THE DISTILLERY: Echo poker face

Scribes are caught between bemusement and shrewd analysis as they discuss Echo’s strategic defence of its New South Wales turf.

Is Echo Entertainment’s ‘third way’ for the New South Wales casino market clever tactics, transparent tomfoolery, or nonsensical bluff? That’s the question debated among this nation’s business scribes as Echo tries to foil billionaire James Packer’s plans to take an almighty chunk of the NSW gambling market.

Fairfax’s Elizabeth Knight says Echo’s proposal is still ostensibly a defensive move as the owner and operator of The Star tries to protect its patch in Sydney.

“Packer hasn’t yet been outfoxed – and he may still get the prize of a Sydney casino licence – but Echo has played all its cards towards winning the favour of the NSW government, which itself only has two agendas, tax and tourism. Echo played an interesting move in giving the NSW government two options. The first is to continue its exclusive arrangement and pay $250 million for the next 15 years with a $1.1 billion development. The second is to develop the Star on a non-exclusive basis with Crown’s Barangaroo (but clip the wings of Crown Sydney by limiting the types of punters allowed in). That for Packer is not really financially viable and it is hard to see him swallowing it.”

Knight thinks it makes for good tactics, as does Stephen Bartholomeusz. The Business Spectator associate editor says the thinking behind the strategy is also pretty transparent.

“Echo knows that Crown would need NSW VIP gamblers (and to cannibalise Echo’s high-roller turnover) as well as those from overseas and interstate to make economic sense of its $1 billion plans. By presenting the possibility of two facilities and a combined $2 billion of capital expenditure it is hoping to entice the NSW government into exposing what it believes is Crown’s true Sydney agenda. Crown, of course, would say that while it needs access to NSW VIPs, as well as those from offshore and interstate, to make its proposed complex viable its gaming facility will be very exclusive and narrowly targeted. It is most unlikely to accept or support the Echo option – or build its six-star facility – unless it can access the domestic NSW VIP market, which is why Echo put that option forward.”

The Australian Financial Review’s Matthew Stevens is a little bemused by the move.

“On one level, Echo’s response to Crown’s $1.2 billion pitch for a not-so-limited gaming licence as the financial security blanket for a six-star hotel development was accurately flagged. It is big, glossy, infrastructure-driven, focused on entertainment rather than gambling and sustained by numbers that demonstrate how much better taxpayers might do with Echo than with James Packer. Nonetheless, the proposal arrived with surprises, not least Echo’s offer of a compromise that would see it surrender its exclusive hold over gaming in Sydney in return for targeted constraints on Barangaroo’s offering and the state government’s surrender of a $250 licence fee. This was odd because the government had made it clear enough, I thought, that it wanted mutually-exclusive options that allowed it to choose one expansion project over another. So why turn around and develop a ‘third way’?”

Good point. Perhaps, as the Herald Sun’s Terry McCrann argues, you can do whatever you want when you’re pitching the government without really being asked.

“Two things stood out in the shock billion dollar-plus weekend unveiling by casino group Echo Entertainment of its self-described ‘unsolicited proposal’ to the NSW government. A big hint to the first was in that description – unsolicited proposal. That’s exactly what James Packer’s original billion-dollar Barangaroo blockbuster, which started the whole battle over the future of casino gaming in NSW, was. Nobody, and most especially not the NSW government, asked Packer or indeed anybody else to make it.”

In other company news, The Australian’s John Durie says Andrew Reitzer is leaving Metcash with “mixed financial returns”. The respected operator has helped drag the company out of its previous malaise and at least given successor Ian Morrice a platform with a sporting chance of supporting a business.

Meanwhile, The Australian Financial Review’s Jennifer Hewett reports that the audience at the Committee for the Economic Development of Australia we somewhat bemused by Prime Minister Julia Gillard’s address yesterday.

The thesis, according to Hewett, was that the Australian economy is actually doing fine and it’s the rampant negativity of the opposition and a few select business leaders that suggests otherwise.

The Australian Financial Review’s Chanticleer columnist, Tony Boyd, reports that China’s economy, long a source of global stability, is quickly becoming a source of instability as credit growth is pulled back.

It’s about time, writes Boyd. The fact is that credit growth periods are followed by stages where bad loans are cleared out. While China’s bad loan rates have remained stubbornly low, we shouldn’t be discouraged by this period of housekeeping.

And finally, The Australian Financial Review’s Jonathan Shapiro talks about the varying impacts that the low Australian dollar will have on the overseas funding capacity of the big four banks.