In the year ending June 2014, international visitors spent $30.1 billion in Australia, with $5.3 billion of this revenue generated by Chinese visitors alone.1 Australia is also seeing record numbers of visitors from Singapore, Malaysia, Hong Kong, India and the US.2
It is no surprise that casino developers are seeking to develop new casinos in Australia to capitalise on existing Chinese tourism and to further promote Australia to Chinese tourists.
The development of casino destinations is becoming an increasingly popular focus of infrastructure investment for Asian countries such as Singapore, the Philippines and Vietnam. This seeks to follow the success of Macau, which now, as a result of visitors from the Chinese mainland, generates gambling revenues in excess of the revenues generated by all the casino destinations in the United States combined (this includes Las Vegas and Atlantic City).
There appears to be potential for similar success in Australia. Based on 2009 research, each international visitor to Australia who visits a casino during their holiday spends an average of $4940, nearly double the amount spend on average by a visitor who does not (who spends on average $2630).3
The success of casino destinations in Macau and Singapore has encouraged the governments of Australian states New South Wales and Queensland to adopt strategies designed to capitalise on and/or encourage casino-tourism, with a view to obtaining benefits such as increased employment opportunities, tourism and revenues for the state.
However, the adoption of these strategies and the development of new casinos (or ‘integrated resorts’):
requires consideration of a complex legal and regulatory framework; and
faces significant opposition from the anti-gambling lobby, which argues that casino gambling leads to adverse social impacts, for example, problem gambling, corruption and crime.
NSW: The ‘VIP Gaming Facility’
In November 2013, the NSW government entered into a binding agreement with Crown Resorts Limited (Crown) to develop a new integrated VIP ‘gaming facility’ hotel and casino (VIP Gaming Facility) in Sydney CBD’s Barangaroo South, which is scheduled to open in 2019. Crown’s existing casino portfolio includes the casinos in Melbourne and Perth.
By approving Crown’s unsolicited proposal for an integrated resort-casino, the NSW state government has changed fundamentally the previous policy in NSW which had contemplated only a single casino in NSW.
Also in November 2013, the NSW Parliament passed the Casino Control Amendment (Barangaroo Restricted Gaming Facility) Act 2013 (NSW) to enable the grant of a ‘restricted gaming licence’ to the Barangaroo development.
The arrangement between the NSW government and Crown4 relating to the approval of this proposal includes a number of strict conditions on Crown, for example:
a delay on the commencement of gaming until 15 November 2019;
a prohibition on poker machines;
the application of minimum bet limits (commensurate with the expected limits in a VIP facility); and
the barring of the general public from entry into the casino.
Further, Crown is restricted from having a “material” association with prominent Macau based casino developer, Dr Stanley Ho and his associates and from allowing Dr Ho to obtain an interest, or hold a relevant position, in Crown.
Local residents who wish to apply for VIP membership status at the new facility must either demonstrate similar ‘VIP’ membership status at another casino, or wait for a 24-hour ‘cooling-off’ period before their membership is approved and they are permitted to gamble. The imposition of these conditions support arguments made publicly by James Packer and Crown that the target market of the new facility comprises high-value tourists.
The requirement for responsible gambling measures to be implemented is one of the means by which the new facilities are being marketed to the electorate, with Crown accepting the formation of a memorandum of understanding with Mission Australia as a condition of the grant of its NSW licence. Crown has also undertaken to pay a special tax rate, which includes a 2% responsible gambling levy that will be re-directed to the NSW Responsible Gambling Fund.
Crown needs to secure planning approval for the development from the Barangaroo Delivery Authority and the NSW Department of Planning and Infrastructure.
Queensland: SEVEN casinos!
In October 2013, the Queensland government announced that it had issued conditional licences for three new casinos.
Unlike the more restrictive legislative arrangements and agreements in NSW, the Casino Control Act 1982 (Qld) permits the Governor to grant an unlimited number of casino licences.
Plans have been announced for three new casinos in Queensland (which will be in addition to the four casinos already in operation in Queensland):
Hong Kong billionaire Tony Fung has proposed a $8.15 billion Aquis resort in Cairns. The proposed location is Yorkeys Knob, 15 kilometres north of the existing Reef Hotel Casino (RHC) in Cairns. However, at the time of writing, Mr Fung had withdrawn his offer to purchase the RHC. Whilst Mr Fung remains committed to the Aquis proposal, his purchase of the RHC was initially part of his strategy to raise funds for the development of Aquis;
a conditional licence has been granted to ASF Consortium for its proposed $7.5 billion Broadwater Marine Casino on the Gold Coast; and
the tender period for a second Brisbane casino has closed. Echo Entertainment (owner of the Star casino in Sydney) and Crown (among others) have lodged tenders. A decision is due in February 2015.
It’s not just gambling law that matters
In addition to the gambling laws requirements in each state, other laws also apply, for example, planning and environmental law. As mentioned above, Crown’s proposed VIP Gaming Facility is yet to obtain the approval of the Barangaroo Delivery Authority and the NSW Department of Planning and Infrastructure.
Additionally, the Commonwealth competition and consumer regulator, the ACCC, has been paying close attention to the developments.
The ACCC investigated both Echo Entertainment and Crown for potential cartel conduct in 2013 following Crown’s acquisition of shares in Echo. The ACCC found that no contraventions had taken place. The ACCC also examined, and elected not to oppose, Mr Fung’s proposed acquisition of the RHC in 2014. (As stated above, Mr Fung decided subsequently not to proceed with this acquisition.)
Commercial risks
A significant question relating to the proposed casino development which has arisen is whether sufficient demand exists and/or can be generated to enable both the existing and proposed casinos to remain independently economically viable. This is particularly relevant to Queensland, where seven casinos will be in operation if each of the proposed licences is granted and these casinos proceed to open.
As the new Australian casinos are, to a large extent, targeted directly at Chinese visitors, the following trends and developments may prove significant:
In October 2013, the Chinese government introduced a series of strict anti-corruption laws in response to serious incidents of Chinese tourists being coerced and harassed into shopping and gambling while travelling in tour groups overseas. These laws were designed to break down the close relationships and arrangements between tour operators and gambling service providers in destination countries. While Australian tours were not identified as a source of concern, these laws may affect the viability of the Chinese casino tourism market in Australia.
There have been reports in the media in late 2014 that the Chinese tourism market is contracting, as the growth in Australian tourist arrivals from China halved in 2014 compared to 2013.5 Additionally, Macau saw a 23% fall in gaming revenue in October 2014, a decline attributed to slowing in-bound tourism from China. (However, this decline has also been attributed to specific legislative reforms in Macau targeting tourism and the imposition of smoking bans.)
In addition to the proposals for new Australian casinos, significant investment is also being undertaken by existing Australian casinos operators, with extensive refurbishment and development expenditure taking place.
Commentators have also expressed concerns about the dominance of casinos in smaller cities and whether this dominance will prejudice the appeal of other hospitality venues and restaurants. This is due to the potential preference of tourists to visit casino developments, rather than other venues, thereby creating job losses which may well offset the employment opportunities and revenues generated by the new integrated resorts (and by improvements to existing casinos).