China’s Foreign Casino Crackdown Sends Shudder Through Industryby
Detentions are for gambling-related crime: Chinese ministry
Incident sparks concern of clampdown on overseas marketing
Chinese authorities detained 18 employees of Crown Resorts Ltd., the highest-profile crackdown on a foreign casino operator in a year, raising fears anew that the government is tightening its scrutiny of companies that promote gambling abroad.
Crown, controlled by billionaire James Packer, fell by a record 14 percent in Sydney trading. About $1 billion in market value was wiped out on Monday, and gaming stocks across Asia also fell.
The detentions signal the government in Beijing is again focusing on overseas casino operators that have marketing operations in China, after arresting gaming workers at two South Korean companies last year. More than a third of Crown’s revenue at its Australian resorts comes from international visitors, predominantly mainland Chinese, and the firm is building a high-roller casino resort at Barangaroo on Sydney’s waterfront.
The incident “suggests there’s going to be some kind of crackdown,” said Daniel Mueller, an analyst at Forager Funds Management Pty in Sydney. “Any setback could jeopardize returns on Barangaroo.’’
Among those being questioned are three Australian nationals, including Jason O’Connor, head of Crown’s international high-roller operations. The Australians are being detained for gambling-related crimes based on China’s laws, Foreign Ministry spokeswoman Hua Chunying said at a briefing in Beijing. The three Australian citizens being detained in Shanghai will receive consular visits, Foreign Minister Julie Bishop said in an e-mailed statement. Crown hasn’t been able to speak with its staff and is working with Australia’s foreign ministry to contact the group, it said.
Shares in Melbourne-based Crown tumbled A$1.80 to close at A$11.15, the steepest decline since their listing in December 2007. Sydney-based Star Entertainment Group Ltd. fell 3.7 percent. In New Zealand, SkyCity Entertainment Group Ltd. dropped 4.1 percent.
Chinese casino stocks also fell. While the arrests appeared to target a foreign competitor, investors in companies such as Sands China Ltd. and Wynn Macau Ltd. are sensitive to signs of increased scrutiny of the industry. A Chinese government campaign against corruption led to a more than two-year decline in gambling revenue in the southern Chinese territory of Macau, where Sands and Wynn operate. Crown is also exposed to Macau through a stake in casino operator Melco Crown Entertainment Ltd.
Sands China fell 3.3 percent in Hong Kong, while Wynn Macau dropped 2.7 percent. Their parent companies, Las Vegas Sands Corp. and Wynn Resorts Ltd., shook off early declines and each rose less than 1 percent at 10:28 a.m. in New York.
Among the Crown employees detained is Jiang Ling, a Shanghai resident who has worked for the Australian company for more than five years and processes applications for high-rolling gamblers, according to her American husband, Jeff Sikkema. He hasn’t been able to reach Jiang, a Chinese national, since she was taken and he’s especially concerned about China’s high conviction rate. He emphasized Jiang has a purely administrative role.
"She’s not even in sales,” Sikkema said by phone. “I don’t understand why she was detained. There’s nothing to hide.”
Jiang’s detention notice, seen by Bloomberg, shows she is being held by Shanghai police for alleged “gambling crimes.” Her detention date is listed as Oct. 14 at 3:50 p.m.
In June last year, Chinese officials arrested 14 South Koreans, including employees of casino operators Paradise Co. and Grand Korea Leisure Co., for allegedly marketing to Chinese gamblers, according to Yonhap News agency.
Those arrests and the detentions of the Crown staff highlight the delicate nature of working in China for an overseas casino operator.
Crown and other Australian casino firms pulled staff out of China over the weekend, said Jamie Soo, an analyst at Daiwa Capital Markets Hong Kong Ltd. While gambling advertising and collecting gaming debts are illegal in China, they are “established practices” carried out by marketing teams, he said. Macau operators also pulled staff from China, Soo said, citing “ground checks’’ by Daiwa.
“They’re all operating in a pretty gray area,” said Theo Maas, a fund manager at Sydney-based Arnhem Investment Management, which oversees about A$3 billion in assets including Crown shares. “You can’t promote gambling in China directly, but obviously the ultimate goal is to get them to come and gamble with you. You can see where the confusion lies.”
Packer has a net worth of $4 billion, making him Australia’s sixth-richest person, according to the Bloomberg Billionaires Index. His privately held investment vehicle, Consolidated Press Holdings, owns 48 percent of Crown Resorts.
In recent months, Packer has retreated from Crown’s day-to-day operations, stepping down as chairman in August 2015 to focus on the company’s new projects, which include a casino being developed in Las Vegas and the Sydney hotel for high rollers. He quit as a Crown director later that year.
The lack of information surrounding last week’s crackdown could complicate Crown’s planned spin-off of its international assets, including its stake in Melco Crown. That transaction was partly designed to highlight the value of Crown’s Australian operations and isolate the Macau business. It’s not yet clear how a fresh clampdown in marketing activities in China might affect the valuation of Melco Crown, said Maas.
“It makes that transaction a bit more complex,” he said.