Crown Resorts’ VIP business has run afoul of the powers-that-be for the second time in as many years, this time in its home country of Australia.
It’s worth wondering how much legal trouble, not to mention brand-bashing, the Melbourne-based casino giant can absorb and still compete effectively for the high rollers who are its lifeblood.
Warwick Bartlett, founder and principal of U.K.-based Global Betting & Gaming Consultants, a leading advisory group in the international gaming space, spoke to this question late last week in an exclusive interview with GGB News.
“Australia is a rich country with high income per capita that can easily support the casinos already licensed. So, long-term, I see Crown Resorts as a good investment,” he said. “However, we have seen in the U.K. that once questions are raised about a company in the parliament, the outcome is unlikely to be good.”
That’s precisely the fix in which publicly traded Crown (ASX: CWN), an AUD$8 billion-plus company with top-flight resorts in Melbourne and Perth, finds itself in.
First, the Sydney Morning Herald, Melbourne daily The Age and Australian TV news magazine “60 Minutes” joined forces on a damning probe of Crown’s relations with the loosely regulated foreign operatives, or junkets, that dominate the VIP trade in Macau, Australia and across Asia. Junkets circumvent the Chinese government’s strict currency controls to get deep-pocketed gamblers and their cash out of the country.
The reports brought Attorney General Christian Porter before the federal parliament to inform lawmakers that a special investigation was under way by the Australian Criminal Intelligence Commission into money-laundering and other reputed “vulnerabilities” within the country’s casinos.
Michael Phelan heads the commission, which is described in news reports as “the most powerful and secretive law enforcement body” in the country.
Phelps was already making the media rounds at that point, and said the ACIC is concerned about “the lack of transparency of casino junket operations, anonymity of participants, and obscurity around beneficial ownership, source and distribution of junket funds.” He said the infrastructure supporting junket operations “both internationally and within Australia provides opportunities for exploitation by serious and organized crime to conceal and legitimise criminal wealth.”
He did not specifically mention Crown, however, so it appears that the junket relationships of its main domestic rival, Sydney-based Star Entertainment Group (ASX: SGR), are also under the microscope.
Arguably, none of this is new. The junkets have long been in the sights of international law enforcement, including in the United States, for their suspected ties to organized crime groups in Hong Kong and elsewhere, and crimes ranging from money-laundering to drug trafficking to prostitution. Stanley Ho, the Hong Kong tycoon who held the monopoly on Macau’s casinos during the last decades of Portuguese rule, has been persona non grata in Australia for years.
But junkets were viewed as a peculiarly Chinese phenomenon until Macau returned to Chinese sovereignty at the start of the new century, and the casino market there opened to competition.
On the other side of the world, Las Vegas was getting hammered by the fallout from the dot.com bust and the 9/11 attacks. It was enough to make Nevada’s traditionally steely-eyed regulators look the other way so that Las Vegas Sands, Wynn Resorts and MGM Resorts International, three of the state’s biggest employers and taxpayers, could operate in Macau.
It was a momentous decision, one that brought tens of billions of dollars of capital investment into the region and catapulted casino gaming in Asia into the big time.
It also bestowed the junkets with a certain stamp of legitimacy. Not that it’s always wise for casino operators to assume too much in that regard. As Crown is finding out, it’s a very tricky equation to balance.
The company is still dragging baggage from the 2016 crackdown by Chinese authorities, when 19 Crown marketing employees working in mainland China were hit with jail time for player recruitment efforts that were construed as promoting gambling, a crime. The heaviest sentences were meted out to three Australians, among them the vice president of international operations, Jason O’Connor, who served 10 months and then was released and deported.
It hasn’t helped either that Crown has been dealing with some junket operatives who are known criminals, as was revealed in recent media reports. The expose also accused Crown of pulling strings to fast-track visas for certain wealthy customers, an allegation that’s proven especially embarrassing for the government. Porter was careful to single it out in his testimony before parliament, and promised an investigation by the Australian Commission for Law Enforcement Integrity.
“The gambling industry has many detractors, and they will latch on to this,” said Bartlett. “So the pressure will be on the attorney general to produce something that may not be favorable to Crown Resorts.”
It’s also been reported that the government has barred Suncity Group Chairman Alvin Chau from entering the country. Suncity, mind you, is the largest junket in Macau, owned by a Hong Kong-listed company with holdings across a diverse array of gaming and non-gaming businesses across the region𑁋the poster child, if you will, of the new post-Stanley Ho era of legitimacy.
But Suncity, too, has run afoul of Chinese authorities, recently accused, if unofficially, of promoting illegal online gambling and proxy betting in China.
Which points up the fact, finally, that all is not well in the place where nearly all of the high rollers come from on whom Crown and Star and Macau and the junkets depend—that’s China, of course, whose economy and sense of political complacency are under pressure from a number of factors, civil disruption in Hong Kong bordering on open rebellion and an escalating trade war with the United States.
“It has created uncertainty amongst the business community,” Bartlett said, “and when that happens their first thoughts are to get money out of the country. China is now actively seeking to contain those capital outflows. If you are Chinese and you want to gamble, Beijing wants you to do so in Macau, where it can keep a watchful eye on what is going on.
“If you are a Chinese VIP gambler you want to gamble outside of a jurisdiction where Beijing has control, Cambodia and Vietnam are growing in popularity, and Australia must be careful not to drive business to other accommodating hosts.”
But there is a longer view, he says, and it’s trending toward more stability than the current noise surrounding Crown and the junkets would appear to indicate.
“In many respects, Australia should be a first choice,” said Bartlett. “It is a first-world country, top-class financial center (with) excellent communications and individual and corporate property and legal rights. Going forward, the fundamentals are simple. China has a vibrant economy where people are making lots of money, and they have an insatiable appetite to gamble. However, currency control regulations drive them toward the junket operators, who will continue to exist so long as those controls are in place.”
Within these realities, Crown will find a way to move on, he says.
“Australians, if anything, are pragmatic and will want to see the tax revenue continue, so I doubt the company will be severely damaged.”
He offers that, however, with a note of caution.
“I believe the current difficulties will run for some time, ultimately creating restrictions in the way the company operates. In this business, you just never know the direction political events will take you. Because that is what this is now. It is political.”
Meanwhile, the New South Wales Independent Liquor & Gaming Authority announced last week it would conduct an inquiry into the proposed sale of 19.99 percent of Crown Resorts to Melco Resorts & Entertainment, controlled by Lawrence Ho. The US$1.19 billion sale was announced in late May. The inquiry is designed to ensure that the construction of Crown’s US$1.5 billion Sydney casino is kept free of criminal influence and that gaming is conducted fairly.
Ho has emphasized that he’s confident that his company and himself will pass probity checks and that Melco will fully cooperate with the investigation. Ho points out that he was partnered with Crown for 12 years and there was no connection with his father, Stanley Ho, during that time.
“Melco respects Australia’s regulatory framework and, as it has done in the past, will participate in any probity review process and cooperate with any inquiry that is required in relation to its investment in Crown Resorts Ltd,” a Melco spokesman told MNA.
