Crown opens $1.7bn Sydney casino hotel -- without gamblers

Monday 28th December 2020

SYDNEY -- After seven years of preparations, Australian casino operator Crown Resorts on Monday throws open the doors on its new showcase property, a $1.67 billon skyscraper hotel right on Sydney Harbour.

The Crown Sydney, now the tallest building in Australia's commercial hub, brings key advantages to the table as its owners seek to crack the monopoly on gaming in the city long held by domestic rival Star Entertainment Group: posher rooms, flashier restaurants and more spectacular views.

What the upstart lacks, at least for now, is actual gaming.

New South Wales state regulators have held off licensing the 75-story tower for gambling amid an inquiry into allegations involving money laundering, entanglements with organized crime and corporate governance failures.

"The delay is certainly not helpful, but if you must have a delay, now is a good time to have it," said David Green, previously chair of the state gaming authority in South Australia and now head of Newpage Consulting.

When Crown launched the project in 2013, the company had a lucrative joint venture with Hong Kong's Melco International Development to run casino hotels in Macao and Manila. Crown won state permission then for the Sydney project with a business plan of targeting foreign high rollers, especially from China.

These days, however, between the coronavirus pandemic, related travel restrictions, economic uncertainties, bilateral tensions and heightened scrutiny from Beijing on citizens' overseas gambling, Chinese high rollers are scarce to be found in Australia.

"Their (Crown's) problem is they have constructed a casino for a market that doesn't exist in the same form," Green said.

Crown's net profit declined 80.2% to 79.5 million Australian dollars ($60.13 million) in the year ended June 30, as revenues tumbled 25.7% to AU$2.21 billion. Its current flagship casino in Melbourne, the country's largest, and its sister property in Perth were both closed for extended periods due to pandemic restrictions.

Crown's regulatory troubles started late last year after local news reports linked junket agencies bringing Chinese gamblers to the company's casinos to Asian crime syndicates and money laundering.

The resulting inquiry by New South Wales' Independent Liquor and Gaming Authority has captured headlines with frank testimony from current and former executives and board members on their awareness and negligence of money laundering at Crown's casinos and the risks born by company staff in China.

Footage was played of loose bags of cash changing hands in a room belonging to Macao junket group Suncity and the inquiry was told of bankers raising concerns about the apparent manipulation of transactions to avoid the triggering of reporting requirements.

James Packer, one of Australia's richest men and the company's largest shareholder, gave testimony by video over three days from his yacht moored in the South Pacific about his extensive involvement in the company's affairs even after his resignation as chief executive and chairman.

The explosive inquiry could result in Crown being denied a gaming license in Sydney or, more likely in the view of analysts, large fines and tightened operating conditions, especially in regards to junkets.

The New South Wales regulator plans to release the results of its probe in February but its peer in the state of Victoria has now moved up a periodic review of Crown's Melbourne license by two years due to the revelations from the current inquiry.

Helen Coonan, who took over as chair of Crown's board in January, has apologized for the governance and risk management failings outlined at the inquiry and outlined reforms to strengthen the company's compliance and anti-money laundering practices. The company has halted dealings with junket agents and said it will only resume links when agents win endorsement from state regulators.

Amid the various headwinds, Moody's Investors Service last month downgraded its credit rating on Crown by one notch to "Baa3" while Fitch Ratings placed its scoring on "rating watch negative."

These are only the latest bumps in the Packer family's long quest to open a Sydney casino.

Late media baron Kerry Packer, James' father, bid unsuccessfully for a license to build Sydney's first casino in 1994. As heir, James Packer built a stake in what is now Star Entertainment in a failed attempt to get control of its Sydney license.

When that maneuver failed, Packer came up with the plan for the Crown Sydney, challenging the practice in Australia then of licensing no more than one casino per city by committing to focus on high rollers rather than the country's large mass market.

Now Crown's fortunes are riding on the bet.

After 19 staff were convicted in Shanghai in 2017 of charges of illegally promoting gambling, Crown sold off its stake in the joint venture with Melco. It then disposed of a Las Vegas site where it had planned to build a 1,100-room casino hotel, leaving Sydney as its sole development project.

Some analysts think Crown Sydney will still be a winner in the long run though for now its only offerings will be a deluxe spa, restaurants, bars and 350 hotel rooms.

"We expect Crown to capture around 55% of the VIP market share from The Star (Sydney) by the time the market normalizes in fiscal 2025," wrote Morningstar analyst Angus Hewitt in a client note Dec. 17. "The investment case is sound. The firm has a consistent track record with its core Melbourne and Perth casinos, which set the standard for the Australian casino industry."

"We estimate Crown Sydney will not only take share from incumbent rival The Star, but will also grow the size of local casino gaming market -- particularly in VIP," he said. "We expect the segment to recover as border restrictions ease and tourism recovers."

On opening day, Peter Crinis, chief executive for the new property, sounded an optimistic note in a media release.

"We have amazing bars and restaurants that will make this an incredible destination for Sydney," he said. "Sydney is one of the world's great cities, and it deserves a great hotel. Crown Towers will deliver that and so much more."

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