Crown king Packer's Midas touch

Some guys really do have all the luck. Today's Crown Ltd result shows that James Packer is on something of a winning streak.

Earlier this year the other Australian casino operator, Echo Entertainment, which Packer is stalking in pursuit of his ambition of creating a new high-roller facility in Sydney, disclosed that it had been having a rotten run of luck.

In fact, for some months its VIP gamblers had been taking the house to the cleaners. Where Echo's theoretical win rate was 1.62 per cent, its actual win rate was more like 0.45 per cent. On the sort of turnovers the high-rollers generate, that's ugly.

Today the Packer-controlled Crown announced "normalised" earnings of $415 million, up 22 per cent. On a statutory basis, however, its reported earnings were up 52.8 per cent. The discrepancy between those two sets of earnings numbers relates to the experience of its VIP gamblers.

Crown Melbourne, for instance, had normalised earnings before interest, tax, depreciation and amortisation of $510 million, up a meagre 1 per cent. Its actual EBITDA, however, was up 10.4 per cent to $564 million.

The group's Burswood complex grew normalised EBITDA by 15.9 per cent, to $226.3 million. Actual EBITDA was up 53.7 per cent to $270.9 million.

Even in Macau, where Crown has a 33.6 per cent interest in Melco Crown, its share of the casinos' normalised earnings were $92.1 million – but its share of Melco Crown's actual earnings was $135.8 million.

Crown Melbourne and Burswood have theoretical win rates of 1.35 per cent. Crown Melbourne's actual VIP win rate was 1.5 per cent. And Burswood's was 1.84 per cent, producing a combined win rate of 1.58 per cent and a golden windfall for Crown. Melco Crown clearly had a similar experience.

While the law of large numbers says the VIPs will have their turn to experience good fortune, the contrast in VIP experiences between Crown and Echo is, from Echo's perspective, a version of Murphy's Law.

Crown does, of course, have vast experience in attracting and managing VIP gamblers and generated substantial growth in the revenue they generated (Melbourne VIP revenue was up 15 per cent and Burswood 32.1 per cent) , where Echo is trying to build a presence in that market.

Despite the impressive numbers, Crown's commentary was cautious, with chief executive Rowen Craigie describing the results as "mixed".

While revenue growth had been "reasonable" at Crown Melbourne and Burswood, in some areas it had been offset by higher operating costs, he said, with some softening in activity in segments of the main gaming floor and in non-gaming operations in Melbourne in the second half.

The Melbourne complex has been undergoing a massive refurbishment, with nearly $500 million spent on it in the past two years and $1.2 billion in the past five, which would have disrupted some activity within the complex.

Burswood, on which Crown has spent $372 million in the past two years, is about to undergo a $568 million expansion program.

The warning note within Crown's result came from Craigie's comments that the rate of growth in Crown's VIP program play revenue had slowed in the second half, which it said was consistent with lower growth rates reported in Macau and Singapore recently. Moreover, the lower VIP revenue growth was generated at a lower margin due to changes in the mix of VIP business, higher super taxes and increased competition from Asia.

Packer has been concerned for some time that the new casinos in Macau, but more particularly the new "integrated resorts" in Singapore, would have an impact on his VIP business in Australia. For a while the expansion of casino capacity in the region appeared to be expanding the pool of VIP gamblers but that effect may be wearing off. Crown has shifted strategy slightly to try to lift the number of new customers it can source in China.

Certainly the expensive refurbishments in Melbourne and Western Australia, and the proposed $1 billion new VIP facility at Barangaroo in Sydney (Echo and the regulators willing) are designed to maintain Crown's competitiveness in that market against the newer Macau and Singapore complexes – and they do appear to be having a positive effect.