Source: Crown Ltd. via Bloomberg

Sydney Casino War Battle Lines Redrawn Amid China Crackdown

  • Falling VIP revenues make local market, tourists prime target
  • Crown, Star set to go head to head for first time in Sydney

On the shores of Sydney harbor, Crown Resorts Ltd. and Star Entertainment Group Ltd. are creating the most opulent gambling resorts Australia has ever seen, in a A$3 billion ($2.4 billion) battle of roof-top pools, private gaming rooms and fine dining.

In the city’s first casino war, billionaire James Packer’s Crown is racing to build a A$2 billion six-star hotel and casino by 2021 on prime real estate on the banks of a protected inlet west of the Sydney Harbour Bridge. Star, which loses its monopoly in 2019, is pushing on with A$1 billion of upgrades just a few hundred meters across the water.

An artist’s impression of the Crown Sydney Hotel Resort, left.

Source: Crown Resorts Ltd.

Packer originally won support for the new casino at Barangaroo with a pledge to attract mega-rich Chinese high rollers. But the crackdown on promoting gambling in mainland China has moved the battle lines, and now Crown looks set on a collision course to compete with Star for less wealthy blackjack, poker and baccarat players.

The prize for Australia’s leading casino operators is clear: record flows of Chinese tourists and a local population that loses more money gambling per head than any country in the world. The risks are equally apparent, as Crown’s new site potentially draws customers from its Melbourne base, and Star faces competition for the first time in Sydney.

“They are both kind of targeting the same customer,” said Sudhir Kale, the Gold Coast, Australia-based founder of GamePlan Consultants who’s worked on projects for casino operators including Crown. “Barangaroo is going to basically get into the grind market of Star, the table-game players.”

The contribution to Crown and Star from overseas high-stakes gamblers came into focus in October last year when Chinese authorities arrested a group of Crown workers. A Shanghai court in June convicted 19 current and former staff of illegally promoting gambling on the mainland and handed out jail terms of as long as 10 months.

Since the crackdown, Crown has closed almost all its regional marketing offices in Asia that funneled big-stakes players to Australia and sold out of a Macau casino venture. According to Citigroup Inc., Crown’s share of international high-roller revenue in Australia has plummeted from more than 70 percent in 2010 to 39 percent.

“Their business from Asia has been severely damaged,” said Roy Wheatley, CEO of gambling consultancy Global Consulting & Development Pty, which has offices in Australia, Singapore and Japan. “The majority of their revenue is from local play and this will be the case in Sydney.”

Investors will learn the scale of the fallout when Crown announces full-year results on Friday, while Star reports on Aug. 23.

A representative for Crown in Melbourne didn’t reply to emails and a call seeking comment on whether the China crackdown would see the company lean more on lower-stakes customers than offshore high rollers. The company has previously said its Sydney project would be successful partly because it would also be attractive to local gamers.

Sydney also faces competition as resorts springing up across Asia try to attract business from China. In Japan, companies are vying for a slice of a potential $25 billion market after lawmakers legalized casinos last December. Other operators are expanding gaming to online and phone betting, with an eye to attracting Chinese players. The Philippines and Vietnam now allow phone betting that’s banned in Macau, and provide favorable tax structures and policies for gaming.

Matt Bekier

Photographer: Brendon Thorne/Bloomberg

For Star Chief Executive Officer Matt Bekier, tourists and repeat business from locals are a more reliable market than international high-stakes gamblers. Worldwide, there are probably only 1,500 ultra-big hitters comfortable betting at least $5 million at a time, he said.

“I don’t think we can build a business hoping to attract a couple of these large players every now and then, hoping to win,” Bekier said in an interview.

The looming battle with Crown kick-started refurbishments in Sydney, as well as renovations and developments along the eastern seaboard costing up to an additional A$2.85 billion.

Gold Coast

Almost 1,000 kilometers north of Sydney, Star is building a gaming, hotel and retail resort in the Queensland state capital, Brisbane, with Hong Kong’s Chow Tai Fook Enterprises Ltd. and Far East Consortium International Ltd. Star is also upgrading and expanding its casino and hotel on the state’s Gold Coast.

Star’s developments are scheduled to be completed by about 2022, after which the proportion of its revenue from tourists could climb to at least 10 percent from less than 3 percent now, Bekier said. International high rollers generate less than 30 percent of Star’s revenue and 16 percent of earnings before interest, tax, depreciation and amortization, the company said last year.

The company, which once relied on China for almost all its high-roller income, now aims to generate half of it from other Asian nations.

Crown announced its plans for the new Sydney resort in 2012, promising 350 hotel rooms and suites. Also on offer: three bars, five restaurants and an infinity pool on the roof. Unlike Star, the resort won’t run slot machines, making classic table games the key battle ground in the fight for customers.

Jets, Yachts

Minimum bets at Crown’s new Sydney casino will be A$30 for baccarat, A$20 for blackjack and A$25 for roulette. More accessible to a wider pool of players because of the lower stakes, such tables can also be more profitable than high-roller operations. Casino owners typically lavish those VIPs with expensive extras such as private jets, access to luxury yachts or other exclusive experiences.

Crown’s new resort in Sydney will draw business away from its flagship casino in Melbourne because it’s easier for overseas gamblers to fly into the city, said GamePlan’s Kale. 

Once there, gamblers can play at both resorts, meaning Star could benefit from customers that Crown is losing from Melbourne, according to Bekier.

But he acknowledges it will be a two-way street, and at least some of his customers in Sydney will cross the water to the new Crown complex.

“There’s obviously going to be a novelty aspect,” he said. “The challenge for us will be to make sure that it remains an exploration.”

The Star casino in Sydney.

Photographer: Brendon Thorne/Bloomberg

— With assistance by Jeff Sutherland

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