The Chinese government has arrested 18 Crown staff, including a number of Australian citizens, for alleged 'gambling crimes'.
Details are scarce as the Chinese government hasn't yet informed Crown why its staff were detained. In response, other casino companies including The Star Entertainment Group have pulled their staff out of mainland China.
Gambling is banned in mainland China and it's also illegal to market gambling facilities even though they're located outside mainland China, such as in Macau or overseas. However, Crown and its competitors are allowed to promote tourism and their Australian resorts, which of course also include their casinos and it's this grey area which is likely behind the arrests.
On the one hand, this could be a spat solely related to Crown: perhaps it's unwittingly annoyed someone who has used the endemically corrupt nature of the Chinese government to return the favour. As such, it may also potentially affect the collection of debts from Crown's Chinese VIPs but, if so, this will be a one-off impact for Crown as it adjusts its business.
Even so, this spat is still likely to affect all companies operating in China, not just Crown, as they change their marketing activities in China to avoid being subject to similar actions from the authorities in future.
Of potentially greater concern, however, is the longer-term impact on the flow of Chinese gamblers – particularly VIPs – to Australasia. As such, this will also affect not just Crown but competitors such as The Star Entertainment Group and Sky City Entertainment.
Even if it does reduce the flow of VIPs, Crown's casinos in Melbourne, Perth and Sydney (eventually) will likely still be pumping out cash a decade or two hence as noted in Betting on Crown - part one. An eventual revival in Macau – and initial signs are positive as noted here and here – along with the proposed demerger of Crown's international operations and potential spin-off of a minority stake in most of its Australian hotels are also reasons to view Crown's future favourably.
Due to uncertainty over the VIP issue, however, we're reducing our Buy price to $12 (from $13) and our Sell price to $18 (from $19) to give us a bigger margin of safety. With Crown's share price down 10% this morning, though, that still means an upgrade to BUY.