The news that Australia’s The Star Entertainment is facing a second inquiry into whether its Sydney property can hold a casino license is “unimaginable”, considering the recent negotiations over duty rates, says expert Ben Lee.
The IGamiX Managing Partner examines the context, while also looking at how well Macau fared during the Chinese New Year holiday, reaping the gains that other markets are lacking, as China keeps strict outbound travel measures in place for punters, something only likely to soften in the second half of the year.
We’re joined today by Ben Lee, Managing Partner of IGamiX. Thank you for being with us.
My pleasure, Kelsey, anytime.
There are two main issues that I want to look at today, and I think we should probably start off with the most recent. Earlier this week we found out that The Star Entertainment Group is going to be facing yet another inquiry, they’re calling it ‘Bell Two’.
There were some media reports that said that The Star’s management was totally caught off guard by this new inquiry. Do you think that that’s true or do you think they had any expectation that this was going to be happening?
I think that move by the New South Wales government caught a lot of people by surprise. To have to initiate a second Royal Commission when their own government-appointed special manager is still in there, it begs belief as to why a second Royal Commission is required when they have their own people inside, monitoring developments inside.
Unless, as they say, that The Star has shown absolutely no sign of trying to resolve the issues that were pointed out, the problems that had occurred in-house.
There are two possibilities, Kelsey. One is that the structure is so inherently rotten that whoever they appoint to run it, and they recently appointed a new CEO; and despite the fact that the government has a special manager in there, that they’re not able to overcome the structure that has been set up. That’s just possibility number one.
Possibility number two is a little bit more nefarious, in that we’ve seen time-after-time that Star’s relationship with various succeeding, or successive New South Wales governments has been far from perfect. To the point where the New South Wales government gave a second license to Star’s biggest competitor without calling out for a tender. And despite the fact that the Crown Barangaroo has opened to a somewhat less-than-auspicious start, with their own problems in Melbourne as well as in Sydney – where they had to close a floor and then reopen. And then the lack of business that they appear to be experiencing is an ongoing issue.
The other possibility is that the New South Wales government could be taking down Star’s license and eventually hand it to Crown on a silver platter.
That would be a huge move, that is what the headlines have been all pulling from: they could lose their license. In that possibility, would Crown then be the immediate shoe-in to then get the license or do you think they might open it up to have another competitor come in?
Given that Crown got the second license without an open tender, I think that speaks volumes to their ability to influence that particular state government. And I think that if Star was unable to regain their license then the natural, logical step would be for the state government to consider Crown taking over Star’s operation. They would probably sweeten it up probably by saying “we have all sorts of conditions, they’re going to give us more tax, they’re going to generate employment etc.”
I’d say that’s a higher probability than the government actually holding an open tender. It’s a distinct possibility, but I give Crown a higher likelihood of getting that property.
Just the calendar of events, the way that this has all played out, has been very interesting. Because a few days prior to the announcement of ‘Bell Two’, The Star had announced that they had reached the final agreement for the new tax levies by the New South Wales government, which required an employment requirement and also a cashless and carded gaming trial.
When we had spoken, quite a while ago, right after they mentioned that they were laying off 500 full-time employees, you had mentioned that this was a “poker game fraught with risk”. Now, looking how everything has played out, do you think that they won, in any way, that poker game? Because both sides are very contradictory – they’re saying “you can have lower duties but then also you might lose your license”.
Basically, to use a poker analogy, the state government called their bet and won the pot. So, not only have they secured an agreement to increase tax revenues, to guarantee a certain number of jobs, they have an even bigger sword hanging over Star.
And, it’s beyond imaginable that they would exact all those concessions from Star and yet hit them, essentially, with a back-of-the-head smack that says “Well, that’s not enough (laughs), there’s more”.
So, it’s a very unusual move and, at the risk of repeating myself, I see a behind the scenes move to actually strip Star of their license and not give it back.
Aside from the jobs guarantee, they did push The Star in Sydney to basically roll-out the cashless and carded play before it’s going to come into effect state-wide. Why do you think that is?
Because they can. They basically have Star by the proverbial. Whereas with the other pokie clubs, they’re ongoing commercial operations. The state government and the regulatory authority have to treat them like, basically, partners and negotiate a timeline for them to introduce those measures. Whereas with The Star, it’s a case of “if you don’t do this by this time, we don’t give your license back”.
Having said that, they have agreed to do it, and yet we now have this latest outcome. It’s unimaginable.
The legal problems and the regulatory problems are not the only issue that The Star is facing, they had anticipated before that just the duty increases would cost them something like $1.11 billion. And they’ve already had to go through multiple equity-raising initiatives, raising hundreds of millions to support not only that but their build-out of Queen’s Wharf Brisbane.
They’ve pushed back the opening date for that constantly, they’ve had to get their other partners – Chow Tai Fook and Far East Consortium – more involved and injecting more. How do you think that that’s going to play out? Is it going to be opening on schedule? Are they going to need more money? Could a potential loss of their casino license (in NSW) then have a big impact on their Brisbane property?
Obviously it would be, because it would impact their ability to raise more financing for their Brisbane property. The one thing that has always been on the cards, but for some reason nobody seems to be interested in, is for a white knight to come in. Now, there was somebody who came in – a local entrepreneur – but that seems to have gone quiet. And I don’t think he has the ability to provide the sort of financing that Queen’s Wharf requires.
So, the other possibility is what happened to Crown, i.e. for a big multinational fund to come in. At one stage, we were looking at Warbug Pincus. But Warbug Pincus is only playing around Asia, they don’t seem to be interested in Australia at all. And there are probably other big multinationals but I have not heard of anybody who is conducting due diligence into Star.
The problem with Star is, and I don’t think this announcement of a second Royal Commission is going to improve their attractiveness to any potential acquisitor. It’s looking like more-and-more it could be a poisoned chalice.
With regards to Brisbane, what’s affecting them in Sydney does not appear to be affecting them in Brisbane at all. On the reverse.
At one stage, I believe, the Queensland government announced that they would appoint a special investigator to look at their partners, i.e. the Chow Tai Fook/Far East Consortium. That investigation seems to have faded away. And one could only surmise that the Queensland government has decided that if the investigation was to result in an adverse finding and that they would have to disqualify the partners that the whole project itself could fail. So, they appear to have made that investigation go away. It’s a definite case of too big to fail.
In all likelihood, I don’t think Star will have any problems in Queensland, their problems appear to be relegated to the state of New South Wales only.
Let’s go back a little bit. We did just have the Chinese New Year period, which was very exciting for us particularly in Macau, also for the diaspora around. But Macau was just flooded – something like 1.5 million tourists came during the Chinese New Year period. Looking at infrastructure, looking at hotel room availability, is that sustainable?
I think that question should probably be best posed to the local residents who have had to put up with the overcrowding and the inability to get around on public transport over those occasions. I think that’s a more poignant question for them.
But, having said that, I don’t believe Macau can sustain that level of traffic on a daily basis, so thank goodness it is only during the Golden Weeks that that happened. Or, basically every resident in Macau would be decamping and moving across to Hong Kong – for a bit of peace and quiet. Because Hong Kong did not seem to have gotten the same level of Chinese visitations as Macau did.
Macau always benefits from its domestic market – right next door we have China, which has continued to supply us with the majority of our tourists and punters. The other regions are benefitting so much. What do you think are the main factors which are influencing the lack of Chinese visitation to the Philippines, Vietnam and so on?
It’s very interesting that, having promised to start allowing their people to travel outbound to various countries in Asia, starting from Q2 last year; and we compile basically Chinese visitation across ASEAN. So, it ranges from about 29 percent to about 39 percent if you were to compare 2023 versus 2019. So, the level of Chinese visitation to a lot of ASEAN countries were sub-40 percent. Whereas Macau was close to about 70 percent. That shows you what a big difference there was.
For Chinese New Year, I think I recall seeing a newspaper report that even Thailand, a better case study would be Cambodia – which is probably China’s best friend in ASEAN – that for the Chinese New Year period they had something circa mid-20s in comparison with 2019. That’s a huge difference.
Anecdotally we’re still hearing that the number of Chinese visitors over the Chinese New Year period to the ASEAN countries were not even close to Macau’s level. So, what we think is still happening is that the restrictions, the visas, the exit permits, under the ADS – Approved Destination Scheme – are still being tightly controlled, and that a lot of the mainland Chinese residents who have been red-flagged by China as potential players have still not been able to regain their passports.
Now, what this means is that over the Chinese New Year period, and starting from Q4 of last year […] there’s an interesting anecdote there, in that I think we saw a huge market share shift between the six (Macau) operators, to the point that where one of them even boasts about getting 20 percent market share in January. Now, believe it or not – from what we’ve heard – that is down to just one player, one super-VIP player who single-handedly resulted in that market share for one operator climbing from the high-teens to 20 percent.
And the same again in January, we heard that two of the other operators had their own super-VIP. And that this particular Chinese New Year period – although it started slow, it finished strongly for some of them, in that they had super-VIPs who left literally no more than about four days ago.
And a lot of those results haven’t washed out yet, so it will be very interesting to see, when we compile all our normal research, how this month ends up.
So, up until last Sunday, compared with Chinese New Year 2019, it’s all right. Compared with the month of January, month-to-date, February is not breaking any records but that’s not including this handful of super-VIPs who stayed on right to the very end.
So, it will be very interesting to see how the month actually finishes up. Now, bear in mind also, the countervail to that is that in the past we always had the junkets hold their Spring dinners, Spring events. They would have mega-concerts, mega-dinners, hosting up to 10,000 people over a weekend. We don’t see that anymore. We’re not going to have that anymore. And what that means is, in the past after Chinese New Year we used to have a long tail. We might not see that long tail, because those Spring dinners/events are not hosted anymore.
So, it’s a brand new world for us, between Chinese New Year to the end of the month, it remains to be seen whether it’s going to continue strongly, or it’s going to drop off.
In regards to the mass play during Chinese New Year, do you think that it kept up to expectations?
The mass play, yes it was quite strong. So, yes.
A lot of the analysts right now are saying that February will be relatively flat. Do you think we can expect anything beyond a single-digit uptick from January?
In fact, our forecasts, we normally give a range we don’t give an exact precise figure. Our forecasted range is actually to be below January’s.
So, it’s interesting in that you would expect this Chinese New Year to be a particularly big one. But, as I said, for all those reasons I mentioned earlier, at this point in time, it doesn’t appear to be on the par towards eclipsing January’s.
On the positive side, when I mentioned that the players are still not able to travel to the rest of Asia yet, that is actually a huge boon for Macau. They can’t go elsewhere to play, they come to Macau to play. And that’s what’s tipping our figures up at the moment.
In regards to the restricted list of people, do you think that – in particular for these Golden Week periods – it’s of even more importance to restrict them from traveling? And does that mean that potentially throughout the rest of the year they would loosen up a bit of those restrictions on those punters in China?
We expect China to loosen up those restrictions in the second half of this year. AT some point in time they do have to keep their promises to the rest of their ASEAN neighbors, to let more Chinese travel to those countries. They only procrastinate for so long.
The overall for what we’re seeing in Macau, in terms of the six operators, you mentioned one in particular boasted about 20 percent.
Were there any other major shifts, aside from those three that you’d mentioned before? Do you see any at the bottom coming up a little bit more that you would not have expected to?
The interesting thing is that Melco, which used to be super aggressive, and used to seeing a very high market share, have actually softened in their market share. And this seems to gel with some on-the-ground chatter that we’ve been hearing about what’s happening internally. So, it will be very interesting to see if there will be changes, probably towards the later half of this year.
Would that be because they’re trying to refocus their efforts more to Macau? Because they are spread in different jurisdictions right now. Or would that be more management style changes?
I think it could be a combination of both management changes as well as strategy changes. Melco’s properties in Macau, whilst the Morpheus is visionary, the programming of their properties have been less than ideal. The retail in CoD (City of Dreams) and particularly Studio City, the non-gaming aspects haven’t really taken off in any spectacular fashion. And, with the absence of the House of Dancing Water, they really are missing something in their offerings.
As I alluded to, on ground chatter is that they’re possibly changes that are on their way sometime in the second half of this year.
All in all, I think it was a very interesting Chinese New Year period, the roar back definitely did happen in terms of the tourism. It remains to see what exactly these results are going to be for GGR, so that February GGR is something we’ll be keenly keeping our eye on. And we’ll definitely be back to talk more – both Macau, Australia and regionally.
Ben Lee, Managing Partner for IGamiX, thank you for your time!
Thank you, Kelsey.
