Australian gambling resorts are spending heavily to attract international tourists, but competition from Macau, Singapore and further afield is intense.
THE name Tiger Woods still draws a crowd, just ask Australian golf tournament organisers who paid the former world No. 1 ranked golfer more than $8 million over the past three years just to show up.
But when James Packer teed up with Woods last month before his latest tournament appearances in Australia, the last thing the casino mogul wanted was a crowd.
The privately owned Burswood golf course was in lockdown when Woods hit the greens for the James Packer Golf Invitational in Perth, and it had nothing to do with the storm over a racial slur uttered by his former caddie.
A select group of gambling high-rollers – ”whales” in industry terminology who are capable of gambling millions in a single session – were flown to Perth for the weekend as guests of Packer’s newly revamped Burswood casino.
They dominated the exclusive list of 40 who joined Woods on the course that day.
He joined each group for two holes followed by a golf clinic where each guest receiving personal coaching from him.
”It is part of our commitment to some of our most important customers,” a Burswood spokesman said.
It was a hefty commitment.
Celebrity agent Max Markson put the golfer’s appearance fees at up to $1.5 million, but Packer was never going to baulk at the price.
With new casinos in Singapore and Macau threatening the migration of these Asian ”whales” to Packer’s casinos in Perth and Melbourne, Packer knows he needs something special to stay in the big game.
Australia’s natural wonders are an enviable drawcard, but not enough for the exotic creatures who are increasingly coddled by the competition for their gambling dollar.
The term integrated resort – where the casinos are blended with a variety of leisure and entertainment attractions – is the industry catchphrase.
Crown ultimately will spend about $2.2 billion revamping its casino/resorts, including $540 million this financial year alone, to offer these high rollers luxury on a scale that few places around the globe could match.
”Our goal is to create an integrated resort capable of competing with the best in the Asian region,” Packer told a Perth audience last week.
There’s a lot at stake.
A third of Crown’s Australian revenue last year, about $800 million, was generated from international visitors.
The majority of this revenue comes from high rollers and other international VIP-level customers.
To give an idea of their importance, VIP clients gambled $31 billion at Crown Casino Melbourne alone last year, generating $418.2 million of revenue for it.
It is no coincidence that Packer’s gamble began in 2007, the year that Crown lost out as a bidder on both integrated resorts in Singapore.
As was the case with his successful Macau venture, Melco Crown, a beachhead in Singapore would have gone a long way towards protecting the group’s overall revenues from the inevitable cannibalisation.
There was no denying the Singapore effect on the company’s performance last year, especially at Burswood.
”Both Crown Melbourne and Burswood continue to feel the impact of the competition from the two new Singapore integrated resorts,” Crown chief executive Rowan Craigie told analysts.
”Burswood’s results were particularly affected by a reduction in VIP program play,” he said.
And now there is further competition right on Crown’s doorstep.
Tabcorp’s casino spinoff, Echo Entertainment, is spending $1.5 billion revamping its own properties – a large part of which is a gamble it can tempt high rollers back to its Sydney casino recently renamed The Star.
”We just thought Sydney was a better market [than Melbourne] and should be given the type of facility that could be more competitive, Especially knowing what had just been invested in Singapore and the big investments that were being made in Macau,” says Echo chief executive Larry Mullen.
But this is more than a combined $3.8 billion bet that the two casino operators can lure some of the wealthiest gamblers on the planet to Australia’s top casinos.
Beyond the ”whales”, who are flown in exclusively on private jets by Crown and Echo, less fickle visitors from Asia could prove just as important.
They also herald a major change in Australia’s tourism landscape.
Andrew Burne, head of one of Australia’s biggest in-bound tourism operators AOT Group, spoke of the newly wealthy middle class from China and south-east Asian countries looking for a ”five-star” tourism experience in Australia.
With visitor numbers going into reverse from Australia’s traditional markets in the United States, Britain and Europe, this new class of visitor is a godsend for Australia’s relatively pricey tourism industry.
”Australia is a high-cost destination, we understand that … so we need to attract people who can afford the experiences here,” said Tourism Australia chairman Geoff Dixon, who also serves on Crown’s board.
They share similar tastes with the high-rollers, including a strong predisposition to good food, good shopping, and gambling, according to Packer.
”Key to the success of these integrated resorts has been their ability to attract Chinese tourists. China’s wealthy are spending increasing amounts of time and money on their quality of life, with luxury travel their leisure activity of choice,” Packer said in Perth.
He also cited a statistic from Asian investment analyst Dr Marc Faber: ”Eighty per cent of Chinese travelling outside the country for the first time head for a casino and 90 per cent of Chinese who travel to the US visit Las Vegas.”
There was no disagreement from Burne.
”They are wealthy Chinese who are coming down here and the whole integrated resort experience, within the context of a city stay, is very important to them,” he says.
The resorts are playing an important role as hubs and benefit the whole industry, Dixon says.
”What we are seeing is they are not just staying in the resorts. They are a bit of a magnet, then they go out and see the rest of the country,” he says.
It reinforces one thing. The initial experience for these new visitors will be predominantly an urban one, according to the experts.
Like the Singaporeans before them, it is expected to take repeat visits before they explore away from the cities to more traditional outback attractions.
”The cities, particularly Melbourne, Sydney, Brisbane are, I believe, going to experience really fabulous growth out of the China market for the next 10 to 15 years,” Burne says.
Packer gave the example of another city to underline the potential rejuvenation of an economy via this new form of tourism.
Singapore’s gross domestic product jumped 14.5 per cent last year with tourism revenue rocketing 49 per cent to $S18.8 billion.
”Direct contributions from the two integrated resorts in the first nine months accounted for almost half of the tourism GDP,” Packer says.
In 2007, Macau overtook Las Vegas for gambling revenue and is now five times its size. Singapore is poised to overtake Las Vegas in 2012.
It’s not the only reason why Australia’s two casino operators have led local investment in tourism infrastructure with a scale of luxury that hotel groups could not hope to match.
Mullen made it clear it is the superior profit margins on gambling that allow Crown and Echo to make such large bets on redevelopment of the non-gaming business – the key differentiator given the vanilla nature of gambling services.
”Tourism in general is the theme,” says Mullen.
”You’ll find with the investment we’ve made, 80 per cent of our spend is in non-gaming amenities.
”The fact that they end up in the casino is a bonus. But if all we did was added capacity in the casino I don’t think the property would have been all that interesting,” he says.
While the wealthy foot traffic is important, there is no doubting that the big bucks are being spent on attracting high rollers.
A good example of the lengths the operators are going to is provided by The Star’s new hotel, the Darling.
Bespoke furniture and million-dollar views of Sydney Harbour were not deemed to be sufficient so plans for three floors of suites were transformed into two so it could offer soaring ceilings that Macau and Singapore rivals cannot match.
It was a massive sacrifice of valuable real estate to offer a point of difference for those who have everything.
Private gambling salons adjoining their suites are a given, as are top-class restaurants, boutiques, and the entertainment novelty of seeing the likes of Kevin Spacey doing Shakespeare.
Burswood’s $750 million refit will include global brand names among its 22 bars and restaurants, a $25 million investment in two luxury villas, an Italian-built super-yacht for the right customers, who will no doubt pick up the bill via the new VIP gambling facilities, if all goes to plan.
The luxury villas were expected to be finished this week ”and will be available for our first guests in time for Chinese New Year [January 23]”, says Packer.
Burswood’s almost-complete transformation pales in comparison to its Melbourne sibling, which has been lavished with greater investment including the six-star service available at Crown Towers.
Fashion names like Versace, Prada and Louis Vuitton and culinary equivalents including Gordon Ramsay and the Robert De Niro-backed Nobu are among the brand-name stars.
The big question is, have Crown and Echo gambled too much on an audience that only one of them can win?
Crown’s Craigie doesn’t seem to think so.
”If Australia’s got three quality offerings for that China market, that might prove to be more attractive than if there’s only two,” he says.
Neither does Mullen. ”I personally don’t believe the cannibalisation is there. Again I think the market is large enough, and especially for the type of customer we are going for in the VIP segment, everybody should do well.”
Packer gave the ultimate endorsement of the rival groups’ ability to prosper.
Last month, one of his lieutenants, Guy Jalland, agitated at Echo’s shareholders’ meeting to abolish its ownership caps with the obvious aim of a Crown bid for its northern rival.
It came as no surprise. Crown acquired a 4.9 per cent stake in Echo mid-year when it was still part of Tabcorp.
Packer and Mullen have also been in close contact, acting as tour guide at their respective establishments in Sydney and Melbourne recently.
It still doesn’t lessen the challenge Crown and Echo face in attracting high rollers from the attractions closer to home in Asia.
”We’re obviously not going to get the lion’s share of the market from China,” Craigie told BusinessDay.
”That’s going to go to those locations closest to China.”
For the shorter trips, there is no competing with Singapore or Macau, he says.
THE latter in particular is a mecca for day trippers, but for longer trips Australia offers an advantage over Las Vegas in that it is in the same time zone for visitors.
”We do think our Australian casinos can get a piece of that action,” he says.
But Crown has made it clear that more help from the government is needed.
”We think we’ll have the package to compete but the tyranny of distance is our biggest weakness,” Craigie says.
”That’s why issues like direct flights to Australia, the efficiency of our airports, the ease with which high net worth individuals can get visas to Australia are important factors as well, which is what James touched on in his speech.”
Packer has been vocal about the need for more government support in these areas as well as a more sophisticated image for Australian tourism abroad.
Dixon in his role as chairman of Tourism Australia agrees, to a point.
He says it is important to let people know we are a sophisticated country, ”but you would be amazed at the interest from China and other Asian countries in our flora and fauna and natural wonders. We must never forget that.”
But Australia’s natural appeal is more basic than this to our fastest-growing tourism market.
”These people just love to see the sunshine, clean water, clean air,” Dixon says.
”It’s a wonderful country, China, but when you’re up there you can see the reasons why. There’s a hell of a lot of pollution, and so they really are quite surprised at the overall cleanliness, the safety of the place. So we tick a lot of boxes and we tick them with what we’ve got.”
It’s still going to be tough.
A recent report by consulting firm PricewaterhouseCoopers, Global Gaming Outlook, did not rate the multibillion-dollar bet by Australia’s casino operators in the face of the growing competition in the region.
It said, despite the talk of new entrants growing the market, cannibalisation is inevitable.
”Increased competition from Singapore and Macau is adversely affecting the Australian market as growth slowed to 1.2 per cent in 2010 from 2.2 per cent in 2009. Australian casinos are finding it harder to attract high spenders from other countries, as there are now more resort casinos in Asia Pacific,” the report says.
PwC expects the local casino market to be flat this year and barely grow next year and does not expect to see a return to the double-digit, high-single-digit growth that characterised 2006-08.
Singapore from a standing start is expected to swamp Australia this year with revenue hitting $4.4 billion as its casinos record their first full year of operation.
Analysts say the rushed completion schedule for both casinos means they are still to hit top gear.
”Singapore looks entrenched as the hub for Asian gaming for years to come,” say RBS analysts Philip Tulk and Frank Hung.
”Singapore would be the obvious place for an increasingly affluent catchment population to come to play given its infrastructure and diversity of activities (against an absence of real competition in the region).”
But there is no doubt about which market will reign over the global industry.
”The jewel in the crown of Asia Pacific’s casino gaming industry is Macau, the largest single destination market in the world at $23.4 billion in 2010,” PwC says. By 2015 Macau is expected to account for a third of casino revenues globally, it says.
The consolation for Packer, of course, is that he has a considerable presence in Macau even if he has trouble getting local investors to recognize its worth.