Echo must keep its eye on the long game

Echo Entertainment's costly investments in The Star and Jupiters are finally starting to pay off, but it will need to ramp up its customer base to stave off a looming threat from Crown.

When Matt Bekier takes the long-term view of Echo Entertainment’s business, he knows that Barangaroo poses the single greatest threat to Sydney’s Star Casino. And so, with four years to go, he is working to build VIP customer loyalty to Star to secure its customer base.

Most of the 38.8 per cent growth in Star’s revenue over the first half came from existing customers rather than new players, contributing to a hefty 77 per cent overall improvement in earnings after a soft prior half.

But the gaming group’s loyalty program is in its early days, and while it has made a good start and helped to drive traffic from high-rollers, chief executive Bekier feels a lot more needs to be done.

“I’d give it a three out of 10 (so far),” Bekier says. He believes the program is one of the most important assets to develop as it has proven effectiveness in consolidating customer gaming with Echo’s properties.

The flagship Star casino was the main driver of the growth in earnings in the first half, while overall the VIP rebate business had a 96 per cent rise in gross revenue to $332 million, with a turnover of more than $23 billion, which refers to the total amount bet.

Star Casino is also benefiting from heavy capital expenditure in past years that is finally starting to pay off. At the start of the $870m refurbishment project in 2009, Echo forecast that full-year earnings by 2014 would reach $340m.  Although it has taken six months longer than projected, it has reached that goal. The VIP business has also grown faster than projected at the time.

For the full year, Echo expects to ramp up capex again on major projects, spending between $200m and $250m on expanding and refreshing the tired Jupiters Gold Coast.

Bekier agreed with analysts who suggested that the crackdown on gambling in Macau was indirectly giving a boost to Star from an increase in junket-based business from China, Hong Kong and Macau.

For now, both Echo and Crown are waiting for the dust to settle after the Queensland election result, which is likely to put a lengthy delay in the decision-making process for the $1bn plus Queen’s Wharf development in Brisbane.

Indeed, a Labor government could prove a positive for Echo’s bid if it decides to limit new poker machines in the state. Echo plans to move its existing poker machines from Treasury Casino to the new development, whereas Crown would seek up to 2,000 new machines.

Over the past year, everything seems to have gone right for Echo after several difficult years. And in a reversal of recent fortunes, several things have gone wrong for Crown.

First came the sudden and severe downturn in Macau due to China’s gaming crackdown, which has slammed the shares of Melco Crown and saw its VIP revenue slump 25 per cent in December.

Packer’s expansion plans are under a cloud following a string of negative decisions, including doubt over plans to allow gambling in Tokyo in time for the Olympics and a new government in Sri Lanka last week that blocked three casinos that had been previously approved, including cancelling a licence for Crown Resorts.

This week, planning delays at the Barangaroo site in Darling Harbour threatened to hinder construction on the $2bn casino and hotel and possibly the planned 2019 opening, leaving James Packer and chief executive Rowen Craigie fuming.

After years of expensive investments to bring Star and Jupiters up to scratch, Echo Entertainment is finally seeing the payoff. The group has four years to enjoy the monopoly in Sydney and do all it can to survive and flourish against a tough competitor.