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MarketScreener Homepage  >  Equities  >  Australian Stock Exchange  >  Crown Resorts Limited    CWN   AU000000CWN6


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Crown Resorts : Australia's Crown readies high-stakes casino tower yet pledges remain outstanding

11/19/2020 | 04:00pm EST

SYDNEY, Nov 20 (Reuters) - Pledges Crown Resorts Ltd made to win approval for a $1.6 billion casino tower are far from materialising on the eve of its launch, highlighting its shaky position as a regulator decides if it can run the business on which it has bet its future.

A community college to turn hundreds of disadvantaged youths into casino staff is up to a year behind schedule. A plan to helicopter VIPs to ski slopes has been voided by the sale of said slopes. And a A$1.4 billion ($1 billion) tax contribution over a decade might end up a lot less over a longer period.

The gap between promises made when seeking planning approval seven years ago and what will be delivered at the Sydney tower's December opening raises further questions of corporate governance at Crown - a firm berated during a regulatory probe for publishing misleading advertisements and accused of "arrogant indifference to compliance".

"I can't see how the numbers are going to stack up, at least in the short run," said a former New South Wales government official directly involved in granting Crown approval, and who is no longer associated with the project so requested anonymity.

"We asked every question that we thought we needed to. It did seem like they were making a lot of promises."

Crown hoped to milk booming Chinese demand when it pitched the 75-floor tower overlooking Sydney Harbour Bridge in June 2013 and won approval in July - months after Xi Jinping became premier of China, where Macau was peaking at eight times the gambling revenue of Las Vegas.

Xi's anti-gambling campaign two years later hammered demand, and led to the jailing of 16 Crown staff in China and Crown's withdrawal from the country. Crown kept wooing Chinese gamblers through tour operators, but reports of operators' criminal links left Crown's new casino licence at the mercy of an inquiry.

The regulator suspended the licence on Wednesday until the inquiry reports its recommendations in February, citing Crown's own evidence that it facilitated money laundering. That means when Crown opens its new flagship resort next month, it will have to rely on restaurant and hotel takings - and even those will be from domestic tourists as COVID-19 keeps borders closed.


What won't be opening anytime soon is the widely publicised college which Crown said would produce staff by the time the doors open.

A Crown spokeswoman said the college is part of an external project where construction has been delayed by six to 12 months. Crown remains "totally committed", she said, and in October began "development and implementation of school-based traineeship placements".

Crown also won't be flying "high net worth guests" to a ski resort owned in 2013 by company founder James Packer, a perk its pitch said would boost Australia's appeal. The resort was sold two years later, voiding the plan.

Crown's spokeswoman declined to comment on the ski plan, or on the A$1.4 billion that Crown in its pitch said it would pay in state gambling tax in its first decade.

UBS expects China's gambling crackdown to squeeze the VIP market for years, and so forecasts Crown's tax to be closer to A$1 billion in 15 years. Still, that meets a binding condition of planning approval, as also promised.

"We know about how to translate their numbers into impacts on the broader economy, but in terms of how their business goes, nobody knows more about Crown's business than Crown," said Jerome Fahrer, a director of ACIL Allen Consulting, which supplied some economic forecasts for Crown's pitch.

"Things change over time, and that's the way these things go. We can only work with the best information we have at the time."

Packer's spokesman declined to comment. Testifying at the inquiry in October, the billionaire said the collapse in Chinese outbound casino tourism meant it was "highly doubtful that we're going to go anywhere near our original figures".

Still, not all Crown's pitch promises will go unrealised. Demand dynamics may have changed yet Crown plans to hire 2,000 people for the tower, more than the 1,250 promised in 2013.


Though Crown's New South Wales gaming licence is on ice for now, the state government may hesitate to cancel it permanently and lose A$1 billion in guaranteed tax revenue, analysts said.

Should that happen, Crown would likely run the 271 metre (889 ft) tower as a luxury hotel and entertainment hub, and recoup some of its investment selling the 82 tower apartments for tens of millions of dollars apiece, they said.

It would also continue to operate casinos in Melbourne, in Victoria state, and Perth, in Western Australia. Even so, the Victoria's regulator has begun disciplinary action over revelations at the New South Wales inquiry, and the firm is under investigation by the federal financial crime watchdog.

"The challenge ... will be to restore the integrity of the business over the period impacted by the pandemic, and be in a position to operate at full capacity thereafter," said Angus Gluskie, managing director of White Funds Management, which holds Crown shares. ($1 = 1.3729 Australian dollars) (Reporting by Byron Kaye; Editing by Christopher Cushing)

© Reuters 2020
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