The Crown Melbourne casino complex and The Star casino in Sydney both face the same stark problem – state government legislation has made both operations uneconomic given the capital investment.
The NSW government is considering helping employees of Star Entertainment’s Sydney casino should there be mass retrenchments as a result of the company’s desperate situation.
It is ironic that a NSW government seeks credit for assisting employees for the job losses the government itself deliberately created.
In Melbourne, the Crown complex is far more elaborate than The Star in Sydney and became a vital part of the Victorian economy.
That led the giant global investor Blackstone to pay $9bn for the total Crown Australian operation, which included a casino in Perth and the Barangaroo restaurant and casino operation in Sydney.
Blackstone borrowed around $5bn from its property fund and internal sources to fund the $9bn purchase (James Packer pocketed some $3bn).
Victoria’s anti-gambling legislation is similar to NSW and has had a similar impact on Crown Melbourne.
But whereas the Star devastation is reflected in public company accounts, the Crown disaster is buried in the giant global Blackstone operation.
My value estimators tell me that the Blackstone’s $9bn Crown investment would now be very lucky to be worth half that - ie: the equity has been lost as have additional investments made by Blackstone.
I need to emphasise that originally both Crown Casino in Melbourne and The Star in Sydney were established under legislation that set clear rules for managing casinos.
Appalling previous management in both companies caused those rules to be circumvented, and extremely bad practices triggered inquires that led to the legislation. But the politicians went too far and passed legislation that longer term would make it almost impossible to operate giant casinos like The Star in Sydney and Melbourne’s Crown and make money.
If it wasn’t for the strength of Blackstone, Crown would be in a similar situation to Star Entertainment. A number of its restaurants are being run by creditors.
Blackstone plans to revamp the theatre operation of Crown.
That will help bring more locals to the complex, but it won’t overcome the devastating blows of the anti-gambling legislation.
In the boom days of Crown and Star, Asian money dominated the gambling tables, much of which had been generated in China.
Beneficiaries wanted to legitimatise property and other profits via casino gaming. Others simply enjoyed gambling large sums, which they could afford to lose.
Some of the overseas and local money came from illegal activities, which created money laundering. Those legal and illegal money sources have not dried up - they simply go elsewhere. These days, if anyone plays the poker machines at Star or Crown for more than two hours, they are questioned and may not be able to continue. NSW clubs without such restrictions are booming.
Large gamblers in other casino gambling areas are asked where they got their money from.
Big gamblers are simply not going to answer questions about where they obtained the money. They gamble elsewhere.
The amount of Australian funds that are generated illegally have not been curbed by the restrictions on casinos. Indeed, it would seem the reverse is happening. Massive amounts of money are being generated that require “laundering” as a result of illegal cigarette imports which sell at a fraction of the cost of legal cigarettes, where enormous taxes are imposed to discourage smoking.
These high taxes have boosted the illegal cigarette trade. The huge profits being generated to provide capital to explode the drug industry. The amounts of money are so large that the press describes organised crime as an industry that ranks with traditional industries like retail and manufacturing.
But for the restrictions, the money would have gone through our casinos, and we would have had a better chance to catch the crooks. Instead, much of the Australian illegal cigarette and drug money ends up in the Middle East. Bitcoin helps.
Some of that illegal money almost certainly finds its way to terror organisations like Hamas and Hezbollah.
Star’s Sydney casino financial destruction took time and the directors made a number of bad mistakes. But their operation was doomed because of the severe restrictions on large gamblers.
I can understand state governments wishing to protect struggling people from losing heavily. I am less concerned about the high rollers.
If states do not want to have casinos in their capital cities, they should be upfront about it and shut them down and compensate the operators. Instead, Star Sydney and longer term Crown Melbourne are being slowly destroyed, and the blame is going everywhere except where it belongs – state governments.
Changing the legislation to enable them to operate will cause enormous community division. But over the next decade, major capital cities will need to choose between having a casino in their cities or having legislation that pleases the anti-gambling parts of the community but also makes large casinos uneconomic.
Crown’s Sydney Barangaroo restaurants and its Perth operations will help survival, but like The Star in Sydney, longer term it will have to look at whether operating the Melbourne casino is viable.
Star’s Gold Coast casino is also assisted by the Gold Coast property boom and the fact that it was based more on local gambling than big overseas gamblers. Star’s Brisbane operation also has a property arm but requires capital to realise its potential. But longer term, similar problems to Sydney will arise.
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