Inside Asian Gaming

“PBL is now a higher-return, higher-risk proposition,” Atul Lele of White Funds Man- agement told The AGE newspaper. “If you look down a few years, PBL Gaming is up for a lot of development costs, and people will be wary of any blow-outs.” This strategy is a departure from the one that made PBL one of the largest and most successful companies in Australia, and Kerry Packer a rich and powerful business icon in his own backyard. The basis of the Packer fortune was the publishing empire estab- lished by Kerry’s father, Sir Frank Packer, who launched Australian Women’s Weekly in 1933 and then built a publishing and broadcasting network around it. By the time of his death in 1974, the family owned a thriving group of newspapers and the Nine Network. But it was Kerry Packer who essentially created PBL—consolidating the media empire while building the family’s wealth through a wide range of businesses in Australia and overseas. These included investments in pay television, heavy engineering, petrochemicals, mineral exploration online services, cinemas and large tracts of rural land. Despite these purchases, PBL’s core busi- ness remained Australia-based communica- tions, where by the mid-1980s Kerry Packer had emerged as one of the country’s most influential businessman.His biggest business coup came in 1987 when Perth-based entre- preneur Alan Bond (who won the America’s Cup in 1983) offered to pay A$1.05 billion for the Nine Network. Bond had originally in- tended to sell Packer his Perth television sta- tion before being convinced by Packer to pay an extraordinarily high price for the Packers’ television interests. Kerry Packer would later remark that an Alan Bond only comes along once in a lifetime. By 1990 the Bond empire had collapsed and the remaining Packer eq- uity in the company translated into a 37% controlling interest in the Nine Network. It was the deal that established Packer as Aus- tralia’s richest man. Rolling the dice Although Kerry Packer had an apparently life-long love affair with casinos and high- stakes wagering, his entry into gaming came relatively late in his business career. His first foray was a failed attempt to capture the sole Sydney casino license in 1994. Shortly after that defeat, Packer and PBL took control of Melbourne’s Crown Ca- sino complex, initially developed by his close friend Lloyd Williams, for the then exorbitant price of A$2 billion (US$1.7 billion). The investment has since proven a god- send, however. Publishing & Broadcasting’s gaming division, which includes Crown Ca- sino and Perth’s Burswood Casino (added in 2005), generates yearly EBITDA of A$523 mil- lion (US$445 million), up from A$300 million the group generated in 2003. From modest beginnings, the gaming division became the highest grossing business within PBL’s vast empire, and the relatively predictable earnings of these Australian casino assets will provide the long-term cashflow to fund James Packer’s global gaming aspirations. The first real indication of James’ larger casino ambition came in 2004 when he forged an alliance with Lawrence Ho, the son of Macau’s casino king, Stanley Ho, to estab- lish Melco PBL Entertainment, a joint venture company that will pursue casino develop- ment opportunities in Macau and through- out Asia. The company made a splash last year when it purchased a Macau casino sub license from Steve Wynn for US$900 million, a move that cleared the way for it to own and operate additional gaming establishments in the Chinese enclave. Since that purchase, Melco PBL Enter- tainment has opened a casino in Macau (Crown Macau), is in the process of building another gaming property (City of Dreams) and has committed to developing a third establishment. It is expected that the final cost of the three casinos will be upwards of US$3.5 billion. Once the direction James Packer in- tended on taking PBL became apparent, speculation arose that various non-gaming businesses within PBL were on the block. These assumptions became reality last Octo- ber, when PBL sold 50% of Nine Network to investment group CVC Asia Pacific for A$4.5 billion (US$3.8 billion). In May, Packer an- nounced his intention to split PBL into two distinct operating entities—Crown Limited, which would oversee the company’s gaming interests, and Consolidated Media Holdings, which would run PBL Media. In June, it was announced that 25% of PBL Media was sold to CVC, for a further A$515 million. These sales have provided Crown Lim- ited with the equity needed to pursue both international ground-up gaming resort de- velopment and revenue-producing casino management agreements. The Packer initiative to separate the me- dia and gaming aspects of the company and focus on gaming has generally met with the approval of stock analysts who believe the gaming sector provides far more opportuni- ty for growth than the mature media sector. “If anything, James is more of an investor than his father,” Greg Fraser of Shaw Stock- brokers told the International Herald Tribune newspaper. “This was a great opportunity for Packer to release the capital and use the money elsewhere.” Publishing & Broadcasting executives, although unwilling to go on the record, ex- James Packer and PBL hope to emulate the success they have had with Crown Casino Melbourne (pictured here) in other gaming markets around the world 37