Sunday, May 24, 2009

Global downturn hammers James Packer's gambling ambitions, by Eli Greenblat - The Age - 22nd May 2009

James Packer's growing casino operation in Macau is the latest victim of the global downturn.

Dwindling patronage at Crown's Macau joint venture, which posted a $US35.3 million ($A45.6 million) first-quarter loss on a 55 per cent revenue slump, is challenging his push into the region.

Melco Crown Entertainment, which operates the Altira Macau casino and is building the $US2 billion City of Dreams casino, reported overnight that in the first quarter of this year revenue fell to $US216.5 million, down from $US482.9 million in the previous corresponding period.

Revenue from its maiden Altira development dropped 60 per cent in the period.

Although Melco Crown Entertainment's adjusted pre-tax and depreciation earnings were significantly weaker, they remained in the black at $US21.3 million. But the bottom line was deep in the red and showed a $US35.3 million loss against a $US43.2 million profit previously.

The souring performance reflects the depressed state of major casino and gambling businesses in Asia and the US, forcing companies to slash the value of their assets in the face of a drop in consumer spending on gambling and entertainment.

For Mr Packer, it is a further blow to his ambitions in the region as he tries to broaden Crown's earnings base away from Australia — where the company owns Melbourne's Crown Casino and Burswood Casino in Perth — to the Asian region and North America. In 2006, soon after the death of his father, Kerry, James Packer forged a $US8.7 billion venture with Lawrence Ho's Melco casino group to create Melco Crown Entertainment. Mr Ho is the son of Macau gambling kingpin Stanley Ho.

Crown, then called Publishing and Broadcasting Ltd, took a post-listing 41.4 per cent equity share in the joint venture that was valued at $A4.73 billion when Melco Crown Entertainment stock began trading on Nasdaq and closed its first day at $US21.55.

Since then, Crown's stake in the joint venture has been diluted to 36.4 per cent while Melco Crown Entertainment shares have fallen to $US5.85.

At Crown's half-year financial report, chief executive Rowen Craigie said its share of Melco Crown Entertainment's normalised result for the half was an $A11.3 million loss. The venture's Altira Macau casino recorded $US183.6 million net revenue for the March quarter versus $US459.9 million for the same quarter last year.

Constellation Capital Management investment analyst Peter Chilton said yesterday the Macau casino market was having earnings problems similar to those of Las Vegas.

"It probably is under some pressure with a lot of new capacity and at the same time the actual business available has slowed down, because of the downturn in China," he said. "And we have seen it in the United States as well, where people are less willing to, and have less funds available, to put into casinos.

"Las Vegas is suffering as well. I think maybe people had thought of casinos as fairly recession-type-proof businesses but there is obviously a limit in a serious downturn — people do visit these establishments less, or spend less money."

Melco Crown Entertainment co-chairman and chief executive Mr Ho said City of Dreams was scheduled to open on June 1, and the budget was unchanged.

"Our financial position remains strong and our balance sheet is one of the best in the gaming industry," he said. "We held approximately $US755 million of cash, excluding cage cash, at the end of the first quarter, and we expect to spend approximately $US244 million on construction and pre-opening preparations at City of Dreams from the start of the current quarter through its opening."

Crown shares fell 2¢ to $6.97.

(Credit: The Age)

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