2020 was a year that most of us will be happy to see consigned to the pages of history. That applies twofold to businesses operating in the travel, tourism or leisure sectors, so it should come as no major surprise that Sun International, the world-renowned casino and hotel group, reported significant losses for the business year.
Earnings down by 50 percent
The numbers make grim reading indeed. Earnings were down by around 50 percent, dropping from R11.8 billion in 2019 to R6.1 billion in 2020. EBITDA was down by a shocking 95 percent for the first half of the year, and although this showed brief bounce back in the third quarter, it tanked again towards the end of the year when South Africa went into a new wave of lockdown.
The unprecedented events that unfolded last year also left Sun International staring significant impairment charges in the face. These are accounting instruments that adjust the value of fixed assets in light of economic uncertainty, changing market conditions or some other casualty loss. These charges amounted to more than R1 billion across Sun City, The Boardwalk and The Maslow Sandton.
Casino hemorrhaging millions
The losses from the hotels and leisure facilities are understandable and inevitable – it’s been a similar story at destination resorts across the globe, from Las Vegas to Macau. But what might come as more of a shock is the fact that casino earnings also dropped through the floor, down 50 percent on the previous year to just R4 billion.
Many casino operators across the globe had found this blow softened by the surge in online casino interest during the months of lockdown. But as the players themselves could tell them, Sun City have got to be in it to win it. South African gambling laws make this impossible, however, as online casinos are strictly prohibited within the country and if Sun City was to create an online version of its casino with real money gambling, it would be shut down immediately and people would likely face custodial sentences.
The irony of this situation is that online casino gaming is actually very popular in South Africa. That might sound like there’s either a paradox or lots of lawbreaking going on, but neither is the case. While operating an online casino is prohibited, playing at one is not. Hence the list of online casinos for South Africans you see on sites like Zebra real money casinos are all doing good business perfectly legally, as they are based offshore.
It’s a scenario that we see time and again across the world. The internet has no concept of international boundaries, so banning casinos, sports betting sites or anything else in one place only encourages providers to set up somewhere else and pitch their wares at that nation’s buyers. Some countries attempt to block them or to threaten sanctions to players, but either action is complex, labor-intensive and usually ineffective.
The reality is that when online gambling is prohibited in-country (or in-state as we are seeing in the US), it still takes place. The only difference is that the country or state has no regulatory control over the businesses providing the services and denies itself potential millions in tax dollars.
When you look at it in the cold light of day, and especially in view of the figures reported by Sun International, it’s a situation that makes little sense. The South African Gaming Board is under growing pressure from within the industry and from independent commentators to initiate legislative reform.
Better times ahead?
The aftermath of 2020 will be felt for some time, both by Sun International and by the 2,200+ employees whose livelihoods were affected by the retrenchment exercise that took place across the Group. However, despite that, there are already green shoots of recovery starting to show through.
The casino market share has shown a marked upturn since reopening, despite the fact that the facilities have been able to welcome practically no international visitors. Similarly, food sales are on an upward trajectory, although progress here is muted due to continuing restrictions that limit the number of covers and so on.
As international tourism gets back underway there is cause for optimism. Sun City is and always has been a bucket list destination for millions, and those buckets will be being explored like never before over the coming 12 to 18 months.
The expected uptick should not, however, detract from the broader discussion relating to online alternatives. Web-based gambling is here to stay, and it represents a significant proportion of the overall market. Ultimately, a regulated system in South Africa will not just benefit businesses like Sun International. It will also generate much-needed revenue and provide a safer iGaming environment for South Africa’s thousands of casino gaming enthusiasts.