It's all about Echo-nomics
Regardless of whether competition in the casino market will financially benefit the two rival players, Crown and Echo, the NSW government has extracted a guarantee that James Packer's outfit will deliver an additional $1 billion in gaming tax payments.
Premier Barry O'Farrell can bank this revenue regardless of whether Packer can make a great return.
And this is before accounting for any tourism benefits that will come from building a new casino and six-star hotel.
While Packer will undoubtedly be elated that his proposal to make his mark on the Sydney gaming industry has been accepted, on the other side of Sydney Harbour the folk from Echo will be licking their wounds. The full reality will be sinking in that the $870 million sunk into Star Casino will have only six more years to produce mega returns, before competition starts to eat into its monopoly.
The government's assessment of the two proposals came down to the simple economics.
The increase in gross state product (GSP) from choosing Crown would amount to $442 million in 2025 compared with $350 million from the growth of Echo's proposal. The net present value of additional tax from Echo bolstering its operations by 2035 would be $337 million, versus $441 million for Crown. Behind the rationale of the committee advising the NSW government was that competition was a net positive, and pitting two casinos against each other would improve their combined growth.
The committee of experts, headed by former Future Fund chief David Murray, made much of the fact that Crown is a better operator than Echo and its growth rate in Melbourne is superior. It now beggars belief that Echo will pour $1.1 billion in fresh capital into the Star in a competitive market as promised.
It was a stretch for Echo to get payback on this investment in an uncontested market. It will still have to maintain and improve the Star property, but investors will not sanction hefty capital expenditure.
Echo reckons that over most of the past 10 years, given that it had been part of the Tabcorp group, it did not have the capacity to invest heavily in its Sydney casino.
But it must be said that since Echo's demerger from Tabcorp it has made an $870 million revamp of its project, but has not yet managed to extract the projected returns.
Under Echo's new - and more experienced - management, it has a better focus on milking its assets more astutely.
While Packer has been a winner on the day, the real test is now ahead of him. His Melbourne operation has been very well run, but it is still a monopoly. He has spent money upgrading and enhancing Crown, but in Sydney it will be starting from scratch.
His capital expenditure plans have to make a return, which according to analysts has been projected to be about 15 per cent.
There are question marks around how stretched these targets could become. In its proposal to the NSW Government, Crown reminded Murray that it had a better record.
Crown Sydney will be able to almost treble the volume of VIP business coming from Asia, and can leverage its joint venture in Macau. But the clincher for Crown was its contention that the average NSW punter would not be able to use its VIP casino.
If you are a Crown investor you would be hoping that there is a fuzziness around what constitutes a VIP invitation-only patron. If only real VIP restrictions were imposed, Crown's ability to get a return would be a tough ask.
The Holy Grail for Crown and Echo is to grab a larger slice of the middle-class Chinese family market that so far at least has not been visiting Australia in droves.
In this respect, both Crown and Echo need to do battle with their casino competitors in Singapore and the Philippines, as well as with each other.
Frequently Asked Questions about this Article…
The NSW government chose Crown's proposal over Echo's, and extracted a guarantee that Crown will deliver an additional $1 billion in gaming tax payments. The decision favoured the economic case for Crown and the state will receive that revenue regardless of Crown’s ultimate profitability.
A committee found Crown’s proposal would add more to NSW gross state product and tax receipts: Crown’s increase in GSP was estimated at $442 million in 2025 versus $350 million for Echo, and the net present value of additional tax was $441 million for Crown versus $337 million for Echo. The committee also argued that competition between two casinos would be a net positive for growth.
Echo will lose the uncontested position on Sydney Harbour and face competition once the new Crown development opens. The article notes Echo has already sunk $870 million into a revamp of the Star and will have roughly six more years to generate strong returns before competition starts to bite. The committee also questioned whether Echo would follow through with a promised $1.1 billion of fresh capital in a competitive market.
Crown investors should expect significant capital expenditure in Sydney that must deliver returns — analysts in the article estimated roughly a 15% return target on that spending. Crown can leverage its Melbourne track record and joint venture presence in Macau to grow VIP business from Asia, but it will be starting from scratch in Sydney and must meet stretched targets.
VIP business is central to Crown’s case — the company claims it can almost treble VIP volume from Asia and leverages its Macau ties. The risk highlighted in the article is that regulators may restrict VIP access (for example by defining who qualifies as invitation-only), which would limit Crown’s ability to realise those VIP-driven returns.
The committee, chaired by former Future Fund chief David Murray, argued that pitting two casinos against each other would improve their combined growth. Economically, Crown’s proposal scored higher on projected GSP and tax benefits, and the committee viewed introducing competition as a net positive for the state economy.
Echo argued it lacked capacity to invest heavily while part of Tabcorp, but since its demerger it completed an $870 million revamp of the Star. Despite that, the article says Echo has not yet extracted the projected returns from those upgrades. New management is focused on getting more value from existing assets, but the competitive environment will make big paybacks harder.
Yes. Beyond the guaranteed gaming tax revenue, the government expects potential tourism benefits from building a new casino and a six‑star hotel. These wider tourism and development gains were part of the state’s economic assessment in favour of Crown’s proposal.
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