Inside Asian Gaming

INSIDE ASIAN GAMING | June 2012 12 verge of closing. Crown also owns 50% of the Australian business of UK-based Betfair, the world’s largest online betting exchange, although this actually was Kerry Packer’s deal. It was also Kerry that got the family intoMacau, arguably themost successful of the Packer gaming holdings. This was the deal that has evolved into today’s publicly listed Melco Crown Entertainment, a joint venture with Stanley Ho’s son Lawrence. Melco Crown operates the Altira and City of Dreams resorts and holds a majority interest in a third, Studio City, which has yet to be built. With ownership of The Star, not to mention Echo’s three Queensland resorts, all would seemingly be redeemed for James Packer. He would be the undisputed lord of casino gambling in Australia, with something like a controlling 40-45% interest in a merged entity worth an estimated A$10 billion. Factor in the Macau investment and it seems clear that a very significant chunk of Asia’s high-rollers, who comprise most of the biggest players in the world, would be Crown customers. The VIP trade in Australia generated A$24.7 billion in turnover in 2010 and is growing annually at double-digit rates, according to Larry Mullin. The massive investment in integrated resorts in Macau and Singapore, together with increasing levels of outbound travel from mainland China, have galvanized the market. In Australia, Crown currently controls an estimated 80% of it, by Mr Mullin’s estimation. The balance largely belongs to Echo’s four casinos, and most of that to The Star. UBS estimates that by 2014 the Australian VIP market could be worth up to US$100 billion in turnover, driven by visitation from China that is expected to hit 16 million. “Eighty percent of travelers out of China end up going to a gaming venue on their first trip,”notes DavidWaidsowski, amedia and entertainment partner at PWC Sydney. “With the recent renovations at The Star, they are trying to do as much as they can to attract as many as they can.” “It’s a very profitable segment,”Mr Mullin has said. This is especially the case in Australia, competitively speaking. New South Wales and Queensland levy the lowest tax on VIP play in the region, 10%, versus Singapore’s effective rate of 12% and Macau’s nearly 40%. Echo reported “difficult” trading conditions so far in the second half of FY2012, the result of “soft consumer sentiment” and “weak demand”. Still, gross revenues company-wide were up 3.1% through 28th May, most of that driven by The Star, where revenues rose 5.5% despite the “sustained negative media exposure and management changes”. Revenue growth in “International Rebate Business,” as the company terms VIP, was up 2.3% on higher than normal win and substantial volume (as measured by customer front money) growth of 58.7%. But the liquidation of junket operator SilkStar Global Marketing, which Echo helped set up in business in January 2011 with $7 million in development fees and prepaid commissions, has forced the company to write off an additional $22.9 million in gambling debts assumed to be uncollectable. The company is due to report full-year earnings in August. The taint from the inquiry continues to linger as well, and the VIP push has been dealt a blow by the ILGA’s decision to deny a license to American Mark Brown, a highly respected veteran of Donald Trump’s and Sheldon Adelson’s casinos who’d been tapped as international marketing manager for The Star. Mr Mullin, a Brown protégé, said he did not know why the license was denied. Putting the best face on it, he said, “The IRB business continues to develop momentum, and I am confident we have moved past the establishment phase and its associated initial costs. This year has been more challenging than anticipated … but with the inquiry behind us, a new managing director in charge at The Star, and our Sydney renovations close to completion, we look to the future with great optimism.” As does James Packer, no doubt. A full takeover of Echo will cost Crown an estimated A$2.7 billion and likely will face lengthy scrutiny from competition authorities. But with Mr Story’s resignation it may not come to that. If it does, Mr Packer has a plan in motion. He has appointed UBS to negotiate the sale of his 50.1% stake in publicly traded Consolidated Media Holdings, which holds a 25% stake in pay TV operator Foxtel. The sale could be worth about A$1 billion. In 2006, Mr Packer sold the family’s controlling stake in the Nine Network. If this latest sale goes through it wouldmean that for the first time in a century the Packer family will not have any major media interests in its home country. He may need the money. Reports are that Echo has also piqued the interest of Malaysia-based conglomerate Genting, owner of ResortsWorld in Singapore. Macquarie’s Gary Pinge said,“Our analysis suggests that Genting Singapore could comfortably pay US$6.23- $6.75 a share, a 35%-50% premium to Echo’s current share price.” At those numbers, Echo would have a market cap of US$4.7 billion. Jupiters Hotel & Casino, one of Echo’s three Queensland resorts Cover Story