Will Newman leave Echo spitting chips?

Now Campbell Newman's flagging a second casino in Brisbane and two additional licences elsewhere in Queensland, life just got tougher for Echo Entertainment.

Queensland premier Campbell Newman’s invitation for expressions of interest on a central Brisbane riverfront site has introduced a degree of political uncertainty that current Brisbane casino operator Echo Entertainment Group will not be able to simply shake off.

It was only recently that Echo acknowledged the existing Treasury casino was unable to be competitive in the current tourism and entertainment landscape. Following refurbishment of The Star in Sydney, Echo was considering relocating to a site that could turn Treasury into a 'world-class entertainment precinct'.

Realistically, the commercial viability of two Brisbane casinos is questionable. It appears highly unlikely that Brisbane would be able to sustain two casinos. However, it is clear the Queensland government is open to giving multiple gaming licenses. This could almost shape up to be a case of deja-vu for Echo, following nemesis Crown Limited’s proposal to venture into the Sydney market in direct competition with The Star.

James Packer, chief executive officer of Crown, has already flagged his intentions for a Brisbane casino, after getting the ball rolling on a Sydney casino to go with the existing Perth and Melbourne operations.

The most straightforward outcome would involve Echo solely redeveloping the government precinct. If it is not as simple as this, it may mean the Queensland government would need to compensate Echo if a redevelopment is pursued with Crown or another entertainment provider. This avenue would be rather messy.

Echo’s troubles now span further than just Brisbane. In a bid to lure cashed-up international travellers to the sunshine state, Queensland premier Campbell Newman is also offering a further two casino licenses with no locations specified.

The Commonwealth Games will be held on the Gold Coast in 2018, providing a deadline for Echo to refurbish the tired casino. For now, Echo has placed any development on the Gold Coast on hold until it has more certainty over development proposals for Brisbane. Casino competition in the Gold Coast market would make life tougher for Echo.

Investors have sent Echo’s share price down 35 per cent over the past twelve months. A cost savings program introduced back in 2012 to help the bottom line along and stealing market share from Crown in the past financial year hasn’t enthused investors. In their eyes, future growth prospects don’t warrant lifting Echo’s share price from current depressed levels.

Crown has been basking in its plans for growth, seeing gains of 72 per cent over the same time.

It is unlikely the Queensland government will make a decision before the end of this year, leaving Echo in limbo for now.

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