Dreams dashed for multibillion-dollar gambling industry

CHINA’s highrolling “whales” have become a lucrative target for overseas casinos, but Australia is now facing a backlash from the Asian superpower.

Crown Resorts’ City of Dreams in Macau has been struggling to keep reeling in the rich Chinese gamblers. Picture: Manuela Cifra

CHINA’S highrolling “whales” have been a lucrative target for glamorous overseas casinos, with Australia’s booming entertainment groups reaping massive rewards.

But the bubble may finally have burst after James Packer’s empire was plunged into crisis as 18 Crown employees, including three Australians, were detained in late-night raids across China.

The billionaire businessman is in dire straits, with shares in the casino giant sliding 12 per cent to $11.40 following news of the arrests for alleged “gambling crimes.”

The Chinese government’s swoop has shaken the entire VIP gaming industry, with shares in casinos operator The Star Entertainment Group also taking a five per cent dive today.

Betting, except on state lotteries, is illegal in mainland China and so is soliciting high-rollers to gamble at overseas casinos, with a penalty of up to 10 years in prison.

Now 18 of billionaire James Packer’s staff have been arrested in China. Picture: Jonathan Leibson/Getty Images

Beijing wants to ensure large amounts of money do not leave China through the gaming industry.

Former Portuguese territory Macau had been the destination of choice for wealthy players visiting casinos, including three operated by Crown Resorts: City of Dreams, Studio City and Altira Macau.

But the gambling mecca took a hit after a Chinese crackdown on corruption, with revenues dropping by two-thirds.

Crown turned its attention to attracting rich “whales” to its casinos in Melbourne and Perth — but now these could also be in trouble, along with Packer’s ambitious new $2 billion Chinese gambling haven at Sydney’s Barangaroo.

The Star does not operate casinos in Macau but relies on wealthy gamblers and tourists flocking to its glitzy venues in Sydney, Brisbane and the Gold Coast. China’s act could spell serious change in Australia’s gaming industry.

The arrests could spell trouble for Packer’s ambitious new casino in Barangaroo, Sydney. Picture: Artist’s impression

SHANGHAI SITUATION

The 18 arrested Crown staff include Jason O’Connor, head of VIP International, who was on a rare trip to China and is now being held at a Shanghai detention centre.

Aside from two other visiting Australians, the remaining 16 employees detained overnight on Thursday were Chinese and based in cities including Beijing and Shanghai.

While advertising gambling is illegal in most of China, Crown tried to get around this by saying it is promoting its resorts rather than casinos.

Overseas debt collection is another vital role for staff. Some suspect the arrests are related to a $15 million payment by a Chinese player earlier this year, according to Dow Jones.

Boutique research firm JL Warren Capital today told clients this went well beyond Crown. “The practice of casino executives visiting China to market and to press for overdue payments is a quiet yet established practice, as well as the facilitation of such funds out of the country,” it wrote.

The casino operator admitted it had had no contact with the detained employees after Thursday night’s arrests and was urgently trying to contact them with the help of the Department of Foreign Affairs and Trade.

DFAT said it would provide consular assistance to the detained Australians and Crown said it was supporting the Australian and Chinese families of the staff members. It is not clear whether any have been charged.

It’s not just Crown that’s been affected, with shares in The Star Entertainment Group also plunging today.

WRITING ON THE WALL

There have already been warning signs that disaster could be looming for Australia’s multibillion-dollar gambling industry, and that could mean more pain for the domestic gambling market, our tens of thousands of problem gamblers and the nation’s economy.

Last year, 14 Korean casino executives in Beijing and Shanghai were detained by the mainland authorities for similar offences. It is believed an indebted gambler took claims against the Grand Korea Leisure Co to the authorities and 47 staff were arrested in total, massively damaging the company.

On Friday, Melco Crown shares fell 1.5 per cent, Las Vegas Sands was down 0.6 per cent, Wynn Resorts dropped 1.7 per cent MGM Resorts was down 1.2 per cent.

IG market strategist Evan Lucas said the market was probably reacting to signs China intends to make gambling regulation even tougher, to keep wealth in the rapidly developing country.

Packer had been planning to split Crown’s domestic and international operations, and those plans could be ramped up in the wake of the detentions in China. “He now probably needs to ring-fence his Australian assets,” said Lucas.

China’s nouveaux riches have been spending big in Australia, on real estate and stocks as well as blackjack and roulette. But the good times may finally be drawing to a close.

The crackdowns are likely to spook VIP gamblers, who will not want their details accessed by the country’s notoriously intrusive government.

Gaming industry moguls like Packer have built their fortunes on wooing the Chinese, with Crown’s VIP turnover increasing by 42 per cent to$71 billion last year.

Now their plans could be left in tatters.

— With wires