Dark clouds gather over Sun`s casino

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There are ominous developments for Sun International’s
dominance of the gambling sector in Cape Town.
Dark clouds gather
over Sun’s casino
G
AMING giant Sun International has
really held the aces – or should we say
‘ace’ - when it came to gaming in the
Cape.
The record will show that Sun International
has made plenty of moolla from its cash spewing GrandWest casino in Goodwood – which
unlike the clustered Gauteng market – is not
hassled by any other urban competition.
The other Cape casinos – Mykonos,
Worcester (owned by Sun International),
Caledon and the Garden Route casinos – are
simply too far removed from Cape Town to
impinge, in any way, on the revenues of
GrandWest.
But lately there have been two ominous developments for Sun International’s Cape Town
dominance.
The first is an external factor, and revolves
around the Western Cape provincial government considering whether to permit one of
the other regional casino licence holders to
relocate their casino to the Cape Metropole.
The official word from Sun International
is that insufficient information is currently
available to assess the potential impact on
GrandWest’s revenue and profitability.
But Sun International has pointed out that
if a relocation and establishment of a new casino goes ahead “it is likely to be material to
GrandWest once opened”. The truth, though,
is that such a development is not likely to take
place before the end of 2012.
The last CBN heard was that the provincial
government was still engaging interested
stakeholders before taking a final decision.
While GrandWest’s period of exclusivity
expires at the end of the year, it seems provincial government will extend the casino’s exclusivity until the process is completed.
All the Western Cape casino licences – save
for Worcester – are now held in the soon-tobe-officially- merged Tsogo Sun/Gold Reef
Resorts entity. The outright favourite – presuming the provincial government won’t allow Sun International’s Worcester to transfer
its licence to the Cape Metropole – would be
the Mykonos casino.
Unlike the other casinos Mykonos will not
in Cape Town, but the group also
faces an internal challenge
around the GrandWest casino.
Grand Parade Investments,
the empowerment company
that is Sun International’s empowerment partner in the Western Cape, has made a blatant
challenge for the lucrative management
contract
for
GrandWest.
GPI – via SunWest – holds a
30% stake in GrandWest as well
GPI chairman Hassen Adams seems eager to get a bigger hold
as half of the Western Cape
on the fortunes of the GrandWest casino.
Management Company. Although GPI would only rank as a significant with this issue with its partner, Sun Internaminority in SunWest, the company does hold tional Limited, and is hopeful that a mutually
voting control at SunWest.
beneficial shorter-term solution will be found,
GPI chairman Hassen Adams has high- the GPI board believes that failing this solulighted potential benefits to shareholders stem- tion, GrandWest should nevertheless be fully
ming from the expiry at the end of 2014 of the capable of being self-managed, especially after
operating management agreement whereby 15 years of skills transfer, when this contract
Sun International Management Limited expires.” Adams explained that GPI sharehold(SIML) provides management services to ers would benefit from cost savings if manageGrandWest.
ment fees paid by SunWest to SIML were disAdams noted: “While GPI has been dealing continued.
It’s not clear exactly how much Sun International earns in management fees from
GrandWest. CBN would estimate at least R100
million a year – and that may be conservative.
Sun International surely won’t give up this
valuable earnings stream without a fight. But
GPI – which is now keen to take on the aspect
of an operating company – won’t back down
either.
One might expect negotiations around the
management contract could take years, which
would suit Sun International more than GPI.
While it looks like Sun International has got
its work cut out internally and externally around
Cape Town, it might be foolish to discount the
company’s chances of retaining a very profitable presence in Cape Town.
Sun International is headed by a smart operator in the form of David Coutts-Trotter, who
CBN would not bet against reaching a favourable negotiated settlement on both the exclusivity and management contract issues. But it
won’t be easy…or cheap.
The GrandWest casino’s period of exclusivity expires at the end of the year.
be giving up major structural developments in
order to shift its licence to Cape Town. The
move, though, would have a major impact on
employment in an economically vulnerable
West Coast – and one presumes Tsogo Sun
would have to make some sort of compensatory investment to ensure jobs can be saved.
From what CBN hears, the provincial government is looking for a casino that is fundamentally different to GrandWest. We hear the
new casino would be pitched at high-rollers
(and well heeled tourists), which leads us to
believe it could be situated at the Waterfront
(perhaps – oh the irony - at Sol Kerzner’s One
and Only Hotel?).
Naturally the provincial government – mindful of the need to create jobs – would be envisaging a rather grand affair – probably a casino
that might be a good deal bigger and more
swanky that GrandWest.
Perhaps Sun International would claim a
new urban casino would cater for a different
market. But there would still be serious market
share issues to face up to…
It’s bad enough that Sun International might
be dealing with some serious new competition