11 January 2016
by Elizabeth Knight
Casino wars: Uneasy peace between James Packer's Crown and Star Entertainment
There is a new style of ammunition in the competitive war between Australia's casino giants, James Packer's Crown and the Sydney-based Star Entertainment. Farewell the public lambasting and covert whisper campaigns. Enter the new era competitive corporate diplomacy.
It was only two and a half years ago that the chairman of Australia's competition regulator Rod Sims was drawn into one of the most bitter corporate brawls in Australian corporate history – between Crown and Echo, since renamed The Star Entertainment Group.
The regulator was investigating a report that Packer had delivered an ultimatum to The Star's chairman John O'Neill and chief executive John Redmond that if they didn't fight Crown's plans to build a six-star hotel and VIP gaming facility in Sydney then Crown would not contest Star's exclusive casino licence in Brisbane.
History shows that the regulator ultimately found there was no case to answer and Crown did end up bidding – albeit unsuccessfully – for the right to enter the Brisbane market.
The anecdote however serves as testament to the intensity of the war between the two rival casino groups.
Wind the clock forward a few years and the competitive politics have changed along with the rhetoric. This week The Star confirmed its plans to spend another $500 million on its flagship Sydney integrated resort in Pyrmont – a move which many assumed would reignite tensions between the casino rivals and evoke a sharp negative response from the billionaire competitive warrior Packer.
"What's good for Australia is good for Crown," Mr Packer said.
Instead Packer said publicly that he would lend his support to to the Star upgrades – of which the Ritz Carlton hotel addition will need NSW government planning approval. His response floored many market watchers who were amazed that Packer's often displayed pugilism had given way to a cooperative stance.
The Packer camp is promoting the argument that an improved Star Casino facility will attract more international gamblers and tourists to Sydney and that two world-class facilities in one town will attract a bigger share of the international market – making both players winners.
This week Packer told media, "What's good for Sydney is good for Australia and what's good for Australia is good for Crown".
The Star facelift is not dissimilar to the one it proposed to build in 2013.
His spokesman said it not about being "altruistic or smoking peace pipes".
But it has also prompted some experts to question whether Packer could also be hoping his support for The Star's development plans may also result in Star dropping objections it presented to authorities – based on legal advice – that suggested Crown's Barangaroo planning process was flawed and open to court challenge.
On the prospect of increasing the size of the international gaming and tourism pie, both casino operators are in agreement. The Star Entertainment's chief executive Matt Bekier says, "as Australia represents only 4 per cent of the global market there is no shortage of headroom".
The main game for both The Star and Crown Melbourne today is the local market.
Both Australian casino players are acutely aware of how the Chinese VIP player operates using Macau as a template. The typical VIP visits 2.7 casinos in any trip. Some of this is credited to a player's superstition that they are running out of luck at a particular casino and some is put down to the fact that a fresh casino will offer a new line of credit.
Either way it augurs well for the ability of two Sydney casinos to share the spoils from the international tourism and gaming market.
Thus Packer's people say his decision to support improvements at The Star is consistent with sledging of the Star casino's below-grade product a few years ago.
The Star has poached management talent from Crown including its former executive Greg Hawkins.
But a lot has changed in the past couple of years over at Star Entertainment. Its product, its marketing and its earnings have vastly improved which in turn has boosted its market share.
Where a few years back The Star was the hunted – having lost it exclusive right to the Sydney casino market – it is now looking to compete more aggressively – working hard to further upgrade its gaming and VIP facilities to get a head start on Crown Sydney competition – which has been plagued by delays and is now looking to open in 2020 at the earliest, a year or more behind its original timetable.
This week The Star confirmed its plans for a third hotel within its Sydney complex – one that will be more than two-thirds the height of its Crown competitor only a few hundreds metres across the water. Two towers facing off as they seek fill the rooms with tourists and gamblers from Asia and interstate.
The Star facelift is not dissimilar to the one it proposed to build in 2013 when it was attempting to retain the exclusive casino licence in Sydney.
But this time around investors are more confident about The Star's financial firepower given the improvement in its financial fortunes and the addition of strong Asian property partners that will also jointly develop the proposed integrated casino project in Brisbane.
Make no mistake, these two companies will always be fierce competitors for the local VIP and premium mass market business but could well be allies in the longer-term prize of putting Sydney on the map as a destination for a bigger slice of the middle-class Asian market.
As glittering as the prize may be to ultimately attract bigger numbers from Asia to Sydney, the reality is that the main game for both The Star and Crown Melbourne today is the local market – both the grind and the domestic VIP segment.
That battleground will remain the biggest contest as it producers a bigger share of the profits.
For example on New Year's Eve this year when Packer's Crown secured his girlfriend Mariah Carey as the top act it was estimated one third of the crowd had come down from Sydney. One industry expert suggested that at the domestic high end Crown has something like 20 salespeople in Sydney trying to get customers down to Melbourne.
But when Crown Casino is ultimately opened in Sydney there will be plenty more scope to steal Sydney patrons from The Star.
Thus for Star Entertainment boss Bekier, getting his Sydney property to match-fit status is a race against time. Most of the capital expenditure will be spent on facilities to attract the local VIP and market.
"Australia has the highest per capita spend on gaming of any nation today other than Hong Kong. So opening another casino is unlikely to expand the domestic market when Australians are already spending $1600 per capita per year. The opportunity for expansion is through Sydney becoming a more attractive destination for the international VIP and the high end tourist, with greater capacity to accommodate them," Bekier notes.
As cosy as this new Crown/Star relationship sounds neither player is comfortable with this element being overstated.
One described it more as "war and peace" while the other side was quick to point out that "it isn't all bear hugs and hi-fives".
For its part The Star has poached management talent from Crown including its former executive Greg Hawkins who is now the managing director of The Star's flagship Sydney casino. The new head of Star's international VIP business, John Chong, was recently lured from Crown's Macau joint venture, Melco Crown.