Casino sector heading for shake-up with Packer's Crown Sydney

Whether the opening of James Packer’s new casino in Sydney can tip the scales in the battle with rival The Star to lure cashed-up Asian visitors is emerging as the next big question for the gaming industry in 2019, analysts say.

The Australian casino sector faced a turbulent 2018, with concerns about a pull-back in consumer spending, China’s softening economic growth and the volatility of high-roller revenue contributing to steep share price plunges, shedding billions of dollars in value.

Since mid-2018 to December, shares in ASX-listed Crown Resorts crashed nearly 20 per cent, from $14.32 to $11.58, wiping out about $2 billion of its market value.

Star Entertainment Group’s price lost about 20 per cent in the same period, falling from $5.16 to $4.07, while SkyCity, the country’s third-biggest operator, suffered a 15 per cent drop.

But as construction presses ahead on Crown Resorts’ new casino in Sydney’s Barangaroo, due for completion in 2021, investors’ attention is turning the likely impact that a second Sydney casino could have on competition across the national casino landscape, specifically on lucrative VIP programs aimed at attracting wealthy foreign gamblers, a customer base on which casinos have become increasingly reliant.

“Barangaroo is becoming a larger part of the conversation as analysts are now starting to consider how to factor it into their numbers and its impact on both Sydney and Star in 2019,” said Donald Carducci, gaming industry analyst with JP Morgan.

The general market consensus is that Crown will put approximately 125 VIP gaming tables in its Barangaroo casino. If each table can generate $2 million, the casino could generate an uplift of $250 million EBITDA a year, Mr Carducci said.

“Whether this is all market growth or taken from Star Sydney will be a key question,” he said.

In the past financial year, at Crown’s flagship casino in Melbourne’s Southbank, revenue from top-end VIP gamblers mainly from Asia rose 73 per cent to $591 million – a sharp turnaround after high-roller revenue collapsed in the wake of the high-profile arrests and criminal convictions of Crown Resorts staff in China in 2016.

Another important question for investors now will be whether VIP revenue at Crown Melbourne will diminish once Sydney becomes a two-casino town.

“If you have two casinos in Sydney, it likely makes Melbourne a little less attractive,” Mr Carducci said. “Crown Melbourne may suffer as a result of a preference for Sydney as the first port of call for Australian inbound gamblers.”

In 2018, China overtook New Zealand for the first time to become Australia’s largest inbound visitor market. According to government statistics, there were 1.39 million Chinese visitors to Australia in the year ending February 2018, an increase of 13.2 per cent.

Star Entertainment chief executive Matt Bekier last year said the company was not concerned about the impact of Crown’s Barangaroo complex in the Asian VIP space, adding that he believed it would grow the city’s overall VIP market.

“If you look at the typical VIP guest, who goes to Macau for example, they play in 2.6 casinos over three days,” he said. “I think the exact same thing is going to happen in Sydney.”

Mr Bekier said Star had successfully diversified its international VIP business away from relying too heavily on the super-high-rolling Chinese gamblers, and was instead drawing more patrons from South-East Asian markets to its hotels and casinos.

"In the traditional VIP business it was all high-rollers ... now it is more of a high-end tourism business - people fly in, spend a few days, they gamble, but that's only part of the experience," Mr Bekier said at the time.

Gaming industry observers are also closely watching Crown on the question of whether or not the company will pressure the NSW government for licenses to run VIP poker machines at Barangaroo.

NSW Premier Gladys Berejiklian has ruled out any chance of allowing poker machines at Crown’s planned VIP casino at Sydney's Barangaroo.

But Mr Carducci said he believed that would not stop Crown from lobbying. Politically, he said, things “could change”.