AUSTRALIA-ASIA: Local Casinos Suffer Reversal of Fortunes

By IPS Correspondents Reprint | | Print |

Kalinga Seneviratne

SYDNEY, May 3 1998 (IPS) - Casino operators should be among the most knowledgeable about how fortunes are easily made and lost. But those in Australia may not have expected to suffer from bad financial luck themselves — at least not this soon.

Since 1994, Australia’s casinos had been enjoying a boom in large part because of their success in attracting Asian high rollers.

Indeed, just a year ago, as many as 45,000 Asians were putting down substantial amounts on Australian gambling tables each day, contributing to more than half the industry’s annual revenues of some 1.6 billion dollars.

But Asian currencies took a nasty tumble beginning July, sending much of the region into economic turmoil since. As a result, the crowds at Australian casinos have thinned considerably and the once attractive casino stocks have lost their lustre.

“We’re facing the effects of Asia,” Neil Gamble, chief executive of Sydney’s showpiece Star City Casino, said at the Australasian Casino and Gaming conference held here in March.

Half of his casino’s clientele used to be Asian visitors, he said, and had contributed to up to 60 percent of revenues. But since January, Star City has experienced an 18 percent drop in its earnings base.

Industry observers say worse is yet to come for the casinos.

Notes Australian tourism analyst Lili Kwong of Deutsche Morgan Grenfell (DMG): “I don’t believe there’s any light at the end of the tunnel. As the problems of the Asian crisis continue, not only will there be deterioration of (gaming) volumes, but we will see pressure on operating margins as well.”

According to a Australian Bureau of Statistics report, the industry’s average profit margins are already down to just 1.2 percent. Annual casino earnings have also plunged by 86 percent to 17.7 million dollars.

Analysts predict an even deeper dive. DMG has forecast that the economies of South Korea, Singapore, Taiwan, Indonesia and Hong Kong — all traditional sources of so-called ‘junket gamblers’ — will contract significantly this year.

“Despite all the negative talk in 1997,” said Kwong, “1998 is the year where the real pain will come.”

The industry is now batting for tax concessions to tide it over the Asian crisis. At the March conference, Gamble argued that “it would wipe out the bottom line” if casinos continue to be taxed at the current rates of 25 to 45 percent. He added state governments must realise that casinos can help tourism and racing revenues.

During the boom years, casinos had proved good revenue boosters for state governments. The state of Victoria, for instance, collected as much as 157 million dollars in gaming tax and licensing fees from the Crown Casino in 1995. This enabled the government to build not only a new state library, but also a state museum and an exhibition centre.

But Victoria’s use of gambling revenues to fund development projects had upset some church leaders. One Christmas, the Roman Catholic Archbishop of Melbourne, Cardinal Frank Little, had urged his flock and other Christians to preserve the symbols of their faith from “attacks of the secular culture” such as the casinos.

Still, the revenues from casinos are too tempting for state governments to do away with, and the complaints of church leaders were apparently ignored.

These days, the objects of their ire are scrambling to stay open.

In late April, Melbourne’s Crown Casino — considered the industry king — announced that it was “substantially” restructuring operations to “soften further” the impact of Asia’s crisis. This included putting up for sale a Gulfstream jet that used to ferry big time gamblers from their Asian home bases to Melbourne.

The huge entertainment complex on the banks of Yarra River had set an annual target revenue of 850 million dollars when it opened in mid-1994. In the first three months of 1998, however, its international turnover reached only 3.75 million dollars.

Other casinos across Australia are preparing their own survival plans. “We’ve always done a lot of business with South-east Asia,” says Ed Posey, managing director of the Burswood Casino in Perth, on the west coast. “However, we’ve experienced a downturn, which is linked to the meltdown up north.”

Majority of the players in Perth casinos had been tourists from Indonesia, which is among the hardest hit by the currency crisis.

Posey says his casino, which made a profit of 8.6 million dollars in the second half of 1997, is now targeting “the average person” while also considering increases in the commissions of high-roller tour organisers to drum up business.

Still, the casino operator is among those who are betting on Asia’s recovery — and the return of the region’s gamblers to Australia. Said Posey: “We are confident Asia will return to being our premium market.”