Australia VIP sector facing multiple headwinds

Australia VIP Gaming Industry
Courtesy: Dan Freeman/Unsplash

Outside of the global pandemic, the trade war between Australia and China is casting another dark shadow over Australia’s already-strained VIP gaming industry, prompting operators to start looking elsewhere for recovery. 

The spat between the two countries began towards the height of the coronavirus pandemic – around April 2020. At the time, Canberra was calling for an inquiry into the origins of the coronavirus, a move that China’s deputy head of mission, Wang Xining said: “hurts the feelings of the Chinese people.”

China responded by blocking many of Australia’s goods and services. As of today, exports of Australia’s timber, barley, coal, copper, sugar, wine, and lobster have ground to a near standstill, which is estimated will cost the country up to A$19 billion a year. 

However, the most significant development for our industry came as a move from China’s culture and tourism ministry warning its citizens not to travel to Australia for study or play. More than 1.4 million Chinese tourists travel to Australia each year (pre-pandemic), and 260,000 students are enrolled in Australia’s schools and universities. 

Choking the supply of Chinese visitors (including tourists, students, and their wealthy families) would most definitely have an impact on VIP-facing casino operations, but there are mixed views as to how this would affect their overall financial stability. 

Asia Gaming Brief spoke to Kelly Amato, Director of South-East Asia Industrials at Fitch Ratings, about the impact of the trade war on international-focused VIP developments, such as Crown Sydney – notwithstanding the current NSW license debacle and company shakeup. 

“In answer to your first question on what would happen to developments like Crown Sydney which were “banking” on Chinese VIPs, undoubtedly this will affect the economics of the project if there were limitations on visitations from these VIPs,” she said.

Amato pointed out that China’s arrest of Crown employees in October 2016 led to a significant fall in VIP visitation and revenue, but noted that this eventually rebounded. 

“Following this event, VIP numbers fell by around 50 percent in the following year at Crown (in FY17), before rebounding in FY18 prior to the travel restrictions relating to the pandemic. This indicates that a significant proportion of VIPs are from China, but any developments around future restrictions on Chinese VIPs don’t mean that visitation at Crown Sydney would drop to virtually zero.”

“Further, VIP has historically made up a smaller proportion of Australian gaming operators’ revenues than domestic. It is inherently more volatile, and operates at lower profit margins than domestic – so, from our perspective, further volatility or declines in this business would have less of an impact on the overall operations of the gaming operators given the size and stability of their domestic mass-market operations,” she added, 

Gaming industry veteran Ben Lee, however, did not share the same optimism as Amato, arguing that a large part of what is classed as the “domestic VIP market” is still made up by Chinese international players – the only difference (between that and VIP) is that they are not under any rolling chip program. 

“China is the biggest market for tertiary education in Australia,” said Lee. Over 260,000 students were enrolled in secondary and tertiary education in Australia in 2019. These students are visited by their parents and relatives, who spend big amounts across Australia’s casinos. 

Lee said this domestic factor was so significant, that there was a stage when Crown Resorts had even set up a lifestyle team, whose sole purpose was to assist Chinese VIP families to set up bank accounts, buy property and enroll their children in schools – services akin to those of a private bank. 

“There was a lot of business coming to casinos indirectly as a result of Chinese students,” noted Lee. 

“With the ongoing trade war and Crown’s targeting of Chinese gamblers in 2016, there is suspicion that Australia has made it onto China’s blacklist,” added Lee. 

“If we are on the blacklist, that means any Chinese citizen wanting to travel to Australia will need to go through massive scrutiny in order to obtain the appropriate exit visa.”

Lee noted that such scrutiny already exists for Chinese citizens traveling to Macau, which involves a series of invasive questions such as whether they plan to gamble during their time in Macau, and reasons for their frequency of travel to the SAR. 

With the trade war showing no signs of abating anytime soon, operators may need to look to other VIP markets to fill the void post-Covid, according to gaming industry veteran David Green. 

“With the departure of SunCity from the market and the aggressive focus which the PRC has now on the recruitment of Chinese for gaming tourism, there is no doubt that Australian casinos are looking elsewhere for VIP players.”

“Indonesia has always provided a pipeline for Burswood (Crown Perth) and there is a smattering of Thais, Malays, and Singaporeans. Australians also have a high propensity to gamble, and there are enough of legal gambling age to ensure the domestic market remains substantial and robust (COVID aside),” he said. 

Amato reiterated her optimism for the domestic mass-market as well. 

The domestic mass-market businesses in Australia’s performance have been relatively stable over the past few years, with the declines in 2020 due to the closure of the properties under the pandemic restrictions. However, Crown Perth has reported a healthy return to profitability following its reopening mid last year (although it is currently closed due to a recent case in the city) and other casinos nationally have reported similar trends when they have been able to reopen, highlighting the resilience of this market even when operating under social distancing restrictions.”

“In our view, it is these restrictions that will have more of an impact on gaming operators over the short term as they are at the forefront of closures when governments are seeking to contain an outbreak than any restrictions on VIPs, which are close to zero at the moment due to travel restrictions.”