Adding to its regulatory woes in New South Wales, Crown Resorts has been called on the carpet in its home state of Victoria for alleged failures in ensuring the probity of its junket partners.
It’s the same issue that is dogging the Australian casino giant in NSW, where Crown is pursuing a license to operate a A$2.2 billion (US$1.6 billion) resort casino at Sydney’s Darling Harbour and has faced more than a week of intense questioning from the state’s Independent Liquor & Gaming Authority over the purported laxness of its due diligence in connection with the international VIP business at its Crown Melbourne flagship and at Crown Perth. The questioning included testimony from controlling shareholder and former Executive Chairman James Packer, who acknowledged lapses in compliance and communication at the highest levels of the company, and executives and directors of the company.
The scrutiny in both states was sparked by a series of explosive reports in the national media over the last year accusing ASX-listed Crown of working with junkets with known ties to organized crime and allegedly allowing the VIP rooms in its casinos to be used for money laundering.
In Asia and Australia, junkets are the foundation of a multibillion-dollar high-roller trade, recruiting wealthy gamblers, most of them from mainland China, arranging for their travel and accommodations and providing them with credit. In China, where casino marketing is forbidden by law and where currency outflows are highly restricted, at least on paper, they operate largely in the shadows; and they are only loosely regulated in Macau, where they are a critical component of the market’s world-leading gaming revenues, as they are at Crown Melbourne and would be at Crown Sydney, which is slated to open in December as a luxury destination catering to Asia’s gambling elite.
In Victoria, the Commission for Gambling and Liquor Regulation has ordered the company to “show cause why disciplinary action should not be taken for failing to ensure that controls regarding junket participants were implemented by Crown during relevant times, particularly in relation to Crown’s due diligence in the supervision and approval of junket participants.”
The penalties could include a fine, a formal letter of censure or a requirement to take corrective action. It is not believed the property’s license is in jeopardy.
In NSW, the Darling Harbour license is also believed to be a safe bet, but it’s not likely to be awarded without demands for structural change within the company. This could include a requirement that Packer sell down some of his 37 percent shareholding, a possibility that had the ASX abuzz last week when it was learned that New York-based financial giant Blackstone Group had applied to the ILGA to increase its 10 percent stake in the company.
Blackstone, known mainly as a private equity investor, has emerged over the last several years as a major player on the Las Vegas Strip, purchasing The Cosmopolitan in 2014 for US$1.73 billion and adding MGM Resorts International’s Bellagio to the portfolio last year for $4.2 billion. Earlier this year, a subsidiary of the group partnered with MGM’s MGM Growth Partners real estate investment trust to purchase Mandalay Bay and MGM Grand in a deal valued at $4.6 billion.
Blackstone’s interest in Crown is well-known, having shelled out A$551.6 million ($359 million) earlier this year to acquire its 10 percent from Melco Resorts & Entertainment, Packer’s former casino partner in Macau.
Likewise, Packer’s interest in divesting has been well-publicized. The 10 percent Melco flipped to Blackstone was the remnant of an initial attempt by Packer to sell Melco 19.99 percent of the company, but the deal foundered on regulatory concerns in Australia.
