Aug. 6 (Bloomberg) -- Tabcorp Holdings Ltd., Australia’s biggest casino owner, will spend A$160 million ($146 million) to woo high-stakes bettors to Star City in Sydney with new luxury suites, private gambling rooms and its first two jet planes.
The aim is to win back gamblers from rival Crown Ltd. and Asian destinations such as Macau and Singapore, Chief Executive Officer Elmer Funke Kupper said in an interview yesterday.
The spending is part of an A$860 million facelift for Star City, Sydney’s only casino, which makes about half as much money as Crown’s Melbourne venue while being in a city 30 percent larger. Tabcorp has lost market share among so-called high rollers as its domestic rival spends A$212 million upgrading VIP facilities, including adding its third plane for big spenders.
“It makes sense to go after that segment because it’s so lucrative but it’s going to be very hard to close the gap,” said Theo Maas, who helps manage A$5 billion of equities at Arnhem Investment Management in Sydney. “Star City has the potential to do much better.”
More than 70 percent of Macau casino sales come from high-stakes gambling. Revenue for casinos in the only place in China where they are legal surged 68 percent this year to 102.2 billion patacas ($12.8 billion)
Tabcorp fell 1.5 percent to close at A$6.66 in Sydney. The stock has dropped 4.2 percent this year, compared with a 6.3 percent decline in the benchmark S&P/ASX 200 index.
Star City Refurbishment
The Star City refurbishment includes a redesigned gaming floor, new restaurants, and hotel and conference facilities. The casino is located in Sydney’s Pyrmont area, overlooking the western part of Australia’s biggest city.
The revamp is being overseen by Larry Mullin, who joined the company last year along with two colleagues from the Borgata Hotel Casino & Spa, the most profitable gambling house in Atlantic City.
“Tabcorp has historically performed below its potential in VIP,” Nathan Gee, an analyst at Bank of America Corp.’s Merrill Lynch, said in a note to clients. Doubling revenue at Star City from A$100 million to A$200 million after the renovation is “not unreasonable,” Gee, who rates the stock a “buy,” said.
For the 45-year-old Funke Kupper, who took the role in 2007, the new spending is about correcting an “underinvestment” in Star City.
“To get these customers you need to have the right offer, with the property, restaurants, entertainment service which is what we are now doing,” Funke Kupper said. “Sydney has got a tremendous reputation as a destination and that really plays in our favor.”
The planes the company intends to buy must be capable of flying non-stop from north Asia, Funke Kupper said.
Australian casinos are typically local monopolies, with no competing venues in the same city.
Melbourne-based Tabcorp also owns three casinos in Queensland state as well as betting shops and slot machines.
Crown owns casinos in Perth and Melbourne, including one with its own golf course, and has about a third of Melco Crown Entertainment Ltd., which operates two casinos in Macau, the world’s biggest gambling hub.
It is the Melco connection that might be the biggest challenge to Tabcorp in gaining ground on Crown, according to Arnhem’s Maas.
“It’s a massively competitive market and you need to have the contacts and infrastructure in place which Crown has,” said Maas. “It means Tabcorp has to compete with the very best in the region.”
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