Crown eyes Echo’s casino licence

Crown last week sealed a deal to develop a new hotel and casino resort in Sydney at the harbour-front Barangaroo development, as part of its push to build a global brand in the VIP gaming market and attract more Asian high-rollers. However, the exclusive casino licence for Sydney is held by smaller competitor Echo until 2019.

To succeed at the Barangaroo site, Crown would either need to convince Echo to share its licence, perhaps via a joint venture, or convince the state government to issue a second casino licence.

“Ultimately some sort of deal will be struck, more likely on the sharing of the licence,” said Arnhem Investment Management head of equities George Clapham. “They have a couple of years to work something out. I suspect there are not going to be any aggressive bids flying about,” he added.

So far Crown has bought a 10% stake in Echo and applied to regulators to increase it to 25%. Crown successfully led a push to oust Echo's previous chairman. “We favour using Echo's licence,” Crown CEO Rowen Craigie told analysts. “We will see if (new Echo chairman John O'Neill) is of a similar mind. “The economics of building a luxury of hotel in Australia is just not good without cross-subsidisation from gaming.”

Crown is seen as unlikely to make a full bid for Echo because it would financially stretch its balance sheet, already under pressure from capital spending at its Melbourne and Perth casinos before any development starts in Sydney. Asian casino operator Genting has also taken a 10% stake in Echo.

Packer would be open to an alliance with Genting to further his ambitions in Australia, sources have told Reuters, but it is not clear how an alliance would play out.  Asian casino world generates about us$ 45 billion in annual revenue, and Packer, Genting and Las Vegas rivals such as Sands are racing to expand in the region.

Crown yesterday posted a 22% jump in full-year profit, with more lucrative business from Asian high-rollers helping to offset a slowdown in other gaming activity.

VIP gaming revenue in Australia grew 18.7% in the year, helped by refurbished gaming areas, although the revenue growth was generated at a lower margin. Net profit before one-off items for the second half was us$ 215 million, according to calculations, just below analysts' estimates.