James Packer bets big on luring Chinese gamblers to Sydney casinos
Australian tycoon makes A$1.4b bet that Chinese high rollers will favour new Sydney casino over those in Las Vegas and Macau
The success of Australian tycoon James Packer's new six-star Sydney casino hinges on whether he can lure enough rich Chinese gamblers to justify its A$1.4 billion (HK$10 billion) price tag.
Doing so will require convincing China's high-rollers - who now make up an estimated 75 per cent of the global VIP gaming market - to reject more practical or more famous 24-hour gambling destinations like Macau and Las Vegas in favour of a far-off destination better known for sightseeing.
To improve his odds, Packer is leaning heavily on his company's established casino presence in Macau, where Crown holds a minority interest in Melco Crown Entertainment, which operates several casinos in the enclave.
Crown already maintains an office in Hong Kong, from which it arranges lavish tours for gamblers who commit to wagering a minimum of A$10,000.
The plan will also get a boost from the Australian government. The Australian Department of Immigration has begun offering a streamlined visa process for Chinese citizens seeking to try their luck at the country's casinos.
Packer is so confident of his ability to generate massive profits from the casino that he has accepted an unusually high tax rate on gaming revenues set by the government. He aims to increase Australia's share of the Asian VIP gambling business to 4 per cent, up from 2.5 per cent now.
But some industry experts are not convinced by Packer's plan. China Elite Focus chief executive Pierre Gervois, who specialises in marketing and public relations for high-end Chinese tourism, said the country's high rollers prefer destinations like Las Vegas that provide the full casino experience.
"Australia is mostly a destination for leisure and outdoors; it's not a primary gambling destination", Gervois said. "[Chinese tourists] want to buy a Louis Vuitton bag in Paris. It's the same thing for gaming. Now that Chinese people are rich enough, they want the real experience."
Packer has acknowledged the challenge he is facing, telling The Australian Financial Review in a recent interview that the "economics on this project are tough".
But he has been buoyed by strong success at his two existing casinos in Melbourne and Perth, which together brought in A$2.6 billion in revenue last year.
At Crown's last annual meeting, chief executive Rowen Craigie attributed the rise in international gamblers to a strategy of attracting new customers from China.
Sydney is also counting on the success of Packer's casino, which is at the final stage of government approval.
Casinos attract big-spending tourists who buy luxury products and sometimes make lasting investments.
"Casinos are jewels in the tourism crown, they attract a particular level of spending, and it increases the profile of a destination," said David Maguire, an international tourism expert at Perth's Murdoch University.
That helps explain Australia's decision to offer the streamlined visa in its Chinese consulates. Under the plan, visa applications are expedited for those visiting casinos, with the understanding that the casinos will vet them in advance.
Gaming visitors from China are typically granted a visa for multiple entries within a 12- month period to facilitate their movement in and out of the country. To get in on a casino package tour, gamblers must commit to spending a certain amount. Packages at Crown Casino in Melbourne, for instance, are offered to visitors who promise to wager A$10,000 or more.
Such high rollers have accommodation and entertainment services personally tailored to their needs. Agents organise their flights, visas and any other logistics. They receive personal invitations to return, sweetened by big bonuses and pricey gifts.
But the effort to attract big-spending gamblers from China raises another potential risk for Crown and Australia: a rise in money laundering.
The central government forbids citizens from taking more than 20,000 yuan (HK$25,000) out of the country - barely a third of the "front money" needed to qualify for a Crown package tour.
To get around the restrictions, Chinese high rollers often use junket tour operators, who agree to put up the money in their gambling destination. Some of these groups have been linked to organised crime.
In June, the chairman of the Nevada State Gaming Control Board, A.G. Burnett, reported concerns about money laundering in US casinos to the US-China Economic and Security Review Commission.
"[VIP transactions] are widely alleged to take place just out of the direct purview of the casino. Such activities include back-betting, side-betting, loan sharking, violent loan collections, underground banking, and money laundering," Burnett said.
New South Wales lawmaker John Kaye has aired concerns about a big increase in the "inevitable flow of billions of dollars of dark money" from Chinese high rollers into Sydney and its surrounding communities.
"The fundamental problem is that the casino will have to be involved with people stepping outside the law," Kaye said.
But the potential for money laundering is unlikely to derail Packer's casino, which has strong government support.