Crown’s domestic casinos struggle but Macau saves the day

crown-melco-australia-casinoAustralian casino operator Crown Resorts Ltd. reported a dearth of VIP gamblers at its domestic resorts but the continued success of its Macau joint venture helped buck up the company’s H1 results. Revenue in the six months ending Dec. 31 was up 3.4% to A$1.56b (US $1.4b) while normalized (adjusted to smooth out variance in VIP gambling win rate) net profit after tax rose 29.4% to A$315m. Actual net profits were up 64.3% to $382.5m before significant items, including a $75m charge on the loss-leading sale of Crown’s stake in rival casino operator Echo Entertainment.

The black ink came despite normalized revenue at Crown’s domestic casinos falling 6.1% to A$1.4b thanks to a 25.6% drop in VIP gambling turnover (down 33.1% at Crown Melbourne). Mass market gaming revenue was also down, but by a more moderate 0.6% to A$758m. Non-gaming revenue proved the outlier, up 6.8% to A$334m. Crown CEO Rowen Craigie blamed “weak consumer sentiment” for earnings declines at Crown Melbourne (-4.6%), Crown Perth (-4.1%) and Crown Aspinall’s (-16.6%).

Craigie said it was in discussions with the Victorian government about reducing its super tax on VIP gaming, which had left Crown Melbourne “trying to compete with one hand behind its back” relative to other casinos in the region. Victoria imposes a tax that rises with the volume of VIP gambling, which Craigie says has left Crown Melbourne paying an effective rate of 14% vs. the 10% tax imposed in New South Wales. Craigie says the higher rate “inhibits” Crown Melbourne from offering the right incentives to VIPs.

All the more reason to be grateful for Melco Crown Entertainment (MCE). Crown holds a 33.6% stake in MCE, which recently reported a healthy 53% gain in full year profits. Crown’s share of that haul came to A$140.6m, a 118% improvement over H1 2013. The bounty also helped Crown reduce its net debt to A$1.68b from A$1.89b a year ago.

Crown’s other investments weren’t anywhere near as bountiful. Crown’s 50% stake in Betfair‘s Aussie operations generated a net loss of $1.8m, while Crown’s 50% stake in UK casino outfit Aspers Group returned neither profits nor earnings. Crown also revealed that it had invested US$22.6m in Caesars Growth Partners, the spinoff of US casino operator Caesars Entertainment that contains its online gambling and social gaming operations. (Other notable CGP investors include heavyweights George Soros, John Paulson and Leon Cooperman.)

Looking forward, Crown is still waiting on the New South Wales government to formally issue Crown’s proposed Sydney casino a gaming license. MCE’s development program is much more advanced, with the new Studio City casino on Macau’s Cotai strip on budget and on track for a mid-2015 opening and City Of Dreams Manila set to open later this year in the Philippines. Crown’s report made no mention of its efforts to secure the rights to build a resort casino in Sri Lanka’s capital Colombo.