Australia casinos feel pull of China gamblers
The influx of Asian gamblers into Australia has gaming developers pitching high-end projects throughout Queensland and New South Wales
Back in July, James Packer went on Financial Review Sunday on Australia’s Nine Network, which he used to own, to make Crown Resorts’ pitch for a gaming license in the Queensland capitol of Brisbane. Flush with victory, having just muscled into the New South Wales capitol of Sydney, Echo Entertainment’s home turf, he now was on national television assailing his rival’s vulnerable northern flank.
Treasury Casino & Hotel has made a hash of its monopoly of the country’s third-largest city, the billionaire contended—a “terrible” job, he said—“The quality of the properties in Surfers Paradise and Brisbane is a disgrace.”
John Redmond, Echo’s chief executive, has been in the industry more than 25 years, long enough to recognize his company has to concede a portion of this brutal assessment. However, as a Las Vegas veteran who held senior positions at the old Caesars World and at MGM Grand and MGM Mirage, he also realizes what he’s got in Brisbane and what it earns from 80 tables games, 1,300 or so EGMs and 128 hotel rooms housed in a listed building that cannot be altered or expanded. Redmond argued that granting a second license in Brisbane would be a serious wrong turn; as he put it, “We are not Singapore.”
He’s been on a public relations offensive of his own since joining the company last fall, the second American to hold the job in as many years. The theme of the campaign, that “Echo holds the key,” comes with a promise to turn things around in Queensland with A$1.5 billion in fresh investment—A$700 million-A$1 billion of it in Brisbane. (A$1 = US$0.88). Redmond also assured that if he’s allowed to move Treasury out of its historically ornate prison and integrate it with a public-private redevelopment scheme planned for the government district a few blocks away he’ll make of it a “a world-class facility that will put Brisbane on the international map.”
On the condition, that is, that Echo retains the city’s sole license. Brisbane cannot support two, he said.
Echo said the same thing, at least initially, in defense of its Sydney monopoly at The Star, which it has largely rebuilt at a cost of close to A$900 million, and Packer rode right over it in winning approval from New South Wales for a competing luxury resort with gambling on Darling Harbor. It opens when Echo’s exclusivity expires in 2019.
Unquestionably, the Queensland market is soft, and it has taken a toll on Echo corporate-wide, dragging down underlying profit in FY2013 by more than 15 percent against FY2012. Consumers in the country’s third-largest economy have been pulling back amid a general slowdown in the aftermath of the global recession. The machine gaming market statewide is worth about A$2 billion, but Echo’s three casinos capture only about 14 percent of it. Up in Cairns there is the 128-room Reef Hotel Casino, part-owned by Casinos Austria International. It contains around 530 slots and EGMs and 40 or so table games and generates about A$20 million a year in total. The lion’s share of the local spend is going to the clubs and pubs, a substantial industry in which Queensland, like the rest of Australia, is rather unique in the world. There are some 1,250 locations across the state providing around 40,000 machines for the locals.
What Echo got in total revenues out of Queensland in the year through June 2013—its Jupiter-branded resorts included, one in Gold Coast, one farther north on the Coral Sea in Townsville—was A$643.6 million. That’s a decline of 3.3 percent. The gaming side was down about 4 percent. The EBITDA hit for the year totaled 15.2 percent. Weakness was apparent in the mass market, with slot revenue falling 2.5 percent against the previous year, and in VIP, where volumes were down a telling 19 percent.
“We don’t have a compelling enough offer to attract people,” is how Redmond explains it. “You need to build or develop something at a scale that allows you to compete with the rest of the world.”
This is Packer’s case for Brisbane precisely. It’s the same argument that got him into Sydney. Few would be surprised if it doesn’t win him Brisbane too. Basically, it’s why he’s spent the last decade divesting the family of the media empire Kerry and Frank Packer spent more than half a century amassing—“a long journey, but for me a necessary one,” as he justified it in a speech in Canberra last October before a friendly audience of tourism, aviation and transport leaders.
“When I look at business opportunities over the coming decade,” he told them, “I see Australian tourism as one of the industries that will benefit most from the booming middle class in China and across Asia.”
For the powers that be in Queensland that had to sound very much like music, as doubtless it did to their counterparts earlier this year in New South Wales.
IDEAS BY THE BILLIONS
Queensland is a resource-rich state that has always depended on exports of minerals, agricultural products and tourism, and they’ve all been down more than up the last five years. The strong Australian dollar hasn’t helped. And it is the most indebted state in Australia as a result, with a current deficit estimated at more than A$7 billion. Gross state product grew only 0.2 percent in 2010-11, a period marred by widespread flooding and a Category 5 cyclone. The economy bounced back to 4 percent growth last year, but overseas sales, of mining products particularly, were down year to year, residential construction has fallen by double digits, and growth in household consumption has been tepid, tracking at less than 1 percent.
Redmond is doing a pretty straightforward job in confronting government with the reality of what the state is not. Then there’s Packer offering them a vision, however vague, of what it can become. So he comes off as a big-idea guy, and they’ve been popping up all over Queensland lately.
• Down near the border with New South Wales, just above Brisbane on the Sunshine Coast, mining tycoon Clive Palmer is floating a casino as part of his plans for a A$2.5 billion resort in the commercial district of Maroochydore. The state’s richest man, he holds a seat in the federal Parliament under his own Palmer United Party. He’s reported to be backing construction in China of a full-size replica of the Titanic. He plans to populate the Hyatt in Coolum, which he bought a couple years ago and renamed the Palmer Coolum Resort and plastered with photos of himself, with 100 animatronic dinosaurs.
Though no gambling advocate, Sunshine Coast Regional Council Mayor Mark Jamieson thinks his Pacific Ocean paradise ought to keep an open mind about the casino.
• Hong Kong financier Tony Fung wants to build a $4 billion resort with a man-made lake, a reef lagoon and the world’s largest aquarium on a patch of tropical farmland on the Coral Sea outside Cairns. His plan for Aquis, as it’s called, includes more than 5,000 luxury hotel rooms and upscale apartments and villas, a golf course, 13,500 square meters of high-end retail, a casino, of course—one larger than Crown Melbourne’s—and, if it’s all approved (proximity to the Great Barrier Reef has raised environmental concerns), a 25,000- seat stadium.
• In Gold Coast, 1,700 kilometers to the south, one of the country’s most popular holiday destinations, city officials are entertaining proposals from groups that include Toronto-based Brookfield Asset Management, China State Construction Engineering Corp., China property developers Zhuhai Ridong Group and Auckland-based casino giant SkyCity Entertainment for a beachfront resort on a man-made island. Wavebreak, it’s called. It will include a hotel, a luxury marina and a cruise ship terminal and carries a price tag right up there with Aquis. Opening is slated to coincide with the arrival of the Commonwealth Games in 2018. Gaming figures prominently in these plans also, it’s their economic underpinning, not surprisingly, and the City Council has acknowledged as much, recently voting to endorse a casino at the site.
Meanwhile, Gold Coast remains the anchor of Echo’s position in Queensland. The 70 table games, 1,300 EGMs and 594 hotel rooms and suites at Jupiters Hotel & Casino generate the bulk of the revenues the company derives from the state. Then there is Jupiters Townsville, a much smaller property housing 320 EGMs, 20 tables and 194 rooms. Now viewed as a non-core asset for the sake of the bigger picture, it’s for sale at a reported asking price last month of A$75 million.
Whence all this interest in Queensland, a mostly rural state with a sluggish economy and a dominant casino incumbent struggling to grow same-store revenues?
The answer lies in large part with something Jamieson said back in September: “Certainly if we want to appeal to the Asia-Pacific, particularly the Chinese market, casinos are seen by them as being an important part of their recreation.”
Justin Casey, managing director of Macau-based Asia Pacific Gaming Consultancy, thinks it’s all a bit blue-sky. “Everyone’s got a marble floor, a chandelier and a Chinese restaurant now,” he told Bloomberg. “If you had a pocket full of money and you were looking to establish a new destination in Asia, I don’t know Australia would be the first cab off the rank.”
In Brisbane, in Sydney, in Canberra for that matter, they beg to differ.
Queensland Premier Campbell Newman came back from a tour of Asia in October, with stops in Macau and Marina Bay Sands in Singapore, and pronounced, “We’re in a global competition for tourists.” State officials at that point already had met separately with Echo and Crown and were working to draft a request for “expressions of interest” in a second casino license in Brisbane’s government district. “We’re not just looking for a hotel and some shops,” Newman said, but something “world-class” and “iconic.”
Prior to June 2013, when Crown was approved to build in Sydney, there had not been a new casino license awarded in Australia since 1996. Clearly, much has changed. The country now welcomes more travelers from China in a month than it did in an entire year back then, and for governments hard-pressed to deliver growth in a challenging global economy, the implications are enormous.
The Labor Party governed Queensland for 23 years before Campbell, then-mayor of Brisbane, and his center-right Liberal National Party ousted it last March in a landslide, winning 78 of 89 seats in Parliament. It was the most lopsided election in state history, and it was all about jobs and growth. And in Queensland, home to one-third of the country’s hotel rooms, that means tourists, and increasingly that has come to mean tourists from the big land mass to the north.
New Zealand is the largest source of inbound travel to Australia, but China has moved firmly into second place, with visitation up 17.5 percent last year, more than triple the rate of growth of foreign arrivals as a whole, and it’s forecast to increase almost 16 percent in 2013 and more than 10 percent in 2014, followed by Malaysia (13.9 percent), Singapore (12.5 percent) and India (7.5 percent). Asia, in fact, is now home to seven of Australia’s 10 largest tourism feeder markets.
Asia will account for more than half the growth in international travel to the country by the end of the decade, according to federal government forecasts. There will be 1 million Chinese coming annually by then, contributing to the national economy upwards of A$9 billion. They’re contributing around A$3.8 billion currently, or close to 18 percent of total inbound visitor spend, and this year they will generate about 20 percent of the growth across the board, international and domestic, according to Tourism Australia, an agency of the government. Their per capita spend currently exceeds A$7,000, and that’s almost twice the average of all international tourists. They stay longer, spend more money shopping, they’re second in entertainment spending and fifth in restaurant and hotel expenditure.
Stumping for Crown Sydney on a radio show late last year, Packer was pointing up the obvious when he said, “The natural attractions are magnificent, but people also want man-made attractions. If you look at the biggest tourism success stories in the world they’re man-made attractions. People do not want to spend all of their holidays looking at Ayers Rock.”
Certainly, the ones coming from China don’t. They’re decidedly more interested in baccarat than koala bears or kangaroos. Their per capita casino spend per trip to Australia—A$506 on average for the year ended March—exceeds all other nationalities by far. Singapore is second at A$400, Hong Kong third at A$390.
“Whether they gamble or not, casinos are one of the prize attractions [for them],” said Justine Chien, who heads a Sydney-based tour agency called Golden Dragon Travel. “They’ve all been to Macau already. They want to see the different casinos of the world.”
China is also the second-largest of Queensland’s international feeder markets (again, after New Zealand). Forty-six percent of the 643,000 Chinese who visited Australia over the last year visited Queensland. It’s why the state led Australia in international visitor growth, with spending by foreign tourists up 4 percent to A$4 billion and accounting for 27 percent of total visitor expenditure. Singapore delivered the most growth proportionately at 41 percent, followed by Indonesia at 32 percent. India was up 20 percent. The Chinese market grew 24 percent year on year, four times the rate of growth in overseas visitation as a whole. They spent more than A$535 million in the state, and that was up 27 percent. Significantly, and in contrast to the nation as a whole, more than 80 percent came for holiday purposes. Nationally, it was 55 percent.
The government’s Tourism and Events Queensland is responding with the addition of a representative in Beijing and an expanded presence in Shanghai, a representative for Jakarta, and a Southeast Asia “hub” office is planned for Singapore with oversight of an expanded presence in India.
“This pillar of the Queensland economy,” as tourism is portrayed by Jann Stuckey, the minister for the sector, could well be the deciding factor in whether Newman and the LNP make good on their pledge to reinvigorate the state economy. They also know that breaking Labor’s traditional hold on the cities was the key to last year’s record-setting parliamentary win. Of the three regions targeted for large-scale resort gaming development—Brisbane, Gold Coast and Cairns—they took all but three legislative seats in Brisbane, and they took every seat in Gold Coast. China happens to be the largest source of international visitors to Gold Coast, the second-largest in the tropical north, where their numbers are up 45 percent, and third-largest in Brisbane, where their numbers are up 19 percent.
The war Crown and Echo are waging for Brisbane has been nasty and public, as Sydney’s was. The lowlight to date has been Crown’s denial of Echo Chairman John O’Neill’s claim that a lunch aboard Packer’s yacht in March had been served with an offer by Packer to lay off Brisbane in exchange for a free hand on Darling Harbor. Crown would be approved in Sydney a few months later, as it turned out, and certainly by that day in July when Packer walked onto the soundstage of Financial Review Sunday the prospects for both had changed radically.
“It will be interesting to see where Premier Newman ends up on the ideological question of competition,” he said, appearing to challenge Queensland on his Brisbane bid. Or he was just being cagey, because Newman believes the state can support at least three more casinos. “In the end,” he has said, “there could be up to seven.”
Reprinted with permission from Inside Asian Gamingmagazine.