China's corruption crackdown hurts James Packer's gambling empire
Profits plunge at Crown Group’s Macau operation in the wake of Beijing’s attempts to curb controversial high-rolling gamblers
Feb 2015
China’s crackdown on corruption has cost Australian billionaire James Packer dearly by eating into profits at his Macau casinos.
Packer’s Crown Group said on Thursday that first-half net profit slumped 47.2% as revenue from gambling hub Macau fell sharply while the firm was also hit by writedowns from a US investment.
Profit for the worldwide gambling empire was A$201.8m (US$157m) in the six months to December 31, down from A$382.5m in the previous corresponding period.
It was weighed by weakness at Macau subsidiary Melco Crown amid a Chinese government corruption crackdown. Crown’s 34.3% share of Melco fell A$62.2m, or 42.2%, to A$85.3m.
Macau is the only place in China where gambling is legal and expanded rapidly on the back of huge betting by wealthy high-rollers from the mainland whose visits are controlled by “junkets”. At the height of the boom, Macau casinos were raking in seven times more than those in Las Vegas.
But the Chinese government led by president Xi Jinping has launched a crackdown on the junket industry, causing pain for casino operators.
Macau’s high rollers, usually elite Chinese businessmen and officials, account for 60-70% of the enclave’s revenue, and many casino operators are attempting to move towards mass-market gaming and entertainment to make up for the loss. They are opening up new family-friendly resorts, arenas, and restaurants.
Yet change has been slow, underscoring the importance of dubiously-sourced funds to Macau’s economy. Revenues among the enclave’s 35 casinos have been in decline for the past eight months, according to Reuters.
Yet change has been slow, underscoring the importance of dubiously-sourced funds to Macau’s economy. Revenues among the enclave’s 35 casinos have been in decline for the past eight months, according to Reuters.
Wealthy punters have been spooked by new anti-corruption monitoring networks and official restrictions on credit, and junket operators have fallen on hard times.
“This is a very dangerous time,” Johnny Fok, a Macau-based junket operator, told Reuters. “It seems President Xi really doesn’t want people to come and gamble any more ... Maybe we have to wait seven more years, then, after Xi has left, and only then, we might have a chance for things to go back to the old days.”
“This is a very dangerous time,” Johnny Fok, a Macau-based junket operator, told Reuters. “It seems President Xi really doesn’t want people to come and gamble any more ... Maybe we have to wait seven more years, then, after Xi has left, and only then, we might have a chance for things to go back to the old days.”
Crown’s chief executive, Rowen Craigie, said: “The decline was attributable to weak market conditions in Macau which worsened over the six-month period with a 30.4% decline in gross gaming revenue across the Macau market in December 2014 compared to December 2013.”
“The deterioration in the Macau market has continued into the second half.”
The Australian company said it remained on track to open a second large-scale resort in Cotai, Macau, later this year.
The Australian company was also hit by $61.3m in significant items, mostly from a US$45.6m charge from Crown’s investment in US-based Cannery casino group, and also from a discontinued project in Sri Lanka.
Crown in January abandoned plans for a US$350m development in Sri Lanka, which would have included gaming, after the government banned new casinos.
At Crown’s Melbourne and Perth casinos, the group reported a 3.5% increase in main floor gaming revenue, while VIP turnover jumped 61.4% during the period after strong growth in November and December in Melbourne.
“The performance of the Australian business was satisfactory, given the subdued level of consumer sentiment,” Craigie said.
Crown shares rose 7.4% to A$15.53 in early trade.
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