Wednesday, August 17, 2022

Crown arrests to force marketing rethink?

Beijing’s policies are once again creating waves across the Asian gambling scene and may force a rethink of how regional operators reach mainland Chinese customers.

Last month, China arrested 18 employees from Australia’s Crown Resorts, including the group’s head of international business, for alleged and unspecified gambling crimes. Earlier this month, a junior employee was released, though the others remain in detention.

It’s not the first time that employees from overseas casinos have been detained in China, with several representatives from South Korean operators apprehended last year. Experts say the latest arrests show China’s anti-corruption campaign is still in full force.

President Xi Jinping’s anti-graft drive, which was officially launched at the end of 2012, triggered a two-year slump in gaming revenue in Macau. VIPs fled the market on concern over being on Beijing’s radar. However, Macau’s pain turned out to be a gain for further flung locations such as Australia and New Zealand, which weren’t as closely under the spotlight.

Now, it seems that the Chinese government wants to make clear that it won’t tolerate other jurisdictions trying to woo VIP gamblers to their properties.

“The PRC authorities knew that VIP players were being diverted to other jurisdictions, such as Australia, which had a notable upturn in VIP business during 2015,” said David Green, CEO Newpage Consulting. “A warning shot was fired by the PRC when the Korean casino representatives were apprehended last year. Apparently some did not take heed of the warning.”

Green said the coordinated nature of the arrests of the Crown employees suggests that the authorities were forewarned of the visit of the Head of International. The seizure of Crown’s client list and likely details concerning VIP player ratings and marketing programs suggests that this has some way to go before it is fully played out, he said.

All advertising and marketing related to casinos or gambling is banned in China, which has led to companies resorting to more creative means to raise their profile on the mainland. For example, in 2014 Crown funded a tour of China by the Sydney Symphony Orchestra hoping to promote name recognition. Otherwise, marketing activities are strictly limited to the resorts’ non-gaming offerings.

However, even this type of backdoor advertising may be sailing too close to the wind.

“Destination marketing, rather than casino marketing, was commonly thought to insulate operators against the threat of action such as has been taken against the Crown personnel,” Green said. “The problem seems to be that brands associated with certain destinations are also prominent gaming brands, like Crown. It is therefore problematic whether Crown, or other high profile casino brands should be marketing their destination resorts at all to the PRC market.”

He said at present it’s unclear whether this is just a warning shot or the start of a new campaign to stop anyone trying to woo mainland gamblers.

“If it is the latter, it will certainly have a long term impact on the industry, and further diminish the viability of the traditional junket business model. I don’t expect this to just “blow over”…the 2014 crackdown has not “blown over”, and I think anyone who underestimates the PRC’s resolve in this regard is indulging a fantasy.”

The junkets were among the hardest hit by the VIP exodus from Macau. Registered junket numbers have tumbled from 235 in 2014 to 142 presently and most of those remaining have significantly scaled back operations.  

The Crown arrests had the immediate effect of triggering a slump in the stocks of most Asian casino operators and in particular those in Australasia, amidst concern about a loss of VIP revenue that had been boosting the bottom line.

Crown, which reportedly had been warned once before to halt efforts to woo high rollers, played down the impact. It said around a third of its revenues are from overseas, but the contribution to group profits from international VIP gaming business from mainland China is “substantially” less than 12 percent.

John Mortensen, interim CEO of New Zealand’s SkyCity Entertainment Group expressed concern about the potential knock to an important revenue generator.

"It is clear that these changes in the immediate future will impact our international business from China," he said. "The outlook is relatively uncertain and we don't want to speculate on what the implications could be as we go forward for the next few months."

Last fiscal year, roughly 50 percent of SkyCity’s group turnover was contributed by Chinese customers.

Australia’s casinos have counted heavily on attracting more Chinese visitors, teaming with Asian investors to develop new multi-billion dollar resorts in Queensland and spending to revamp existing properties.

Visitors from China were up 20.7 percent in the eight months to the end of August, making it the second biggest source market after New Zealand.

Matt Bekier, CEO of Star Entertainment recently told a local newspaper that the group would be doubling its efforts to attract more Chinese tourists.

“The typical Chinese visitor to Australia spends about $8000 [on their trip]," Bekier told The Australian Financial Review. "Twenty five per cent of them find their way to one of our casinos and on average they spend about $150, so out of that big wallet, we only get a very small proportion … It should be double digits."

The arrests have sent shockwaves to casino operators across the region and have lead to new questions about the junket model, although most analysts agree the latest action was not targeted at Macau and won’t have much of a further negative impact on VIP business there. In fact, they say Beijing is more likely sending a signal it won’t tolerate money being diverted from Chinese soil.

“While regional markets may have some regulatory arbitrage opportunities vis-a-vis Macau (e.g. lower tax rate, and potentially a more lenient gaming regulatory regime and/or AML requirements), over the medium-term, we believe that Macau and China authorities will exert pressure on junket operations that aim to lure gamblers into the regional markets,” said Bernstein Research.  

“Further, last year's crackdown on Korean casino marketing and what appears to be a crackdown aimed at Australian VIP casino marketing is reflective of our view that China and Macau do not wish to see significant casino revenues flow to overseas casinos (especially those without ties to China).”

Buckingham Research agreed, saying the crackdown “appears focused on foreign operators that see would-be Macau customers as easy targets.”

Speaking at the Macau Gaming Show, Tim McNally said it was the operator’s duty to ensure they are complying with Chinese law.

“From an operator standpoint you have to take a specific event like that extremely seriously. China is a sovereign nation and they have established their own policy and laws and if you are going to operate with their citizenry you have to be very careful to show respect and do your best efforts to comply,” he said, though he added the law is not always clear.

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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