues will rise from R235 million in 2011 to a projected R590 million in 2016.
Critical legal issues for the gaming market
Forster says: “A lack of legal clarity and regulation makes it difficult to determine the future growth of the online gaming industry in South Africa.” Gaming is currently regulated by the National Gambling Act of 2004 and respective provincial gambling laws. Following international norms to regulate the lucrative online gaming industry, Parliament passed the National Gambling Amendment Act in 2008 to provide for the licensing and regulation of interactive gambling.
In early 2012, the Gambling Review Commission recommended regulating online gaming. On line gambling can generate tax revenues which are currently being lost. However under existing laws, online gambling is prohibited in South Africa.
Forster concludes: “The outlook for the industry remains positive and the further rollout of limited payout and bingo machines and the possible introduction of online gaming will further contribute to the expected growth in revenues.
“Casino operators are also expanding or upgrading their properties to offer a better experience to gamblers and non-gamblers seeking out quality entertainment.”
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