Rivals of Packer’s Crown see VIP opening after arrests

Crown Resorts’ main Australian rivals are closely watching the arrest of the casino operator’s Chinese staff.

Star City has attracted a higher number of high rollers.

Crown Resorts’ main Australian rivals are closely watching the arrest of the casino operator’s Chinese staff, as they boost VIP offerings to increase their share of the Asian high-roller market.

The Star Entertainment Group, which is investing in its properties to enhance its VIP offering, would not comment yesterday on the Crown arrests, but the company has been increasing its share of the market.

The Australian listed company scored a significant win against the James Packer-backed Crown Resorts in August when it recorded higher VIP revenue in the second half of the financial year.

The annual results revealed that for the 2016 half, VIP revenue at The Star’s Sydney casino, for the first time, outstripped Crown Melbourne’s.

The Star, which has been growing its VIP business over the past two years, recorded normalised VIP revenue of $320.5m at its Sydney property in the second half, compared with Crown Resorts’ Melbourne figure of $312.8m for the same period.

The 18 Crown staff were arrested at their homes four nights ago in an apparent crackdown on gambling promotions. It is illegal to promote gambling in China.

CLSA’s Sacha Krien said it would be surprising if Crown was doing anything different to other casinos with marketing staff in China.

The analyst said that Crown and Star Entertainment and SkyCity would have to reconsider whether they employed any direct marketing staff in China.

Shares in The Star, which does not have an office in mainland China, fell 3.6 per cent to $5.52 yesterday. SkyCity took a 3.9 per cent hit to its shares, which closed at $4.18.

SkyCity said it did not have any staff in China but said it did use independent contractors there, which is a common practice among casino operators. “We are very confident these contractors comply with all relevant laws and regulations,” a spokesman said.

“We have been in contact with these contractors over the weekend and none has been detained or is involved in this situation.

“Like other Australasian casino operators, SkyCity is continuing to monitor developments closely.’’

Macquarie’s analysts said the crackdown raised concerns over the future of direct marketing in mainland China.

“While more information on the arrests is required, given the inherent difficulty of promoting casinos as resorts without reference to their integral gambling components, there are concerns over the future for casino promotion in mainland China,” he said.

CLSA’s Mr Krien said Crown Resorts, which billionaire James Packer has a 48 per cent stake in, was most exposed to a decline in VIP. He estimated 30 per cent to 40 per cent of Crown’s VIP was direct, compared with less at 20 per cent at The Star, with the rest junket. SkyCity has the highest proportion of direct VIP business at 60 per cent.

The analyst added that CLSA estimated that VIP was also a higher proportion of earnings for Crown at about 20 per cent against about 12 per cent for Star and 10 per cent for SkyCity.

“Stock prices are likely to be weaker even if there is no VIP impact — this incident highlights the potential fragility of VIP play and its exposure to Chinese regulation and enforcement,” he said.