James Packer’s ignominious retreat from his once-lauded international strategy is continuing apace as 17 staff from Crown Resorts, the company he controls with 48% of its stock, continue to languish in Chinese detention centres.
The company is selling another 13.4% of its Melco Crown joint venture back to its joint venture partner for $1.6 billion and looking to probably offload its remaining 12%, perhaps in another block sale. Chinese companies will be lining up
To put this in plain English, Packer is walking, or rather scuttling, away from the world’s biggest casino market, Macau, one that is about six times as big as Las Vegas. He is also walking away from Vegas itself as the devastating impact on his business of the appalling mismanagement of the company’s foray into the Chinese market becomes apparent.
The last straw may well have been Beijing’s decision last week to limit ATM withdrawals in Macau from Chinese banks, but the writing was already on the wall. And it’s the Australian business that needs the cash.
As predicted by Crikey — but apparently not foreseen by the geniuses that run the business or the very pro-Packer, handsomely remunerated Australian analyst community who chanted, in unison, that Crown shares had been oversold — Crown’s Australian VIP revenues have fallen off a cliff.
The company admitted yesterday that VIP turnover for its Australian resorts fell 45% in the first 23 weeks of the 2016-17 financial year — that is some hit, and a looming nightmare if it continues. It resulted in a 12% slump in total revenue across its Australian resorts in the same period, compared to the previous year. Yikes.
Think about it this way: what wealthy Chinese high roller, or whale, in his right mind would head to Australia for a massive splurge at Crown’s gaming tables?
Crown’s regular Chinese high rollers — many no doubt in fear of the own liberty — will readily open their kimonos (to mix the cultural references) to Chinese police investigators, telling all about any breach of Chinese law by Crown, as police compile evidence against the company’s executives and staff over the next five months or so in preparation for trials that could send many of them to jail.
It’s worth noting that critics of Packer’s original deal with the Ho family — Macau’s original casino monopoly — posited that, eventually, the locals would end up taking the company back. They play the long game in China and Hong Kong, and such is the way that business happens in those parts with foreign partners. The bigger they are — and there is none bigger, in Australian terms, than Packer in the gambling business — the harder they fall.
Yet it was only six weeks ago at the company’s annual general meeting that the company said it was uncertain what effect the Chinese arrests would have on the group. That might be true of the board and executives, but anyone who knows the first thing about how the Chinese work once they decide to screw a company would not be surprised.
This has been described by Packer’s supporters in the Australian business media as being code-named, like all good corporate projects, Project Alpha. Those same journalists are describing the sell-out at Melco Crown as a “windfall” rather than, “look, fellas, I shrunk the company”.
In any case, the irony is breathtaking, as it most definitely Plan B and a clear admission of defeat for the one-time alpha male of Australian business who continues to be holed up in the Israeli city if Tel Aviv and is, according to a number of media reports, mulling Israeli citizenship.
To soften the blow of exiting its growth strategy — and prop up its stuttering share prices — Crown has promised to distribute some of the cash to its shareholders.
The Crown experience puts paid to the ridiculous hyping of the federal government about the vast opportunities available to Australian businesses in China. This is particularly true of the brave new world of the “services” sector.
Still, in its misreading of China and capitulation offshore and retreat to Australia, Crown is hardly alone. Recently, ANZ, the only Australian bank that attempted to carve out an Asian strategy, has also retreated, and companies like milk products group Bellamy’s, whose share prices have soared on the back of surging China sales, have come back to earth with a thump.
[When to hold ’em and when to fold ’em: Packer doubles down on Japan]
The question is what sort of message Crown’s retreat sends to other, smaller Australian companies pondering trying their luck offshore. “If the mighty Packer family can’t succeed in China/Asia, how can I?” some may think.
One the other hand, others may be smart enough to look at what Crown did wrong as they embark on their own China or Asian strategies. It also further cruels the Australian government’s hype that the China Australia Free Trade Agreement is a gold mine for services companies like Crown. Of course, there is money to be made, but understanding how to navigate the shoals of Chinese and Asian business — and actually heeding the very clear warnings of Chinese authorities — would be a better place top start.
Crown, naturally, will live to fight another day and make plenty of money in its monopoly and oligopoly businesses in Australia — it’s just that it’s significant growth options are now radically crimped. So, ho hum, it will probably retain its board stuffed with (often superannuated) mates with no gambling or Asian experience But that will matter less as, once more, it will be, by and large, a big fish in the small Australian pond. Any way you care to look at this, it’s a big fat failure.
Mazel tov, James Packer.