Have casinos been good for hotels? Clifford Roberts looks at some of the figures and finds the answer is yes and no.

Gambling establishments are visited by a broad spectrum of people. A venue like GrandWest in Cape Town, makes sure it speaks to the right people when disseminating information on problem gambling.

Sun International is a founder and sponsor of the National Responsible Gambling Programme, which promotes responsible gambling by distributing information and offering counselling. The programme's website is www.responsiblegambling.co.za.

Gambling in South Africa has made many millionaires, but none of these have earned theirmoney at one-armed bandits, or, as the industry prefers to call them, slot machines.

The effects of gambling on the national economy are spectacular, but largely unquantified; the benefits in the minds of many are highly debatable. On one hand companies such as SA Lotto operators Uthingo rejoice at the inflow of cash some of which has now been distributed to charities, on the other, the increase in problem gambling has led to an investigation into the social impact of gambling in SA by the Human Sciences Research Council.

In a short time, gambling and more specifically, casinos have sown the seeds of change for hotels. This has come about because some of the decline in consumer spending has been blamed on gambling. While indicating the possible scale of irresponsible gambling, the HSRC study in November 2000 also indicates the scale at which gambling has affected spending patterns, changing their focus:

• an average of R150 per visit was spent per casino customer, although frequent customers tended to spend much more;

• about one in 12 of all adults spent more than 10% of their monthly income the last time they gambled;

• people who did not have personal income, or whose household income was less than R2 500 per month were more highly represented than those in other income groups.

Annual gambling revenue for SA is estimated to be around R5-billion. Consumers spent more than R2,7-billion on Lotto tickets in the first 12 months after it was launched in March 2000. In terms of casinos, the government has allowed for 40 casino licences of which 24 are operational - each a massive profit centre in its own environment and offering hotel accommodation.

The compatibility of hotels and casinos was demonstrated as far back as 1973 when the first casinos went up in US cities like Las Vegas and Atlantic City. For most of the casinos to turn a profit, however, the rooms division had to function as a loss leader to encourage guests to stay and play in the casinos. In more recent years yield management systems have been taken into use and although revenue from gaming operations still hugely overshadows room profits, the new systems have increased the importance of the rooms division as a potential profit centre.

There are many similarities to the South African scenario while the necessity of yield management systems as a tool in hotels per sé has been accentuated by the current operating climate.

The 240ha Caledon Casino Hotel & Spa is one venue that is sensitive to the fine balance between the casino and the rest of the components of the resort. One would believe it a good example of the effect a casino has on the business of a hotel considering the former Overberger hotel had been there long before the coming of the casino. In fact, the Overberger had dipped into liquidation just before hospitality group Fortes King took over ownership and started renovations.

Today, while the casino dominates in terms of revenue generated by the resort, director Leon Fortes says the improvement of the 92-roomed hotel and its conference facilities, the addition of a world-class health spa built around historical hot mineral springs, the inclusion of a retail emporium and the development of an outdoor adventure section incorporating a 4x4 track, mountain biking and hiking among others, has in totality contributed to a growth in visitors.

It is a view that hoteliers not attached to a casino would embrace - that each individual property has its strengths and needs to be marketed accordingly if it is to survive as a healthy business.

Caledon resort MD James Forbes, who also represents the 65% shareholding of US company Century Casinos at the Caledon Casino Hotel & Spa, says it was important that each element of the resort be viable in its own right.

"The casino acts as a customer of the hotel, buying rooms for premium players and club members as it requires, but this is done at arm's length so that performance of each can be assessed in isolation," says Forbes. In this way, the casino directly accounts for 20% of the occupancy of the hotel.

How many guests of the hotel actually use the casino, he said, was hard to quantify. Hotel GM John Mason pointed out that the two components were connected directly in some marketing initiatives and not in others. Information on casino game rules is available with the usual literature on resort services and facilities in the hotel rooms and a recent promotion offered a special rate to hotel guests with the added bonus of casino chips if rooms were paid for in advance.

Another group that has benefited from casinos has been City Lodge. The company's figures for the last six months to December last year, during which three hotels were opened at or near casinos, showed occupancy up from 69% to 74% - a trend City Lodge CE Hans Enderle attributes largely to people gambling and then choosing to stay over. The developments, which include the new hotel at Sun International's GrandWest casino and entertainment complex in Cape Town, represented an investment of R58-million. It's an investment that wouldn't have been made without the homework having been done and a return is almost guaranteed considering the Cape Town metropole casino licence was so keenly contested. GrandWest's gaming revenue for the 2001 financial year totalled R443-million - a figure that shows that the people making all the money are not those playing bingo, the slot machines, blackjack and roulette.

Sun International, of which GrandWest is part, reported revenue from its casinos for the 2001 financial year at just over R2-billion while revenue from avenues such as the rooms division, food and beverage cleared R750-million. Despite this, the company says it has been under pressure because of increased competition in gaming, waning consumer confidence in SA and reduced tourism.

As for criticism of the gaming industry for its potentially harmful social effects, gaming and hospitality executives make the argument that it is a regulated industry, which contributes to job creation and to the economy. It has also moved beyond simple gambling to a point where the overall experience created at casino resorts may eclipse shopping malls in the competition for consumers' entertainment spending.

"Casino developers are more sophisticated than mall managers," says Kees Schilperoort, the design director for branding consultancy BrownKSDP. "They are proving best able to meet consumer demand for a memorable outing, rather than just an in-and-out trip to a cinema or restaurant."