Michael Sainsbury

MICHAEL SAINSBURY. Packer kowtows after cash cow slough, Macau Crown row.

James Packer’s ignominious retreat from his once-lauded international strategy is continuing apace as 17 staff from Crown Resorts, the company he controls with 48% of its stock, continue to languish in Chinese detention centres.

The company is selling another 13.4% of its Melco Crown joint venture back to its joint venture partner for $1.6 billion and looking to probably offload its remaining 12%, perhaps in another block sale. Chinese companies will be lining up
To put this in plain English, Packer is walking, or rather scuttling, away from the worlds biggest casino market, Macau, one that is about six times as big as Las Vegas. He is also walking away from Vegas itself as the devastating impact on his business of the appalling mismanagement of the companys foray into the Chinese market becomes apparent.
The last straw may well have been Beijings decision last week to limit ATM withdrawals in Macau from Chinese banks, but the writing was already on the wall. And its the Australian business that needs the cash.
As predicted by Crikey -- but apparently not foreseen by the geniuses that run the business or the very pro-Packer, handsomely remunerated Australian analyst community who chanted, in unison, that Crown shares had been oversold Crowns Australian VIP revenues have fallen off a cliff. The company admitted yesterday that VIP turnover for its Australian resorts fell 45% in the first 23 weeks of the 2016-17 financial year that is some hit, and a looming nightmare if it continues. It resulted in a 12% slump in total revenue across its Australian resorts in the same period, compared to the previous year. Yikes.
Think about it this way: what wealthy Chinese high roller, or whale, in his right mind would head to Australia for a massive splurge at Crowns gaming tables?
Crowns regular Chinese high rollers many no doubt in fear of the own liberty will readily open their kimonos (to mix the cultural references) to Chinese police investigators, telling all about any breach of Chinese law by Crown, as police compile evidence against the companys executives and staff over the next five months or so in preparation for trials that could send many of them to jail.
Its worth noting that critics of Packers original deal with the Ho family Macaus original casino monopoly posited that, eventually, the locals would end up taking the company back. They play the long game in China and Hong Kong, and such is the way that business happens in those parts with foreign partners. The bigger they are and there is none bigger, in Australian terms, than Packer in the gambling business the harder they fall.
Yet it was only six weeks ago at the companys annual general meeting that the company said it was uncertain what effect the Chinese arrests would have on the group. That might be true of the board and executives, but anyone who knows the first thing about how the Chinese work once they decide to screw a company would not be surprised.
This has been described by Packers supporters in the Australian business media as being code-named, like all good corporate projects, Project Alpha. Those same journalists are describing the sell-out at Melco Crown as a windfall rather than, look, fellas, I shrunk the company.
In any case, the irony is breathtaking, as it most definitely Plan B and a clear admission of defeat for the one-time alpha male of Australian business who continues to be holed up in the Israeli city if Tel Aviv and is, according to a number of media reports, mulling Israeli citizenship.
To soften the blow of exiting its growth strategy and prop up its stuttering share prices Crown has promised to distribute some of the cash to its shareholders.
The Crown experience puts paid to the ridiculous hyping of the federal government about the vast opportunities available to Australian businesses in China. This is particularly true of the brave new world of the services sector.
Still, in its misreading of China and capitulation offshore and retreat to Australia, Crown is hardly alone. Recently, ANZ, the only Australian bank that attempted to carve out an Asian strategy, has also retreated, and companies like milk products group Bellamys, whose share prices have soared on the back of surging China sales, have come back to earth with a thump.
[When to hold em and when to fold em: Packer doubles down on Japan] The question is what sort of message Crowns retreat sends to other, smaller Australian companies pondering trying their luck offshore. If the mighty Packer family cant succeed in China/Asia, how can I? some may think.
One the other hand, others may be smart enough to look at what Crown did wrong as they embark on their own China or Asian strategies. It also further cruels the Australian governments hype that the China Australia Free Trade Agreement is a gold mine for services companies like Crown. Of course, there is money to be made, but understanding how to navigate the shoals of Chinese and Asian business and actually heeding the very clear warnings of Chinese authorities would be a better place top start.
Crown, naturally, will live to fight another day and make plenty of money in its monopoly and oligopoly businesses in Australia its just that its significant growth options are now radically crimped. So, ho hum, it will probably retain its board stuffed with (often superannuated) mates with no gambling or Asian experience But that will matter less as, once more, it will be, by and large, a big fish in the small Australian pond. Any way you care to look at this, its a big fat failure.
Mazel tov, James Packer.

Michael Sainsbury is a freelance journalist in Asia and editor of Little Red Blog. This article was first posted in Crikey on 16 December 2016.

Michael Sainsbury

Michael Sainsbury is a former China correspondent (now based in South-East Asia), with more than 20 years’ experience writing about business, business politics and human rights across Australia and the Asia Pacific.