These two stories on James Packer and Crown Casino's China debacle when read together suggest that the Chinese Government intends for Macau to be the destination for Chinese and other gamblers, and that the gambling revenues and profits should all remain in China.
Consequently there is no need for James Packer ,Crown and their Barangaroo facility.
Left unexplained in all this is Packer's exit from Melco which owns the Macau casino operations .It does seem as if the sale to his stake in Melco was forced.
A forced ext from the Chinese market would not surprise anyone familiar with the Chinese practise of acquiring businesses that have proven to be successful, often by force.
James Packer and his Crown gambling and entertainment empire have bet big, for more than a decade on China, and its VIP gamblers. These high rollers have fuelled Crown's booming businesses in Asia and Australia.
"Ladies and Gentlemen, I have made many, many mistakes in my life, but investing in China is not one of them." James Packer, March 14, 2013
But one night in October last year, all that was turned on its head.
"They said it felt like they were suspects of a murder investigation or a drug bust. That was just how sudden and forceful the raids were."Reporter
Fifteen Crown employees and a number of associates were swept into custody in a carefully co-ordinated series of raids across four cities in China.
"If you are referring to the Australian nationals who were detained by Chinese authorities a few days ago on suspicion of gambling activities... gambling is illegal in China."China's Foreign Ministry Spokesperson
Crown's operations had run headlong into China's biggest ever corruption crackdown, leaving its business model in disarray.
"This was a shot across the bows by the Chinese Government... of Crown, but it was a general warning to everybody else who was thinking about sending people to China to recruit Chinese high rollers to gamble in their casinos."Former Hong Kong Prosecutor
On Monday night Four Corners investigates what went wrong for Crown in China.
Reporter Marian Wilkinson pieces together the key characters and events in the lead up to the arrests.
"There was a certain arrogance... they wouldn't touch us because we are, frankly speaking, we are white guys."Casino Consultant
And explores what this means for Crown's casino business here in Australia, especially the multi-billion dollar Barangaroo project in Sydney, as the bottom falls out of their Chinese high roller market.
"If you've been going to Crown and you are phoned up by the local police and questioned on your movements and your past history of travel to Australia, you would be close to borderline suicidal if you were to make another trip to Australia. It's like putting big 'X' across your forehead."Casino Consultant
Crown Confidential, reported by Marian Wilkinson and presented by Sarah Ferguson, goes to air on Monday 6th March at 8.30pm EDT. It is replayed on Tuesday 7th March at 10.00am and Wednesday 8th at 11pm. It can also be seen on ABC News 24 on Saturday at 8.00pm AEST, ABC iview and at abc.net.au/4corners.
SARAH FERGUSON, PRESENTER: Welcome to Four Corners When James Packer took his big punt on the casino business his high-rolling father, Kerry, was sceptical.
But James defied the critics and made the Crown casino empire a shining success. That is, until October last year when 15 Crown staff in China were rounded up by Chinese police in dramatic late night raids.
Fourteen of those staff, including three Australians, are still under arrest.
Crown had developed a business model based on luring rich Chinese, known as VIP high rollers, to its casinos. But it was a risky business in a country where gambling and promoting gambling are illegal.
Since the arrests of its staff, Crown has been in turmoil, its Chairman and chief executive have resigned and its principal shareholder James Packer has seen revenue from Chinese high rollers plunge, raising questions about the future of Crown's new VIP casino at Barangaroo in Sydney.
Marian Wilkinson investigates how Crown's China gamble went wrong.
MARIAN WILKINSON, REPORTER: In the casino business, luck is everything. Until recently, James Packer looked like a lucky man - in business and in love.
ANNOUNCER: Mr James Packer and Mariah Carey! Leonardo Di Caprio! Mr Brett Ratner! Mr De Nero…Martin Scorsese, Mr Lawrence Ho and Mrs Sharon Ho.
MARIAN WILKINSON: With the help of his Hollywood friends and his influential Hong Kong business partner Lawrence Ho, Packer unveiled his third casino venture in the Chinese territory of Macau, just eighteen months ago. At the star studded casino launch, Packer sang the praises of the Chinese government.
JAMES PACKER, PRINCIPAL SHAREHOLDER, CROWN RESORTS LTD.: We believe in the long term, not the short term. We believe in the Chinese Government. And, if someone says to me, you know, what is the definition of good government? I'd say the government that raises the living standards of its population and on that basis, the Chinese Government has done an amazing job, perhaps a better job than any other government in the world.
MARIAN WILKINSON: Like James Packer, the new $4 billion Macau Casino looked like a winner.
ANNOUNCER: Three, and two, and one…please press down your circles. Congratulations, ladies and gentlemen, the official start of Studio City Macau.
MARIAN WILKINSON: But looks are deceptive. When Studio City opened, investors in Macau knew casino profits were plunging.
ANDREW SCOTT, PUBLISHER 'INSIDE ASIAN GAMING': it turned and it really went down so yes we were in the midst of, ah, many, many months of, ah, downturn at that stage and, ah, Macau came down about a third roughly from its peak. So yeah it was panic stations.
MARIAN WILKINSON: The downturn in Macau's profits was triggered by an unprecedented crackdown on money laundering and corruption launched by the Chinese President.
ANDREW SCOTT: everybody thought it would just be for six months or something like that but it hasn't been, the storm is still going today and, um, all credit to the president of China for doing it to be frank. Yes it hurt, it hurt, ah, the Macau gaming industry but it's transformed it is transforming China as a country. So, you know, if there's some collateral damage I don't think President Xi Jinping is too concerned about it.
MARIAN WILKINSON: When it reclaimed Macau, China let it flourish as its very own Las Vegas. The only place in China where its legal to put on a bet in a casino. As the high rollers poured in from the mainland, Macau became the richest, glitziest gambling den in the world. It also became, a massive money laundry.
PRESIDENT XI JINPING: The most serious threat to us, as the ruling party, is corruption… now we are making a landslide victory over corruption.
MARIAN WILKINSON: When President Xi Jinping launched his crackdown on corruption and illegal money outflows from China, few in the casino business realised the far reaching consequences for them.
STEVE VICKERS, CEO OF STEVE VICKERS AND ASSOCIATES: The corruption crackdown is unparalleled. I've been in Asia forty years, I've never seen anything on the scale as this sort of purge on a very large scale.
MARIAN WILKINSON: For a decade, James Packer's Crown group had bet billions of dollars on its strategy of luring wealthy Chinese VIP gamblers to its casinos in Asia and Australia. As Crown's principal shareholder, Packer confidently backed the strategy at every opportunity.
JAMES PACKER: Ladies and Gentlemen, I have made many many mistakes in my life, but investing in China is not one of them.
MARIAN WILKINSON: That strategy has been blown apart after police raided Crown's operations across China late last year. One of Australia's top public companies is now collateral damage in China's corruption crackdown.
KEVIN EGAN, HONG KONG BARRISTER: This was a shot across the bows by the Chinese government of the individual casino concerned, Crown, but it was a general warning to everybody else who was thinking about sending people to China to recruit Chinese high rollers to gamble in their casinos. If ah if you were caught, we'll make an example of you.
MARIAN WILKINSON: On the night of October 13, Chinese police launched a series of coordinated raids on the homes of Crown staff. It was a stunning police action against a foreign company in China. The raids were carefully planned and terrifying.
PHILIP WEN, FORMER FAIRFAX BEIJING CORRESPONDENT: They all occurred on the same night, across several major Chinese cities, Beijing, Shanghai, Guangzhou. And the scenes that were described to me by family members that were present were quite remarkable.
They described ah teams of ah six or seven plain clothed ah police officers knocking on the door after midnight, um bursting through after the door was opened. And um basically they said it felt like they were um suspects of a murder investigation or a drug bust. You know, that was just how sudden and forceful the raids were. Pretty shortly after that they were, starting to basically confiscate or seize all these communications equipments, including laptops, computers, you know iPads, hard disk drives.
MARIAN WILKINSON: The raids rolled out in four Chinese cities. Fifteen Crown staff and a number of associates, were taken into custody. They are understood to include: Crown's Vice President in China, Alfread Gomez, a Malaysian citizen. Two dual Australian Chinese nationals, Jerry Xuan and Jenny Pan. And Chinese staff, Jenny Jiang and David Dai Bin. In a coup for Chinese police, they caught one of Crown's top Australian executives, Jason O'Connor, on route to Shanghai airport.
PHILIP WEN: he heads up the um VIP ah program, so his, main job is to um, you know, attract ah these high value high rollers ah to Crown's um casinos to gamble.
MARIAN WILKINSON: Four Corners understands O'Connor was in Shanghai to meet face to face with Chinese VIP customers. He was tipped off about the raids by local staff and made a dash for the airport.
PHILIP WEN: He made quite a dramatic um escape, you know, on his company chauffeured car, you know, going to the airport to Shanghai. But he was never ah, never able to board the plane.
MARIAN WILKINSON: Four Corners has been told within an hour of the first raids, Crown's offices in Asia and Australia triggered emergency protocols and began deleting data about Chinese customers. But Crown could do nothing to stop Chinese police taking its staff, including O'Connor, to a Shanghai detention centre for questioning.
PETER HUMPHREY, FORMER DETAINEE OF CHINA: They always do this in the middle of the night because it it maximises the um the sort of crushing feeling that this prisoner now has. You know this sense of humiliation, defeat, um shock ah ma- is maximised in this way so that when they start getting interrogated again the following day they're in a state of breakdown already.
MARIAN WILKINSON: Peter Humphrey knows what the Crown staff almost certainly endured. Humphrey and his wife were thrown into a Shanghai detention centre three years ago when they were swept up in a Chinese investigation into a British company.
PETER HUMPHREY: It was an absolutely traumatic experience and I'm sad to say that these Australians and Chinese who were working for for Crown Casinos will have most certainly gone through that kind of experience. Many of them would have been thrown into a cell like that in the middle of the night just like I was.
MARIAN WILKINSON: Interrogation is commonly used on detainees, says Humphrey.
PETER HUMPHREY: Well they have an interrogation wing at this detention centre. So they'll be led out of their cell, put in handcuffs, they're forced to squat when they exit the cell; you have to squat in front of the officers. They'll be led down a corridor and across a a rusty sort of iron bridge which connects two wings of the building into the interrogation block and in that block there are interrogation cells and the typical cell has a small rostrum at one side under the window and it has a a metal cage in the middle. This cage is made of steel. You know it's it's a silvery steel cage, inside the cage is an iron chair with a bar that locks across your lap so what will happen to these prisoners is that they'll be taken into that cage, put in that cage, they'll be locked in that chair, they'll also have the handcuffs on, they'll be sitting like that and then there'll be two or three policemen PSB men up on that rostrum. One of them will be typing on a laptop, another may be receiving guidance and instructions through an earpiece from someone who you never see so they'll be questioned ah in that particularly in that style, locked in a cage, guys up on the rostrum um no lawyer present.
MARIAN WILKINSON: The aim, he says will be to get the Crown staff to confess to a crime.
PETER HUMPHREY: I think that the whole ah eco system of the detention centre environment is set up in such a way to put so much duress on you in many ways; physical, psychological, emotional. Um that is all intended to make you crumple um and confess because you you know y-you're left to think of that the only way out of here is by confessing.
MARIAN WILKINSON: In Canberra, the detention of the Crown staff in China sparked an immediate crisis for Foreign Minister, Julie Bishop.
REPORTER: Minister, can you tell me about the circumstances in which they are being held?
JULIE BISHOP, MINISTER FOR FOREIGN AFFAIRS AND TRADE: Our consular officials have visited the Shanghai detention centre - it is adequate but it is a detention centre, somewhat like a prison, so the conditions are adequate but it is not comfortable at all. They are being looked after and they are in good health.
REPORTER: Minister, have you spoken directly to James Packer about this, and what's been the nature of that discussion?
JULIE BISHOP: I've been in contact with Mr Packer.
REPORTER: Do you have any detail about what the allegations that are against…
JULIE BISHOP: We don't have those details. There have been reports that it is related to gambling, the casinos evidently, but beyond that we don't have any specific details.
MARIAN WILKINSON: In Beijing China's Foreign Ministry confirmed the bad news for Crown.
CHINESE OFFICIAL: This is not a diplomatic issue, if you are referring to what happened a few days ago that everyone is concerned about - the Australian nationals who were detained by Chinese authorities on suspicion of gambling activities. I advise you to check with the Shanghai police for further details about the investigation,the activities have they been involved in, and their current condition. But I think gambling is illegal in China.
MARIAN WILKINSON: Gambling is illegal in mainland China. It's also illegal to promote gambling or arrange for more than ten people to travel to a foreign casino to gamble. But in the chase to woo rich Chinese gamblers or VIPs, many foreign casinos like Crown have been side stepping this law. They say their staff in China are not promoting gambling, they're promoting tourism in their luxury hotel resorts in Australia, the US and Macau.
BEN LEE, MACAU CASINO CONSULTANT: The usual façade is that they go in to market the resorts. They're there to promote the resort, the end destination um however, once that individual person is within China they are ensconced in a room, private room with a target client ah have no doubt, that the topic is when would you like to come to ah our casino, how much would you like to play and ah do we need to give you credit in order to encourage you to come and play.
MARIAN WILKINSON: Whether Crown broke the law in its efforts to lure rich mainland gamblers to its casinos will be decided by the Chinese authorities. But lawyers for some of Crown's minority shareholders seeking to launch a class action, claim the company knew its marketing in China was highly risky and failed to disclose this to the market.
JULIAN SCHIMMEL, MAURICE BLACKBURN LAWYERS: What we understand is that Crown was seeking to ah market ah engage in marketing of its gambling operations in mainland China. Ah now ah gambling itself and also the marketing of gambling is illegal as we understand it in mainland China so what we understand is that ah there was a risk of Chinese law enforcement er that might flow from Crown's attempts to lure ah Chinese VIPs to its casinos in Australia.
MARIAN WILKINSON: To understand what went wrong for Packer's China strategy you first need to understand why it looked like a great idea. Before Studio City, Packer's joint venture with Lawrence Ho, Melco Crown Entertainment, launched two very profitable casinos in Macau, City of Dreams and Altira. They were managed by Ho's company. They were pitched to wealthy Chinese men on the mainland.
By 2012, Macau was booming and Melco Crown's profits soaring. Packer was convinced Crown was on a winning streak and bet the future of the company on Chinese VIP gamblers.
JAMES PACKER: Crown's 33.6 percent interest in Melco-Crown Entertainment has been a major financial success for us and the investment has now grown in size to be one of the largest Australian joint venture partnerships operating inside China. And Melco Crown driven by a surging Chinese tourist market is continuing to expand in Macau and now throughout Asia, with major investments in new hotels and attractions.
ANDREW SCOTT: It was interesting we had a decade, um, of twenty percent on average, year on year growth so when that happens as a businessman you tend to feel like God so you just keep, you know, it was just happy days, everything was booming.
MARIAN WILKINSON: While Macau's casinos encourage mass market tourists from China, the key to their succees is their VIP rooms. These are private rooms in the casinos. Here wealthy Chinese gamblers can discretely bet a fortune in Hong Kong dollars on a hand of baccarat.
TONY TONG, VICE CHAIR, MACAU GAMING INFORMATION ASSOCIATION: Ah well if you go to any Macau ah VIP room a typical minimum bet starts from three thousand or five thousand. Ah but that's just a minimum bet. And ah I I know many of the VIPs ah for one trip they they would ah spend millions, sometimes tens of millions, or up to hundreds of millions, in the VIP ah in in in playing baccarat in the VIP rooms. Yeah.
MARIAN WILKINSON: In one trip?
TONY TONG: In one trip, yeah.
MARIAN WILKINSON: The VIP high rollers are brought to the casinos by agents who are called junket operators. Tony Tong is a lobbyist for the Macau junket operators and they are crucial to success of a big casino.
TONY TONG: So they need to have a relationship with a junket agent, ah who is responsible for ah you know serving, taking care of the ah VIP customer, and arranging the trip, ah making all the ah logistic arrangements, visa applications, hotel reservation. Sometimes private jets and entertainment activities.
MARIAN WILKINSON: What sort of entertainment are we talking about?
TONY TONG: Well anything that the VIP wants.
MARIAN WILKINSON: What the Chinese VIP gambler usually wants from the junket operator is a big line of credit, especially if they don't have assets outside the mainland. That's because China has strict currency controls to stop people taking more than $US50,000 a year out of the country without government approval.
TONY TONG: Most of the VIPs when they go to Macau they don't want to bring that much money so the majority of the VIP play is ah fuelled by ah credit.
MARIAN WILKINSON: The junket operators, Tong explains, are also responsible for collecting gambling debts if a Chinese VIP won't pay up. It's a fraught business because it's illegal to enforce gambling debts in mainland China.
TONY TONG: So ah they have to go through other means, ah which means ah basically ah making life difficult for the debtor, ah basically following the debtor and going to his company. Basically starts with more you know telephone calls and reminder calls. If you still don't get paid then you have to show up at the doorstep ah at his home or his business. And then ah, and hopefully you'll get some more progress. So ah normally every time when you send people to show up, normally they have ah something to collect.
MARIAN WILKINSON: And have there been cases where the junket operators have gone further than that? Has there been violence?
TONY TONG: Ah yeah. There are often cases in Macau, Hong Kong, even in mainland China that ah involves violence. Sometimes the collectors have to ah try to, in order to recover ah the debt, ah they have to go through pretty extreme means.
MARIAN WILKINSON: Like what?
TONY TONG: I think normally from what I heard, nobody wants to ah, you know, really hurt the ah debtor. Normally from what I heard, if you really do something bad it could harm your business, it could harm your chance to ah collect. I think it is the threat, the threat of violence that is more important than the violence itself.
MARIAN WILKINSON: David Green is a former adviser to the Macau government on casino regulation. He admits some junket operators have very dubious connections.
DAVID GREEN, FORMER ADVISER TO THE MACAU GOVERNMENT: Very occasionally there'll be reports of violence against ah people who left Macau owing gambling debts and that violence occurring on the mainland.
MARIAN WILKINSON: What sort of violence?
DAVID GREEN: Oh assault through murder. Kidnapping, ransom is always a means of getting paid. So ah yes ah very unpleasant ah tactics.
MARIAN WILKINSON: Macau has a long history of organised crime. Hong Kong Triad gangs held sway here in the 1990s before China reclaimed the territory from the Portuguese. Police intelligence reports in the US and Hong Kong say Triad members still have links to some of Macau's big junket operators.
STEVE VICKERS: Well I'm not going to name any given ones for, for obvious legal reasons but ah it is my firm belief that many of the junket operations have triad connections. Why? Because who's going to enforce a debt on the mainland? It's illegal to enforce that so what can ah there's no, there's no legal manner to reach into mainland China and enforce a debt so that's what they do. They can raise capital and move money. So triads remain associated with ah with junkets.
MARIAN WILKINSON: Steve Vickers is a corporate risk advisor who previously ran Hong Kong's police criminal intelligence unit. He believes the casino owners know about the Triad links to some junkets.
STEVE VICKERS: So I I think they're aware, I don't think they've ever been naïve and I do think they're making an effort to to improve the situation but the history of Macau is is murky and the involvement of the triads is, the triads has gone on for a very long time.
MARIAN WILKINSON: Crown's joint venture in Macau worked with several big junket operators accused of links to triads in police intelligence reports. One was the Neptune junket, which was publicly exposed for its triad connections three years ago. The Hong Kong courts have heard some extraordinary cases linking junket operators, money laundering and triads. But perhaps the most sensational was the case of the Hong Kong hair dresser who ended up owner of the British Football Club, Birmingham City. He'd been a huge gambler in the VIP rooms at a Macau casino. Hong Kong barrister, Kevin Egan, was part of that case and saw the evidence linking the Neptune group, with an alleged top Triad member.
KEVIN EGAN: This gentleman by the name of Cheung Chi-tai was one of the promoters of the Neptune junket. He ran it along with two others. And [ahem] he is alleged to have very serious triad connections, but he's never been charged with or convicted of triad offences. But if you ask anyone from the Organised Crime and Triad Bureau of the Hong Kong Police Force what his status was, they would say 'senior office bearer in a triad society'.
MARIAN WILKINSON: And he was involved in the junket operation?
KEVIN EGAN: He was- His name was on a great many cheques.
MARIAN WILKINSON: Neptune claims Cheung is no longer involved with the group. But Neptune's agents for years had junket agreements to bring Chinese VIPs to Australian casinos, including Crown Melbourne and Perth, and its rival Star Casino in Sydney.
MARIAN WILKINSON: Does it surprise you?
KEVIN EGAN: It doesn't because I think the bottom line is if you're not working through the junket operators then your casino will go out of business.
MARIAN WILKINSON: The big casinos like Crown, raked in the profits by using junket operators. But the big loser was China. Casinos became one of the conduits for huge amounts of capital to exit China in underground money flows. Corrupt Chinese officials and businessmen were using the VIP rooms to not only gamble ill gotten gains, but move money offshore.
STEVE VICKERS: Well up to about four years ago, at its height the Macau government recorded gaming revenues of 45 billion United States dollars. The harsh reality was because of the junket activity, the illicit side betting that was going on, you could probably multiply that by six. So that's a scale of um you know south, just a little south of 250 billion US dollars a year…so as a matter of economic national security, they need to crack down on those capital outflows. That's why it's a really serious issues.
MARIAN WILKINSON: Crown's Australian strategy became dominated by luring wealthy Chinese VIPs to its casinos in Melbourne and Perth. And Packer drove it from the top.
JAMES PACKER: I spent a lot of time in casinos as a kid with my dad, and I ended up thinking fuck this must be a good business.
MARIAN WILKINSON: In 2012 Packer proposed an ambitious new casino in Sydney built just for VIP high rollers - mainly from China. It won enthusiastic backing from the NSW Premier.
BARRY O'FARRELL, FORMER N.S.W. PREMIER: Yes he's put a proposal forward that is unique, that would see a six star hotel something the city doesn't have located at Barangaroo. And yes part of that proposal would be for this Asian high rollers room. This will be a VIP only gaming facility. There will not be poker machines.
MARIAN WILKINSON: The Barangaroo casino licence was granted with no public inquiry. The former head of the state casino regulator believes that was a mistake.
CHRIS SIDOTI, FORMER HEAD OF N.S.W. INDEPENDENT LIQUOR AND GAMING AUTHORITY: There was- there was no public tender process and there was no enquiry at any stage a- a public enquiry as to the public benefit involved in this.
MARIAN WILKINSON: Do you think there should've been?
CHRIS SIDOTI: I think there should've been, yes, ah. I think that casinos are big money spinners and operating a casino in most circumstances is like a license to print money. For that reason we need to know firstly that there is public interest or public benefit in having an additional casino in the first place. The parliamentary scrutiny was fast and it was to my mind relatively superficial. I don't think there was an appetite for thorough scrutiny, I think there was a wish simply to get the job done in terms of um having some basic level of examination and ah doing the deal.
MARIAN WILKINSON: To realise Crown's ambitions, Packer and his CEO Rowen Craigie needed even more Chinese VIP gamblers to come to Australia.
MARIAN WILKINSON: Crown appointed a brash Taiwanese-American to re-energise its marketing push into China. He came with a reference from the head of the US casino giant, Caesars.
BEN LEE: Michael Chen is a very aggressive person, very ambitious. He has a very robust background, he came from Harvard. So Michael's a very, very smart and intelligent person,
MARIAN WILKINSON: Michael Chen supercharged the China operation. He even appeared with James Packer's mother, Ros, during the Sydney Symphony Orchestra's China tour, an event sponsored by Crown and supported by the Australian embassy. More controversially, he increased Crown's staff on the ground in China.
BEN LEE: He obviously had a very ambitious and very high target to meet ah to justify I suppose his appointment and he in turn went on a very expensive program to recruit ah just about anybody and everybody he can in terms of ah on the ground ah marketing experience. He went through Macau, Hong Kong, China, even down to Cambodia, Malaysia, Singapore and recruited a very, very big team of people.
MARIAN WILKINSON: As part of its re-vamped efforts, Crown stepped up its business with junket operators from the mainland. One of the most important was a Chinese Australian national, Tom Zhou, from Hubei province.
PHILIP WEN: His Chinese name Zhou Jiuming is certainly a name that is well known in industry circles. You whisper his name and they'll tell you that he was one of the largest, if not the largest um junket provider or provider of, you know, who recommended mainland Chinese gamblers to Crown.
MARIAN WILKINSON: Zhou's success can be measured by his $15 million Toorak mansion and a spread of businesses and properties across Melbourne. His Hubei business partner, Tian Di, became another big junket operator for Crown.
PHILIP WEN: He was spending a lot of time in the VIP suites on the 29th floor at Crown. He'd be given the use of a VIP hotel suite for when he had, you know, guests in town.
MARIAN WILKINSON: Tian Di also spent up big on Melbourne property buying this Victorian stables and renaming it, the Nine Dragons. He entertained Chinese VIP high rollers here when they came to Crown in Melbourne.
PHILIP WEN: Crown would offer their private helicopter and fly people to and from the Nine Dragons um Racing Club landing right on the open grass field at Nine Dragons and creating quite a big scene. And that was exactly what the, you know, VIP clients from China just loved. You know, they loved being treated as kings and queens.
MARIAN WILKINSON: By 2015, Crown's aggressive drive for Chinese high rollers was on a collision course with President Xi's crackdown. After targeting Macau's casinos, some analysts believe Chinese authorities wanted to make an example of a foreign casino owner.
STEVE VICKERS: It would appear that the the the Chinese government suspected that people were continuing to wander around the mainland raising funds for, for off shore gaming and that the the crackdown was on and the capital outflow ah and the capital outflow situation was also on. Ah and I think ah killing a chicken in front of the monkey is probably what's actually occurred.
MARIAN WILKINSON: In China's high profile corruption trials, the names of VIP gamblers from Crown casinos began to surface. They included Liu Han, a high roller at Crown's Perth casino who invested heavily in the Australian mining industry. He was sentenced to death for murder, gun running and being head of a mafia gang. In another case Chen Haiju, a top Chinese airline executive jailed for life for corruption was revealed as a big gambler at Crown in Melbourne.
TONY TONG: I believe he mentioned Crown. He mentioned Australia, Las Vegas and London. He was on trial and he told about his story, how he got addicted with gambling, ah how he was ah ah invited to go to casinos, how he was offered free chips, how he won the money. And so I think it received ah ah a lot of ah media attention and probably received ah ah attention from the government investigators.
MARIAN WILKINSON: The deputy bureau chief at China's Ministry of Public Security issued a direct warning to foreign casinos marketing on the mainland.
CHINESE OFFICIAL: Neighbouring countries have casinos and they have set up offices in China to attract and drum up interest from Chinese citizens to go abroad and gamble. This will also be an area that we will crack down on.
MARIAN WILKINSON: Just months later, the Chinese police dramatically swooped on scores of Korean casino workers who were targeting VIP gamblers in China. It made headline news.
NEWSREADER: A number of employees of the Korean casino companies have been arrested in China. They will be charged with soliciting gambling and violating foreign exchange laws.
MARIAN WILKINSON: Industry players say this should have been a warning to Crown about its activities on the mainland.
ANDREW SCOTT: South Koreans were also promoting and promoting in an aggressive fashion and, you know, there were some arrests there which became a bit of an incident and, you know, the word was put out, an example was made, don't do this.
MARIAN WILKINSON: Crown sources told Four Corners a risk assessment was done for Crown's top management after the Korean arrests. Remarkably, it concluded those arrests did not signal a serious threat to Crown's staff in China.
BEN LEE: There was a certain arrogance and complacency in that well these are the Asians, you know, they were too aggressive, they were channelling funds, ah etc etc etc and you know, they wouldn't touch us because we are frankly speaking, we are white guys.
MARIAN WILKINSON: Four Corners has been told that Jason O'Connor, Crown's senior VIP executive, became increasingly anxious about travelling to China but felt under pressure to keep the business growing.
ANDREW SCOTT: He was there because he was told to go there, he was just doing his job, he was just doing his job. He wasn't, ah, a rogue employee, he wasn't doing anything he wasn't told to do, he was doing what his job required him to do.
MARIAN WILKINSON: Fourteen Crown staff are now under formal arrest in China waiting to see if they will be charged. One was released on bail. Junket operator, Tian Di, is also understood to have been detained but has since been released. Crown's China marketing guru, Michael Chen, was at home in Hong Kong the night of the raids. He's free but has been put on permanent leave by Crown. Crown's VIP marketing head, Jason O'Connor, a father of two, is among those under arrest and still in detention.
PETER HUMPHREY: I mean I understand that his family must be worried like hell. He won't know a lot about the legal process that is underway if we can call it a legal process; he won't know because they just don't tell you so you're left in a great state of anxiety while you're in that, in that cell.
MARIAN WILKINSON: Peter Humphrey was a corporate risk advisor in China as well as being a victim of the Chinese legal system. He is deeply pessimistic about Jason O'Connor's chances of a quick release.
PETER HUMPHREY: When people are arrested in China, 99.9 percent of these cases nobody gets out, nobody gets out. They will be charged, they will be convicted.
MARIAN WILKINSON: James Packer maintained a close friendship with Foreign Minister Julie Bishop as Crown pursued its China strategy. But since the arrests Bishop has said little publicly about the Australian detainees and there appears to be slim room for diplomatic intervention. The best hope for Crown and its staff is that Chinese authorities decide the case is weak and release them without charge.
DAVID GREEN: that would ah clean the slate in effect. So that's the best possible outcome. I think it's probably the least likely outcome. I think the fact these people have been in detention now since October last year would suggest to me that ah something's coming down the pipeline.
MARIAN WILKINSON: A trial and conviction of its staff in China would be a devastating blow for Crown. It should also trigger a review of Crown's casino licences in Australia, according to the former head of the NSW Liquor and Gaming Authority.
CHRIS SIDOTI: We would have to take into account the deficiencies in the Chinese legal system and the way in which they collect evidence and conduct the trial process, but if there are charges in China and if those charges result in convictions, in my view, that would place an authority like a regulatory body in Australia on notice and en- and- and require further enquiries to be made.
MARIAN WILKINSON: Crown's high powered board has been in disarray since the arrests. Long-time CEO Rowen Craigie resigned last month when Crown announced its VIP turnover had crashed by almost 45 percent. Four Corners has confirmed reports that some of Crown's top VIP clients in China have been brought in for questioning by police.
BEN LEE: Well obviously if you have been going to Crown and you are phoned up by the local police and questioned on your movements and your past history of ah travel to Australia, you would be ah you would be close to borderline suicidal if you were to make another trip to Australia in a- in a short period of time. It's like putting big X across your forehead. Ah when the arrests first happened I- we projected that ah Crown's VIP or international business would be impacted by at least fifty per cent. I believe that ah projection ah is probably an understatement if anything.
MARIAN WILKINSON: The fall in VIP revenues is bad news for Packer's cherished Barangaroo casino in Sydney. Packer has announced he's returning to the Crown board after a year's absence, but he faces a mandatory probity inquiry by NSW regulators before that happens. He's backed his close confidante, John Alexander, as Crown's new executive chairman to steer the company through the continuing crisis.
PETER HUMPHREY: The Crown board has some serious responsibilities because the onus is very much on an employer to conduct its business as far as possible in accordance with the law. Now if there was a law in China that they were violating, then Crown is responsible. The employer also is responsible for drilling down into their employees' knowledge of laws, regulations, making sure that employees know what they need to do to be compliant at policing that compliant, making sure they are behaving in a compliant way. Did they fail to do that? Well they evidently did, they evidently did because it appears that their employees in some way or another either offended someone or, or broke a law and so that is very much the responsibility of Crown.
MARIAN WILKINSON: For now, Crown is folding on its big China bet, selling down its once prized assets in Macau and re-thinking it reliance on Chinese high rollers. For James Packer, luck, it seems, is not running his way.
The former Portuguese colony's efforts to reinvent itself with a half-size Eiffel Tower replica and Melco-Crown's Hollywood-themed resort Studio City are starting to pay off, according to local government data.
Macau has seen a surge in tourists from beyond China - a sign that growth in the world's biggest gambling hub next year will come from leisure players rather than the high-stakes Chinese gamblers it used to pursue.
Analysts surveyed by Bloomberg see gambling revenue rising 7 per cent in 2017 led by mass market players, after three consecutive years of declines. Visitor numbers from South Korea, Japan, and the US jumped in November, helping offset declining arrivals of mainland Chinese who make up two-thirds of Macau's 2.6 million visitors in the month, according to the city's Statistics and Census Service.
Macau's gaming industry has seen a nascent recovery in the northern hemisphere summer as Las Vegas Sands Corp. and Wynn Resorts opened tourist-friendly resorts after China's crackdown on corruption and illegal outflows scared off VIP players.
Advertisement
Those efforts intensified in October, when Chinese authorities arrested 18 Crown employees for "gambling crimes" to deter its citizens from gambling overseas. The city is at the same time fending off regional challengers such as South Korea and the Philippines.
"There are definitely more reasons to come to Macau now versus two years ago, and that is the key reason why overnight visitation is growing faster than total visitation," said Nomura Holdings analyst Richard Huang. As more casinos open in Macau in the coming years, "we expect that to continue drive growth in the mass gaming segment," he said.
Melco Crown's $US3.2 billion Studio City casino resort in Macau touting Asia's highest ferris wheel: It seems the move from pure gambling to family entertainment is starting to pay off. Photo: Bloomberg
The Macau government is due to announce gross gaming revenue for December as early as January 1. Analysts surveyed by Bloomberg expect full-year gambling receipts of about 222.8 billion patacas ($38.8 billion), a decrease of 3.5 per cent, extending declines of 34 per cent in 2015 and 2.6 per cent in 2014, according to the median of ten estimates.
Visitors who stay at least a night in Macau, typically tourists, rose 10 per cent in November and accounted for 53 per cent of total arrivals, while same-day visitors fell 9.7 per cent, according to government data. Overnighters are also staying longer, at an average of 2.1 days.
James Packer sold down Crown's investment in Macau in early December, ceding control of Melco Crown's casinos to local billionaire Lawrence Ho. Photo: AP
Long way to go
"Without a doubt over past several months, Macau has felt busier than it has in a couple years," said Grant Govertsen, an analyst at Union Gaming Group. But while Macau's government is trying to become less reliant on gambling, there's still a long way to go before it becomes like the Las Vegas Strip, where non-gaming revenue makes up 62 per cent, compared with about 6 per cent in the Chinese city, he said.
"Does the fact that Macau has an Eiffel Tower now bring extra people to the market? Yes, but their main activity here will still be gaming," said Govertsen. Las Vegas Sands opened its $US2.9 billion ($4 billion) casino project in September featuring the Parisian landmark, about a year after Melco Crown Entertainment opened its Hollywood-themed Studio City that includes a Batman ride and a Ferris wheel shaped in a figure eight.
MGM China and SJM Holdings are also planning to open additional casino resorts in Macau next year. Macau casino shares have jumped this year in anticipation of the tourist-led recovery, with MGM China surging 52 per cent and Galaxy Entertainment Group advancing 36 per cent.
Still, Galaxy's billionaire chairman Lui Che-Woo said in an interview in September it was too early to say the worst is over for Macau, preferring to wait for more-sustained growth, backed by mainstream gamblers rather than VIPs.
Meanwhile, Melco Crown Chairman Lawrence Ho is setting his sights beyond Macau, as the fight for market share in the former Portuguese enclave heats up. The billionaire is taking greater control of Melco Crown after James Packer's Crown sold down its stake in the Macau casino operator.
"We are in a recovery. That recovery is not going to be the same as the recovery during the global financial crisis," Ho said in an interview last month, referring to Macau. "This time around, it's different. It's going to be more of a natural recovery."
Crown staged a massive retreat from its international operations in early December, exiting Macau and shelving plans to build a casino in Las Vegas, to reduce debt and focus on its casinos in Australia, led by the $2 billion high-stakes Barangaroo resort in Sydney.
No comments:
Post a Comment