Western Cape Business News

Send  Share  RSS  Twitter  29 Jan 2009

GAMBLING: Yanks Chuck In Their Chips


Recent Western Cape Business News

IT would seem Delaware based Century Casinos is ready to throw in its hand at the Caledon Casino. Rumours have been swirling for a few months around the possible sale of the Caledon Casino – and it was only in mid-November that the group admitted various bids – mostly from SA participants - were being weighed up.

It seems a great likelihood that the Caledon Casino will be under new ownership by early this year – presuming the bidders are prepared to give Century Casinos a decent exit price (which could be anything between R120 million to R250 million).

Such a development would not be entirely surprising.

While the Caledon Casino has been a solid casino business, the truth is that the venue is still well off the beaten track in term of visitors to the Cape.

It’s one thing to get passing trade on the N2, but quite another thing to be able to woo tourists and visitors away from the Mother City (where the GrandWest Casino holds an imposing presence).

The small town appeal of the Caledon Casino has to an extent also been eroded by the emergence of the Mykonos Casino as a formidable West Coast attraction and the recently opened Golden Valley Casino in Worcester.

To make matters worse for Century Casinos, the dramatic weakening of the rand against the basket of hard currencies will diminish returns in dollars at a time when discretionary spending in SA is coming under increasing pressure.

The Caledon Casino quite surprisingly represent a fair chunk of Century Casino’s international gaming portfolio, which is spread across the US and Eastern Europe as well on cruise ships.

Not too long ago Century Casinos expressed much confidence in Caledon, arguing that the casino should benefit in the longer term from tourism growth and infrastructural development.

Century’s quarterly report to end June 2008 disclosed that Caledon casino’s net operating revenue crept up slightly to R32 million on the back of a reduced share (4.7%) of the Western Cape gaming market.

While that performance may appear satisfactory to local investors, the Caledon Casino’s quarterly net operating profit in dollars dropped markedly from $1.7 million to under $1.4 million.

The rand has weakened considerably more since the end of June so it was no surprise that dollar operating revenues were again on the slide in the quarter to end September 2008.

Depending on Century Casino’s view of exchange rates, perhaps the fear is that a weaker rand could reduce the contribution from the Caledon Casino to negligible levels in dollar terms in the years ahead.

The current trading margin at the Caledon casino is 31% - which is markedly lower than most well established small casinos.

Century Casinos vice president Peter Hoetzinger summed it up succinctly.

“We believe that the addition of 500 slots in a competing casino in Cape Town early last year as well as rising fuel prices during the second and third quarters of 2008 have led some customers to gamble in Cape Town as opposed to travelling to our casino.”

The quarter to end September saw net operating revenue at the Caledon Hotel, Spa and Casino decreasing 12% to just under $4 million (previous year $4.5 million). The fall was mainly the result of the weaker exchange rate, but a “lower customer attendance” was also noted (explaining the 5% drop in rand revenues to R31 million).

The Caledon Casino’s market share of the Western Cape gaming revenue declined from 5.1% for the third quarter of 2007 to 4.8% for the third quarter of 2008.

Century Casino directors believed that rising fuel prices throughout 2008 led local patrons from Cape Town to gamble in Cape Town as opposed to travelling into the Overberg.

But in spite of profit pressures the Caledon Casino could have a sound long term future as tourism activity builds and infrastructure around Caledon develops. For these reasons CBN believes there will be any number of buyers for the Caledon casino, ranging from existing gaming investment companies, empowerment consortia and private equity players.

If there is a bit of a bidding war it will be interesting to gauge what offers are tabled for the Caledon Casino with Cape-based empowerment groups Grand Parade Investments (GPI) and Hosken Consolidated Investments (HCI) the odds on favourites to be the successful bidder.

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