Wednesday, August 17, 2022

Crown’s homecoming


Crown has recently re-focused its efforts on expanding its Australian business in the wake of the Chinese VIP crackdown and the arrest of 18 of its employees on “gambling related” charges.

Crown Resorts has bucked the trend of going global, selling down 155 million ordinary shares in its Melco Crown Entertainment (MCE) joint-venture back to the Macau-based gaming company to refocus on its Australian business.

The sale raised AU$1.05 billion ($806 million), which the operator will use to help finance its ambitious expansion plans on home turf. This includes a new AU$2 billion harbour side resort in Sydney, Crown Towers Perth, and a AU$1.75 billion development in Queensbridge, Melbourne. Crown now holds just 11.2 percent in its Asian partner.

The strategic shift comes at a time when Crown’s Australia business is going through a period of decline; total revenues were down 12 percent at its resorts across the country for the first 23 weeks of FY17 driven by a 45 percent dip in VIP revenue over the same period.

VIP play represents around 28 percent of Crown’s Australia revenues, but margin is low. The same applies to operators with properties in Asia, where the Chinese clampdown on casinos and junkets targeting players in the country has driven margin, and revenues, into the ground.   

The decline has been worsened by the arrest of 18 Crown employees in China four months ago. The reason for their detention was “gambling-related” crimes, and has sent shockwaves through the Australian market.

The ripples have hit all operators, not just Crown. New Zealand’s SkyCity Entertainment recently reported its interim results, and while its domestic business enjoyed growth, its Australia operations saw revenue decline year-on-year. For Crown H1 normalized net profit was A$191.3 million, down 9.1 percent year-on-year.

Crown’s Australian resorts revenue was A$1.5 billion, down 12.5 percent in the half-year, caused mainly by a significant drop in VIP turnover, which fell 45.3 percent to A$19.6 billion. Chairman John Alexander said it was freezing its Chinese business unit until it gets a better idea on the scope of the Chinese crackdown.

The drop in VIP play means Crown is going to have to find growth from elsewhere, particularly from mass and premium mass players – something it has proven to be adept at. Crown enjoys sole licences in Melbourne and Perth, where its proposition is directed towards the local market.  

“The mass market is the key cash flow generator for both Crown properties; the mass market has a long-history of stable cash generation and Crown has recorded positive EBITDA growth in each of the previous 10 years,” says Vicky Melbourne, senior director at Fitch Ratings.

But this sits at odds with its planned Crown Sydney project as its license only allows for VIP gaming facilities. Resorts such as this were planned well before the Chinese clampdown and resulting fall in VIP play.

The Sydney project will be in the exclusive area of Barangaroo South, and will include a six-star hotel with 350 hotel rooms and suites, signature restaurants, bars, retail outlets, pool and spa facilities, conference rooms, a VIP casino as well as luxury apartments.

The country’s apartment market is booming right now, particularly in desirable and exclusive locations such as Barangaroo, where prices have more than doubled for properties bought off plan a little over three years ago.

“The apartment development supports the economics of the project and will bring down the overall net cost of construction, as well as contributing to the building’s iconic status and broadening the luxury brand appeal,” says Melbourne.

“The apartments in Bangaroo are in Sydney, if not Australia’s, most desirable location and in high demand for those seeking exclusive properties.”

The apartments were initially planned to attract VIP Asian tourists looking for a world-class entertainment experience, including gambling facilities. The down-turn in VIP casino revenue has some concerned that sales will slump.

But Megan Brownlow, partner at PwC, says buyers come from all over the world and with different reasons for buying, but still desire a wide range of entertainment options on their doorstep.

“Many apartment buyers, especially those seeking premium destinations such as the Sydney harbour foreshore, come from overseas and are not full-time residents. They visit to see their children who are studying in Australia, for example, and to spend their limited leisure time in the city.

“Proximity to entertainment such as restaurants, shops, casinos and so on is an attractive value proposition for many, especially buyers from Asia,” she adds.

Crown is swimming against the tide by streamlining its business to focus predominantly on one market in the face of the decrease in VIP play, with others taking a global approach and leading their operations into new regions.

But Brownlow says Crown’s decision to dial-in on Australia is a sound strategy, with growth still up for grabs in its domestic market.

“Australia is a mature market so not expected to grow at the same rate as some of our northern neighbours in Asia. However, it has a reputation as a safe, healthy and highly attractive tourist destination.

“The more sophisticated and diverse the choices are for visitors, the more desirable it is. Crown has been clear that they see a great deal of promise in the domestic market, and that seems justifiable,” she adds.

But to do that the operator is going to have to find growth where currently others are being met with decline. Its properties in Melbourne and Perth prove it is able to do this in the right environment, but whether that can be replicated in Sydney 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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