SIMON MANN June 17, 2012
Market analyst: 'The truth is, Packer might need Star more than Star needs Packer.' Photo: Louie Douvis LDO
THEY are the so-called ''whales'', fabulously rich gamblers who are jetted into town to be pampered and cosseted by their eager hosts. Often demanding, sometimes quirky and superstitious, they attract the very best and attentive service, and enjoy the trappings of the high life, often gratis: six-star luxury accommodation, fine dining, live shows, top-brand shopping.
They can win or drop millions of dollars at the gaming table during a single visit. Wagers of several hundred thousand dollars are not uncommon. Occasionally, as much as $1 million is bet on a hand of cards. Baccarat is a favourite game.
Predominantly ethnic Chinese, their money also buys privacy, discretion and exclusivity. Little is ever revealed publicly by casino operators about their identity or their gambling habits, but in a single year, at Crown alone, these VIP punters turn over an extraordinary $30 billion - around $600 million a week.
''It's simply another world,'' says an insider, still agog after a decade's close involvement in the industry.
It's a world, too, that is fast expanding, as China's exploding wealth and the rising prosperity of other emerging nations - India, Malaysia, Indonesia and the Philippines, for example - spawn a new and vast generation of high rollers.
That reality, and the intensifying competition for their business, lies at the centre of a stoush over control of Sydney's Star casino, one that has several elements, both commercial and political, and which is flavoured also by a hint of hoary Melbourne-Sydney rivalry.
At its core is James Packer's ambition to retain his dominance over VIP gaming in Australia by having a key say in Sydney's newly rejuvenated casino business.
The Packer-controlled Crown group enjoys 75 per cent of the nearly $1 billion of annual casino revenues generated by high rollers in Australia through its internationally acclaimed Yarra River complex and its Burswood casino in Perth.
But the once dowdy northern cousin, the Star, decoupled from its old ownership structure and tarted up with a $900 million facelift, is aiming more aggressively at the same VIP market, a threat that is magnified by Sydney's standing as Australia's gateway for international tourism.
Packer's response has been fierce and multi-pronged, with Crown taking a 10 per cent stake in Star's owner, Echo Entertainment, and applying to regulatory authorities to be allowed to move to the takeover threshold of 20 per cent.
Simultaneously, the Packer camp has waged a public relations war against Echo over the latter's lacklustre recent performance, to the point of forcing out its chairman while pushing for its own boardroom appointee, the man whose aggressive 1990s urban makeover gave Melbourne its gaming mecca to begin with, former premier Jeff Kennett.
Packer's pitch has been for a united Australian front in the quest to wrest bigger numbers of the region's high rollers, and he has wowed tourism chiefs, as well as New South Wales Premier Barry O'Farrell, with a proposal for a 35-storey luxury hotel on public land on Sydney Harbour known as Barangaroo, on the western flank of the historic Rocks.
Apart from a looming public backlash, the snag is that Packer wants the hotel to include exclusive gaming salons for high rollers, complementing Crown's top-shelf offering in Melbourne and Perth.
But Star holds the only casino licence in NSW and would need to come on board by agreeing to a hybrid arrangement that split its facilities between its current site and Barangaroo.
O'Farrell, unimpressed by a recent sexual harassment scandal at Star that embroiled his government and led to the downfall of the casino's former managing director, has appeared to revel a little in Star's discomfort by publicly praising Packer as a ''shrewd and successful businessman'', while acknowledging that the Packer push ''is starting to look like a political campaign''. While Packer's ultimate objective is clear - gaining access to Star's licence - he faces stern resistance, namely from an Echo board that accuses him of seeking control of the company on the cheap, by denying a premium to its shareholders.
They appear to be daring him to launch a full takeover bid, something that could be in the offing once Packer offloads his remaining media interests. The sale of those, which indirectly includes a 25 per cent stake in Foxtel, could raise close to $1 billion.
The longer game plan could be his positioning for Crown's own casino licence in NSW when Star's exclusivity expires in 2019. (Its licence renewal process starts two years earlier.)
''Everyone concedes that Crown has been the key venue for high rollers in Australia,'' says a close Echo observer. ''They've worked hard and put a lot of effort into that market.
''But the upside for Star is enormous. Sure, you could tackle that market through some joint venture or tie-up with Crown, so in that sense Packer is absolutely right. But Star doesn't need Packer to do that.''
As for Packer's push for new blood in the Echo boardroom, he adds: ''Why on earth would you agree to put a competitor on your board?''
Echo is confident that it can offer a similarly impressive high roller experience as Crown's by coupling Star with Echo's Queensland casinos, the soon-to-be upgraded Jupiters sites on the Gold Coast and in Townsville, as well as the Treasury in Brisbane.
''The truth is,'' suggests one stockmarket analyst, ''Packer might need Star more than Star needs Packer.''
But that's if Star gets it right. There are plenty who see Crown's management expertise as vital in finally raising Star, which has long been anchored in a state steeped in the grind culture of RSL and sporting club pokies, to the high roller firmament.
And they offer as evidence Star's recent admission that the collapse of a Macau-based junket operator (businesses that scoop up high rollers and deliver them to casinos throughout the Asia region) had cost it $7 million in forward commissions and potentially another $23 million in unrecoverable high roller debts.
Echo, which has portrayed the losses as teething problems, unveiled on Friday details of a $450 million capital raising that will be used to strengthen its balance sheet and lend weight to its high roller push. But the announcement was accompanied by a downgrade in its profit outlook, further fodder for its critics.
The Packer camp argues that its agitation is on behalf of all Echo shareholders, who now include the Singapore-based casino group Genting, which has built a 4.9 per cent stake, along with Macquarie Bank, whose similarly sized holding on behalf of its various investment funds would appear to be a punt on some profitable future resolution. Standing steadfast, too, has been Perpetual Investments, with 8 per cent, which has backed Echo's board in rebuffing the Packer demands.
No one would dare suggest that the prevailing obstacles are insurmountable for the Packer camp, which has assembled an impressive roll call of political heavyweights among its ranks, presumably to help navigate its way through choppy waters. They include the former federal government minister Mark Arbib and former ALP national secretary Karl Bittar, as well as the former Liberal senator and federal communications minister Helen Coonan, a Crown director.
Networking is also the name of the high roller game across Asia, and Packer's interest in Macau casinos in partnership with Hong Kong-based tycoon Lawrence Ho provides a handy conduit for introducing more high rollers to his plush Australian salons. Their business is becoming increasingly vital as growth in the domestic gaming market tails off. While local punters contribute more in terms of casino profits, the high roller market (despite its skinny margins and greater risk) is growing more strongly, demonstrated by Crown's own figures. In the latest corporate reporting period, revenues from local gaming in Melbourne grew by 5 per cent while those from its VIP program were 34 per cent stronger, albeit from a lower base.
Tourism chiefs recognise the potential should this trend be replicated in Sydney, drawing ever greater numbers of big spenders willingly pumping money into the local economy. The boss of the Tourism and Transport Forum, John Lee, sees the Barangaroo hotel-cum-casino development as upping the ante in Sydney's claim for higher tourist numbers, just as Singapore's so-called ''integrated resorts'' have pulled a flood of new visitors to the city-state.
He says the Packer plan has merit and would add to the harbour precinct's ''tourism offering''. But intensifying competition for VIP punters has not just triggered a casino ''arms race'' in Australia, where operators have been spending billions of dollars melding a variety of lavish entertainments with their gaming offers, but one that is region-wide.
At its epicentre is China's Macau, the only city in a country of more than 1 billion people permitted to run casinos and the site of several billion-dollar developments.
Already having eclipsed Las Vegas, Macau's 30 casinos are expected to rake in revenues of more than $US40 billion in 2012 (about 10 times the gaming revenues of Australia's 13 casinos), of which high rollers can be expected to account for 70 per cent.
Newcomer Singapore is fast establishing itself, too, as a key high roller destination. The 31 VIP salons of the $5 billion Marina Bay Sands, for example, already draw 60 per cent of that complex's gaming revenues.
The widespread assumption is that - notwithstanding the Chinese economy's recent slowing - the premium gambling pie has years of expansion ahead, and the chairman of Marina Bay's Las Vegas-based parent company, the US billionaire Sheldon Adelson, identifies a growing new class of gambler.
''We are constantly surprised at who they are, the number of people, how they come out of the woodwork and how many there are in the world,'' he recently told Singapore's Straits Times.
''There was a time, 10, 15 years ago, that people thought that in the entire world, there were as few as 150 VIP players. We sometimes get that in a few days, a week or two weeks. So the word plateau, in terms of Asia, is not in our vocabulary.''
But the breadth of competition is likely to demand more creative ways of luring gamblers farther south than Singapore, a fact that could affect the sort of inducements offered to ''whales'' by local operators, such as the extent of ''loss rebates'', where casinos cover a portion of a high roller's losses.
Packer's remedy of a united front also calls for better support from governments to maintain tax and other advantages, which could be extended to faster visa and customs clearances for high rollers to match the efficiency of Singapore.
Star's ''fate'', meanwhile, may not be determined for some time, with no guarantee that a takeover bid will materialise to unlock the stalemate.
Analysts are hardly unanimous in their outlook. Few think Packer will bid for Echo, and fewer believe Genting wants to go down that path. But some ponder a deal that would see some of Crown's interests in Macau passed to Genting, providing Packer with the financial muscle to swallow Echo - and Star. At the moment, its tie-up with the Ho Group demands exclusivity in Asia and, as one analyst noted: ''Who would want to rock that boat?''
But another gaming expert based overseas thinks otherwise, wondering if Packer might, in fact, prefer to be the big fish in the smaller pond. ''If I was Packer, and if I had the option of cornering the Australian market or keeping a 30 per cent stake in one of six operators in Macau, I'd probably corner the Australian market. It's as simple as that.''