Changing Tack

Crown sells its stake in Echo Entertainment as Sydney’s casino war heats up

James Packer’s Crown Limited last month announced it had sold its 10% stake in rival Echo Entertainment, operator of Sydney’s monopoly casino, The Star, possibly signaling approval is on the way for Crown’s controversial bid to develop a competing casino in Australia’s largest city.

Melbourne-based Crown had previously acquired the stake in ASXlisted Echo and had applied last year for regulatory permission to increase the holding to 25%. Approval was granted late last month by New South Wales regulators, but then Crown abruptly changed course and sold its 82.56 million shares for A$3.20 a share, raising $264 million, saying it wanted nothing to distract it from its Sydney casino bid.

Mr Packer had succeeded last year in ousting former Tabcorp boss John Story as Echo chairman and replacing him with Australian businessman and sports executive John O’Neill. Echo CEO Larry Mullin, an American, resigned a few months later and was replaced with another American, Las Vegas industry veteran John Redmond.

Crown Limited Chairman James Packer

With Australia becoming increasingly attractive as a destination for Asian high rollers, Genting Group has also cast a covetous eye on Echo, whose portfolio includes three casinos in the Australian state of Queensland. The Malaysian conglomerate holds about 5% of Echo through its Genting Singapore subsidiary and has applied to New South Wales to raise its stake above 10%.

Crown said in a statement that it wants to pursue its Sydney resort, proposed for the Barangaroo redevelopment district on Darling Harbour, free of any entanglements.

“Crown Sydney is a once-in-a-lifetime project for our company,” Mr Packer said. “We are working as hard as we can to make this goal a reality.”

The project has been controversial from the start, however, from its apparent flouting of the exclusivity of Echo’s license to the towering 250-meter height proposed for its hotel, to the fact that it has been allowed to proceed without competitive bidding.

Across the harbor, meanwhile, Echo has applied for an extension of its monopoly beyond 2019 as part of a planned expansion of The Star. The company has already spent A$870 million on a multi-year renovation at The Star aimed at drawing more highstakes gamblers, and this month announced plans to invest A$1 billion or more in a new gaming resort on Darling Harbour.

“I have nothing against Crown or nothing against James Packer,” said Mr Redmond. “This is really an investment in Echo’s future. It should be only one casino and one city.”

New South Wales has emphasized that only one of the proposals can go forward— meaning that either Crown receives a second license or Echo remains Sydney’s sole casino operator—and has appointed an independent panel to assess the potential impacts and benefits of the Crown proposal.