Crown Resorts boss takes staffing squeeze in stride as ties deepen with VRC

The casino major has signalled a renewed focus on the domestic market with a new hospitality business built up through the Covid lockdowns.

Crown Resorts is making a push back into the domestic market. Picture: AFP

Crown Resorts has just come off one of its busiest Melbourne weekends since Covid brought business to a grinding halt two years ago while hotels across the country remain fully booked through to the end of Easter.

From airlines to restaurants or anyone in the service industry, there is a staffing squeeze and Crown, as the biggest single site employer in Melbourne, is finding this a big challengesto navigate in the post-Covid boom.

For Crown chief Steve McCann, the return of international students is starting to ease the pressure, while former service staff are returning to the industry. But he said some parts of his business still operate under reduced hours if rosters can’t be covered.

“We’re getting better, it’s been a struggle and the industry overall has been understaffed, we are now starting to see some return of students. But we’re making rapid progress.”

Crown Resorts CEO Steve McCann, left, and Victorian Racing Club CEO Steve Rosich. Crown is the VRC’s new hospitality services partner. Picture: Jason Edwards

Crown started to tackle the problem at its source late last year, paying for 1000 food and tourism training positions. McCann says Crown has committed to take 500 graduates from the courses while making the other half available to the broader service industry.

Crown also signalled a renewed focus on the domestic market as it secured a three-year hospitality deal with the Victorian Racing Club.

The agreement will see Crown oversee all upmarket hospitality venues at Flemington, home of the Melbourne Cup. This extends to some 30 venues including restaurants, bars, retail and function venues for all race days, as well as the VRC’s non-race day events.

McCann says the deal will “provide an uplift” in the quality of service on race day at Flemington.

This is a new venture for Crown, and the first time it has provided a permanent hospitality service outside its own casino properties.

The deal, supported by Crown Melbourne’s own restaurants, is expected to see as many as 1800 jobs created through peak demand as well as hundreds of permanent staff. In addition as much as $20m will be spent on food and drink each year with nearly all of this coming from local Victorian businesses and suppliers.

McCann says the idea for the hospitality business emerged out of Covid after Crown shut its casinos during extended lockdowns.

The hospitality deal will cover 30 venues across Flemington. Picture: Getty Images

It started offering home and off-site catering from its restaurants including Nobu to keep staff working as well as to support their food suppliers. As sales grew, this later led to talks with the VRC and the chance to turn the initiative into a new business line.

It’s a small, but significant step, for Crown which has been looking for some good news after spending years in the headlines for the wrong reasons. The casino, backed by billionaire James Packer, has been struggling under damaging governance and security failures, regulatory pressure and then the loss of its business during Covid.

Crown faced the real risk of being stripped of its operating licence following damning findings of three state-based gaming probes. Two of these – Victoria and Western Australia – were held as royal commissions. Fallout from the inquiries is still being felt and Crown last month was hit with a high-stakes legal action from financial crimes regulator Austrac.

Since last June McCann, the former CEO of construction giant Lendlease, has been attempting to rebuild Crown under a new board and management team. There is also a commitment from Packer to exit the business.

The latest twist came in January when Crown agreed to a friendly $8.9bn buyout by US funds giant Blackstone with shareholders – including Packer – expected to endorse the deal at a vote at the end of this month.

And now it is Crown’s Sydney rival Star Entertainment to come under pressure from the NSW gaming regulator during a probity inquiry. Revelations surrounding claims of money laundering have already triggered the resignation of Star CEO Matt Bekier.

McCann says Crown – indeed the entire industry – still has some way to go in turning itself into a good corporate citizen.

“We have clearly put a lot of effort into our reform programme, and we’ve made a number of changes in the last 12 months. Our aim is to really set a high standard, we think we’re going to be able to prove that over time”.

A focus on “safe and responsible gaming”, which is a requirement of a casino licence, “has not been delivered as well as it should have been by the industry”.

“I would say that’s not a unique phenomenon to Australia, either. It’s something that we’re going to see an uplift across the board. It’s challenging, but it’s a very worthwhile aim”.

Meanwhile, with a vote looming on Blackstone’s takeover McCann declines to be drawn on whether he will remain with the business under its new owners.

“My focus is on getting the transaction down and focusing on continuing to drive the business transformation. We think it’s a good outcome for shareholders and customers.”

Defensive play

Perpetual boss Rob Adams is now doing the sums about how finely balanced his hopes of a mega-fund merger is. It’s now up to him if he is willing to bet the house on it.

It took just a week for Pendal’s board to knock back his planned $2.4bn buyout with the deal falling at the first hurdle – price.

As my colleague Joyce Moullakis recently wrote, Pendal CEO Nick Good flew in from Boston to speak with Pendal’s big investors as well as his own fund managers to test the temperature on the bid. It was from this it became clear they were in a stronger bargaining position under the merger plan.

While half of the nation was focused on the grand prix or federal election over the weekend, Pendal’s board was getting an update from Good.

This helped finalise Monday night’s unanimous board position that determined Perpetual’s share-and-cash offer undervalued the $136bn fund manager and it ignored its growth potential.

Pendal’s board, led by Deborah Page, also made a tactical call to throw in a $100m share buyback to prevent a slide in the fund manager’s shares when it formally rejected Perpetual’s advances.

Perpetual boss Rob Adams

This move now raises the stakes on Perpetual’s Adams as he tries to take out the bigger target in the form of Pendal which is winning over investors by throwing them cash.

The risk is that Pendal doesn’t overplay its hand and send Perpetual away entirely.

Before even reviewing how a potential merger of the two fund managers with a long history of intense rivalry would play out: it all came down to valuation.

An 8.6 per cent fall in Perpetual’s shares since the bid was launched last Monday has shaved the valuation from bid. Pendal’s board didn’t want to be in the uncomfortable position of selling a bid to investors where valuation was dropping by the day.

The indicative value of $6.23 per Pendal share pre-bid, is today worth $5.97 given the fall in the price of Perpetual in the past week.

With so much scrip involved – Pendal shareholders will have 47 per cent of the merged entity – the risk for Adams in a sweetener is that the deal becomes a reverse takeover for Perpetual.

Even with low debt, he has limited capacity to borrow more to pay for a sweetener and deeper debt could trigger a post-merger share raising.

For shareholders in both camps, the strategic rationale behind the merger still stands. Given interest rates around the world are on the rise and bond yields rallying, the upside for funds management is limited over the medium term. This means the best operators should be looking to play the scale game as well as develop new funds flow from fast-growing green investment mandates.

The combination of two remarkably similar fund managers would have a cost base of $1bn, which leaves plenty of room for savings – particularly around global distribution.

After a year of lacklustre performance, Pendal now needs to prove to investors they will get superior returns as a standalone fund manager than what they would otherwise get under a larger scale-driven organisation.

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Originally published as Crown Resorts boss takes staffing squeeze in stride as ties deepen with VRC