James Packer’s Crown Limited has begun a seemingly well-orchestrated move to capture any and all VIP casino business that finds its way to Australia.
Just recently, Crown announced it was doubling its stake in competitor Echo Entertainment, taking the maximum 10 percent holding allowed without approvals from regulatory agencies.
Now, Packer has presented a plan that would move the VIP facilities of Echo’s Star casino in Sydney to a proposed AU$1 billion—about $1.1 billion—hotel and casino on the opposite side of the harbor from the Star, an area known as Barangaroo.
The plan has met with praise and horror from various government officials past and present. Those in favor see a billion-dollar investment and all the attendant economic benefits. Those opposed point to the disruption of an area reserved for civic, educational and recreational use.
But New South Wales Premier Barry O’Farrell likes the idea.
“I think it’s an exciting proposal which could add extra life to Barangaroo, give Sydney another world-class hotel, generate jobs and boost tourism,” O’Farrell said.
Former Prime Minister Paul Keating, initially strongly opposed to the project, told Packer he should move his complex 100 meters south of where he is currently planning to situate it, so it is not in the middle of space reserved for public use.
Sydney Lord Mayor Clover Moore apparently feels a bit stronger about the plan. The Daily Telegraph reports she acknowledged that “Sydney needs another high-end hotel, but not in a location that sacrifices the fundamental parkland commitment,” but was quoted as calling it a “clumsy Dubai-style hotel with a new mega-casino right in the middle of Barangaroo Central” by the Sydney Morning Herald.
In fact, the only thing “mega” about the hotel casino is the price tag. Packer’s plan calls for relocating the VIP table game facilities of the Star to a luxury hotel with 350 rooms, a spa and an entertainment venue. The casino would likely resemble the Mahogany Room at Melbourne’s Crown Casino. Slot machines would not necessarily be involved.
Packer needs either control of Echo Entertainment or enough pressure on the company to accomplish his goal. Echo has an exclusive license to operate a casino in Sydney until 2019.
There is also some question as to whether building the new casino would violate the exclusivity of the Star. However, if the plan is to merely relocate the VIP table games facilities of the Star, there is an argument for allowing it. All this ultimately would need to be ruled on by the regulatory bodies involved.
For Packer, a move into Sydney is just another piece of his master plan to attract more Asian high rollers and high-end tourism to Australia. He wants to add luxury hotels to those already existing at his properties in Melbourne and Perth. And of course, at his 10 percent-owned property in Sydney.
As to Packer’s intentions towards Echo, business journalist Stephen Bartholomeusz at Australia’s Business Spectator believes an indirect approach to control is more likely.
Bartholomeusz writes, “Given that Echo has a market capitalization of A$2.95 billion, and an enterprise value of A$4 billion, a cash bid by Crown, with a market capitalization of A$6.2 billion, would almost certainly be too difficult to fund, and any level of scrip would inevitably be significantly dilutive for Crown shareholders—and would either dilute Packer’s own shareholding in Crown or force him to pump in a lot more cash to maintain control.”
Bartholomeusz sees the Barangaroo project as “a clever way of dangling a carrot” in front of the authorities and to help himself to more influence at Echo. Packer has already been turned down on his request for a Crown presence on the Echo board. By applying pressure to build his casino, Packer at the very least could end up having a major influence on the direction of Echo.