James Packer’s Crown Sydney development in Barangaroo could prove to be the worst bet for investors seeking a stake in Australia’s gaming sector.
Some analysts now believe that James Packer's flagship Crown Sydney development at Barangaroo could be the bum choice amongst gaming investment options in Australia, set to generate the lowest returns amongst six vying casino developments currently waiting in wings.
Packer has been keen to burnish his credentials as a casino tycoon with the development, hoping to establish Sydney as the leading tourist hub for cash-flush gambling enthusiasts from Asia.
He envisages the $1.3 billion casino and hotel development on the Barangaroo waterfront in Sydney's CBD as a magnet for VIP gamblers throughout the Asia-Pacific - in particular members of China's rapidly expanding nouveau riche population.
Targeting upmarket Asian tourists is a canny move on Packer's part, with Citi gaming analyst Michael Goltsman pointing out that VIP gambling revenue in Sydney is expected to surge from $402 million in 2012-13 to $686 million in 2020-21, on the back of spending by overseas visitors.
Crown obtained the NSW government's approval for the construction of the project in July of last year, yet made a major concession in the form of an agreement to refrain from putting poker machines on its floors.
While Packer may consider poker machines unnecessary given that his objective with Crown Sydney is to attract the big-spending VIP crowd, their absence on floors could still prove to be a severe setback for the Barangaroo development, as the devices remain a mainstay source of revenue for modern casinos.
According to Goltsman Crown Sydney will be the lowest margin casino in the country once it commences operation in 2019, with an earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 11.8 per cent.
This compares unfavourably with the pre-tax return of 18.4 per cent which is likely to be delivered by the $350 million SkyCity Adelaide casino, or the return of 12.4 per cent on SkyCity's revamp of the Auckland casino and development of the New Zealand International Conference Centre.