Gambling on Australia’s preferences

A small change to Australian gambling law in 2015 is now having an impact on the wider industry. The amendment highlights why many are concerned about the market’s ability to support some of the multibillion dollar IR projects being planned.

In the Northern Territory, pubs and clubs were given permission to increase the number of gaming machines, known as pokies, they could install on their premises, as well as relaxing wager and deposit limits.

It was a relatively minor tweak, but one that has hit casino operators in the region hard. In its 17H1 financial results, SKYCity Entertainment said there had been a 60 percent increase in the number of pokies outside of casinos in Darwin since the law came into force in June 2015, with ripples from the changes now negatively impacting its revenues in the region.

This highlights the size and scope of the domestic market across Australia. Although Australians are among the biggest gamblers in the world, locals prefer to wager in pubs and bars over large casinos and integrated resorts. According to a Roy Morgan Research report, only 12 percent of the Gold Coast population gambles at their local casino, while Crown Perth attracts just 9 percent of locals.

These statistics, and the strength of the locals market, bring into question some of the planned multi-billion-dollar integrated resort developments due to break ground in regions such as Queensland and Sydney over the coming months and years.

The government says these resorts will draw tourists to the region, and will not be negatively impacted by pokies or locals’ gambling preferences.

“While local communities will benefit from the facilities, entertainment and public benefit that IRs provide, the key focus of these resorts is to attract significant numbers of international tourists,” says a spokesperson for the Department of State Development.

“All indications are that there is an appetite for IR development in Queensland,” they add. Others disagree, however, and suggest operators and the government have overestimated the appetite for visitors to travel to Queensland to stay at casino, hotel and entertainment resorts. This is certainly the case when it comes to luring lucrative VIP players from China.

Queensland seeks casino investor

Queensland is seeking expressions of interest for a third casino in the state after plans for an A$8.1 billion ($6.2 billion) dollar investment from the Aquis Group, backed by Hong Kong investor Tony Fung, were dropped. Speaking at the ASEAN Gaming Summit, David Edwards project CEO of State Development, said there had been strong interest in the market’s potential both from operators in the Asian region, but also from the U.S, from those who did not already have a foothold in the region.

32Red exits Australia

32Red has become the latest online gaming operator to cease operations in Australia ahead of the likely passage of the Interactive Gambling Amendment Bill. The bill, which is expected to sail through the House, makes it more difficult for unregulated operators as it stipulates that only operators with licenses in the country can legally offer their services to Australians. According to reports, affiliate program TTRpartners has informed affiliates it would no longer accept players in Australia as of Monday, April 3.

“The Queensland Government is looking to large integrated resorts to boost tourism, like the Singapore experience,” says Vicky Melbourne, senior director at Fitch Ratings. “But unlike Singapore, Queensland doesn’t enjoy the proximity with short flights to the VIP base in South East Asia.”

These concerns – among others – have already seen one casino project run aground before it set sail; Aquis pulled the plug on its six-year plan to build the A$8.15 billion ($6.2 billion) Great Barrier Reef IR, with Hong Kong tycoon Tony Fung saying the whole gambling industry had changed drastically over the past 26 months.

The resort is still going ahead, but without the casino element and with a much smaller investment of just $2 billion. The Queensland government is now seeking expressions of interest for that license and says interest has been strong.

“I think Aquis and ASF would face challenges with the economics and return on investment of an integrated resort [in Queensland], as the VIP market is saturated and is facing competition from new properties and markets opening in Asia, and would need a strong locals market to make the economics work,” Melbourne said.

These resorts were conceived long before the Chinese clampdown and resulting fall in VIP revenues across Asia.

Lorien Pilling, director at Global Betting and Gaming Consultants, says that while the decline in VIP play and ongoing uncertainty over how the Chinese authorities will view gambling abroad continue to offer cause for concern, there is plenty of upside and opportunities to attract new visitors to the region.

“The Asian middle class is on the rise and has more money now than ever before, especially people in China, India and the Philippines. And they are more willing and able to travel abroad. New venues are likely to draw much interest, especially immediately after opening their doors for the first time.”

Despite this, there is still the risk that casino operators have drastically overestimated the number of tourists and VIP players they can attract. Star Entertainment’s Brisbane development plans to draw in an additional 1.39 million tourists per year while the Gold Coast venue plans to add some 1.5 million per annum.

This seems somewhat optimistic based on the total number of foreign visitor arrivals to Australia last year – 8.4 million. That said, the whole Gold Coast area is primed for growth; it has around 10 million visitors per year, but accounts for just 10 percent or 855,000 foreign visitor arrivals in 2016.