After a long stream of bad news, Crown Resorts finally received some good: It is going to open its new Sydney casino early next year.
Getting to opening day has been a long, challenging, and expensive ($1.7 billion) process. The project was first proposed by James Packer in 2012 and the groundbreaking took place in 2014. The hotel opened in December 2020 and if all goes according to plan, it will have taken an additional 13 or 14 months for the casino.
Initially, the casino was delayed by a hearing into the suitability of Crown Resorts to run it. A key focus of the hearing was one-time Crown chairman and its largest stockholder, James Packer. James is the son of legendary gambler Kerry Packer, whose gambling endeavors seemed to be charmed. He did sometimes lose, but more often he made big scores, really big scores.
James lacks his father’s luck, not at the tables that he seems to avoid, but in owning or investing in casinos. One way or another, each of James Packer’s casino ventures has turned sour, including four false starts in Las Vegas and a joint venture in Sri Lanka and Macau. London is only place his Crown investment succeeded, except for Australia. In Australia, Crown owns a casino in Melbourne and one in Perth. Crown Sydney will be its third. But by the time it opens, Packer will not be able to claim Sydney, Melbourne, or Perth as his.
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Crown Sydney was conceived when Chinese gamblers were flooding Asian casinos; It was designed to attract that high-rolling Chinese cash. However, since that time, many changes have taken place in regard to VIP gamblers from China. China has clamped down on junket activities and the gamblers’ cash.
Crown, in fact, was a target of one of the junket changes. In 2016, Chinese officials arrested 18 Crown employees as part of an operation called “Break the Chain.” That operation was part of a broader crackdown on corruption initiated by Chinese President Xi Jinping. When Xi pledged to purge China and the Communist Part of corruption, VIP gamblers were caught in the crosshairs. The crackdown had an immediate impact on casinos in Macau, as well as other Asian destinations that catered to Chinese gamblers. Breaking the Chain was and is intended to stop the flow of Chinese wealth into other countries. The severity of that message is becoming clearer every day, but it was not clear in 2014 when Crown broke ground in Sydney.
Crown’s relationship with high-rolling VIP gamblers was the subject of exposés by The Melbourne Age and “60 Minutes.” Those reports led to the now-famous intensive investigations of Crown and resulted in the resignation of many key executives and board members, including the ill-fated, once-richest Australian, Kerry Packer’s son, James. The company was also found unsuitable. However, as we enter 2022, the board of directors and senior management are all new and blessed with the approval of Australia authorities, and Crown will be at last be allowed to open its Sydney casino.
That sounds like good news and compared to most of the Crown-related news of 2021, it is. Except the timing is terrible. First of all, the pandemic is still affecting travel to Australia and the economy is just beginning to fully reopen. But that is minor compared to the situation with China and Chinese gamblers. The gamblers for whom Crown was built are probably gone, not just temporarily, but forever. In an extension of Break the Chain, in November China arrested the leadership of Suncity, the leading junket operator in Macau and probably all of Asia. It appears that by the end of 2021, the VIP junket industry in Macau will have disappeared. The junket operators have closed their VIP rooms and ceased recruitment efforts.
Against that background is China’s hunkering down since February 2020 when it officially recognized COVID-19. Chinese gamblers and tourists are staying home; revenue and visitations in Macau are down 60 percent from 2019. That is also true in Cambodia, Vietnam, Singapore, and the Philippines, all of which rely heavily on Chinese gamblers. So there is Crown opening for business with no foreign high-rollers it was built to entertain.
No one could fault Packer in 2012 or 2014, when the casinos in Macau, Cambodia, Vietnam, the Philippines, and Singapore were all doing the same – investing billions of dollars to attract what appeared to be an unlimited supply of very well-heeled Chinese gamblers. But now, that investment will have to be refocused on less free-spending gamblers, focused on clientele other than Chinese to lure into their very expensive webs.
The analysts in Macau have pushed the recovery out another year, now 2024. They don’t expect the high rollers to return. But by 2024, they anticipate that those 1.6 billion Chinese will be on the move again.
The mistimed creation of Crown Sydney is one of the most intriguing questions in gaming to me. It is not unlike the infamous Revel in Atlantic City. Revel was conceived in the years of dynamic economic growth before the Great Recession. But it opened in an economy trying desperately to recover and in a market that suddenly had lost half of its customer base to casinos in neighboring Pennsylvania. Revel never succeeded and has sold numerous times since. As Ocean Casino Resort, it is finally enjoying a measure of success and profitability.
In an ever-changing world, with the periodic up and down in economic cycles, changes in consumer behavior, and new paradigm-changing technology, timing is a tricky issue. And that is before a foreign government changes the rules. One might even use that as an axiom: Designing a business to cater to current fashions is always a game of croquet with the Queen of Hearts. Let the builder beware.
