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Gambling revenues improved in Africa in 2014, despite challenging and weakening economies.
Gross gambling revenues in South Africa posted their second-largest annual increase over the past five years, with casinos taking the largest share of this growth by rising 4,5% over the prior year. Overall, gross gambling revenues in South Africa rose by R2,1-billion in 2014. South African gross gambling revenues across most sectors of the market(excluding the National Lottery), are expected to expand from R23,9-billion in 2014 to R30,3-billion in 2019, a 4,8% compound annual increase.
These are some of the highlights from PwC’s fourth annual edition on the gaming industry entitled ‘Taking the odds: Gambling outlook for 2015 – 2019 (South Africa – Nigeria – Kenya)’. 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 is the source for historical data. With regard to Nigeria, figures are derived and extrapolated from selected company information. With respect to Kenya, figures are derived and extrapolated from casino taxes.
Of the three countries included in the analysis, South Africa has the largest overall gambling market. In South Africa, gross casino gambling revenues totaled R17,2-billion in 2014 compared with R497-million in Nigeria and R218-million in Kenya.
Pietro Calicchio, Gambling Industry Leader for PwC South Africa, says: “Overall, the South African gambling industry continues to remain a vibrant and exciting sector, but is facing significant challenges, in particular a slowing economic climate and changes in regulation.
“An issue of particular concern to the casino segment is that of illegal online gambling. In addition, certain casinos are also facing competition from other gambling facilities opening up in their catchment areas.
“We anticipate slower economic growth to lead to slower growth in gross casino gambling revenues in South Africa and Nigeria, while Kenya’s casinos will face increasing competition from legal online and mobile gambling.”
Casinos are by far the largest component of the gambling market with casino gross gambling revenues accounting for 72% of total gross gambling revenues in 2014, down from 76% in 2013, reflecting the maturation of this segment of the market. Currently, a total of 38 out of 40 possible casinos are in operation. On 31 October 2015, the Department of Trade and Industry gave notice of intention to increase the set number of maximum casino licences that may be granted throughout South Africa from 40 to 41.
Casinos face growing competition from other forms of legal gambling such as electronic bingo terminals, limited payout machines, sports betting outlets as well as from the increase in illegal online gambling. Casino gross gambling revenue is projected to rise to R19.2 billion in 2019 from R17,2-billion in 2014, a 2,2% compound annual increase.
Total gambling taxes and levies amounted to R2,5-billion in 2014, up 10,7% from 2013. Casinos paid R1,8-billion in provincial gambling taxes and levies or 10,4% of their gross gambling revenues in 2014. The estimated deemed output VAT collected on gross gambling revenues from casinos in 2014 amounted to R1,9-billion, or 11% of gross gambling revenue, bringing the total taxes paid by casinos on their gross gambling revenues to R3,7-billion or 21,4% of their gross gambling revenues.
Gauteng was the leading province in gross casino gambling revenues in 2014 at R7,2-billion, up 2,4% from R7-billion in 2013. KwaZulu-Natal and the Western Cape, each with five operating casinos, were next at R3,2-billion and R2,8-billion, respectively, each up from 2013. These three provinces accounted for 76,1% of total gross casino gambling revenues.
“We project gross gambling revenue growth to drop to 0,4% in 2015, reflecting a slowing economy. We then look for modest improvements thereafter as economic conditions stabilise and operators such as Sun International and Tsogo Sun expand certain of their properties. At the same time, casinos will face increasing competition from expanding LPM and bingo outlets,” adds Calicchio.
Limited payout machines (LPMs), primarily located in bars, clubs and restaurants, accounted for 9% of gross gambling revenues in 2014. LPM gambling revenue is expected to expand at a 10,3% compound annual rate to R3,4-billion in 2019 from R2,1-billion in 2014. The introduction of new machines and new sites is substantially expanding the market. However, competition from electronic bingo terminals is likely to lead to slower LPM growth over the forecast period.
Bingo is the smallest category, accounting for only 5% of total gross gambling revenue in 2014, but rose from 3% in 2013 on the strength of a 52,6% increase. Bingo became available in KwaZulu-Natal in 2014 and benefitted from a full year of operations in the Eastern Cape and North West. Gauteng continues to dominate the market with revenues totaling R903-million, followed by the Eastern Cape at R114-million. Electronic terminals have not yet been introduced in the Western Cape, Limpopo, Free State and Northern Cape.
Bingo is expected to continue to be the fastest growing category during the next five years with a projected 19% compound annual increase in gross gambling revenues from R1,1-billion in 2014 to R2,7-billion in 2019.
Horseracing remained the dominant component of the sports betting market in 2014 at R1,9-billion compared with R1,6-billion for sports events. However, betting on sports events has been driving the market, accounting for 75% of the increase over the past five years. Gross sports betting gambling revenues increased by 57,6% in 2014, more than three times the 18,5% rise in 2013, largely reflecting the wagering associated with the FIFA World Cup held in Brazil during June and July 2014. In addition, an 18% increase in the number of operational bookmaker outlets contributed to the 2014 increase.
In 2015, it is anticipated that the absence of wagering related to the FIFA World Cup will have an adverse effect on the market. A further increase in sports betting of 36,6% is expected in 2018, associated with the next FIFA World Cup in Russia, followed by a modest 1,8% advance in 2019. Sports betting is projected to rise at a 12,5% compound annual rate to R2,9-billion in 2019.
The National Lottery is expected to remain the slowest-growing category at under 1% annually throughout the forecast period. Gross gambling revenues from the National Lottery are projected to rise from R2,28-billion in 2014 to R2,33-billion in 2019.