It’s strike three for James Packer’s Crown Resorts as it walks away from the Las Vegas Strip again, announcing that it is halting its involvement in Alon and will look to sell its investment in the 1,100-room luxury resort.
Crown said its divestiture from the project, which has yet to break ground at a 35-acre site at the north end of the Strip where the New Frontier once stood, is one of several moves the company is undertaking to pay down debt and “redeploy capital to fund high quality growth projects as well as adopting a number of capital management initiatives”.
These include a further sell-down of the company’s stake in Nasdaq-listed Melco Crown Entertainment, which has been hit hard in Macau since the Chinese VIP market collapsed in 2014 as a result of a central government crackdown on corruption and capital flight.
The sale of its Alon stake combined with the Melco Crown divestiture will generate A$1.9 billion (US$1.39 billion), the company said, possibly for the purpose of leveraging opportunities in Japan, which recently legalized casinos, or in Vietnam and South Korea, where the promise of headline revenues might be more certain, or possibly to finance a move on New Zealand’s SkyCity Entertainment Group, although the company made no mention of these moves.
Crown had sought to pivot away from the Macau slump a few years back by pursuing the potentially massive untapped Indian market with a casino hotel in Sri Lanka. But a new government in the island nation rejected expanded gaming.
In its home market of Australia, where large-scale resorts of the type Crown owns in Melbourne and Perth are dependent on big-spending Asian play, the company is confronting a rejuvenated competitor in Sydney-based Star Entertainment Group. Star bested Crown in the bidding to develop a massive Chinese-facing integrated resort complex in Queensland capital of Brisbane. Crown responded in part by ratcheting up its marketing in China only to see those efforts crash earlier this year with the arrest of most of its representatives in the country for alleged violations of the government’s longstanding ban on promoting gambling.
Packer, the son of Australian media magnate and legendary high-roller Kerry Packer, has long desired to make a splash in Las Vegas, but he’s had nothing to show for it but a string of expensive failures.
He had teamed with Texas developer Chris Milam and investment firm York Capital Management on a proposal to build Crown Las Vegas, a 1,888-foot, 142-story super-resort that was to be the tallest building west of the Mississippi River, but the project ultimately went the way of a host of grandiose Strip schemes in the 2008-09 global financial crisis.
He later agreed to buy Cannery Resorts and its two non-Strip properties in Las Vegas, but that deal also fell victim to the economic recession that devastated the Las Vegas locals market. Ironically, Boyd Gaming just closed on its purchase of Cannery last week.
He invested $250 million in the company developing the Fontainebleau for a 19.6 percent ownership stake. The $3 billion Strip resort was slated to open in 2009, but went bankrupt that year. Billionaire Carl Icahn bought the mothballed project in 2010 for $150 million and has yet to find a buyer.
In 2014, Crown ponied up $260 million for a controlling interest in the Alon site, where an Israeli group’s plans for a $5 billion resort called Plaza Las Vegas had also succumbed to the financial crisis. Plans were to break ground in 2015 with Steve Wynn protégé Andrew Pascal as co-chairman and CEO and Oaktree Capital Management as a partner. At the time, Crown characterized Alon as “the ideal opportunity?with a great local partner in Andrew, a leading financial investor in Oaktree, and the perfect piece of property”. An opening was slated for 2018. Then nothing happened, reportedly because Packer, who is personally worth more than $3 billion, had trouble raising financing.
Alon responded to Packer’s departure with a statement saying it considers the project “shovel-ready” and will “continue to explore all of its options to advance the project and optimize the value for its stakeholders.”
Mike Mixer, executive managing director of Colliers International, calls it “one of the most valuable properties in all of Las Vegas.”
The fact is, however, there has been little interest since the recession in new casino investment on the Strip.
In 2013, Malaysian resort conglomerate Genting snapped up 87 acres next door to the Alon parcel from Boyd Gaming, which had demolished the Stardust to make way for a megaresort called Echelon, only to abandon it in the financial crisis. Genting plans to transform its site into a massive multi-phased Chinese-themed IR called Resorts World Las Vegas, but that project, too, hasn’t shown much progress. With the exception of the new Lucky Dragon on nearby Sahara Avenue the Strip hasn’t seen a ground-up casino opening since 2010’s Cosmopolitan (which Packer had at one time expressed interest in acquiring). Instead, existing operators are choosing to ride Las Vegas’ recovery by investing in same-store product and expansive non-gaming attractions.
“Alon not moving forward would be a good thing for the market,” said Alex Bumazhny, a senior director at Fitch Ratings. “It’s still recovering from the recession and absorbing the glut of new capacity from six to 10 years ago. This is especially true if Resorts World Las Vegas moves forward.”
“Crown could try to monetize and sell the land to another operator,” said Buckingham Research gaming analyst Chris Jones. “But I don’t think there’s another operator that wants to buy that property from a greenfield perspective.”
