James Packer’s Crown exit gets better with age

If there is one thing that clearly highlights just how lucky James Packer was in timing his exit from Crown Resorts, it’s the current market value of the business.

Two-and-a-half years ago, US private equity giant Blackstone bought Crown for $9 billion. Of that $9 billion, Packer pocketed $3.3 billion for his stake in a sliding-door moment after which he has built on that fortune with a series of US investments, most notably in this year’s hottest stock, Nvidia.

While Packer’s fortunes have flourished, Crown (under Blackstone’s ownership) is now worth less than $300 million.

James Packer exited Crown Resorts with a $3 billion payout in 2022.Credit: Fairfax Media

In what could go down as one of the worst acquisitions in recent history, Blackstone bid against itself in 2022 in a desperate attempt to win over Crown shareholders and in particular its largest, Packer. It’s an eerie echo of the $1 billion sale of the Nine Network to Alan Bond orchestrated by James’ father, Kerry. That deal prompted Kerry to proclaim “you only get one Alan Bond in your lifetime and I’ve had mine”.

For his part, James Packer played his cards well with Crown. He had been hawking around his stake in Crown for a year or more before Blackstone came knocking. The big motivator for Packer was an understanding that the heady days of Crown using junkets to lure in big spending Asian punters to the casinos were soon to be a thing of the past.

It was often said that James Packer’s exit out of the media business was his moment of investment glory. His exit from the casino industry in Australia was one better.

Packer’s decision was made as Crown’s earnings were heading for a cliff, and we are now getting an inkling of just how steep a cliff it is. According to The Australian Financial Review, investment bank Jeffries has pegged Crown’s earnings before tax, depreciation and amortisation for fiscal 2024 at $24 million.

That figure is closer to $75 million when one-off costs are stripped out, but it is still nowhere near the market expectations Blackstone had of pocketing close to $700 million in annual earnings when it bought Crown.

While Packer was astute enough to get out before the Australian casino sector imploded, he probably hadn’t anticipated the extent to which things were going to turn for Crown and the casino sector.

But the writing was on the wall for the casinos in early 2022, as Crown and Star were both found unsuitable to hold casino licences in their various jurisdictions. Everyone understood that hundreds of millions of fines lay ahead, but the overall costs attached to rehabilitating the culture of both casinos was perhaps not sufficiently factored in. Another element not fully factored in was the severity of the damage imposed by new state governments around carded play and their push to tackle problem gamblers.

Then came the cost-of-living crisis, which has understandably further hollowed out casino earnings.

The independent expert who was engaged to assess Blackstone’s bid for Crown in 2022 found the offer price to be fair because it represented a reasonable acquisition multiple. In this case, the money being offered equated to 12.3 times the company’s profit before interest tax deprecation and amortisation. If one were to apply that same multiple to Crown’s earnings today, the company would be worth less than $300 million.

Blackstone is attempting to find ways to get out from under its large debt pile by offloading assets, the latest of which was its 20 per cent stake in Robert De Niro-backed Japanese restaurant chain Nobu. It has also considered offloading its prestigious Melbourne golf club and its high-end London private members’ casino, Aspinall’s Club.

Meanwhile, Star Entertainment’s finances are in an even more parlous state. Its chief executive in waiting, Steve McCann, is also engineering a desperate bid to slash expenses and sell assets to stave off its lenders.

The one bright spot for both casino operators, and Blackstone in particular, is that the questions around their suitability to run their respective facilities have been dispelled. But with Crown unlikely to ever return to its previous glory, quite a few grumpy Blackstone investors would be asking what compelled Blackstone to hand over that exquisitely large payday to Packer.

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