The arrest of 18 Crown Resorts employees accused of illegal marketing activities in mainland China is reverberating through the casino industry in Australia and New Zealand, as operators weigh the potential impact on their business.
Casinos in both Australia and New Zealand have seen strong growth in their Asian high roller business since Beijing began its crackdown on corruption, triggering an exodus of VIPs from Macau in favor of locations further from the Chinese government’s spotlight.
John Mortensen, interim CEO of New Zealand’s SkyCity Entertainment Group acknowledged that the arrests would have an impact.
“It is clear that these changes in the immediate future will impact our international business from China,” he said. “The outlook is relatively uncertain and we don’t want to speculate on what the implications could be as we go forward for the next few months.”
Last fiscal year, roughly 50 percent of SkyCity’s group turnover was contributed by Chinese customers.
Crown, which reportedly had been warned once before to halt efforts to woo high rollers from China, says around a third of its revenues are from overseas. However, it said the contribution to group profits from international VIP gaming business from mainland China is “substantially” less than 12 percent.
No let up
The arrests of Crown Resorts staff in China underscores the risk associated with global casino operators’ Chinese VIP business, Fitch Ratings and other analysts noted. “The detainment is a sign to Fitch that high roller gambling by the Chinese nationals outside of China remains top of mind for Chinese authorities,” said the ratings agency.
The clampdown follows arrests in China last year of marketing teams from Korean operators Paradise Co. and Grand Korea Leisure. Analysts say it shows that China has no intention of letting up on these efforts, but also implies it is not happy about other destinations seeking to woo clients away from Macau.
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“We have argued previously and we reiterate our view that over the long run, Macau’s loss is no one’s gain when it comes to regional gaming competition,” Bernstein Research wrote in a note “While regional markets may have some regulatory arbitrage opportunities vis-a-vis Macau (e.g. lower tax rate, and potentially a more lenient gaming regulatory regime and/or AML requirements), over the medium-term, we believe that Macau and China authorities will exert pressure on junket operations that aim to lure gamblers into the regional markets.”
“Further, last year’s crackdown on Korean casino marketing and what appears to be a crackdown aimed at Australian VIP casino marketing is reflective of our view that China and Macau do not wish to see significant casino revenues flow to overseas casinos (especially those without ties to China).”
Australia’s casinos have counted heavily on attracting more Chinese visitors, teaming with Asian investors to develop new multibillion dollar resorts in Queensland and spending to revamp existing properties. Visitors from China were up 20.7 percent in the eight months to the end of August, making it the second biggest source market after New Zealand.
Matt Bekier, CEO of Star Entertainment recently told a local newspaper that the group would be doubling its efforts to attract more Chinese tourists. “The typical Chinese visitor to Australia spends about $8000 [on their trip],” Bekier told The Australian Financial Review. “Twenty five per cent of them find their way to one of our casinos and on average they spend about $150, so out of that big wallet, we only get a very small proportion … It should be double digits.”
Crown is building a $2 billion VIP-only property in Sydney, which many analysts had expected to rely heavily on Chinese high rollers. The company is also scheduled to open a new Crown Towers hotel in Perth in December targeted at the same market segment.
Chairman Robert Rankin has played down the impact of the arrests on the viability of the Sydney project.
“The rise of the Asian middle class is the backbone of Australia’s tourism industry and the feedback from tourism operators is extremely positive, especially for Sydney. It’s these tourism numbers and changing demographics that help underpin our future plans and investment decisions.”