Echo Says Casino Business at Risk From Packer, Gold Coast Plans
Echo Entertainment Group Ltd. (EGP)’s two largest casinos will be put at risk if a resort that billionaire James Packer wants to build in Sydney and another in Australia’s Gold Coast go ahead, the company said.
The long-term business of the Star and Jupiters depends on holding monopolies in their areas, and Echo would have to cut investment if competitors are allowed, John Redmond, chief executive officer, said in an interview yesterday in Sydney.
Packer’s Crown Ltd. (CWN) wants to build a A$1 billion ($1 billion) hotel and casino targeting high-rolling Asian gamblers on the shores of Sydney Harbour, while Queensland state’s government has 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 capitalised 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.”
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.
Echo shares rose 3.4 percent yesterday to A$3.61 at the close in Sydney, their biggest gain since Feb. 22. The stock has fallen 15 percent over the past year as Crown has advanced plans to build a rival casino in Sydney.
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 consortiums 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.
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.
There also isn’t room for another casino in Sydney, Redmond said, where Crown is seeking government backing for a resort targeting high-rollers at the Barangaroo development site across Sydney Harbour from Echo’s Star complex.
“This should be a one casino market,” he said. “Let’s try to make sure that these properties are viable for a long period of time.”
The Barangaroo project won’t be completed until 2018, a year before a license expires granting Echo the right to operate the city’s only casino, Larry Gandler, a Melbourne-based analyst for Credit Suisse AG, said in an Aug. 13 note to clients.
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