Echo Entertainment Group Ltd. will seek to extend a license to operate Sydney’s only casino beyond 2019, potentially blocking a rival resort that billionaire James Packer wants to build on the shores of the city’s harbor.
The government of New South Wales state had received a proposal from Brisbane-based Echo to extend the license for its Star casino and spend more money to upgrade the site, according to an e-mailed statement from premier Barry O’Farrell’s office. The state will only grant one of two proposals from Packer and Echo, according to the statement.
Packer, whose gaming company Crown Ltd. owns 10 percent of Echo, wants to build a A$1 billion ($1 billion) hotel and casino targeting high-rolling Asian gamblers at the Barangaroo development site just west of Sydney’s main business district. An extra casino in the state would undermine the Star resort and make it harder to justify investment, John Redmond, Echo chief executive officer, said in an interview yesterday.
“This should be a one casino market,” he said at the company’s Sydney offices. “Let’s try to make sure that these properties are viable for a long period of time.”
Echo has a gaming license for the Star that runs until 2093, along with a guarantee that it will be Sydney’s only casino until 2019. If Echo is allowed to extend its exclusively agreement with the government that will prevent Crown from building a rival casino.
Crown shares fell 1.4 percent to A$12.60 at the close in Sydney, while Echo added 3.1 percent to A$3.72.
The Barangaroo project won’t be completed until 2018, Larry Gandler, a Melbourne-based analyst for Credit Suisse AG, said in an Aug. 13 note to clients.
“Both proposals will now be comprehensively assessed, but because of their mutually exclusive nature only one proposal could proceed” to the next stage of an approval process, according to the government statement.
The long-term viability of the Star and a separate casino in Australia’s Gold Coast would be put at risk if they cease to hold monopolies in their markets, Redmond said yesterday.
Queensland state’s government March 5 shortlisted bidders for a resort and cruise ship terminal to bring A$750 million of annual tourism revenue to the Gold Coast.
“Let’s get a significant amount of investment in one facility and make sure it’s capitalized property, so it can stand the test of time,” Redmond said. “To just come in and say, ‘Let ten more operate’ -- people would start going down.”
Echo didn’t put in a bid on the Gold Coast project because the market is too small to support two casinos and cruise ships would leach away gambling revenue from resorts on dry land, Redmond said.
“It clearly doesn’t make sense to have more than one casino in that market,” he said. “If there’s a second casino there you can’t invest anywhere near the level you would have if there was only one.”
China’s biggest builder by market value, China State Construction Engineering Corp., Auckland-based Skycity Entertainment Group Ltd., and a unit of property company Brookfield Asset Management, are involved in four bid consortium shortlisted by Queensland’s state government March 5.
One of the proposals for the development didn’t include a casino, the government said, without saying which.
The Star and Jupiters casino groups accounted for about 84 percent of the A$1.69 billion in sales Echo got from its casinos in the 12 months ended last June, according to the company’s annual report. That includes revenue from Sydney, the Gold Coast, and the smaller Jupiters casino in the tropical Queensland port of Townsville.
Crown, which Packer controls through a 50 percent shareholding, bought 10 percent of Echo last year and is awaiting regulatory approval to lift its stake to 25 percent. Cruise ship operator Genting Hong Kong Ltd. has a 5.2 percent stake, according to data compiled by Bloomberg, which it’s seeking to lift to the same level.
Echo’s former owner, Tabcorp Holdings Ltd., paid A$100 million to the New South Wales government in 2007 in return for a 12-year license to operate Sydney’s only casino.