The major Australian casinos are especially dependent upon high rollers for their bottom line. So, when profits dip in a tough “international VIP market,” it hurts the large Australian casinos significantly. That is what appears to be happening at the moment as poorer spending by Chinese high rollers has pushed down VIP spending at Crown casinos and other venues.
Even so, it could all change in 2020 as analysts predict a recovery of sorts to come, which mitigates the current pain somewhat.
Importance of High Rollers
All casino profits rely on the economy. It’s simple math. When people have more income, they typically have more disposable income, and gambling establishments tend to benefit. When times get tough and money is tight, casinos see a decrease in customers and the amount of money they spend.
Casinos also depend on high rollers, but some casinos focus on those high-stakes gamblers more than others. The casinos in Macau and in Australia fall into that category. And high-roller action also relies on the economy but in a more specific way. That’s because some gamblers can be tied specifically to certain businesses or industries, and their gambling action can be dictated specifically by the state of their empires.
More broadly, though, the state of the economy and its swings determines much of the high-stakes action at casinos.
The Analysts Say…
The dip in profits has been a result of China’s economic slowdown. It started in 2018, when China reported its slowest rate of economic growth in several decades. While there has not been a recession, numerous factors, including trade tensions between China and the United States, have led to a great deal of caution in global markets.
China seems to have plugged the leaks for now, however. Credit growth was the name of the game in January 2019, as social financing hit a record high. And many analysts predict little chance of a recession, as the tide seems to be turning.
According to the Sydney Morning Herald, the two largest casino empires operating in the Australian market – Star Entertainment and Crown Resorts – have been negatively impacted by the downturn. Profits have been down due to “a sharp pullback in turnover” by the rich Chinese businessmen and tourists that comprise a significant portion of those casinos’ high-roller business.
And while there is no change forecast in the immediate future, analysts predict a turnaround in 2020.
Macquarie Wealth Management analysts already see signs of a turnaround in Chinese spending habits. Company analysts are currently predicting this trend “flowing into VIP confidence and driving an uptick in volumes”. Their prediction for a “VIP recovery in financial year 2020” is primarily for Macau gambling. However, the overflow to Australian casinos is inevitable.
Overall, analysts are “optimistic” about a recovery beginning in 2020.
The Sydney Morning Herald reported more restraint on the part of high-stakes gamblers from China. This group typically accounts for billions of dollars in turnover each year. The paper also reported a decrease from other parts of Asia affected by the regional markets. Overall, Crown reported a 12.2% decrease to $19.9 billion, but Star dipped even further, down 33% to $20.7 billion.
Even so, both companies still claim that more than 80% of their business is domestic. But the worries surrounding VIP and high-roller players from parts of Asia were significant enough to warrant concerns from casino executives and industry analysts alike.
Crown Sydney Banks on Recovery
Many Australian casinos depend upon high-stakes Asian players for a reasonable portion of profits. Crown Sydney will certainly tops that list when complete. The massive $2 billion casino/resort development is still underway, as it has been since construction began in late 2016.
The project will be located at Barangaroo South on Sydney Harbor, complete with Sydney’s first six-star hotel, luxury apartments, and a casino. It promises more than 1,200 jobs, economic growth for the region, and an architectural wonder. It will also be dependent upon attracting high rollers from China.
Crown’s plans to bank upon those high rollers have many analysts worried about the casino/resort’s profitability. Nevertheless, Crown CFO Ken Barton stands by his prediction that Macau and Singapore have not been as affected by the Chinese markets as some contend. And by the time the Chinese market rebounds, the entire VIP market will be in an upswing phase.
The original opening date for Crown Sydney was originally sometime in November 2019. It has subsequently been moved to 2020, and now the company is looking at a 2021 opening.
These delays are likely due to construction issues. That said, it will prove helpful if the project doesn’t actually open until the Chinese market rebounds and fears related to VIP customers can be allayed.