Crown’s homecoming

Crown has recently re-focused its efforts on expanding its Australian business in the wake of the Chinese VIP crackdown and the arrest of 18 of its employees on “gambling related” charges.

Crown Resorts has bucked the trend of going global, selling down 155 million ordinary shares in its Melco Crown Entertainment (MCE) joint-venture back to the Macau-based gaming company to refocus on its Australian business.

The sale raised AU$1.05 billion ($806 million), which the operator will use to help finance its ambitious expansion plans on home turf. This includes a new AU$2 billion harbour side resort in Sydney, Crown Towers Perth, and a AU$1.75 billion development in Queensbridge, Melbourne.

The strategic shift comes at a time when Crown’s Australia business is going through a period of decline; total revenues were down 12 percent at its resorts across the country for the first 23 weeks of FY17 driven by a 45 percent dip in VIP revenue over the same period. VIP play represents around 28 percent of Crown’s Australia revenues, but margin is low. The same applies to operators with properties in Asia, where the Chinese clampdown on

casinos and junkets targeting players in the country has driven margin, and revenues, into the ground.

The decline has been worsened by the arrest of 18 Crown employees in China four months ago. The reason for their detention was “gambling-related” crimes, and has sent shockwaves through the Australian market.

The ripples have hit all operators, not just Crown. New Zealand’s SkyCity Entertainment recently reported its interim results, and while its domestic business enjoyed growth, its Australia operations saw revenue decline year-on-year.

One Nation opposes ASF casino project

Right-wing political group One Nation has taken aim at ASF Consortium’s casino proposal at The Spit, warning it would devastate the region’s community clubs. “Conservatively, 30 Gold Coast community clubs are at significant risk of closure, A$34 million (US$26.1 million) will be ripped out of the community via contributions and taxes foregone, there will be no new jobs created post construction and over 500,000 club members and volunteers displaced,” One Nation Queensland leader Steve Dickson told the Gold Coast Bulletin.

Tabcorp agrees $45m fine in Austrac case

Tabcorp has agreed to pay a A$45 million penalty to settle a case brought on by Australia’s financial intelligence agency, local media reports. The Australian Transaction Reports and Analysis Centre (Austrac), filed papers in the Federal Court against three Tabcorp companies in July 2015 for “extensive, significant and systemic non-compliance” with Australia’s anti-money laundering and counter-terrorism financing legislation.

The drop in VIP play means Crown is going to have to find growth from elsewhere, particularly from mass and premium mass players – something it has proven to be adept at. Crown enjoys sole licences in Melbourne and Perth, where its proposition is directed towards the local market. “The mass market is the key cash flow generator for both Crown properties; the mass market has a long-history of stable cash generation and Crown has recorded positive EBITDA growth in each of the previous 10 years,” says Vicky Melbourne, senior director at Fitch Ratings. But this sits at odds with its planned Crown Sydney project as its license only allows for VIP gaming facilities. Resorts such as this were planned well before the Chinese clampdown and resulting fall in VIP play. The Sydney project will be in the exclusive area of Barangaroo South, and will include a six-star hotel with 350 hotel rooms and suites, signature restaurants, bars, retail outlets, pool and spa facilities, conference rooms, a VIP casino as well as luxury apartments. The country’s apartment market is booming right now, particularly in desirable and exclusive locations such as Barangaroo, where prices have more than doubled for properties bought off plan a little over three years ago.

“The apartment development supports the economics of the project and will bring down the overall net cost of construction, as well as contributing to the building’s iconic status and broadening the luxury brand appeal,” says Melbourne. “The apartments in Bangaroo are in Sydney, if not Australia’s, most desirable location and in high demand for those seeking exclusive properties.”

The apartments were initially planned to attract VIP Asian tourists looking for a world-class entertainment experience, including gambling facilities. The down-turn in VIP casino revenue has some concerned that sales will slump. But Megan Brownlow, partner at PwC, says buyers come from all over the world and with different reasons for buying, but still desire a wide range of entertainment options on their doorstep. “Many apartment buyers, especially those seeking premium destinations such as the Sydney harbour foreshore, come from overseas and are not full-time residents. They visit to see their children who are studying in Australia, for example, and to spend their limited leisure time in the city. “Proximity to entertainment such as restaurants, shops, casinos and so on is an attractive value proposition for many, especially buyers from Asia,” she adds.

Crown is swimming against the tide by streamlining its business to focus predominantly on one market in the face of the decrease in VIP play, with others taking a global approach and leading their operations into new regions.

But Brownlow says Crown’s decision to dial-in on Australia is a sound strategy, with growth still up for grabs in its domestic market.