Casino wars - Echo loses either way

There will be stories, as Echo Entertainment’s Sydney casino The Star proclaims in its marketing guff.

And the relative share price movements during the past year at Echo and rival Crown tell the story in brutal detail: Echo down 12%, Crown up 12%.

Regardless of the NSW Government’s decision today over which group gets the nod on a new casino development – and Crown is the definite favourite – it would appear Echo loses either way.

If Echo wins, it will be up for an extra $1 billion plus outlay on a total makeover of its current facility with added infrastructure. That follows a $1 billion facelift completed just over a year ago that has yet to pay any dividends.

In addition, Echo’s rival proposition involves a significant investment in resort facilities that will not generate the kind of returns associated with gaming (see Cliona O'Dowd's Collected Wisdom).

If it loses the bid, its monopoly licence over the Sydney casino market will come to an end, which will see a significant portion of its high roller business in the grip of Crown.

Part of the problem for Echo is The Star's location on the outskirts of the CBD at the western side of Darling Harbour. It has never played a central role in the city’s tourist trade and its gaudy original fit-out was never a drawcard for international or even regional high rollers.

James Packer’s assault on Echo, which began with a share raid that netted him a 10% stake that since has been sold, has been a major distraction for Echo’s accident-prone management. It put it on the defensive, creating board divisions that resulted in the removal of a chairman and later forcing it to respond to Crown’s proposal.

Packer’s proposition involves a massive new upmarket hotel and residential block with casino facilities restricted to the mega rich of Asia and the world. Crown’s proposed Barangaroo location, on the eastern side of Darling Harbour and the CBD fringe, is far superior and is more likely to be a drawcard for well-heeled punters.

In addition to the potential cost of Echo's Sydney counterattack, it has a major upgrade of its Brisbane facilities on the drawing board.

James Packer has delivered Echo an unpalatable choice: either greater capital expenditure or a potential loss of future income.