Blood on the dice
With the deciding battle in Sydney's casino war looming, the action is getting brutal, writes Elizabeth Knight.
John Redmond, the chief executive of Echo Entertainment, owner of Sydney's Star casino, was given a book when he took up his appointment in January titled Who Wants to be a Billionaire - an unauthorised biography of James Packer.
The now well-thumbed tome is proving a portent for Redmond, battling to protect his reputation against allegations (which, it must be said, have not been proved to be linked to the Packer camp) of being intoxicated at one of the Star's bars late one January night.
The incident itself does not register highly on the seismic scale and Echo has denied Redmond had fallen asleep in the casino as a result of anything other than jet lag.
Redmond, a veteran of the stoushes among the tribes of Las Vegas, maintains he has not seen anything like this before. He says of Paul Barry's book on Packer: "When you read it, it has some interesting storylines to it [from which] one could draw this is the modus operandi ... on how they [Crown] operate."
But with less than a week to go before Echo and Crown submit competing proposals - to extend Star's exclusive licence to operate a casino in Sydney and to build a casino for Crown at Barangaroo - the slugfest is at fever pitch.
Neither Echo nor Redmond can publicly pin the leaked emails about his behaviour that evening on Crown. Star believes he has been the victim of a dirty tricks campaign and is pondering what else the perpetrators have up their sleeves. When asked whether the harshness of this contest was unexpected, Redmond said: "I don't think anyone would expect a character assassination.
"I don't mind debating the facts of the proposals that each of us are submitting, and I think that's to the benefit of Sydney and NSW. To the extent that anyone wants to debate that transparency, I am more than happy to [comply]. Everything else is nothing more than character assassination."
Redmond claims his response is to play the ball, not the man.
"You are not going to see me go out there and try to dig up dirt on him [Packer] or Crown because it doesn't mean anything when it comes to what's best for Sydney."
The ultimate umpire will be NSW Premier Barry O'Farrell, who has told both parties to tone it down and stop wasting their money on branding advertisements for their respective casinos.
The Premier, who will announce the winner within a month, has tried to make the decision as arm's length as possible.
He will be advised by the special panel he put in place, headed by former Commonwealth Bank chief executive David Murray.
The proposals are due in by Friday and Echo's plans will be made public soon after. The expert panel is considered unlikely to declare a definitive favourite - rather it will provide guidance, leaving O'Farrell to make the decision. But the fact remains that Star is the underdog in the competition.
Redmond is unwilling to speak of the ramifications for his company if Packer camp wins. "That is not a scenario we look at because we don't get into these [bids] to lose," he says. "I have been involved in a couple of these before and I have never lost."
Some say Packer will not take defeat lying down and could make a takeover for Echo or find some other avenue to take control via stealth. Until three weeks ago Crown held 10 per cent of Echo's shares but recently sold them at a discount after the close of trading - using investment bank UBS to take up the shortfall stock that could not immediately find a home.
Packer's decision to sell sent Echo's share price into a free fall, from which it has not recovered.
Claims his move was intended to pressure Echo's share price cannot be verified. But if this was his intention, the blow was a direct hit.
Packer's comment to the Financial Review at the time of the sale - "They [Echo] were relying on me to pay for their plan ... let's see how they go paying for it themselves" - suggests it was more than just a straight investment decision.
Crown did sustain some damage - about $35 million to $38 million, being the loss on the sale of the Echo shareholding.
But for Packer it appears to have been an investment with significant payback. Certainly it has stoked the fires among some sections of the market that Echo's depressed share price puts it in a less favourable position to fund the $1 billion capital expenditure expansion planned if it wins the Sydney contest.
Redmond put the spectre of an Echo capital raising down to a Packer-led distraction. He says the $1 billion earmarked for its Brisbane casino is at least three years away from gaining the necessary approvals, and even Star's second renaissance would take at least two years before the first shovel hit the dirt.
The broad view among analysts is a Crown win and the Star's loss of exclusivity after 2019 has already been factored into Echo's share price.
While the Echo balance sheet is considered to be sufficiently strong, there remains some questions over its ability to fund $1 billion of enhancements for Star and another $1 billion investment in Brisbane.
Citi analyst Michael Goltsman questions the cost of Sydney when Echo is not yet generating a meaningful return from the Star's previous $870 million upgrade. But he adds that at this stage its balance sheet is sitting comfortably, with net debt to earnings before interest tax depreciation and amortisation of 1.7 times in the current year and dropping to 1.3 times next year.
Redmond's response to Packer's hogging of the public relations agenda came only four days after Crown sold its Echo shares, and it packed a mighty punch coming from the softly spoken American.
He told a Sydney Business Chamber audience that keeping track of the Crown proposal "requires a certain level of mental dexterity due to its continual changes". He returned to the theme this week.
"They initially stated publicly that they wanted to build a boutique-style VIP hotel. That is not what is [now] being proposed. They talked about VIP gaming and the billionaires' club. You don't need a gaming room that appears to be the size of two football fields to cater to the billionaires' club."
Redmond makes much of the concept of the integrated casino, the model used by Singapore and one which Murray's panel has studied.
These line up closer to a tourist resort - in which the casino is the real money spinner but numerous satellite features, such as function centres, art galleries, theme parks and high-end stores - are designed to draw international travellers, particularly from Asia. It is these VIP gamblers that are so valuable to Crown and Echo.
The revamp of the Star was designed to attract the VIP crowd and its market share has been growing over the past year. Crown's returns from the VIP market have also been strong and Packer is desperate to get a large slice of the Sydney action.