Australian casino, hotel, entertainment and VIP high roller casino war escalates; State Of Origin - NSW, QLD - Echo Entertainment VS Crown Limited; This casino war ain't no game... -
29th June 2013

Profiles

Echo Entertainment The Star Crown Limited James Packer Casinos Australian Casinos Sydney

Australian casino, hotel, entertainment and VIP high roller casino war escalates; State Of Origin - NSW, QLD - Echo Entertainment VS Crown Limited; This casino war ain't no game... -
29th June 2013

The official promotional blurb for the exclusive Sovereign Room at the Star casino in Sydney describes it as a luxurious oasis, with unparallelled levels of service.

It is a "private area featuring exclusive salons [that] offers personalised service, premium tables and an exclusive dining room and outdoor terrace".

No mention that word on the street and in the casino biz is that it's understood to be quite the hangout for notorious drug dealers, fraudsters and suspected money launderers... you get the idea.

This less flattering picture emerged during the two recent investigations into the Star - one statutory, one extraordinary - by NSW gaming authorities.

A December 2011 statutory licence review discovered that "reports of suspected money laundering at the Star have varied between none and five each quarter" between 2009 and 2011, and cited a case study involving the Sovereign Room.

(In fairness, it also reported that the federal government agency AUSTRAC rated the Star "more favourably than other casinos" in regards to how it monitors money laundering.)

Other accusations emerged during last year's extraordinary inquiry into the Star by the NSW Independent Liquor and Gaming Authority after an episode involving the sacking of casino managing director Sid Vaikunta for sexual harassment.

The inquiry's final report noted police were "looking into" two anonymous complaints that "named convicted drug dealers and 'fraudsters' were permitted to gamble in the Sovereign Room".

More than a year has passed since the inquiry into the Star was regularly making front page news.

But the Sovereign Room and others like it such as its Victorian equivalent, the Mahogany Room at competitor Crown in Melbourne, are again at the centre of casino policy in NSW.

The difference this time around is that the focus has shifted from the behaviour of the players to the massive amounts of money they gamble (and more importantly, lose).

Known in industry circles as "VIPs" or "whales", these gamblers are a key target of the Star and its parent company, Echo Entertainment, due to their willingness to risk losses of at least $75,000 a year. This type of wealthy gambler is also precisely the kind of customer the gaming billionaire James Packer hopes to lure to the invitation-only casino planned within his proposed $1 billion hotel and apartment development at Barangaroo.

But they are not found on every street corner. One estimate, by gaming analyst Jennifer Owen, putting the total number of local, or domestic, VIP players at fewer than 8000 and international VIPs - primarily from China - at a maximum of 2000.

Their names are jealously guarded on secret lists held by casino operators across the globe. Promises of privacy, exclusivity and extraordinary luxury are used to lure them.

This week's unveiling of Echo's $1.1 billion upgrade plans for the Star to compete with Packer's vision for Barangaroo has sent the public competition for this type of customer into overdrive.

Packer's well-documented plan is for a 60-storey tower, featuring 80 multimillion-dollar apartments, a 350-room, six-star hotel and "VIP-only" gambling rooms featuring table games but no poker machines aka slots.

Echo's proposal is to expand the Star to offer ''VVIP'' gambling rooms, two new hotels and spend $130 million on local public infrastructure, including a pedestrian and cyclist bridge between Darling Island, near the Star and Barangaroo.

But Sunday's media conference to unveil Echo's pitch also revealed a surprise twist: a promise that the company will still commit to spending its $1.1 billion even if the Packer casino goes ahead.

The catch? That the government must agree to restrict entry to Packer's casino to international and interstate VIPs - shutting out gamblers from NSW.

At a media conference on Sunday, Echo chief executive John Redmond argued this was the accepted definition of VIP customers.

Echo chairman John O'Neill has since ramped up the attack, declaring he was "concerned that the people of NSW could be having the wool pulled over their eyes by our competitor" about the nature of the Barangaroo facility.

The company fears the strategy from Packer's company, Crown Limited, is to open its casino to anyone willing to fill out a membership form. It says this is counter to the strong impression Premier Barry O'Farrell has given that the Packer casino would be the domain of only the highest of high-rollers.

Privately Echo's executives admit it's a strategy aimed squarely at protecting Echo's domestic business.

As far as O'Farrell's commentary is concerned, Echo certainly has a point. In a bid to defend his ongoing advocacy for such a project - which would effectively increase the gambling offering in the state - the Premier has routinely categorised it as out of reach from most of those in NSW.

In an interview with Fairfax - The Australian Financial Review earlier this year the Premier was at pains to talk up just how difficult it would be to gain entry to the Packer casino.

"There will be very few people of the net worth that is required to be in those rooms," he said. "Presumably if you're a local billionaire - I don't know whether Gerry Harvey and Kerry Stokes are gamblers - but I suspect if you're a billionaire, you might get an invitation.

"But if you're Barry O'Farrell, with a mortgage at Turramurra … I doubt that I'd ever be invited and I'm not interested in gambling; I'm interested in the tourist money."

O'Neill even cheekily turned the comment back on O'Farrell during Echo's media conference by stating VIP rooms were "not for the mortgage payer in Turramurra".

But in responding to Echo's attack, Crown points out - correctly - that its initial statement to the stock exchange was unambiguous on this point when the proposal was announced.

It told the market Crown was "proposing that VIP gaming would only be available for international high-rollers, mainly from Asia, together with interstate and local VIP players on an invitation-only basis".

Echo's concern is based on its belief that rather than growing the market, a Packer casino would "cannibalise" the revenue flowing to the Star from one of its most important markets.

At present, due to its position as Sydney's only casino and the preference of VIPs for "table games" the Star has the NSW domestic market to itself.

In 2012 it generated revenue of $123 million - more than half the casino's total revenue take from VIPs that year of $229 million, according to its annual report. Importantly for Echo, it does not regard this as a growth area.

An analysis of the local market by Owen, as part of a PricewaterhouseCoopers report commissioned by Echo, puts the estimated number of "domestic VIP" players in Australia at between 7000 and 8000.

"The available market for players is small, and is not growing rapidly, particularly in NSW," Owen's report suggests.

In terms of international VIPs, Owen acknowledges "massive growth" in the market in Australia in recent years due to the rapid economic growth in China.

The numbers are mind-blowing. According to Owen's report in 2012, $67 billion was turned over by international VIPs in Australian casinos for losses of $1 billion. This represented just 3 per cent of the global international VIP market. Of this, turnover at the Star was about $17 billion.

Unsurprisingly, Echo and Crown have been pursuing this market with equal vigour in recent years. It was the prime focus of the Star's recently completed $870 million renovation.

If Crown Sydney proceeds as planned, Owen's report sees a potential growth in Sydney's international VIP market of between 8-10 per cent, shared between Crown and the Star.

But the PwC report warns of quite a different outcome in terms of domestic VIP business.

It estimates that a second Sydney VIP casino would "cannibalise" the Star's domestic business to the extent the NSW government would be $14 million a year worse off in gambling taxes by 2025.

Echo's argument is that because revenue is progressively taxed, leakage of half of its VIP business will result in both casinos paying the lower tax rate of 27.5 per cent.

Crown disputes this, accusing Echo of "small thinking" on the issue which ignores the capacity to increase the high-roller market, particularly from the Chinese middle class. Crown says there is no shortage of international VIPs.

Its consultant, Allen Consulting group, has estimated Crown Sydney would generate enough growth to deliver an extra $114 million a year in gambling taxes.

The O'Farrell government will decide whose project to back primarily on advice from a panel chaired by businessman David Murray about which offers the greatest net economic benefit to NSW.

The Murray panel will need to make sense of competing claims on this point. Allen Consulting says it will generate as much as $400 million in activity. PwC puts it closer to $370 million and says the Star expansion will generate activity of $350 million a year by 2025.

Critics of both proposals, such as Greens MP John Kaye, point out that the ''neither'' option doesn't appear to be on the government's table.

Kaye fears an expansion of VIP business will increase the risk of the types of allegations levelled at the Sovereign room in the past.

"In the middle are the people of Sydney who are worried that a new Barangaroo casino, a greatly expanded Star or both would drive more problem gambling, increase the corruption pressure on state regulators and risk the consequences of large-scale money laundering," he says.

State cabinet could be digesting Murray's recommendation as soon as Monday, with a decision expected shortly after that.

Websites

Echo Entertainment
www.echoentertainment.com.au

Crown Limited
www.crownlimited.com

The Star
www.star.com.au

Casino News Media
www.casinonewsmedia.com

Media Man
www.mediaman.com.au

Media Man Int
www.mediamanint.com