A small change to Australian gambling law in 2015 is now having an impact on the wider industry. The amendment highlights why many are concerned about the market’s ability to support some of the multi-billion dollar IR projects being planned.
In the Northern Territory, pubs and clubs were given permission to increase the number of gaming machines, known as pokies, they could install on their premises, as well as relaxing wager and deposit limits.
It was a relatively minor tweak, but one that has hit casino operators in the region hard. In its 1H17 financial results, SKYCity Entertainment said there had been a 60 percent increase in the number of pokies outside of casinos in Darwin since the law came into force in June 2015, with ripples from the changes now negatively impacting its revenues in the region.
This highlights the size and scope of the domestic market across Australia. Although Australians are among the biggest gamblers in the world, locals prefer to wager in pubs and bars over large casinos and integrated resorts. According to a Roy Morgan Research report, only 12 percent of the Gold Coast population gambles at their local casino, while Crown Perth attracts just 9 percent of locals.
These statistics, and the strength of the locals market, bring into question some of the planned multi-billion-dollar integrated resort developments due to break ground in regions such as Queensland and Sydney over the coming months and years.
The Star Entertainment Group, for example, is part of a consortium that has been awarded the right to develop the Queens Wharf Brisbane integrated resort, while the China-based ASF Group is in the process of negotiating with the Queensland government over plans to build a $3 billion casino and hotel project on the Southport Spit.
The government says these resorts will draw tourists to the region, and will not be negatively impacted by pokies or locals’ gambling preferences.
“While local communities will benefit from the facilities, entertainment and public benefit that IRs provide, the key focus of these resorts is to attract significant numbers of international tourists,” says a spokesperson for the Department of State Development.
“Specific market issues are largely a commercial matter and proponents must satisfy themselves about the market. However, all indications are that there is an appetite for IR development in Queensland,” they add.
Others disagree, however, and suggest operators and the government have overestimated the appetite for visitors to travel to Queensland to stay at casino, hotel and entertainment resorts. This is certainly the case when it comes to luring lucrative VIP players from China.
“The Queensland Government is looking to large integrated resorts to boost tourism, like the Singapore experience,” says Vicky Melbourne, senior director at Fitch Ratings. “But unlike Singapore, Queensland doesn’t enjoy the proximity with short flights to the VIP base in South East Asia.”
These concerns – among others – have already seen one casino project run aground before it set sail; Aquis pulled the plug on its six-year plan to build the $8.15 billion ($6.2 billion) Great Barrier Reef IR, with Hong Kong tycoon Tony Fung saying the whole gambling industry had changed drastically over the past 26 months.
The resort is still going ahead, but without the casino element and with a much smaller investment of just $2 billion. The Queensland government is now seeking expressions of interest for that license and says interest has been strong.
“I think Aquis and ASF would face challenges with the economics and return on investment of an integrated resort [in Queensland], as the VIP market is saturated and is facing competition from new properties and markets opening in Asia, and would need a strong locals market to make the economics work,” Melbourne said.
These resorts were conceived long before the Chinese clampdown and resulting fall in VIP revenues across Asia. Australia initially benefited from the exodus from Macau, but the market has cooled, especially over the last six months since China arrested 18 Crown Resorts’ employees, stifling marketing efforts in that country.
Lorien Pilling, director at Global Betting and Gaming Consultants, says that while the decline in VIP play and ongoing uncertainty over how the Chinese authorities will view gambling abroad continue to offer cause for concern, there is plenty of upside and opportunities to attract new visitors to the region.
“The Asian middle class is on the rise and has more money now than ever before, especially people in China, India and the Philippines. And they are more willing and able to travel abroad. New venues are likely to draw much interest, especially immediately after opening their doors for the first time.”
Despite this, there is still the risk that casino operators have drastically overestimated the number of tourists and VIP players they can attract. The Brisbane development plans to draw in an additional 1.39 million tourists per year while the Gold Coast venue plans to add some 1.5 million per annum.
This seems somewhat optimistic based on the total number of foreign visitor arrivals to Australia last year – 8.4 million. That said, the whole Gold Coast area is primed for growth; it has around 10 million visitors per year, but accounts for just 10 percent or 855,000 foreign visitor arrivals in 2016.
Visitor numbers from Mainland China have been gaining at about 25 percent a year, with expenditure per head also rising strongly, however, any expectation of 30 to 40 percent of revenue from Chinese tourism is unrealistic, David Edwards project CEO of State Development in Queensland said at the recent ASEAN Gaming Summit in Manila.
Pilling argues there is still room for growth in casino revenues in Queensland.
“The region’s four venues generated $690 million in total revenues in 2015, while Victoria’s Crown Melbourne casino had $1.86 billion in gaming revenues followed by NSW’s The Star in Sydney with revenues of $1.4 billion.
“But the importance of Macau was shown when Queensland’s casino revenues increased by $130 million in just one year as they attracted more VIP players that did not go to Macau. High growth was also seen in NSW and Victoria,” he adds.
The good news in Queensland is that the Office of Liquor and Gaming Regulation (OLGR) has recently undertaken a review of casino junkets in the region, and is planning on making a few changes.
“The review concluded that although the regulatory model doesn’t require substantial change, some changes – primarily to eliminate regulatory red tape – could be made which may improve the commercial opportunities available to casino operators,” says a spokesperson from the OLGR.
But whether these changes will be enough to draw VIPs and high-roller tourists to the new Queensland casinos once they have opened remains to be seen.
Asia Gaming Brief is a news and intelligence service providing up to date market information for worldwide executives on relevant gaming issues in Asia.
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