Echo takes a sound beating

With its rival dominating the VIP scene, and with a bad string of luck in the high roller room, Echo Entertainment is enduring a rocky road – with very little relief in sight.

Echo Entertainment just got a lot less entertaining.

Just days after Crown reported a 52 per cent rise in full-year profit, Echo has announce an 81 per cent fall for the same period. Not that this was unexpected, but it underscores the run of bad luck the casino operator has had this year.

While Echo pins all its hopes on an upturn in revenue at its Star casino in Sydney, Crown looks to be going from strength to strength, focusing on winning new business from Asia while at the same time ensuring its facilities meet the needs of its VIP customers.

Echo knows that in order to move forward and build its brand, it needs to focus on bringing in more VIP business. While it is attracting more high rollers, Echo is nonetheless struggling to compete with Crown.

As the market leader in VIP, Crown has continuously focused on improving its customer experience over past years. Echo’s break into the market can best be described as rocky. Especially as rival Crown has the added advantage of an established brand for VIPs.

Echo, in contrast, has the harder task of trying to poach customers from Crown at the same time as trying to get punters in off the street. In this environment, it has had to take a long view on its VIP business.

Before renovations began at Star, Echo couldn't even compete properly with Crown for VIPs. And even with shiny new facilities, growth has been slower than expected, driving results downward.

But Echo is still striving to grasp a larger share of both domestic and international VIP business. The casino operator has added two private jets and VIP gaming rooms to its operations in the past year.

Meanwhile, Crown has been targeting the international market in a bid to entice players to its Melbourne and Perth casinos. As part of this, Crown has been looking to China to source new VIP business for its Australian operations.

A key item of interest in Echo’s earnings is its lower win rate compared with previous years. Echo reported a VIP win rate of 1.39 per cent versus 1.97 in 2011. The win rate was well below the casino’s theoretical win rate of 1.60 per cent. Crown fared better this year, with a win rate of 1.5 per cent at its Melbourne casino. Though based on the law of averages this will chop and change year-on-year.

Unfortunately for Echo, in a tough year where VIP business didn’t quite measure up to expectations, the slump in its win rate translated to a significant fall in earnings. About $53 million was lost due to soft a consumer environment, slowed growth at Star, and the lower win rate in VIP business, leaving Echo with earnings of $217.9 million for the year. This was hit further with a $74 million writedown caused by the SilkStar debacle and other expenses related to the Star pre-opening and cost optimization initiatives.

Meanwhile, Crown full-year figures show that a higher-than-expected win rate of 1.58 per cent in VIP business in its Australian casinos resulted in a $68.7 million improvement between normalised profit ($415 million) and reported profit ($513.3 million). Crown’s theoretical win rate sits much lower than Echo’s, at 1.35 per cent.

Leaving aside the lower-than-expected win rate, Echo’s expansion plans in the midst of tough trading conditions in the domestic market have proven difficult. The casino operator faces stiff competition from both domestic and international rivals, alongside poorly performing Queensland operations. Crown boasts some of the best VIP casino experiences in the world, and is proving to be a wily adversary for Echo.

Though Echo will be hoping for improved revenue in the coming year as it bets on Star to be its standout performer, it’s becoming glaringly obvious that Echo just doesn’t stack up to competitors. Though Echo’s revenue looks set to improve in the coming year, it will struggle to match Crown’s strength in the tussle for VIP business.

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