ITJ t might have a reputation

I for caution, but one of theworld's leading gamingand betting companies,FTSE-Iisted Ladbrokes, has

plumped for Africa to grow its business.The company has teamed up with

African casino group KaiRo Internationalto launch an online sportsbook in SouthAfrica. Licensed and regulated in SouthAfrica, the joint venture promises tooffer punters the most reliable onlinewager in the business and is indicativeof South Africa's growing bettingmarket. Ladbrokes says it expects asports betting licence before Christmas."This is an opportunity to capitalise on adeveloping market," says Ladbrokes CEOChristopher Bell.

Continental spinLadbrokes isn't the only operator vyingfor a slice of the South African onlinesports betting market, which is worthan estimated US $86 million annuallyand set to grow to $122m by 2012,according to global betting and gamingconsultants. UK bookies Victor Chandlerset up in June ahead of the World Cupand Gibraltar-based Dragonfish, theB2B arm of online gaming business888 Holdings, has also signed a deal tosupply Pumelela Gold Enterprises, theSouth African pari-mutual operator; witha sportsbook product.

It's not surprising the gaming industryis starting to put its money on Africa.According to research from analysts H2Gambling Capital, the gross gamblingyield for African casinos will grow to$2.73 billion by the end of 2010 andthe overall gambling market, includingbetting, gaming and lotteries, will jumpto $5.55bn by the end of 2010 and$5.86bn in 201l.

As the recession ravages the profitsof US gaming groups struggling withlarge debt burdens and decliningcash flows, casino operators fromAccra, Dar es Salaam and Cairo haveshaken off the recession and arethriving on a new Chinese and Indianclientele. Nigeria's National LotteryCommission is now selling the conceptas a route to empowering peopleand creating employment in statesin the Muslim north. Around 20,000hopefuls play Kenya's First Lotto every

week. Privately-run Games WorldInternational, headquartered in Sharjah,UAE, has just opened a new casinoin Mongomo City, Equatorial Guinea,adding to its portfolio in Monrovia,Cameroon and Djibouti.

The house always winsHowever fast online gaming grows, likeAfrica's national lotteries and sportsbetting, it is still a minnow compared totraditional bricks-and-mortar casinos:in South Africa they account for 75%of the total gambling sector. With nonew casino licences up for grabs athome, hotel and casino groups like

Operator hopefuls areprowling around Africa's

tourist destinations

Peerrnont, JSE-listed Sun Internationaland the soon-to-be merged Gold ReefResorts and SAB Miller's Tsogo-Sun areexpanding up the continent.

"South African gaming groups arelooking at opportunities in Angola,Mauritius and Mozambique," says CharlFaurie at the Casino Association of SouthAfrica.

Success dovetails best with anexpatriate scene in fast-growing capitalcities. Burgeoning Chinese and Indianpopulations, as weJJ as the upwardlymobile with cash to spare, are a lucrativemarket. Sun International openedLagos's biggest casino last Decemberon the ground floor of the sumptuousFederal Palace Hotel.

Mustafa Koc, managing director atGibraltar-based KaiRo International,which owns and runs casinos in Dar esSalaam and Accra, explains the ethosbehind the business and its appeal tothe new middle class: "The idea is thatwe offer a very high quality service. Itdoesn't matter if you lose money as longas you've had the very best service."

High spending tourist destinationslike Egypt, where a handful of the 20casinos are foreign-owned by US groupHarrah's, through its subsidiary LondonClubs International, and Austriancasino monopoly Casinos AustriaInternational, also thrive. South Africanoperator Peermont is waiting to hear

if its bid for a 51 % controlling stake inthe five pure gaming venues of Casinosof Mauritius group is successful. Otheroperators are also prowling aroundthe tourist destinations. "The taxes arehigh in Mauritius but it is a market we'dconsider;" said Koc.

Elsewhere, in the largest investmentin the Seychelles leisure industry, jSEand NSE-listed Pinnacle Point Groupsays it plans to build one of the world'smost exclusive golf and casino resorts onthe island.

Too many licencesIncreased competition brings risks aswell as opportunities. Sun Internationalcould find itself under pressure comeDecember when its 10-year exclusiveright as the only casino in the CapeTown metropolitan area expires. Theprovincial gambling authority has saidit will allow another casino to open inthe city although Sun is opposing thedecision.

Similarly, there are now four casinosin Botswana's capital Gaborone, witha population of just 200,000. New kidon the block Gold Reef's plans to useits recently won licence to build a $4mcomplex has enflamed incumbents SunInternational, Peermont and privately-owned Moonlite Casinos.

"Gaborone is a small city and wedon't believe there is space for anothercompetitor," said Anthony Puttergill,CEO of Peermont, in a statement."Countries like Kenya, Nigeria andBotswana have credible regulatoryregimes but there are still problemsand issuing too many licences is one,"says Chris Fismer, ex-Chairman of SouthAfrica's National Gaming Board andthe government minister in charge ofgambling regulation under PresidentMandela.

It's a worry for investors in Nairobi'sbustling casino sector too. "There arearound 20 licences in Nairobi. It makesthe competition stiff and a bit unfair,"one Nairobi-based potential investortold Africa investor.

Regulatory challenges andunpredictable government policy is acommon theme as governments struggleto balance gaming investment with themoral dilemma of casino groups reapinggains from local consumer losses.

20101 NOV - DEC 165 E:! afrlcalnvestor

Business GAMBLING

"It took about five years for SunInternational to finalise legislationahead of going into Nigeria," says aJohannesburg analyst. "Casinos needeffective and efficient regulation andthey want laws applied that stop illegalactivities. They are proud of theirreputation and they don't want todamage them," says Faurie.

One of the most potentially damagingaccusations against South Africa's listedand expanding casino sector would beany implication of a roll in cleaning ill-

Kenya, Nigeria andBotswana have credible

regulatory regimes but theystill issue too many licences

gotten gains. South Africa has signed upto international efforts to tackle moneylaundering and has its own anti-moneylaundering laws such as obligations oncasinos to report suspicious or largetransactions.

"Casinos face severe penalties andthe withdrawal of their licence if thereis any sign of money laundering,"says Faurie. Investors say it's moreof a worry in less developed and lessregulated markets and is one of thereasons for prudence.

"The absence of proper regulationdoes make us cautious," says Koc.

Long-term playOperators stress they aren't after a fastbuck but invest long-term and pumpmoney into promotion and tweakingtheir offering to appeal to Africa'sdifferent markets.

"We put between $4m and $Sm into anew casino," says Koc. "We have an eyeon the long term and need structuresin place before we can get too excitedabout a new market."

High taxes in North African marketsare one problem, while analysts expectit will take a while for Sun Internationalto kick off in Nigeria.

Once investors settle in a market theirpresence acts as a dramatic catalystfor improving the gaming investmentclimate, however.

"We play a huge role educatingregulators about fair taxation and howto enable a competitive environment,"says Koc.

Back in South Africa, Faurie believes

!9Iffdifi!.@4i!. 661 NOV· DEC 12010

Ladbrokes and Victor Chandler will playpivotal roles developing the market.

"Companies coming here likeLadbrokes with a well known trackrecord are a very good thing. They havea real contribution to make," he says.

For some commentators, nascentinvestor interest in Africa has beeneclipsed by emerging markets in Asia.

"US casino groups like MGM andWynn Resorts are more focused onplans to legalise casino gambling inJapan or the Chinese market than anyAfrican markets," says Las Vegas-basedexpert David Swartz. "More peoplegamble in Asia and more people have adiscretionary income."

This year, two new huge leisureand convention resorts based around

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casinos opened in Singapore, backed byLas Vegas Sands and Malaysia's Gentinggroup.

Going forward, Ladbrokes sees no endto its investment, and hopes to expandits sports offering from football tohorseracing. The company is not fazedby the government's recent ban ononline or egaming that could stop theroll-out of future products like onlinepoker or an online casino. Experts saythe ban is designed to stop gamingcompanies based outside South Africaoperating in the country, rather thanlicensed operators, and are confidentegaming licences will be awarded in thefuture. International and local operatorsbelieve Africa's forecast economicgrowth makes gaming worth a punt. ~

Global gambling

After a tough 2009, the global gamingindustry is no longer considered recession-proof. Figures for the industry's value in2010 are at similar levels to those of 2009.

"The recovery in the world economyis quite fragile and we expect to seecontinued volatility in the markets untilvarious governments have their budgetdeficits under control," says Global Betting& Gaming Consultants (GBCG). It's notsurprising then that the gaming industryis starting to put its money on Africa.According to research from H2 GamblingCapital, the African gambling market islooking decidedly healthy and will reach$S.sSbn by the end of 2010 and $S.86bn in2011. According to GBGC,global gamblingfigures will reach $406bn by 2012.

Source: H2 Gambling Capital

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Market Value US $bn

.2010 • 2011