The elaborate poker-type manoeuvring over the possible second Sydney casino licence is fascinating the financial world, but with such high stakes it is hardly surprising.
Echo Entertainment holds the only licence for Sydney at this moment, using it for The Star casino at Pyrmont in the city. That licence has another 80 years to run but, crucially, the monopoly situation is only guaranteed until 2019.
Crown, another major player in the Australian casino industry with a huge location on the riverfront in Melbourne, has applied for a post-2019 licence for a new location for VIP gambling at Barangaroo, overlooking Sydney Harbour.
Trying to head that off, Echo has now made a fresh application – for the extension of its monopoly beyond 2019. The NSW government will now evaluate both applications, but only one will go for final ratification at the end of next month.
What’s at stake? Some interesting speculation comes from Credit Suisse, the equity specialist in a research project. It questions what if the Sydney VIP market is larger than anyone thinks? It notes that today the Sydney market is A$25bn in turnover and A$400m in player loss, but what if that grows to say A$250bn in turnover and A$4bn in player loss?
It bases this question on an Australian Financial Review estimate that the Crown Barangaroo venture would generate A$114m in state tax revenue. That, argues Credit Suisse, suggests VIP turnover at Barangaroo of A$75bn-A$85bn, giving around A$1bn in player loss. Credit Suisse notes: “It seems incredulous at three times the current Sydney market?”
But it also draws a comparison with Macau and Singapore. Macau has turnover of US$972bn and US$26bn in player loss and Singapore, with just two locations, has turnover of US$100bn and player loss of US$2.7bn.
It argues that these figures would have been unimagined by investors 10 years ago. It concludes: “Maybe Sydney needs two casinos?”
