Inside Asian Gaming

inside asian gaming August 2014 32 Faint Echo Australia’s No. 2 enlists Chinese help in uphill battle Echo Entertainment lost the Sydney monopoly for its flagship property, The Star, to Crown Resorts and has two more solo acts on the line in Queensland. Echo has teamed with two Chinese partners to protect its home base in Brisbane, Queensland’s capital, from Crown, but the odds appear stacked against it. Echo hasn’t helped itself either. Industry observers say Echo has neglected capital investment in its Queensland properties and failed to attract Asian VIPs or even domestic high rollers in significant numbers. “Every time Echo has a chance they shoot themselves in the foot,” GamePlan Consulting founder Sudhir Kale says. Earnings slumped 31% in half-year results released in February and led to the resignation of Chief Executive John Redmond after barely a year on the job. A veteran Vegas hand, Mr Redmond was supposed to help attract Asian VIPs. In May, Matt Bekier became Echo’s third CEO in 16 months. Mr Bekier had been Echo’s chief financial officer since it was spun off of Australian betting giant Tabcorp in 2011. He’s a “smart bloke,” Newpage Consulting principal David Green says, “but do you want a former CFO running a company and taking on projects with a potentially uncomfortable risk profile?” Full-year results, due this month, are expected to show earnings growth of 18 to 21%, normalized for win rate and double-digit revenue growth, according to guidance issued in June. The company said last month that it has closed on the sale of its small Jupiters Townsville casino to Colonial Leisure Group for A$70 million, or 10 times last year’s property EBITDA, a transaction that will allow Echo to book a profit of $8 million. Echo’s top Queensland earner, Jupiters Gold Coast, is bracing for a challenge from the proposed $7.5 billion Broadwater IR to be built by ASF Group, an Australia-listed vehicle for Chinese investment in Australia, in a consortium with two Chinese state-owned companies, China State Construction Engineering and CCCC Guangzhou Dredging. “State-owned companies have the advantage of big names, brand recognition in China and strong financial background. These factors will help to attract business partners, junket agents, travel agencies and VIP players,” junket investor and consultant Tony Tong of Pacific Financial Services says. The Broadwater IR plan includes a cruise ship terminal and operating costs and the overall business model, which in turn means the local market is even more important.” Indeed. Government think tank CSRIO’s report on the future of Queensland tourism concludes that while Asian visitors will provide a big lift, domestic visitors will remain its “foundation” for the next 20 years. Mr Kale’s market study expects the domestic market to provide 70% of gaming revenue. “Sure, Queensland has its attractions, but it will still rely, inmy view, on domestic business,” Mr Green says. “Queensland is like Florida, it has a disproportionate number of retirees in its population, as well as itinerants—gray nomads, i.e. baby boomers with mobile homes, fruit pickers and casual tourist operatives. I am far from sold on the story.” The most revealing insight into Queensland’s IR potential may come from international gaming operators. The opportunity to build integrated resorts in Singapore lured major casino companies from all over the world and the possibility of IRs in Japan is attracting even more of them. In Queensland, none of them expressed interest. The only experienced operators in the running are locals Crown and Echo, while the groups that have made the biggest promises have never run a casino. In Focus Echo’s Treasury Hotel and Casino in Brisbane is adjacent to a nine-hectare redevelopment zone called Queen’s Wharf. In 2013, Queensland’s revenue from international VIP play was around A$14 million, 2.5% of total GGR, and declined by 60% in the second half of the year. Win rates fell sharply, but turnover also dropped, by 30%, despite double-digit growth in Chinese visitor numbers.