Casino operator Echo's plans for a "world first" resort in Sydney is more a red herring than anything else.
Investors should be more focused on whether Echo can make a return on the $1.1 billion it plans to spend on hotel rooms, parklands, bridges art and water slides. These features bring the tourists in but the gaming is the part that makes the returns.
The lion’s share of this new Echo investment is not earmarked for gaming facilities - which could ultimately reduce margins.
But paying for it won’t be the problem. There are more than six years of Echo’s exclusive licence left and little capital expenditure needed on its existing facilities.
If it doesn't need to begin spending in earnest on the latest plans for a few years, it should be able to fund the mega expansion out of cash flow and debt. And while it won’t admit that equity raisings or asset sales are being contemplated it must be a handy comfort buffer.
However, investors are still waiting for the returns on Echo’s recent $870 million invesment into The Star to start hitting the mark.
Sure - Echo has pinched a bit of market share and this should continue to gain momentum, which is clearly a competitive threat for James Packer's Crown, but the investment reached expectations.
The latest proposal has an additional risk in that it may have competition across the harbour. If so Echo’s project cost will decline by $250 million (the price of exclusivity) but winning exclusivity will be valuable.
Meanwhile Crown will be moving through the same process of assessing returns in the event it gets the right to build Barangaroo.
It is no surprise that Crown’s Sydney building has morphed into more casino and apartment and less 6 star hotel over the past few months.
Packer has been clear he needs the earnings from gaming to support his Barangaroo venture.
Echo’s ultimatum to the NSW government that it will still build its new development even if Barangaroo gets the green light is a way of mitigating its competitive threat and Crown's ability to engage in "development creep".
A scaled down casino in Barangaroo begs the question of whether the numbers will stack up for Packer.