Crown Resorts Scandal Fallout Continues As Profits Fall
When Crown Resorts posted its full-year financials this week, it attributed a 28% profit decline to fewer Chinese gamblers.
The recent scandal prompting numerous investigations into its high-stakes business connections and practices came to light after the June 30 close to Crown’s fiscal year, but it doesn’t help projections for future profits.
Financial Details
Crown Resorts revealed its full-year financials this week for the year ending June 30, 2019.
Net profits showed down 4.7% to $368.6 million, and revenues were down 5.4% to AU$2.954 million. Normalized net profit was down 4.7% to AU$368.6 million. This was below the average forecast from analysts of AU$369.8 million, though only slightly lower.
Much of the profit decline was in VIP program revenues, which were down 26.1%. While main floor gaming revenue increased by 0.5%, VIP sales to Asian tourists and high-stakes gamblers pulled all revenue down.
Crown’s online gaming business, which includes Betfair Australasia, showed earnings down 2.7%.
Even non-gaming revenue, including hotel occupancy, was down 1.5%.
Reasons and Blame
Crown Resorts Chairman John Alexander blamed the declines on subdued market conditions.
CFO Ken Barton claimed the digital business had “pretty good year-on-year revenue growth” but noted the market was challenged with more competition. He said user acquisition costs were significant because Crown was trying to keep pace with growth.
Barton also noted that a “tidy-up” of some older investments was positive for the company. He also noted the potential for “large-scale opportunities in operating cost reductions.” And he blamed some of the volatility in VIP revenue on gaming taxes and commissions.
Executives also highlighted the company’s contributions to the Australian economy “through its role in tourism, employment, training and its corporate responsibility programs.” They also added:
“Crown’s contributions risk being overshadowed by recent media reporting which has unfairly sought to tarnish Crown’s reputation.”
Further, they noted that Crown operates in one of the most highly regulated industries in Australia. It is subject to consistent review and monitoring by regulators and government agencies.
“It comes as no surprise that various regulators and other agencies have launched inquiries given recent media reports and the sensationalist nature of the allegations raised. Crown has zero tolerance for criminal elements, and we view these inquires as an opportunity to continue our cooperation with regulators and other agencies.”
Analysts Remain Mostly Positive
Despite the downswings and revenue decreases, most analysts remain optimistic about Crown Resorts.
S&P Global Ratings Australia Pty Ltd. said, “Crown’s main floor gaming and nongaming revenue has demonstrated resilience, mitigating volatility within its VIP business.”
ABC News spoke with JP Morgan analyst Donald Carducci highlighted a material decline in turnover but a positive cash flow and sustained final dividend.
The stock market generally agrees that the losses for Crown are a blip on the horizon. Shares were as low as $11.26 at the beginning of this week ended up closing at $11.75 on Friday.
Financial results didn’t have nearly the impact on stock prices as did the fallout from the recent scandal.
High Rollers and Junkets
The dip in VIP business for Crown is not a singular situation. Star Entertainment recently reported a similarly dismal fall. Its VIP turnover was down 35%.
Australian casinos’ reliance on junkets has been in place for the last several years. For Crown, it was an essential business since 19 of its employees were arrested in China in 2016 for doing the job that junket runners do without that risk.
Crown CFO Barton called the future of junket use an “open question”. He hopes the business model would evolve back into the traditional way of doing business, which is direct relationships. He said he believes that building bonds with those foreign gamblers is one key to establishing and keeping VIP business.
Another method will be to rely on new shareholder Melco. This would mean redirecting some VIP customers from Macau to Crown in Australia.
New methods of obtaining VIP gamblers for Crown may have no choice but to evolve, as junkets are becoming more susceptible to running afoul of laws regarding money laundering and drug and sex trafficking.
The most recent casualty of the scandal and its revelations was some of Suncity’s business. Suncity runs a popular and large junket group that has worked consistently with Crown and Star. However, it recently announced it is trimming down its organization.
When the reputable and mainstay junkets slim down their business operations, Crown will have even more of a challenge with finding its VIP gamblers.
We will how much this will affect its bottom line in the coming year. The scandal and its repercussions did not impact the past financial year but will likely have a significant impact in the current one.
