Business isn’t a zero-sum game, and a setback for one entity doesn’t always mean greater success for its competitors. But back in February, analysts at J.P. Morgan suggested that Australia’s Star Entertainment Group is likely to benefit from recent storms surrounding its chief rival, Crown Resorts.
With the release of the Bergin Report, after an 18-month probe into money laundering and other serious breaches at Crown casinos, the government of New South Wales (NSW) denied Crown permission to open its new VIP casino at a $1.5 billion resort complex in Sydney. The Bergin Report said Crown was “unsuitable” to hold a gaming license in the state; that finding led to fresh inquiries in the states of Victoria (home of Crown Perth) and Western Australia (home of Crown Melbourne), where officials may make the same kind of determination.
Crown is likely to survive the crisis. The NSW government has given the company time to make amends; Crown started by cleaning house at the executive and board levels, and Crown Executive Chairwoman Helen Coonan has issued many mea culpas, promising the company will observe “the highest standards of governance and compliance and (create) an organizational culture that meets community expectations.”
The governments of Victoria and Western Australia will probably also offer Crown a second chance. It would make no sense for them to preemptively shut down operations that employ tens of thousands of people and generate millions in taxes and other revenues. But Victorian Premier Daniel Andrews—an intimate of Crown honcho James Packer—has said he’s prepared to terminate Crown’s gaming license if the state’s royal commission demands it.
Crown’s black marks may have put Star in a one-up position, at least for now. But the probable ban on all junket business into the country may mean everyone loses, to a certain extent. As one analyst put it, the VIP business won’t shift from Crown to Star—to a large extent, it will simply “evaporate,” at least for now.
Casino Resort, Minus the Casino
Earlier this year, Crown was permitted to open the hotel, restaurants and other nongaming amenities at its waterfront resort in Sydney’s Barangaroo section. But the casino remains closed, so Star Sydney remains the city’s premier gaming venue—and also the largest, with almost 1,500 gaming machines and 140 tables. (If and when it opens, Crown cannot offer pokies, due to Star’s long-term exclusivity deal with the NSW state government).
Otherwise, can the Star really benefit from the chaos at Crown? Maybe. In February, after the release of the Bergin Report, JPMorgan upgraded Star shares to “overweight,” citing a favorable competitive environment in Sydney, a successful debt reduction strategy during Covid-19, and an upgraded loyalty program that could lead to higher margins.
Also in February, gaming industry consultant David Green told The Age that if Crown loses its license in Victoria, Star Entertainment could be one of several candidates in a position to make an offer.
Meanwhile, as Crown hunkers down, Star is expanding. Along with its joint venture partners, it’s investing almost $4.5 billion in Queensland, and on February 12 broke ground on a $400 million five-star hotel and apartment tower on the Gold Coast, where an expanded masterplan includes five additional towers on Broadbeach Island. Star is also continuing what is describes as a “transformational” $3.6 billion Queen’s Wharf development in Brisbane, together with partners Chow Tai Fook and Far East Consortium.
“We aim to be Australia’s leading integrated resort company,” said Star CEO Matt Bekier, in what could be construed as a throw-down to it chief rival. “We’re developing properties on the Gold Coast and Brisbane that will be compelling must-see destinations for locals, interstate, and international visitors … The exciting thing now is that our vision is becoming reality. Jobs are being created; cranes are on worksites. Next year we start to open hotels, restaurants and a wealth of attractions.”
Vanishing VIPs
In response to an inquiry from GGB News, a Star spokesperson said the company is developing “world-class tourism and entertainment destinations that will hold strong appeal for locals as well as domestic and international tourists. It’s why we’re delivering assets across wide-ranging price points, particularly in the food and beverage area. There will be something for everyone.”
In the past, Bekier has described Star’s ideal customer as a well-to-do traveler who also likes to gamble. “Our fastest-growing segment is when people come as tourists,” he said. “Yes, they like to gamble as part of the experience. But it cannot be the only reason. So our sweet spot is in that affluent market that is seeking a tourism experience.”
Ben Lee, founder of Macau-based consultancy iGamix, observes that Beijing’s crackdown on “gambling tourism” among other complicating factors will throw up hurdles for all Australian operators.
As recently as 2019, China was Australia’s largest inbound market for visitor arrivals, and the largest market for total spend and visitor nights, accounting for 17 percent of all tourism. Many of those consumers will now go missing for a time.
“Whether it be the VIPs via junkets or direct through their own casino hosts, the new post-Covid era and the tough restrictions/initiatives in China probably will result in a shift back,” said Lee, “towards Australia’s old historical markets in Southeast Asia.”
Bekier has acknowledged that Star will look to attract more Asian high rollers through its offices in Singapore and Hong Kong. Star has also stated that it will “increase the focus on International Premium Mass customers when the borders reopen.”
International markets “have always been an important area for growth” in Australia, said Lee, “as the domestic market is a saturated one, with very little prospect for the sort of growth demanded by investors and shareholders.”
It will be many months, and perhaps more than a year, before the Crown drama is resolved. The Western Australia royal commission is expected to deliver an interim report by the end of June and a final report with findings and recommendations by mid-November. The government of Victoria has also called for a royal commission to look at Crown practices.
As for the return of business post-Covid, “We know there’s pent-up demand,” the Star spokesperson said. “There’s research that confirms Australia remains high on the list of destinations to visit once the borders lift.”
Then there’s this: according to a 2018 report in the Guardian newspaper, casinos at the time were “the top tourist attractions in Australia, more popular than the Sydney Opera House or the Great Barrier Reef.
“The various top casinos each bring in over 10 million visitors,” the pre-Covid report stated. “When you compare this with the 7.4 million people who visit the Sydney Opera House, it’s clear that casinos are the bigger draw.” Maybe they will be again.
