I've been wondering for sometime just what on earth is going with Crown Resorts. First of all, they don't perform well for shareholders. Generally speaking, in a two horse race kind of way, had you held shares in Echo Entertainment/Star City over the last few years, you would've made more money than with Crown. The other thing that makes you wonder is that James Packer's gone and put all of Crown's eggs in to a basket that targets Chinese high-rollers. Which, of course when you think about it can only lead you to the conclusion that Crown intends to be the money launderer of choice for corrupt Chinese officials on the mainland. Which is pretty extraordinary. Imagine another business model based on targeting criminals and helping them launder money somehow and see if you think that is sustainable. Unless you're big corporations doing the elaborate international tax dodging, it's pretty hard to spot the opportunities, let alone the sustainability of such a venture.
It's a bit like parking a cruise ship casino off the shores of say, Columbia, in the hopes that the big drug lords come and gamble away millions in your casino using it as money laundering service. There's something fundamentally crooked and wrong about the arrangement. Yet, there was Mr. Packer the Junior, right at the door step of mainland China with his casino on Macau, and a sales team targeting 'whales'. How long could that have lasted? It assumes the Chinese authorities don't care when they say they do care. I presumes that corruption and its ill-gotten gains are monies that can be taken away and out of China, and really, how can that be a sustainable business model?
Turns out the communist Chinese weren't going to sit around and play patty cake when they could reach for the bat and play hardball.
Crown Resorts employees including three top Australian executives have been held incommunicado since Chinese police executed a series of late-night raids at their homes across several mainland cities on Thursday.
The company, consular officials and distraught families have been unable to establish contact with the group.
Shanghai-based Crown employee Jiang Ling answered her door at midnight on Thursday to find five plain-clothed police officers outside her apartment.
"I kept saying ... 'Why are you here?'. They kept repeating 'Oh, your wife knows' and she didn't obviously… they finally said 'gambling'," Ms Jiang's husband, American expatriate Jeff Sikkema told Fairfax Media.
"The main thing that I understood ... they wanted to know was who her boss was and some of her other colleagues, just looking for names."That sounds like they mean business, doesn't it? It impacted share prices on casino operators.
The Chinese foreign ministry confirmed over the weekend the Australians detained on suspicion of committing "gambling crimes", without specifying how many. It said the case remained under investigation.
Shares in other casino operators in the region fell in response to the arrests
Crown's largest Australian competitor, The Star, did not escape the fallout - its share price fell more than 5 per cent but closed down 3.66 per cent.
Hong Kong-listed Sands China fell as much as 5.4 per cent, while Galaxy Entertainment Group Ltd. lost as much as 4.7 per cent on Monday.
South Korea's largest operator of casinos for foreigners Paradise fell as much as 0.7 per cent in Seoul trading, while fellow Korean casino operator Grand Korea Leisure Co. declined as much as 0.9 percent. Melco Crown Philippines Resorts
Corp lost as much as 1.6 percent in Manila.
"This is a clearer signal to all casino operators and junkets in the region, that the Chinese government doesn't like gambling and will continue the crackdown on the industry and capital outflow," said Tony Tong, founder of Hong Kong-based risk management consulting firm Pacific Financial Services Ltd.
Ouch. Crown itself lost 13.9%, down to $11.15 per share. Apparently that is half a billion dollars of Mr Packer the Minor's worth down the gurgler; that'd suck quite a bit.
It's arguable whether it is the gambling the communist Chinese brass dislike so much, or the very real ease with which money floods out of China through the casinos. As I said above, if you're on their doorstep and your business plan is to hoover up the escaping money from the mainland, it's no surprise the Chinese government is going to pick a fight with you.
I understood the reasoning when Mr. Packer the Junior, sold out of Channel Nine and the TV business in order to get into the gambling business, but even allowing for the decline in the free-to-air TV business, it seemed a little drastic to want to go all in on Casinos, and ones with Chinese VIPs as the main targets at that. He's ignored all the noises from China that they're trying to stem the flow of money outwards since the GFC. It's not like this is a surprising development. I won't slam Packer on the morality stakes of wanting to be in the gambling business, but it does seem incredibly blinkered to not have seen this sort of development coming.
The things is, if there's one thing it brings to mind, it is the One.Tel debacle over which Mr. Packer the Diminutive and his pal Wee Lockie Murdoch presided. In that instance they were proceeding with a business model that was hardly sustainable (nor made any sense) in a bid for more customers, only to find the gravity of their situation was enough to suck the entire venture down. As with that instance, Mr. Packer the Lesser, has found an unsustainable business model and stuck with it in the face of reality. He may have inherited a fortune but it seems abundantly clear that he doesn't know what he's doing with it. He is beginning to look like that joke where a man puts out a book "How I Came to be Worth $1million" You open the book and it tells you how the man inherited $1billion and squandered most of it.
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