While casinos are by far the largest component of the gambling market in South Africa, online sports betting is rapidly catching up.
This was one of the findings from PwC’s fifth annual edition of the gaming industry outlook for South Africa: 2016-2020.
PwC noted that the gambling industry posted its second-largest gain in gross gambling revenue (GGR) during the past five years.
Gross gambling revenues (GGR) from all forms of gambling rose 11.2% in 2015, to R26 billion. This is expected to grow to R34.8 billion in 2020 – a 6% compound annual increase.
Pietro Calicchio, Gambling Industry Leader for PwC South Africa, said that while the gambling industry continues to grow from a revenue perspective and continues to expand and invest large amounts in capital expenditure, “as a business, the margins are low, a large portion of the costs are fixed, regulatory compliance is stringent and profitability depends on volume”.
Calicchio said that an issue of particular concern to the industry is that of illegal gambling. The Casino Association of South Africa (CASA) estimated that in 2016 illegal gambling cost the government R140 million in lost tax revenue.”
Casinos are by far the largest component of the gambling market with revenues from 38 casinos accounting for 70% of total revenues in 2015, but down from 81% in 2011.
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.
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, according to PwC.
“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,” Calicchio said.
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.
Limited payout machines
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.
Bingo accounted 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.
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.