Packer’s Crown Beats Echo Over $1.2 Billion Sydney Casino
Crown Ltd. (CWN), the gaming company controlled by billionaire James Packer, moved a step closer to developing a A$1.3 billion ($1.2 billion) casino in Sydney, beating a rival proposal from Echo Entertainment Group Ltd. (EGP)
Crown’s plan for a hotel and casino tower west of the city’s main business district will proceed to the third stage of a government approval process, New South Wales state premier Barry O’Farrell said today. The plan would boost tourism, deliver extra tax revenue and contribute more to the state economy than Echo’s proposal for a A$1.1 billion redevelopment of its existing Star casino, the state government said.
Echo will lose its exclusivity to operate Sydney’s only casino after 2019 as a result of the decision, amid competition with Crown for tourist dollars from high-rolling Asian gamblers who’ve doubled Macau’s gaming revenues over the past three years. Adding a second casino in Sydney would undermine the long-term viability of Echo’s existing Star complex, Chief Executive Officer John Redmond said in an April 8 interview.
“It’s very negative for Echo,” Stan Shamu, a market strategist at IG Markets Ltd., said by phone from Melbourne. “You might have a situation where they will struggle to attract the tourists they want.”
Shares in Echo, which also operates three casinos in Queensland state, fell 4.3 percent to A$2.91 at 1:05 p.m. in Sydney before trade in the securities was halted. Crown shares were halted at 12:55 p.m. ahead of the announcement, when they gained 2.2 percent at A$12.21.
“We are disappointed that the New South Wales government does not share our vision,” Echo Chairman John O’Neill said in a regulatory statement. The company looks forward to “exploring other initiatives” to develop its Star resort, he said.
Crown’s proposed casino, at the Barangaroo development facing the Star across a stretch of Sydney Harbour, would be its first site in the city alongside resorts in Melbourne and the West Australian capital of Perth. It will have 350 hotel rooms and suites, 80 luxury apartments, restaurants and bars, and conference rooms, according to the company.
“I want this building to be instantly recognisable around the world and feature on postcards and memorabilia promoting Sydney,” Packer said in a regulatory statement today. “That’s how you attract international tourists, create jobs and put Sydney on the map.”
The project will need about A$23 billion a year to be wagered at its tables to achieve an adequate rate of return, Mark Wilson, an analyst at Deutsche Bank AG in Sydney, wrote in a note to clients May 24.
Casinos only book revenues on the VIP bets that the house wins. Crown’s Melbourne VIP rooms took bets worth A$24.3 billion in the six months ended December and had a below-average win rate of 1.23 percent.
The Melbourne-based company, of which Packer is chairman and largest shareholder, will pay a A$100 million license fee to the state government and won’t be allowed to operate slot machines at the site. Legislation to be passed for the development will only permit so-called VIP gaming at the resort, in which gamblers will be required to spend as much as A$2,100 an hour, according to O’Farrell.
Gross state product will increase by A$442 million a year in 2025 as a result, while the current value of additional tax revenues and license fees until 2035 will be A$441 million, according to the state’s assessment of the projects.
Echo’s proposal would have increased state income by A$350 million and tax revenue by A$337 million over the same time frames, the report said.
Tax rates for both casinos will fall to 29 percent after 2019, from as much as 50 percent at present, the state government said.
The government said it will move to stage three of the approval process provided that Crown agrees to the upfront license payment of A$100 million and a number of other conditions, including that the total license fee and gaming tax payments made to the government over the first 15 years of operation exceeds A$1 billion.
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