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Australia: a mature market under threat
Macau Business reports on the state of play Down Under, where gaming machines rule the roost but the threat of ‘pre-commitment’ is causing operators and manufacturers sleepless nights
Australia and Macau are almost in the opposites ends of the spectrum as far as gaming models go. In Macau the mainland tourist VIP based model is responsible for well over 70 percent of the revenue. In Australia slots, or pokies as they are known “Down Under,” represent around 60 percent of the gaming market.
The country boasts more 200,000 slot machines, which according to research conducted by TNT, represents 2,76 percent of the world wide installed base of gaming machines. The number of gaming venues in Australia is also nothing short of massive: over 5,700. If almost every bar or club in Macau features a karaoke lounge as part of its entertainment offer, almost every pub or community centre in Australia has been attributed a license to operate slots, from the most upscale trendy bar in Sydney or Melbourne to the singular beer house of a lost town in the middle of the Outback. Call it a cultural phenomenon.
After slots, casino and race betting are the most relevant sources of gaming revenue in pretty much equal footing, followed by sports betting, lotteries and lastly keno and interactive gaming.
Racing is particularly strong in Australia with almost as much weight as casinos but having registered a 10 percent growth in 2008-2009 and raking in US$19.4b. Casino revenue from 13 venues in the same period was slightly higher at US$19.8b but registered only a 5 percent increase in the same period according to Ernst and Young research. Australia is a far cry from Macau in this area, with regulators still considering the liberalization of sports and race waging and lotteries.
Another grand difference with Macau is the regulatory framework with Australia being a highly regulated and mature jurisdiction with general federal legislation combined with different territory-based legislation to which operators have to abide by.
PriceWaterhouseCoopers research had Australia as the second largest gaming market in Asia Pacific back in 2009, but that was before Singapore came into play. An uncertain economic outlook and intense competition, especially in the regional VIP markets, have earned Australia the slowest growth rate in the Asia-Pacific in the eyes of the researchers. PWC expects the Australian gaming market to reach US $3.1 billion by 2014 at a 3.2 percent growth, while expecting Singapore to climb to $8.3 billion and Macau trailblazing to a whopping $41.5 billion.
The current Australia model is still mostly based on a domestic grind market focused on the overwhelming number of gaming machines, casino games and racing but that’s changing, slowly but surely. Nonetheless and amidst heavy political turmoil, looming concession renegotiations, and a grey economic outlook at best, the Australian gambling market is shifting into the high margins, profitable VIP market by boasting venue expansions and recruiting top end executives from VIP savvy Macau.
Operators
As it stands and according to local casino operators Australia’s VIP is a niche market, making up only five percent of the global industry. But that hasn’t stopped Australasian operators from trying to increase their share by injecting significant amounts of capital to renovate their properties and recruiting high-level executives who previously worked closely with the VIP market in Macau, from the casino VIP gaming floor operations to higher echelons of management: Greg Hawkins, previously at City of Dreams is now CEO of Crown Melbourne; Nigel Morrison, previously from Galaxy Entertainment Group is now CEO of Sky City, with properties in Australia and New Zealand.
“Macau is a very successful market and we’ve all learned a lot from it,” Morrisson tells Macau Business. He says he’s not trying to replicate the model in his Australia and New Zealand venues, but instead “bringing some of that knowledge” into his operations, along with some executives he brought with him from his days in Macau.
The most recent and significant lunge into the VIP market in Australia is from Tabcorp de-merged operator Echo Entertainment, which has been separately operating the revamped The Star in Sydney, Jupiters casino on the Gold Coast, the Treasury casino in Brisbane and Jupiters at Townsville since June.
The company has put forth a total of US $860 million in the refurbishment, expansion and re-branding of its flagship venue The Star in hopes the investment will narrow the gap of the VIP market breakdown. This is dominated by long-standing Australian VIP operator Crown, led by James Packer who has a 33.4% stake in Macau concessionaire Melco-Crown Entertainment.
Echo, which has only recently climbed back on the VIP market after numerous attempts, says it has already grown its VIP market share to close to 30 percent this year, cutting in to Crown’s share, which represents the lion’s share of the Australian VIP market. Last year when it still operated under Tabcorp the VIP share was only 10 percent but now the operator’s medium term objective is to have an equal share of the VIP market with Crown.
Echo Entertainment CEO Larry Mullin told Macau Business that the high growth rate in their VIP gaming operations – roughly 34 percent this year – is explained by the “low base it’s coming from both in the local and international markets,” but he’s confident that the company “could do more,” especially given it’s flagship venue is located in the country’s international tourism hub, Sydney. Once completed The Star will have bragging rights to one of largest investments in the tourism and entertainment industry in the country (see boxout).
On the other side of the fence from Tabcorp and Echo, Crown is everything but sitting idly but cashing in on a $2.2 billion capital expenditure program. Expansion wise Crown is spending US$371 million on its Burswood Casino in Perth. Besides acquiring nearby Holiday Inn hotel the budget for the revamp includes close to US$7 million for the construction of a new Infinity Suite, which in turn will provide additional support to existing and new VIP gaming areas. Crown expects the new VIP offering to be ready ahead of Chinese New Year. About 33 percent of the operator’s total revenue of US$ 2.4 billion came from visitors.
Sky City, the New Zealand-based company, which operates in Northern and South Australia Territories, is bouncing back and also investing heavily in the VIP market. In Darwin, the company is developing a five-star Lagoon Resort, opening July 2012. It will feature a massive heated lagoon and sandy beaches, spa and restaurant, plus four US$2000-a-night villas next to two VIP gaming pavilions. And, to facilitate occupancy, Sky City is in negotiations with the Northern Territory state government to guarantee regular direct international flights to Asian markets. In South Australia Sky City is negotiating a US$195.1 million expansion to its Adelaide property. Back home the company spent US$ 38 million refurbishing its flagship property Sky City at Auckland Tower ahead of the Rugby World Cup. The new Horizon Suite gaming lounges are very similar to what a VIP player is accustomed in Macau. And even if the 12 million in revenue reaped from the event were bellow expectations, CEO Nigel Morrison argues the investment has paid off by successfully attracting more Asian VIP players and improving the bottom line. Morrison expects a seven percent annual profit climb by the end of the year.
Pre commitment
If Macau and Singapore make up for Australia’s biggest competition for international revenue, pre-commitment is the single biggest challenge the industry now faces in the domestic front.
In a nutshell pre-commitment is a proposed bill by the coalition government which would have any and every patron register and set himself a spending limit before getting within playing range of a gaming machine, in any venue, at any given time. Given that the bulk of the Australian gambling market, regardless of venue, revolves around gaming machines, any change will likely have profound implications.
Should mandatory pre-commitment pass into legislation every potential patron will be required to register to obtain a licence to gamble in the form of a card and his details stored on a national database for reference and cross checking.
As it stands, the implementation of pre commitment is the political banner of a minority Tasmanian legislator who is holding the coalition government at ransom – if it doesn’t pass the legislator will quit the coalition sending the country into a spin and early elections.
While heralded as the government’s solution to problem gambling, the industry argues it will not help and it will definitely hurt and doesn’t address problem gambling.
“Pre commitment is more of a political issue and less an industry issue, the CEO of the Australia Gaming Technologies Association (GTA), Ross Ferrar, argues. “We support volunteer pre-commitment” says “but mandatory pre-commitment would simply wipe out the industry.” GTA comprises the industry’s main gaming machine suppliers. Ross Ferrar reckons it would take millions of dollars and “around 25 years” for the technology to be implemented throughout the country’s massive machine numbers and playing venues, which feature many machines running somehwat less than state-of-the-art technology. Ferrar argues that if enacted, the legislation will inhibit the majority of casual players and many a regular player to place a bet on a machine if required to register with a national database for problem gambling. Mandatory pre commitment “treats everyone as a problem gambler,” Ross adds. Many of the venues, such as community clubs and pubs, which are dependent of the slots revenue to operate “would be forced to close and send thousands into unemployment. The large casino operators Echo and Crown are also against mandatory pre commitment, which in their view would have “devastating” consequences to the industry in both gaming and the supporting non-gaming operations.
Mandatory pre commitment sounds far fetched, even in a strongly regulated market in Australia, but Macau Business learned from a high level gaming executive at a local operator that at one time the Gaming Inspection Bureau brought it to the table and discussed with the local operators. The sheer implications of the scheme, including if it should either be directed to locals only, visitors or both, sent it back to the drawing board.
The Australian gaming market would be favourable to voluntary pre-commitment but within reason especially in terms of the implementation time line which would have a drastic impact on machines and system refurbishment costs.
“The general outlook for the industry is that we are united and we are looking forward to a stable, confident future after the pre-commitment legislation is defeated,” Ross Ferrar tells Macau Business.
Draft legislation will be published in March, which Ross Ferrar believes will be defeated in Parliament. Until then, all of the industry focus will be on pre-commitment issues.
With so much capital being injected into property revamps to make way for larger, better VIP services for international players as well as improving the domestic offering, researchers give Australia a positive outlook. Growth won’t command the same rates as Macau or Singapore – but then, Australia is an established and mature market, and a stable and profitable one at that.
Rising Star
Sydney’s new Star lights up Australia’s gaming and entertainment offer
The US$870 million transformation of Star City into The Star does not fail to impress. Once fully complete, The Star complex will boast more than 20 restaurants, bars and cafes, the new luxury boutique hotel The Darling, a 16 room spa, upscale retail collection, a 4000 capacity entertainment centre and world class gaming areas.
The first two phases launched late 2011 including the rebranding of the oldie Star City into the contemporary The Star and the opening of The Darling.
The Darling complements the existing Astral Towers and Residences and brings the total number of rooms and suites across The Star to more than 650.
Larry Mullin, CEO of Echo Entertainment Group, which owns and operates The Star, says the redevelopment represents one of the biggest tourism and entertainment investments in Australia today: “This $870 million investment will position us as a powerful force in entertainment and gaming.”
When it debuted in late October The Darling Hotel and Spa was the first five star hotel to open in the Sydney Central Business District since the 2000 Olympics.
Two-part in its design, the hotel has a distinctive inverted glass tower resting on a sandstone podium. The Darling’s exterior is a nod to the rich history of sandstone used around Sydney, reintroducing Pyrmont to the CBD and encouraging pedestrians to pass by the hotel via an enormous atrium that runs the length of the hotel.
The suspended 3.5m2 vibrant red Swallow which greets guests at the entrance to The Darling is formed by over 400 individual facets and is carrying two diamonds in the shape of a double cherry.
With its integrated bars, lounge areas and a custom made billiard table, the hotel lobby has been designed as a gathering point for Sydney residents and hotel guests alike, bringing the concept of ‘lobby socialising’ to Sydney.
Positioned in the premium tier of the market, the new boutique lifestyle hotel aspires to offer an enhanced level of service — from the individual check-in desks at reception to a host in the lobby accommodating every individual need of the discrete VIP patron.
With its prime position near Sydney harbour and boasting panoramic views of the city skyline, Harbour Bridge and out to the Blue Mountains, the hotel offers a variety of rooms and suites. Positioned in the premium apex of the tower on the top floors of hotel are five Penthouse Suites dedicated to the ultimate in luxury. The two bedroom suites, uniquely designed by renowned LA designer, Lawrence Lee, feature floor-to-ceiling Sydney harbour views, bespoke furniture, fireplaces, media rooms, butler service and a private VIP arrival. One step down are the eight Adored Suites with a high end residential feel inspired by European drawing rooms. With a footprint of 115m2, entry is via a private foyer which opens onto a spacious living room with stunning views and flows through to an intimate dining area. Doors lead to a king-size bedroom with walk-in wardrobe, a fully appointed marble bathroom and a separate powder room for guests.
The Darling will also be home to a custom designed 25m infinity pool area. Scented with white tea and eucalyptus, the outdoor pool will be an indulgent escape complete with a deck, cabanas and bar facilities for up to 100 guests.
VIP is king
Out of the total US$879 million invested in the refurbishment plan US$160 million was channelled specifically to the domestic and international VIP business, upgrading and expanding its customer facilities at the property.
The Star now provides its VIP customers world class luxury accommodation in its new five-star hotel and extra refurbishments were made to previously existing VIP hotel suites. In addition, the existing private gaming room offering was expanded to further improve customer facilities and meet increasing demand.
Echo also purchased two private aircraft capable of flying non-stop from key markets in Asia to service The Star in Sydney and Jupiters casino on the Gold Coast.
Mice is next
The next step for Echo is a 3,000-seat events centre with sweeping views over Sydney Harbour and the city skyline to host A-list performers from around the world in an intimate setting as well as domestic and international conferences, exhibitions and functions.
Designed by Sceno Plus, who have also created The Colosseum at Caesars Palace and The Joint at Hard Rock Hotel in Las Vegas, the 2,400 square metre column-free space will be the largest event space of any hotel in Sydney.
The complex will give Sydney an edge over other facilities in New South Wales and Australia, Larry Mullin argues: “The Events Centre will make The Star a complete entertainment destination with multiple reasons to visit. We already have the 2,000-seat Lyric Theatre for musicals and major theatre productions and now we will have a specialised venue for major performances.”
Interview with Larry Mullin, Echo Entertainment CEO
Larry Mullin has reasons to be a happy man. He steered Echo Entertainment through the demerger from Tabcorp, launched the rebranded The Star establishing a foothold in the VIP market, and is getting ready to break ground into revamps in Queensland. If he delivers, the company will have the right to go anywhere it’s wanted…
A few months after the demerger from umbrella gaming operator Tabcorp and just 30 days into the Star property’s re-launch, Larry Mullin was already seeing results. The Star posted a 10.5 percent yearly gaming revenue increase in October with VIP also tracking strongly. “It’s early days but the indications are the project is going to be well received,” Larry Mullin tells Macau Business.
While the Australian VIP market is growing at 12.5 percent for the past five years Echo is growing three times as fast, up 34 per cent over the previous year. Mullin explains the numbers by saying the company is “coming off a low base.” The fact is the operator has just recently got back into the VIP business after a long string of attempts to break into the lucrative market, some of which ended up giving the old Star City a shady reputation. Mullin hopes the newly revamped property will change all that.
Having already carved roughly a 30 percent share of the Australian VIP market from just over 15 percent, Larry is confident Echo Entertainment will be able to reach an equal split from rival Crown which has long since been catering to VIP market and controls the lion’s share of the market. Larry admits that VIP-wise, “the benchmark has always been Melbourne” from where James Packer operates the operators’ flagship property, but that might just change.
Domestic, and VIP
The biggest hindrance to the growth of the Australian VIP market is arguably the success of the Macau and Singapore markets attracting a short supply of big punters. “We compete with everybody for free time and money,” Larry says, putting things into perspective: “Australia is a niche market to Macau in many ways that Las Vegas is today.” But Vegas is a 14 hour flight from Asia versus a nine hour flight to Sydney and the Gold Coast, or shorter still in one of Echo’s two private jets. And out of the Asian and Mainland Chinese players that travel to Macau and Singapore, Echo Entertainment is banking “on the subset who also like to see other things but they want to be treated and gamble in the same manner as to what they are accustomed to – and that’s what we want to be able to offer.” Why people go to one place versus another “is the reputation that it demands based on how they deliver their service to the costumer,” Larry adds. The rationale makes up for part of the reason of the expansions in Sydney and soon in the Gold Coast: “When you’re building out at this rate why would you not build to accommodate the biggest customer in the market?”
But will that be enough, Macau Business asks? “If we were spending billions of dollars on just that customer and dependent on that then I would say you have an argument,” Larry retorts. However that’s not the only basket Echo is placing its eggs. “We compete on certain costumers for the same business but we also compete with everyone in Sydney with free time to do other things and if we have something here that its unique and interesting then we’ll probably going to be pretty successful in attracting a very large market here.”
Echo’s Star caters particularly to a very large Asian population within walking and driving distance to the property and its CEO believes that the non-gaming and gaming on offer “is something unique that we can make a nice return on our investment.” Mullin says his rising Star doesn’t feature an Asian theme, but concedes that patrons “will find hints, interesting places to frequent that are very representative” of whom the customers in the market are.
“The great thing about our business is that it’s predominantly a locals business and yet if you treated it as such you’ll never get the overseas customer to want to come.” Larry underlines that breaking down the numbers and looking at what percentages of business comes from which segment against what the company is investing and how much it needs to attract to make it reasonably profitable. “It’s not too much of a stretch. We’re in the tourism business and we needed to fit these properties out to attract the right kind of tourists.”
