James Packer’s casino giant Crown Resorts may face serious trials and tribulations, experts say.
Analysts have warned that a sharp decline in the Chinese high-rollers’ spending in Australia could deprive the brand’s new VIP casino complex which is currently being built in Sydney of its attractiveness.
As Casino Guardian has recently reported, company’s officials have revealed a decline in high-stakes Asian gamblers’ spending with the largest casino operator in the country. The revelations have come at a time when the slowest growth in almost thirty years has been registered in the Chinese economy, with still ongoing trade tensions between China and the US, as well as Government’s crackdown still fuelling fears for the VIP players’ spending in the upcoming months.
About a fortnight ago, Crown Resorts revealed that the high-roller turnover of the Australian locations of the operator was hit by a 12.2% drop over the second half of the year ended on December 31st, 2018, reaching AU$19.9 billion. The VIP players, who usually spend billions in Crown’s locations in its homeland, spent 18.5% less money in Crown Perth and 11.2% lower high-roller revenue reported in Crown Melbourne.
The second largest casino operator in Australia – Star Entertainment – also reported a massive decline of 33% to AU$20.7 billion in its VIP revenue.
Stiffer Regulatory Regime in China Leads to Softer VIP Turnover
Considering the above-said, the fortune of the new Crown Resorts’ venue in Barangaroo looks somehow unsure, especially when taking in mind that the establishment is planned as a casino venue targeting high-roller customers with an “international VIP program”. The latter is set to bring wealthy foreign casino players to Australia, attracting them with luxurious hotel stay and a great variety of games, on which they bet literally millions of dollars only in a few hours.
However, some analysts are concerned about the company’s future. Donald Carducci from JPMorgan noted the fact that the VIP programs of both The Star and Crown Resorts generated lower results than initially expected, which according to him, meant without any doubt that the harder economic situation in China was having a negative effect on the gambling giant’s high-roller revenue.
The volumes of foreign high-roller players who visited casinos across Australia suffered a sharp decline in 2016/17 following a massive anti-gambling crackdown which the Chinese Government rolled out at the time. The stricter measures in question resulted in the arrests of 19 employees of Crown Resorts who were jailed for unlawful legal marketing activities on China mainland. The workers were accused of participating in activities aimed at attracting high-spending Chinese customers to the Crown Resorts’ casinos outside the territory of Macau, which at the time was the only place in China where gambling was permitted.
The arrests and following legal action against the Australian gambling giant’s employees are believed to have made Crown Resorts abandon its ambitions to pursue further growth in China. In 2017, the company decided to dispose of its stake in Melco Crown joint venture and also revealed plans to sell its remaining stake in Melco Resorts and Entertainment.
Since then, the turnover generated by VIP customers partly recovered, but is still liable to rapid and unpredictable changes. This is exactly what, according to some market experts, makes the business case for Barangaroo less attractive.
Both Crown Melbourne and Crown Perth Suffer High-Roller Revenue Decline in 2018 H2
Ken Barton, the Chief Financial Officer of Crown Resorts, commented on the situation, saying that the decline of the VIP turnover was having a negative impact not only on Australian casinos but also across the entire Asia-Pacific region, including Singapore and Macau. Mr Barton believes that the “softening” illustrates a broader trend of the high-roller market.
In the second half of February, the company officially revealed that the VIP revenue generated at the Australian casinos of Crown Resorts was hit by a 12.2% decline over the second half of the fiscal year which ended on December 31st, 2018. Smaller customer spending was registered in Crown Melbourne, where high-roller revenue marked an 11.2% drop, and in Crown Perth, where an 18.5% VIP turnover decline was registered.
Despite the difficulties, the gambling giant remains confident in the good chances of its Barangaroo project at the time when it starts operation, which is set to happen in 2021. The company shared that it is looking at longer-term trends, which will still keep the VIP market in the region pretty large.
Apart from that, the executive chairman of Crown Resorts, John Alexander, has reminded that the gambling giant does not intend to run the Barangaroo casino as a venue focused on foreign high-roller customers only, but on local VIP players, too. He further shared a belief according to which the Australian high-roller gambling market is growing.
JPMorgan’s analyst Mr Carducci also noted that The Star has been gaining market share on Crown Resorts, and praised it for doing a better job when it comes to cost management through the stiffer conditions at the high-roller market. Moreover, the domestic gambling business of The Star turned out to be really impressing for investors, as the brand seems to be successfully dealing with the challenging gambling environment in Australia.