Inside Asian Gaming

INSIDE ASIAN GAMING | July 2013 12 COVER STORY cost at A$500 million and has signed a purchase agreement with Wyong Shire Council for 15.7 hectares of land for a “tourist mecca” with a theater, a traditional Chinese courtyard, the obligatory panda attraction (no live animals, though), tributes to the architectural styles of the Tang, Song, Ming and Qing periods and a nine-story temple housing a giant Buddha. “We were the fourth or fifth council they approached after everybody else laughed in their face,” Mayor Doug Eaton told China Daily. Mayor Eaton isn’t laughing. He’s a believer. He says, “What this proposal will do is bring millions of dollars’ worth of tourism into the area—which will have a flow-on effect to the entire region’s economy.” Tourism is big business in Australia, good for A$41 billion last year, almost 3% of gross domestic product. And China is big tourism. The Middle Kingdom passed the UK a couple years back as the second-largest source of inbound travel after New Zealand. One in nine visitors to Australia in the last year was Chinese, and this doesn’t count Hong Kong, Macau and Taiwan. The total, 659,400, was up 17.5% year on year, more than triple the rate of growth of foreign arrivals as a whole. Total inbound visitation, which is forecast to grow 4.6% in the year ahead, will largely be driven by this surge, China’s contribution expected to increase 15.9% this year and 10.4% next year, followed by Malaysia (13.9%), Singapore (12.5%) and India (7.5%). Asia, in fact, is now home to seven of the country’s top 10 tourism feeder markets, and the next seven years are likely to see the Buddha and Baccarat I n Wyong, about an hour’s drive north of Sydney on New South Wales’ Central Coast, they’re talking about building a full-size replica of the Forbidden City. Seriously. Australian Chinese Theme Park, the enterprising entity behind it, puts the meters, whichever is less—a considerable space, considering that slots are not allowed and there will be only 120 table games (“initially,” Crown says) together with their electronic multi-terminal variants. (No word yet on how these will be counted as part of the whole.) Main floor table revenue will be taxed at 29%, 10% on revenue derived from junket play, same as at The Star. This includes Goods and Services Tax and a community benefit levy of 2%. Crown wants the GST rebated on international play and domestic play outside New SouthWales. Plans so far call for 10 private gambling rooms, although play throughout will be on the basis of membership, “which aims to attract high-spend patrons,” Crown says, “similar to that operating in the VIP gaming areas at Crown Melbourne.” This is expected to limit participation by locals to no more than 5%. But how the company and the state are defining “VIP” has observers somewhat confused. Crown’s submission to the government makes provision for “low-limit” tables priced at minimums that may vary from A$30 for baccarat to $25 for roulette to $20 for blackjack to the lower of wherever minimum bets may fall “from time to time”on the same games in the VIP areas at Melbourne. Macquarie Securities analyst Andrew Levy describes this as the “low side of expectations”. By comparison, minimums at Macau’s public tables have averaged something north of A$230 over the last 12 months, according to Deutsche Bank research. Crown Sydney’s definition of VIP, Mr Levy wrote in a note to investors, “does leave scope for higher-than-expected levels of cannibalisation of The Star’s existing customer base.” Mr Xiradis called it a “game changer” in an interview in The Australian . “To me it doesn’t make commercial sense. I am suspicious of how the thing will work.” A fund manager who declined to be named said, “Thirty dollars a hand is not VIP. That is a full-blown casino.” Working from this expansive definition, Mr Packer told the government he is confident Crown Sydney will “almost treble the volume of VIP business coming to Sydney from Asia, and in particular China”—leveraging the value of Crown’s 33% joint venture stake in Macau operator Melco Crown Entertainment together with the company’s “extensive” pan-Asia sales network and its success at marketing to the high end at Crown Melbourne. Mark Wilson at Deutsche Bank says Crown will need $23 billion in annual wagers in Sydney to achieve a return he would deem“adequate”. That shouldn’t be too difficult, given the $24.3 billion the company booked in VIP turnover at Melbourne in the six months ended in December. Crown won over the government in part by persuading it that Sydneywas being“short-changed”on tax revenue onVIP compared withMelbourne, where the company generates twice as much from the overseas trade asThe Star and half again asmuch fromdomesticVIP.The Star boosted its turnover in the sector by 20% in the sixmonths through December, but the total was only about half of Melbourne’s. Normalized for hold, The Star kept $72 million of it. Melbourne realized $327 million in VIP revenue over the same period, but normalization played a more significant role, its win rate having dipped to 1.23%, well below the expected range of 1.35%.