HINDSIGHT is a wonderful thing and for Echo Entertainment the big question is whether the board would still have rejected James Packer's request for a board seat six months ago had they known what was about to play out with both sides of politics. According to Echo Entertainment chairman John O'Neill, the answer is no.
But the brutal reality is if Packer had joined the Echo board and worked out a joint venture deal that was beneficial to Echo and Crown shareholders over a six-star casino, hotel and entertainment complex at Barangaroo Central, Echo wouldn't be facing the spectre of a second casino licence when its exclusivity deal expires in 2019.
''All the people who said they should not put me on the board [of Echo] were wrong. They behaved like they had all the cards, but if they had put me on the board, I wouldn't have been able to be in discussions for a second licence as it would have been viewed as a conflict,'' Packer said yesterday.
Illustration: Kerrie Leishman.
''Now we are in a situation where it is not a Crown and Echo proposal, it is a Crown proposal for a second licence and so why would we do something with Echo?''
O'Neill tried to play down the latest developments to shareholders yesterday. He described Crown's Barangaroo plan as a ''hypothetical'' rather than a ''here and now'' and said Echo needed to do more to promote its seven years of remaining monopoly.
But whatever way O'Neill tries to spin it, Packer has aced the board of Echo after being so publicly scorned back in February. Through effective lobbying he has been able to get both sides of politics to see the merit of discussing a second casino licence.
There are still two stages left to go in the process, but Packer has jumped the first hurdle and it is hard to imagine a change of heart by either political party given his plans to invest $1 billion building a six-star hotel aimed at attracting international tourists, particularly Chinese high rollers.
Casino licences are valuable assets. The original licence cost $376 million back in 1994 and Echo has placed a $1 billion value for The Star licence on its books. It is a 99-year licence that expires in 2093 and Echo recently paid $100 million to the NSW government to extend the licence's exclusivity until 2019.
A competing VIP casino across the water would clearly negatively impact The Star. VIP revenue contributes about one-third of total revenue. And while Echo will argue it has seven years up its sleeves before it loses its exclusivity, it will need to lift its game if it wants to get serious in the high roller arena.
In the meantime, Lend Lease is targeting a 2015 start date for Barangaroo, and depending on the specifications, it would take up to three years to build. That puts the time line at 2018, which gives the hotel a year before it can open its doors to high rollers, assuming a second licence is granted. Crown will need to get some form of binding agreement with the government before construction, but given it took a few months to sign off on stage one of the process, getting through the other two stages shouldn't be too difficult.
The question is whether the government will open it up to a tender process or allow Crown to negotiate a deal, in terms of tax arrangements.
Against this backdrop, the NSW Casino, Liquor and Gaming Control Authority is expected any day to approve Crown increasing its stake in Echo to 25 per cent.
When asked whether he would sell his stake in Echo or increase it, Packer said: ''Why take any options off the table?''
His options include a takeover offer for Echo, joining forces with another international casino operator to break it up; selling out of Echo to concentrate on a second licence in Sydney or retaining his 10 per cent as a blocking stake against a takeover bid by another international casino operator.
Packer's Barangaroo plan is part of a bigger plan to get a piece of the fortune Singapore and Macau are making from rich Chinese gamblers. Crown has a presence in two Australian states and in Asia Crown owns a 33 per cent stake in Melco Crown Entertainment, which owns the City of Dreams resort and is building the Macau Studio City, a $US2.9 billion gaming and entertainment resort on the developing Cotai Strip.
Yesterday, Melco announced that its 60 per cent-owned indirect subsidiary, Studio City Company Limited, had secured a $US1.4 billion line of credit. It said Studio City was on track to open around mid-2015.
Packer is convinced a world-class hotel and gaming venue at Barangaroo will fill the gap in Sydney's tourist offering and prove a powerful drawcard. Crown played a major role in helping make Melbourne the attractive tourist destination it is today. He now wants to do the same in Sydney.
Victorian tourism has grown 4 per cent compound in the past few years while NSW has grown 1 per cent. Since the Singapore government gave the green light to build the world's two biggest casinos, Chinese tourism has grown from 900,000 to 1.6 million.
With an estimated 30 million Chinese patrons in the premium gambling market, and forecasts by PricewaterhouseCoopers that casino gaming revenue will rise to $US62.9 billion in the Asia-Pacific region by 2014, Australia should get a cut of the action.