New tourism twist in Star casino battle
Holding out the investment bait to the NSW government on Tuesday, it marks a significant ramp up in the battle between Echo and James Packer's Crown Limited as the former media mogul tries to break Echo's casino monopoly in Australia's biggest city.
On Tuesday Echo released initial plans to move to stage two of the proposals process, announcing it would push ahead with the next phase of Star casino's development with money also invested in "state tourism infrastructure".
"Echo looks forward to the opportunity to work collaboratively with the NSW government to develop a compelling proposal that could result in major additional investment in tourism infrastructure in the heart of Sydney's tourism precinct of Darling Harbour and Pyrmont," Echo chief executive John Redmond said in a statement.
The amount Star intends to invest, if its exclusive casino licence is extended beyond November 2019, is not detailed in the proposal, but is expected to be in the hundreds of millions of dollars.
In October 2007 Echo, then part of Tabcorp, paid about $100 million to the NSW government for a 12-year exclusivity extension to 2019 - justifying an $840 million capex program.
Echo is also considering a massive capital spend on a new casino resort in Brisbane, which could cost $1 billion.
The offer to the NSW government, with the exclusivity hook tied in, is an obvious play to brush Mr Packer and his Crown group out of the running to develop a billion dollar casino in Barangaroo. Star's gaming licence was granted in 1994 and runs until 2093. The new proposal from Echo seeks to limit NSW to a single casino licence until 2019.
Both casino proposals, Echo and Crown, are by their nature mutually exclusive and are being considered by David Murray, the former chairman of the Future Fund.
NSW Premier Barry O'Farrell said in a statement on Tuesday Echo's investment proposal argued that the state would be a stronger competitor in the international tourism market with one large resort instead of two.
Macquarie Securities analyst Andrew Levy said Echo had increased the pressure on Mr Packer's Barangaroo submission.
"We see two possible impacts on Crown's Barangaroo proposal. Firstly, the more competitive process may force Crown to amend its submission to improve the returns to the state.
"Secondly, if Echo is successful in extending exclusivity, this clearly prevents the Barangaroo proposal from being successful. This would not necessarily be a poor outcome for Crown shareholders, given question marks over the project's viability."
He said if Echo succeeded in extending its exclusivity, and Crown remained determined to enter the Sydney market in that period, it would need to acquire Echo. Crown has a 10 per cent stake in Echo.
Frequently Asked Questions about this Article…
Echo Entertainment has proposed moving to stage two of its Star casino development and said it would invest in upgrading the Sydney casino and nearby tourism infrastructure in Darling Harbour and Pyrmont. The company says the spend could be in the hundreds of millions of dollars if it is allowed to extend its exclusive casino licence beyond November 2019.
Echo's proposal ties significant investment to an extension of its exclusive casino rights until 2019, a move designed to block James Packer's Crown group from opening a rival casino at Barangaroo. The two casino proposals are mutually exclusive and are being considered together, so an exclusivity extension for Echo would prevent the Barangaroo proposal from proceeding.
Both Echo's and Crown's casino proposals are being considered by David Murray, the former chairman of the Future Fund, who is assessing the competing submissions for the New South Wales government.
The article states Star's gaming licence was granted in 1994 and runs until 2093. Echo's new proposal seeks to limit New South Wales to a single casino licence until 2019, effectively tying exclusivity to its investment offer.
In October 2007 Echo, then part of Tabcorp, paid about $100 million to the New South Wales government for a 12-year exclusivity extension to 2019. That payment was used to justify an $80 million capital expenditure program at the time.
Yes. The article says Echo is also considering a massive capital spend on a new casino resort in Brisbane, which could cost around $1 billion.
Andrew Levy said Echo's move increases pressure on Crown's Barangaroo submission in two ways: it could force Crown to amend its bid to improve returns to the state, and if Echo succeeds in extending exclusivity, it would prevent the Barangaroo proposal from being successful. He added that preventing Barangaroo wouldn't necessarily be a poor outcome for Crown shareholders given questions about the project's viability.
Based on the article, investors should note several facts: Echo is proposing large, potentially hundreds-of-millions-dollar investments tied to licence exclusivity; Echo is exploring a $1 billion Brisbane resort; the two proposals are mutually exclusive and under review by David Murray; and Crown already holds a 10% stake in Echo. These factors could influence strategic moves, licence outcomes and capital commitments that may affect Echo and Crown shareholders.
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