Echo Entertainment’s last-minute intervention in the NSW Government’s process for evaluating James Packer’s proposed $1 billion new high-roller facility at Barangaroo is clever. It could be a month and a half before it knows whether it is effective.
The government has been considering the proposal by Packer’s Crown Ltd to build an exclusive six-star hotel facility for VIP gamblers at Barangaroo under its ‘’unsolicited proposal’’ process. Its assessment, chaired by former Commonwealth bank chief executive and former Future Fund chairman David Murray, was scheduled to be completed by the end of this month.
Now it has emerged that the government has received another unsolicited proposal, this time from Echo, seeking an extension of its exclusive gaming licence beyond its current expiry date in 2019. In exchange Echo would commit to further investment in and around The Star casino complex ‘’to develop a globally competitive integrated resort.’’
In effect, Echo has created a competing proposal to Crown’s and forced the government to compare their merits directly. The two proposals are now being assessed in parallel, with the decision date now expected before the end of May.
The proposals are mutually exclusive. Echo can’t be granted an extension of its exclusivity if Packer can build his high-roller facility at Barangaroo, although the very limited nature of the proposed Barangaroo facility — effectively a private club for very wealthy high-rollers — could conceivably have led to a negotiation between Echo and the government about the extent to which any larger-scale competition to its casino might be allowed, or not, post-2019.
It is a tricky decision for the government, given the importance it attaches to the development of the Barangaroo precinct and the glamour Crown’s proposed facility would bring to it, not to mention offshore high-net-worth tourists.
While The Star has increased its international VIP gaming turnover, it is off a very low base. The government is, however, also planning to upgrade the rather tatty Darling Harbour precinct and therefore Echo’s promise to invest considerably more (it has just completed a near-$1 billion upgrade of the complex) might be appealing.
Whether it — and the proposed expensive overhaul of its Queensland properties — are quite as appealing to Echo’s shareholders, who pumped in more than $450 million of new equity last year, is less certain. Echo would almost certainly have to raise more capital if the NSW government preferred its proposal to Crown’s and it has yet to demonstrate that it can generate acceptable returns on its existing investment in The Star.
Packer, apart from pushing the case that Crown’s existing network of casinos in Australia and Macau gives it a much stronger capability in terms of attracting wealthy Asian gamblers to Sydney and adding to the government’s income streams — and of Sydney’s need for a six star hotel — does have a fall back option if Echo prevails.
He has an application before the NSW Independent Liquor and Gaming Authority to increase his existing 10 per cent stake in Echo from 10 per cent to 25 per cent.
If Echo knocks off his proposed Barangaroo development he would have no choice but to try to get to a position of influence or control at Echo and over its exclusive licence if he wants to see the Crown brand atop a new Sydney property.