Crown Resorts' shares plunge after staff held over alleged gambling crimes in China
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Version 0 of 1. Shares in Crown have plunged following the news that 18 of its staff have been detained in China for alleged gambling crimes. As of Monday afternoon shares were down 9.5% to $11.72, recovered slightly from a four-month low earlier in the day of $11.33. Crown Resorts has been unable to contact any of the 18 employees detained three days ago in a series of late-night raids in China, including three Australian staff. Crown confirmed that among those detained is Crown’s executive vice president of VIP International, Jason O’Connor. His role includes luring Chinese high rollers to Crown’s resorts throughout the world. A partner at Crown shareholder Arnhem Investment Management told Fairfax Media that “back of the envelope calculations could mean 4% to 5% of profits are exposed to the situation”. In a statement to the ASX on Monday afternoon, Crown Resorts said it was “yet to be provided with details of why its employees have been detained”. Crown’s competitors have also been affected by the arrests. SkyCity Entertainment Group was down 7.1% to $4.04, while Star Entertainment Group fell 5.4% to $5.42. Guardian Australia has contacted Star for comment. Guardian Australia understands other casino groups have withdrawn their staff from China following the Crown arrests. It is not uncommon for casinos to send their staff to China, where gambling is mostly illegal, in order to lure them to casinos overseas. Hong Kong and Macau, considered “special administrative regions”, do allow some forms of gambling and the major casino groups have operations in those cities. The Chinese president, Xi Jinping, announced a major crackdown on advertising, including from casinos in Macau, that targeted mainland Chinese. In October last year, Chinese police arrested 13 South Korean casino managers and several Chinese agents suspected of luring high rollers from China to gamble in South Korea with free tours, free hotels and sexual services. Sacha Krien, a senior media and gaming analyst with the global equity broker CLSA, told Guardian Australia that it was unclear what prompted the arrests, because Crown had always differentiated its marketing activities from the South Korean operators that got into trouble last year. “So it could signal a broader crackdown on foreign casinos marketing in China,” Krien said. “The Korean example can probably be differentiated but no doubt the impact was severe, with VIP revenues down materially and share prices still down 40-50%.” Profits from VIPs are small for both Star and Crown, he said, at about 10-15%. SkyCity sees 20% of its profits coming from high rollers. “If direct business from China is a relatively small part of overall earnings before interest, tax, depreciation and amortisation for operators then the earnings impact from this being wound up is also likely to be relatively small,” he said. If 100% of direct business from China disappeared and was not replaced with junket business, CLSA estimates Crown earnings would fall about 6% and about 10% after tax. Star would fall about 3% before tax and about 5% after. “However, the risk is this action impacts the willingness of VIP players and junkets to visit Australia,” Krien said. He said Melco Crown, partly owned by Packer and which has operations in Macau, would likely take a hit also, “in which case the earnings impact for Crown in particular, and all operators, could be greater”. |