David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Professional gamblers know the house always wins, but markets are meant to be a bit more balanced. Minority shareholders in Crown Resorts, the casino company controlled by Australian billionaire James Packer, should resist any attempts to stack the deck.

Packer is in talks to return some of his casino assets to private ownership, people with knowledge of the matter told Bloomberg's Brett Foley, Dinesh Nair and Nabila Ahmed Wednesday. Crown Resorts' shares surged as much as 15 percent, presumably on expectations of a nice special dividend should the buyout eventuate. Longer-term investors should think hard about what they'll be left with afterward.

There are parts of Crown's portfolio that would be well suited to a life out of the limelight. The company has a 34 percent stake in Melco Crown Entertainment, operator of Macau's City of Dreams and Studio City resorts. Melco Crown should have staying potential as Macau continues to develop into China's very own Las Vegas, but there's no denying it's struggling at the moment amid a 32 percent downturn in casino revenue. 

Out of Luck
Macau's casino revenues have been falling for two years
Source: Macau Direccao de Inspeccao e Coordenacao de Jogos

Then there are Crown's plans to develop a A$2 billion ($1.4 billion) casino targeting high-rollers on the shores of Sydney Harbour by 2019, and to contribute another $400 million to $500 million to a $1.6 billion to $1.9 billion resort on the dicier, less-trafficked northern fringes of the Las Vegas Strip. And let's not forget the 20 percent stake in the Nobu luxury restaurant chain the company picked up for a cool $100 million in October.

These are the sorts of businesses -- potentially attractive in the long term but ugly in the short term -- that could shelter quite happily away from public markets. Cashflow from Melco Crown could be used to help fund the development projects, perhaps with some contribution from continuing equity stakes in the Melbourne and Perth casinos.

What's odd about Packer's current plans is that he appears to have precisely the opposite idea. If he's planning to take Crown's casino assets private, he can only be thinking about the Melbourne and Perth resorts that contribute the overwhelming majority of group earnings.  

Can't Take That Away
The vast majority of Crown Resorts' Ebitda comes from its Melbourne and Perth casinos
Source: Bloomberg data

What would Crown Resorts look like without those two units? A fat sheaf of bills, and a more slender pile of invoices. Shareholders in the stub will continue to receive dividends equivalent to about 10 percent of Melco Crown's net income, thanks to their 34 percent stake in the company and its 30 percent dividend payout policy. But the A$159 million that's being spent on Crown Sydney in the current fiscal year alone represents a larger slice of cash than they'll receive from Melco between now and 2019, based on analyst estimates of $1.41 billion in net income over the period:

We Belong Together
Forecast capital spending on Australian casinos
Source: Company presentation

The Melbourne and Perth casinos may be somewhat less exciting than Crown's development projects, but dullness is a big part of their appeal. High-rollers bet a lot of money (Packer's father Kerry was a legendary whale over four decades), but the margins on their wagers are thin and highly volatile. Much better to depend on the little guys: Australians are the world's biggest gamblers with about A$1,000 of annual gambling losses per capita, and more than two-thirds of Crown's revenue last year was provided by the main gaming floor and non-gambling activities such as restaurants and shows. Gambling is an addictive activity like smoking, so tends to be a highly defensive business.

Bluntly, a Crown Resorts without its two main casinos would be so implausible as a business model that it's probable Packer has something else up his sleeve, if only to protect the value of his own 50 percent shareholding against a wave of selling by irate minority shareholders. Credit investors are already forking out more to protect against non-payment of Crown's debt, spooked by the slowdown in Macau and Packer's decision to step down as group chairman in August.

Raising the Stakes
Investors are paying more to insure against the risk of Crown Resorts defaulting
Source: Bloomberg data

Packer is known for being somewhat media shy -- understandable, given the wide coverage of his brawl last year with a television executive outside his Bondi pad and a relationship with songstress Mariah Carey that's regularly splashed across magazine covers. A take-private deal might be an attractive way for him to stay away from the paparazzi. Shareholders should make sure it doesn't happen at their expense.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Melco Crown's casino assets can't be taken private by Packer because Crown Resorts only has a 34 percent stake. Crown Sydney and Alon Las Vegas weren't recorded as holding any significant assets in the company's latest annual report, aside from a A$95 million gaming license bought during the 2015 financial year.

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