Blackstone buys more than the buildings in Australia

Blackstone buys more than the buildings in Australia

  • Ken Adams, CDC Gaming Reports
May 30, 2022 6:41 PM
  • Ken Adams, CDC Gaming Reports

Gaming regulation in Australia is going through a period of change. Under pressure from the investigations into Crown Resorts, regulatory agencies are looking to tighten procedures and scrutiny and increase fines on gaming operators.

Crown has been in the crosshairs of law enforcement, regulators, and the media for six years, since a charge of illegal betting advertising and a fine in 2016. Crown has been investigated by New South Wales (NSW), Victoria, Western Australia, Australia’s Securities Commission (ASIC), and the Australian Transaction Reports and Analysis Center (AUSTRAC). Universally, the investigations have found Crown guilty of sloppy procedures and a willingness to skirt laws and regulations governing casino operations and money handling. Over the course of the inquiries, the entire board of directors of the corporation resigned and the operational leadership changed, sometimes more than once. The company faces a future of licensing difficulties, restrictions, scrutiny, and large fines.

The examination of Crown has resulted in other companies being put under the microscope. Star Entertainment and SkyCity have been targeted and Star is not faring much better than Crown. SkyCity is under investigation by AUSTRAC. The gaming companies are not alone; the regulatory agencies in each province are also feeling the heat. The press, politicians and public as asking why the egregious violations were not discovered sooner. For example, in the past six years, according to the Australian Financial Review, NSW hit Star with a mere $148,700 in fines. Much of that, $67,897 is from a single fine in 2020.

Victoria is taking the bull by the horns. Gaming regulation in Victoria has been the responsibility of the Victorian Commission for Gambling and Liquor Regulation (VCGLR). The Commission may have had too much on its plate to properly monitor both liquor and gambling licenses. There are 487 gaming venues with 26,000 slot machines and 7,000 licensed liquor venues. That probably does not leave a lot of time to follow high rollers around Crown Melbourne. To ease the burden and increase the attention on Crown, the duties are going to be divided. Liquor will go to the Liquor Commission and gaming to the Victorian Gambling and Casino Control Commission (VGCCC).

The VGCCC will get an additional $30 million annually to improve its oversight. It will also have more authority. Previously, a gambling infraction could result in disciplinary actions only if there had been a series of infractions and the operator was warned. Now, a fine can be levied on a single incident and the maximum fine has been raised to $100 million. Enough to discourage corporate officers from intentionally violating or sidestepping regulations. Taxes on slot machines have been raised significantly, but there is more bad news for Crown. Among the other restrictions, players are allowed to play only one slot machine and must push the button for each wager — no playing a row of machines and putting weights on the buttons to keep the game in continuous play.

Besides restricting the operating environment of casinos, Victoria is trying to protect gamblers; excessive slot play is a problem for all of Australia. Known colloquially as pokies, but officially as electronic gaming machines (EGM), slot machines are ubiquitous. There are nearly 200,000 EGMs in Australia; the annual win is estimated at $12 billion. Per-capita spending is among the highest in the world. Controlling EGMs’ impact on Australian culture has been part of the national dialogue for 50 years. An article in The Age in 2014 quotes Community Clubs Victoria’s CEO, Neil Murray, as saying, “Without the revenue from gaming, a great deal of community infrastructure and leisure opportunity would not be available. In creating community infrastructure, clubs are also providing opportunities for people of like mind to meet and socialize, thereby addressing in part one of our society’s greatest illnesses — loneliness.”

Any attempt to curtail EGMs meets with considerable opposition from the clubs and casinos, to say nothing of the politicians, who spend the $5 billion collected each year in taxes. The tax increase may not or may not apply to the clubs; it is not yet clear. But for the casinos, the tax will be a drag on future earnings. Crown should be concerned, except Crown will not be Crown. Soon, the company will have a new owner, Blackstone. Shareholders of Crown voted to approve the purchase on May 20. Crown promises to help Blackstone become licensed in New South Wales, Victoria, and Western Australia and that was said with a straight face.

Blackstone is buying into an uncertain environment. Crown is no longer what it once was; since its troubles with China started, there have been various attempts to sell Crown, at least James Packer’s shares. Wynn Resorts was supposed to be interested. So was Sheldon Adelson. Melco International bought into the company with the stated intent of acquiring a larger equity position. But those companies seemed to feel Crown was either overpriced or too risky. Blackstone, unlike the others, came back three times with another offer until finally succeeding.

Blackstone is a private-equity firm that buys real estate and leases the operations. Its portfolio is valued at $800 billion. Clearly, Blackstone has the finances and expertise to acquire Crown, though the skill set to manage in this highly unusual situation is another matter. Who will manage Crown? Who will answer the questions from regulators that are sure to come? Buying Crown is not like buying Hilton, La Quinta, Motel 6, Wyndham, Cosmopolitan, Bellagio, or Aria and Vdara. Crown will require onsite management watching carefully to see that no high rollers are hiding cash in the backroom or little old ladies are playing two, three, or — horrors! — four slot machines at once.

No mistakes will be tolerated. An agent will be watching everyone and everything to ensure there are none whatsoever.

With the necessary approvals, Blackstone will own the Crown casinos in Australia. But it is buying more than casinos. Blackstone is buying Crown’s history, reputation, and regulatory burdens.