The competition watchdog is investigating an alleged secret proposal by James Packer to keep his Crown casino empire out of Brisbane if the executives of Echo Entertainment, owner of Star City, agreed to let him into the Sydney market.
Central to the investigation is an alleged statement from Mr Packer that Crown would stay out of Queensland if Echo "behaved" itself "vis-a-vis Sydney".
Neither Crown nor Mr Packer has commented but sources close to Mr Packer say this version of the conversation is vigorously denied. Further comment has been sought.
A spokesman for the Australian Competition and Consumer Commission confirmed that its investigators will probe potential breaches of competition and cartel law, following reports of a secret meeting between Mr Packer, executive chairman of Crown, and John O'Neill, chairman of Echo, on Mr Packer's boat on Sydney Harbour in March this year.
Investigators began the probe after an article was published in The Australian Financial Review on Thursday, in which Mr O'Neill alleges that Mr Packer said Crown would not bid for a casino in Brisbane - where Echo is hoping to expand - if the owners of Star City did not hinder Mr Packer's desire to build a luxury gaming facility in a six-star hotel at Barangaroo in Sydney.
"James Packer categorically said that if we behaved ourselves vis-a-vis Sydney, he would stay out of Queensland," Mr O'Neill told the newspaper. "The chairman of Crown said that he was 110 per cent confident of winning Crown Sydney at Barangaroo."
Mr O'Neill's allegations are now under investigation by the ACCC. "We would always look into such serious competition law issues as those raised by some of the statements in that article," said a spokesman for the ACCC.
Competition law forbids activities such as bid rigging, when two or more competitors agree that they will not genuinely compete for tenders, and market sharing, when competitors agree that they will divide customers or areas between themselves rather than competing against each other.
Both actions are considered cartel conduct, which Fairfax Media believes are subject to criminal penalties including up to 10 years in jail.
Fairfax Media believes the meeting was attended by Mr O'Neill, Mr Packer, Echo chief executive John Redmond and former federal sports minister Mark Arbib, who is advising Mr Packer on Crown Sydney's Barangaroo casino proposal. Mr Arbib has been contacted for comment.
At the time of the meeting, Mr Packer had a 10 per cent stake in Echo, which he sold in May.
News of the ACCC's probe follows last week's decision by the NSW government to end Echo's monopoly in Sydney by backing Crown's Barangaroo casino plan. It was favoured ahead of the rival proposal to expand Star City.
The two companies are also facing a turf war in Brisbane, with competing plans to build a new casino in the city's central business district. Echo already owns casinos in Brisbane, Townsville and the Gold Coast.
Should the ACCC decide to pursue Mr Packer, it would be the highest profile cartel case in Australian corporate history since its 2005 investigation of packaging giants Visy Industries and Amcor. Under the ACCC's immunity policy, Amcor escaped penalties by co-operating with the investigation, while Visy and its late owner, Richard Pratt, were fined $36 million.