Gross gambling revenues have improved in South Africa despite challenging market conditions.
The gambling industry posted its second-largest gain in gross gambling revenue (‘GGR’) during the past five years, with casinos retaining the majority share. Revenues from all forms of gambling rose 11,2% in 2015, up from the 8.4% increase in 2014.
Overall, gross gambling revenues are expected to expand from R26-billion in 2015 to R34,8-billion in 2020, a 6% compound annual increase.
These are some of the highlights from PwC’s fifth annual edition of the gaming industry entitled Gambling outlook for South Africa: 2016-2020. The publication focuses on segments within the gambling 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 and the Casino Association of South Africa (CASA) is the source for historical data.
Pietro Calicchio, gambling industry leader for PwC South Africa, says: “The South African gambling industry continues to grow from a revenue perspective and continues to expand and invest large amounts in capital expenditure. 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.
“An issue of particular concern to the industry is that of illegal gambling. CASA estimated that in 2016 illegal gambling cost the government R140-million in lost tax revenue.”
Periodic proposals to extend online gambling beyond online sports betting, which is currently permitted, to online casinos, online poker and other online gambling activities have not been approved to date.
Gross gambling revenues (GGR) for casinos, limited payout machines, bingo and betting totalled R26-billion in 2015, an 11.2% increase on the prior year.
Casinos are by far the largest component of the gambling market with casino gambling revenues accounting for 70% of total gambling revenues in 2015, but that share is down from 81% in 2011. Currently, a total of 38 out of 40 possible casinos are in operation.
In 2016, the Minister of Trade and Industry increased the maximum number of casino licences that may be granted from 40 to 41 with the additional licence being allocated to the North West Province. CASA is challenging the move, contending that provincial boundaries should not be an issue in determining the number of casinos in South Africa as a whole.
Total gambling taxes and levies amounted to R2,6-billion in 2015, up 7,3% from 2014. For the market as a whole, taxes and levies averaged 10,1% of GGR in 2015, a modest decrease from their 10,4% share in 2014. These taxes and levies are paid to the provincial gambling boards.
Casinos also pay deemed output VAT to the National Treasury on the GGR that they have earned. The estimated deemed output VAT collected on gambling revenues from casinos in 2015 amounted to R2 billion, or 11% of GGR. Gambling taxes and levies represented 9.9% of casino GGR. When VAT is included, casinos’ share of all taxes rises to nearly more than 21% of GGR.
The Gauteng province has announced plans to raise casino taxes but no further announcements on when this will be implemented have been made. For the forecast period as a whole, taxes and levies are expected to expand by 6.1% compounded annually, to R3,5-illion in 2020.
Gauteng was the leading province in gross casino gambling revenues in 2015 at R7,4-billion, up 5,5% from R7-billion in 2014. Kwa-Zulu Natal and the Western Cape, each with five operating casinos, were next at R3,4-billion and R2,7-billion, respectively, each up from 2014.
For the forecast period as a whole, casino GGR is projected to increase at an estimated 4,2% compound annual rate, rising to R22,4-billion in 2020 from R18,2-billion in 2015.
Betting was the fastest-growing category in 2015 with a 28.5% increase in GGR, raising its share of total GGR to 17% from 14% in 2014, the second-largest gambling category behind casinos.
Betting has mainly been fueled by the surge in legal sports betting, which in turn was boosted by the availability of legal online wagering. Sports betting rose by 51,9% in 2015 to R2,4-billion, five times the total of R478-million in 2011. Sports betting also overtook horse racing in 2015 to become the largest component of overall betting GGR at 54% of the total.
The growth in broadband penetration and the licensing of more online betting services will continue to propel sports betting. “In addition to the underlying growth in sports betting, international events such as the FIFA World Cup, the Rugby World Cup and the European Championship stimulate betting volumes,” adds Calicchio.
Horse racing GGR rose 8,8% in 2015, its largest gain during the past five years. Horse racing is expected to return to its pattern of low-single digit increases, averaging 3,2% compounded annually, to reach R2,4-billion in 2020.
Betting remains a popular activity and growth is expected to remain robust over the next five years, increasing to R7,4-billion in 2020, with sports betting making up R5-billion of the estimated total.
LPMs, primarily located in bars, clubs and restaurants, accounted for 9% of GGR in 2015, the same share as in 2014. LPM GGR has grown at double-digit annual rates over the past five years, in part reflecting the introduction of new machines and new sites. The Western Cape had the largest LPM market in 2015 at R710-million of GGR, with Kwa-Zulu Natal next at R559-million. Gauteng ranked only third with a GGR of R419-million. For the forecast period as a whole, LPM GGR is projected to expand at a 7,7% compound annual rate to R3,4-billion in 2020, from R2,4-billion in 2015.
Bingo is the smallest category, accounting for only 4% of total GGR in 2015, up from 3% in 2014 as GGR rose 27.5% in 2015. Gauteng remains the largest province in bingo with GGR at R591-million, 63% of the total. In the other provinces where bingo is available, GGR increased by 61% in 2015. Bingo was only recently introduced in Kwa-Zulu Natal and remained a small market in that province in 2015 at only R3-million. Electronic terminals have not yet been introduced in the Western Cape, Limpopo, Free State or Northern Cape.
For the forecast period as a whole, bingo GGR is projected to increase at an 11.7% compound annual rate, from R936-million in 2015 to R1,6-billion in 2020.
Lottery ticket sales have declined during the past three years by a cumulative 6%, including a 2,9% decline in 2015, reflecting growing competition from other legal gambling options and the effects of a slowing economy. A pick up in ticket sales is expected during 2017 and faster growth over the latter part of the forecast period as economic conditions improve. GGR is projected to increase at a 0,2% compound annual rate from R2,21-billion in 2015 to R2,23-billion in 2020.
“The gambling industry in South Africa will continue to be adversely affected in the near term by slower economic growth, but improving economic conditions over the latter part of the forecast period will boost spending at a faster pace. The industry remains an important contributor to the economy through the creation of jobs, continued capital expansion and the payment of taxes to both provincial and national government,” says Calicchio.