Will Barangaroo siphon off Crown Melbourne?
It may be early to speculate about the impact of Crown Barangaroo on casinos in the rest of Australia, as the AU$2 billion (US$1.4 billion) integrated resort won’t open until 2021. But analysts are already looking at the possible fallout of the new IR as the country’s top operators, Crown and Star Entertainment, battle for their share of the high-roller market.
According to the Sydney Morning Herald, the Australian casino sector had “a turbulent 2018” due to less high-roller spending, a consequence of a slower Chinese economy. The Herald reported that the “volatility of high-roller revenue” contributed to “steep share price plunges, shedding billions of dollars in value.” In the second half of December, shares in ASX-listed Crown declined nearly 20 percent from $14.32 to $11.58 and wiped out about $2 billion of its market value. Star lost about 20 percent during the same period, with shares falling from $5.16 to $4.07. SkyCity, Australia’s third-biggest casino operator, posted a 15 percent drop.
The six-star development at Barangaroo is sure to be a game-changer, designed as it is for a high-roller clientele, according to Donald Carducci, a gaming industry analyst with JP Morgan. “Barangaroo is becoming a larger part of the conversation as analysts are now starting to consider how to factor it into their numbers and its impact on both Sydney and Star in 2019,” Carducci told the Herald.
Crown Sydney may also take a bite out of business at James Packer’s flagship Crown property in Melbourne, which saw a big comeback of Asian VIPs in the last financial year. During the period, VIP revenues soared 73 percent to AU$591 million, a big turnaround following the collapse of high-roller play in 2016. In that year, more than a dozen Crown Resorts staffers were arrested in China and eventually convicted of illegally promoting gaming on the mainland.
Though the dust from that scandal has settled, the debut of Barangaroo could cause another dip in Melbourne, Carducci said. “If you have two casinos in Sydney, it likely makes Melbourne a little less attractive. Crown Melbourne may suffer as a result of a preference for Sydney as the first port of call for Australian inbound gamblers.”
If Crown adds 125 VIP gaming tables at Barangaroo, as expected, and if each table generates AU$2 million (US$1.4 million) per year, the casino could generate $250 million in annual EBITDA, according to Carducci. “Whether this is all market growth or taken from Star Sydney will be a key question,” he said.
Star Entertainment CEO Matt Bekier says he’s not unduly concerned about new competition in Sydney, and thinks it could actually benefit the company by growing the overall VIP market. “If you look at the typical VIP guest who goes to Macau for example, they play in 2.6 casinos over three days,” he said. “I think the exact same thing is going to happen in Sydney.”
Bekier went on to say that Star no longer relies too heavily on Chinese high rollers and is instead drawing more patrons from a broader Southeast Asian market. “In the traditional VIP business it was all high rollers,” Bekier observed in a 2018 interview. “Now it’s more of a high-end tourism business—people fly in, spend a few days, they gamble, but that’s only part of the experience.”
One thing in Star’s favor is its “really attractive” partnerships with the Hong Kong-based Chow Tai Fook and Far East Consortium, which has a loyalty program of 6 million people, Carducci said.
