O’Farrell Out as NSW Premier

In New South Wales James Packer had the most powerful friend a gaming developer could want. But the chief executive responsible for making Crown Sydney happen, Premier Barry O’Farrell (l.), has been forced to resign over a lobbying scandal.

James Packer has lost his principal patron in New South Wales with the resignation of Premier Barry O’Farrell amid a scandal involving the failure of the ex-chief executive to report a lobbyist’s payment.

The fallout is expected to be widespread, with the state’s Independent Commission Against Corruption launching an investigation into influence-peddling within the New South Wales branch of O’Farrell’s Liberal Party and reformers within the party pledging to clean house.

“This will the game-changer. Barry O’Farrell has been a roadblock to our efforts to democratize the party and reduce the stranglehold of the factions and the lobbyists,” said long-time Liberal member John Ruddick, who is backing Treasurer Mike Baird to succeed O’Farrell.

Ruddick and other party members have been campaigning for reforms, including plebiscites to pre-select lower house candidates and statewide plebiscites to elect upper house candidates. They also want lobbyists banned from holding party offices. Currently, the NSW party president, Chris Downy, is chief executive of the Australian Wagering Council, which lobbies on behalf of the online gambling industry. The treasurer, Peter McGauran, is chief executive of the Australian Racing Board. An urban vice-president, Trent Zimmerman, works for the Tourism and Transport Forum, another powerful lobby. Another urban vice-president, Kelly Knowles, works as human resources manager for Boeing.

O’Farrell was responsible for single-handedly pushing through Packer’s unsolicited proposal for a mega casino on Sydney’s Darling Harbour to compete with Echo Entertainment’s Star casino, which has held the state’s sole license for years. O’Farrell rejected calls for a competitive bidding process, instead appointing an ad hoc panel led by a prominent banker and friend of Packer’s, which approved Crown Sydney, as it’s called, last June. The casino and accompanying hotel, priced at a combined A$1.3 billion, is expected to open in 2019 when The Star’s exclusivity expires.

Packer’s Melbourne-based Crown Resorts has promised a members-only casino catering to high rollers and says slot machines will not be allowed, which has some analysts questioning whether it will achieve profit margins large enough to recoup its huge capital costs.

Citi gaming analyst Michael Goltsman says Crown Sydney is likely to generate the lowest returns of several casino developments under way across Australia and New Zealand.

In a note to investors, Goltsman suggested VIP gambling revenue in Sydney would grow to A$686 million in 2020-21, from $402 million in 2012-13, increasing the city’s share of the Australasian market to 36 percent from 34 percent.

“We view Sydney as the largest VIP market opportunity given the relative attraction it holds with Asian tourists (about 35 percent of Asian visitor nights),” he wrote.

At the same time, he forecasts Crown Sydney will be the lowest margin casino in Australia with EBITDA margin of 11.8 percent.

“This is due to high mass gaming tax rates at 29 percent, a higher mix of VIP gaming and being restricted to only having table games which are higher cost relative to poker machines,” he said.