Australia’s biggest gambling company, Crown Resorts, is facing a crisis of its own consequences after damning reports that it is not feasible to open its newest casino.
Crown has opened the doors to the sleek and sparkling 75-story Crown Sydney skyscraper, which is now the tallest building in Sydney. Hotels and restaurants are open to customers. But the gambling floor will likely remain closed for a while.
It’s because of former judge Patricia Bergin released its findings that the company is “unfit” to hold a gambling license. Casino license applicants with Crown’s “stark reality of facilitating money laundering, exposing staff to the risk of detention in foreign jurisdictions and pursuing commercial relationships with individuals with connections to the Triads and organized crime groups will not be certain of a positive outcome,” Bergin wrote.
Bergin’s report could be disastrous for Crown. If Crown is deemed unfit to hold a gambling license in Sydney and around New South Wales, it is hard to imagine how well reputed it is in Melbourne and Perth, where it already operates a casino. And politicians are starting to ask those questions.
“If they are, as has been found, unfit to hold a license in Sydney, of course they are just as unfit to hold a license in any other jurisdiction,” said Andrew Wilkie, a lawmaker campaigning against gambling, according to a report. from Reuters.
However, the stock has not been battered. Crown shares plunged 8.9% at the open on Wednesday but quickly recovered most of it, ending up with a 3.4% loss. Shares have generally held up since last summer despite public hearings during Bergin’s investigation that raised serious questions about Crown’s management practices.
This price movement shows investors do not expect Bergin’s findings to color the whole company. Crown may move on to overhaul its executive ranks. Its largest shareholder, James Packer, is likely to step up his efforts to sell his 35.9% stake, possibly to a Las Vegas company.
Crown on Tuesday had requested a halt to trading in its shares until Thursday or when Bergin’s report came out. However since the report was released on Tuesday afternoon, trading resumed here on Wednesday. A total of 5.3 million shares changed hands. Sales may increase on Thursday.
The crown comes from the kingdom of James Packer’s father, Kerry Packer, who lived a big life literally and in the public imagination. Kerry himself is a great gambler, on the table and in corporate terms. According to the story, a Texas oil tycoon once bragged that he had a fortune of US $ 60 million while trying to get Kerry to play him at poker. Kerry should have pulled out a coin and said, “I’ll throw you for that!” Malcom Turnbull, who later became Australia’s prime minister, said Kerry Packer threatened to kill him when they clashed over a business dispute.
Kerry’s son, James, now heads the Crown kingdom. With a net worth of $ 3.6 billion, he is the ninth richest person in Australia, based on Forbes. But he has stepped back from executive control and may now even want to leave the company. Lieutenant Packer on the Crown board, Guy Jalland and Michael Johnston, resigned Wednesday, leaving Packer without a representative on top.
Crown shares fell 50% as the pandemic hit, with casinos losing foreign gamblers and competing with local lockdowns. But Crown had largely recovered by mid-2020. The stock was one-third of the high price set in August 2018, but does not represent the drawbacks you might expect from a casino operator who has been told it is unsuitable for running a casino.
New South Wales gambling regulators will meet later this month to discuss Bergin’s report and decide whether Crown accepts a Sydney license. It seems that the previous conclusion that the license will be rejected.
Crown has not been successful in its efforts to expand overseas, although it has started a successful joint venture in Macau. The consequences of this partnership in the former Portuguese territory are still being felt.
Crown has tried several times to enter the Las Vegas casino market, recently buying a piece of land in 2014 that is expected to transform into the 1,100-room Alon Las Vegas casino. But never got a shovel on the ground and sold the plot in 2018 to Wynn Resorts (WYNN).
Crown ran into trouble in mainland China in 2016, where 16 of its employees were jailed for finding whales, or top players, to come and play at the company’s casinos. It is illegal to invite people to gamble in China, where only Macau is allowed to operate casinos. Partly because of problems in China, Crown decided to focus on its operations in Australia.
James Packer and Lawrence Ho, who are heirs to a gambling fortune, formed a joint venture in 2004 to operate a casino in Macau, with two offspring as co-chairs. But despite helping build three highly profitable casino resorts in Macau, Crown sold out its US $ 1.2 billion stake in 2017.
It was Packer’s close relationship with Ho that led to a reference to Crown’s business dealings with entities associated with the Chinese triad gangster. Lawrence Ho’s father, Stanley Ho, held a gambling monopoly in Macau for 40 years, where underground links to the gambling industry exist and are widespread. The area’s image has improved since the monopoly broke in 2002 and the Las Vegas operator entered. But even the Vegas company has faced accusations that triads operated their junket operations and high-risk private spaces in the back rooms.
US gambling regulators have ruled that Stanley Ho and his daughter Pansy Ho have links to Chinese organized crime. That forces the MGM Mirage (MGM), which has a joint venture with Pansy Ho in Macau, to submit its license in New Jersey.
Packer agreed in May 2019 to sell his 19.9% stake in Crown Resorts to Lawrence Ho for US $ 1.76 billion. That would bring Packer’s former Macau partners to the limit of permitted ownership in Australia before minority shareholders had to bid for the entire company. Lawrence Ho said publicly that he would be interested in enlarging his interest.
However, Australian gambling regulators have balked at Lawrence Ho’s involvement, sparking a review by the New South Wales gambling regulator that has recently concluded. They noted that Stanley’s father, who later died, owned shares in his son’s company through a company that was prohibited from doing business in Australia.
In February 2020, Lawrence Ho postponed the purchase of Crown shares, which will be carried out in two stages. The second sale of 9.99% ownership discontinued, and Melco sold the original 9.99% block to Blackstone Group (BX) with a 37.3% discount from the price paid. Ho said he wanted to focus on the Macau market because of the financial problems stemming from the coronavirus.
James Packer, who stepped down as executive chairman of Crown’s board in 2019, citing mental health reasons, still wants to sell his holdings. Previous discussions with Wynn over his entire 36% stake were canceled when it became public knowledge.
The company now looks set to continue without Packer’s involvement, and potentially without his ownership if he sells most of the stock. It may have been his dismissal that ultimately resulted in revisiting licensing issues for casinos in Sydney and determining the company’s future.
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