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Echo's $1.1b red herring


Echo's vision for Sydney plans.

Echo's vision for Sydney plans. Photo: Supplied

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.

7 comments so far

  • Perhaps the real red herring here is Elizabeth Knight's favouritism of Packer & his Crown Business - Perhaps Ms Knight you'd like to put it on the table why you would prefer to see a business that currently even isn't in Sydney over one that has a presence & pays NSW State Taxes in NSW - We await your response.

    Date and time
    June 24, 2013, 1:29PM
    • Has anyone considered how traffic will come & go to the new Echo buildings?
      The foot traffic bridge is a great idea, but not sure how the traffic bottleneck around Anzac bridge & fish markets will go.

      Pyrmont resident
      Date and time
      June 24, 2013, 2:10PM
      • Whereas traffic to Barangaroo is a breeze?

        If you build stuff near the city, traffic is always going to be an issue.

        Date and time
        June 24, 2013, 2:48PM
    • This is about more than the gambling monopoly in sydney, its about views of the harbour bridge, which a large development at bangaroo would have at the expense of a star city tower. indeed the packer bid is mostly about industrial sabotage of the sydney market to further melbourne

      Date and time
      June 24, 2013, 2:26PM
      • Why is Echo hell-bent in having the casino monopoly in Sydney? Echo should embrace the power of business "flow on effect". The more world class casinos in Sydney the better the city's tourist/customer pulling power. It will be boring if Sydney have only one. Las Vegas would not be popular if MGM Grand is the only casino, or Macau if Venetian is the only destination.

        Date and time
        June 24, 2013, 3:23PM
        • Ms Knight's comments are spot on. It is the gaming that brings in the revenue. Hotel, F&B: anything beyond break even is cream. Its the roll from the junkets which provides the volume and the high the margin from the mass and premium mass play which will pay for the expansion. However Echo's plan needs to be questioned. Specifically, the CEO, being a seasoned MGM executive is trying to create a venue or attraction destination however to do that you need mass. Las Vegas has mass. Macau has mass. In those cities you offer choice of variety and then can create the infrastructure to encourage foot traffic. Sydney doesnt have it. And moreoever Echo itself hasn't done nearly enough given its monopoly status.

          I would support additional competition into Sydney and let the premium marketing teams slug it out. Give the consumers choice of play, and Echo, you can build your bridge to woo players away from Mr Packer if you have the product.

          Date and time
          June 24, 2013, 3:23PM
          • "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."

            How has proposal for Crown changed at all? Please give some examples of how this is true please, Ms Knight... Stop blurring the lines from journalistic story to opinion piece.

            If you know something your readers don't know, please put it in the story.

            Date and time
            June 24, 2013, 3:30PM

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