AUSTRALIA

Crown fallout unlikely to prompt national regulation

David Green*

The report to the New South Wales Independent Liquor and Gaming Authority of the Bergin Inquiry into the suitability of Crown Resorts and its in-scope associates, in connection with its Barangaroo casino licence, has energised the discourse regarding the regulation of gaming in Australia.

In particular, it has suggested that a uniform national regulatory model could be adopted “to afford greater protection for casino operators to the disadvantage of the organised criminals and money launderers”. In theory, a good idea, but here’s why it likely won’t happen.

The Australian Constitution reserves to the federal government the power to make national laws in respect of only a few nominated industries, such as banking, insurance and fisheries. It also enables national laws related to “the influx of criminals”, though this is closer to the exclusive federal jurisdiction of national border control than it is to the functioning of enterprises operating within Australia.

It is not unprecedented for the states to cede certain legislative powers to the Commonwealth; for example, the states have the power to impose income tax, but since 1942 income tax has been legislated and collected by the Commonwealth, which re-distributes that revenue by way of grants to the states. This has resulted in a vertical fiscal imbalance, as the states must fund schools, hospitals and essential services from a revenue source that they do not control, and a grant mechanism which bears no direct relationship to taxes collected from their residents and enterprises.

A means of lessening reliance upon redistributed tax revenue from the Commonwealth has been various state taxes, such as stamp duty on certain transactions, payroll and land taxes, and gaming taxes. Casinos have become major contributors to state development, infrastructure, employment, tourism and tax revenue. Victoria has developed a close symbiotic relationship with Crown, effectively trading off more prescriptive regulation for enhanced investment and tax revenue.

Casino licences in Australia are privileges granted by the states, not by the Commonwealth. The states are very unlikely to surrender the power to determine who will qualify for the award of such a privilege, or disciplinary powers over their casino licensees to a federal regulator. In similar vein, they are almost certain to reject any empowerment of a regulator, state or federal, which has unfettered power to disregard agreements that they may be a party to which may limit the regulator’s power, or its ability to make a decision regarding a casino licence. Such subjects have a keen political edge to them, especially in states which host monopoly casino licensee’s operations, being Victoria, South Australia, Western Australia and Tasmania.

Assuming a national model would require a national regulator, where would it be based? Would it have branches in each state and territory? Who would comprise the Board, and who would appoint it? How would it be funded, given any extension to it of the powers of a standing Royal Commission, as Bergin suggests, and the support of a dedicated full-time workforce would likely make it a much more expensive regulatory cost overlay on an industry which is destined to shrink if the report’s recommendations re junkets and the prevention of money laundering are adopted beyond New South Wales.

An alternative model to a national regulator administering national legislation might be to have existing state regulators re-purposed and resourced to administer a national casino control Act. This presents two threshold issues. First, Australia is renowned for its competitively federalist model of government. The states often take any opportunity which may be offered to them to use what might be termed “legislative arbitrage” in order to compete for investment.

Casino licences in Australia are privileges granted by the states, not by the Commonwealth.

Secondly, what should go into an omnibus gaming law? Forget junkets; it is unlikely that any state will oppose the blanket ban proposed in the report. What about credit? Should it be allowed, and if so to whom and why? Should the body be subject to oversight, and if so, by what body? Should it be excluded from the jurisdiction of the Ombudsman in each state? Should it be exempted from responding to Freedom of Information requests? Should the states agree to exchanging information under Memoranda of Understanding that may be concluded by the national regulator and other regulatory bodies internationally?

While the Australian state jurisdictions have learnt from each other, and developed largely similar regulatory regimes and laws, it would be expecting rather too much for them to cede their sovereignty to either legislate or regulate their casinos. While there have been examples of the Australian gaming regulators working together to achieve some uniformity, such as developing an Australasian Gaming Machine Standard, even that limited commitment is conditional; each state retains certain of its own provisions in Schedule B to the Standard.

Staying with the theme of a good idea but unlikely to happen is the Bergin recommendation that suitability assessments of licensees and close associates should require the subject of such an assessment to provide “clear and convincing evidence” of their suitability. The provenance of this recommendation is a Massachusetts law that requires an applicant to “establish its individual qualifications for licensure” by clear and convincing evidence.

Massachusetts is a comparative newcomer to commercial casino operations. It passed its Expanded Gaming Act in 2011, and has since licensed two casino operations, which opened respectively in 2018 (MGM Springfield) and 2019 (Encore Boston Harbour). Its licensees, MGM and Wynn, have been licenced in Nevada for decades. Imposing a statutory onus to “prove” suitability in their case is arguably unnecessary, but for the fact that both companies also control subsidiaries holding casino concessions in Macau. Presumably they were able to provide clear and convincing evidence that their link to Macau did not compromise their suitability to hold a licence in Massachusetts.

Placing a statutory onus to prove suitability upon an applicant is akin to reversing the presumption of innocence upon which the criminal law in Australia is founded. Perhaps this is justified by the fact that casino licences are granted as privileges, and not by right. Whether it really adds anything to the quality of regulation is doubtful, as evidenced in Massachusetts itself, which imposed a US$35m fine on Wynn in 2019 for failing to disclose sexual misconduct allegations against its founder and former CEO, Steve Wynn. Such a result might even be seen as an embarrassment for the regulator, given its inferred acceptance prior to licence grant of “clear and convincing” evidence of suitability on the part of the company.

*David Green is a gaming lawyer and founder of NewPage Consulting.

Playing It Safe at Darwin Casino Resort

Avril Baynes, a resident of Australia’s Northern Territory for three decades, was appointed general manager of the Mindil Beach Casino & Resort in Darwin in November 2020 with a mandate to lead the facility through and beyond the era of the Covid pandemic.

With a background as an industrial relations lawyer and interest in hospitality, Baynes has been at the property in one executive role or another since March 2015.

The property itself, which Baynes describes as “Darwin’s leading entertainment destination” and “a bit of a one-stop shop,” was formerly known as SkyCity Darwin, but it gained its current name after its April 2019 purchase by Delaware North, a global food service and hospitality company headquartered in Buffalo, New York.

It includes a four-star hotel with 120 rooms, a five-star resort with 32 rooms, four restaurants, four bars, and it is commonly host to such events as gala balls, awards dinners, trade shows, and boat shows. In the dry season, it can easily accommodate outdoor events as well.

Baynes emphasizes that Mindil Beach plays a central role within the local community, and it also serves as a “gateway to Asia,” including countries such as Indonesia, Singapore, and even China. This is both because visitors to Darwin used to come to the facility in large numbers, as well as because there are not a few Asians living in the nearby area.

Of course, the onset of Covid profoundly impacted these previous patterns. While the Northern Territory has largely been bypassed by the pandemic, international travel routes were largely severed and the casino resort was forced to suspend its operations for a period of time.

Now that it has reopened, some behaviors and strategies have been obliged to change. With international travel still largely shut down, more visitation must be pulled from Northern Territory locals as well as visitors from other parts of Australia.

“Something that we’re really understanding now is that, since Covid has struck, people’s key drivers in selecting places to go for holidays have changed,” Baynes observes. “They used to be very much driven by location and price, and now safety is very high on people’s list. They want to go somewhere that’s safe.”

Delaware North designed a companywide “Play It Safe” program to protect both guests and employees, and one of Bayne’s key tasks has been to apply and implement these policies at her facility.

While the casino resort was in its period of business suspension, employees were put through a Covid training program teaching them how to recognize coronavirus symptoms both in themselves and others, as well as the proper hygiene and sanitation practices.

The casino floor saw screens go up between EGMs where possible,and where not possible, some machines were turned off to allow for social distancing. As for the table games, there has been reduced seating, the staggering of the tables put in use, and crowd management for onlookers.

An examination was made to eliminate unnecessary touch points, which meant that, for example, the tickets used for drawings shifted from physical to virtual.

One of the most significant new requirements was to facilitate contract tracing policies in the event that someone began exhibiting Covid symptoms. The resort and its suppliers formed agreements instituting a duty to inform, and delivery staff has been made to scan in and scan out. In the back of house, various technologies have been employed to help manage the contact tracing requirements.

Something that we’re really understanding now is that, since Covid has struck, people’s key drivers in selecting places to go for holidays have changed.

Fortunately, the relative absence in Covid in the region has not called much of this preparation into service.

Asked her goals going forward, Baynes notesthat “the community certainly has felt the fact that we have been closed.” As the crisis subsides, she hopes to strengthen the presence of Mindil Beach and to reforge and expand the community bonds.

She explains that the new owners had not been in place even a year before the pandemic entirely changed the nature of the game. New strategies had not been given time to manifest positive results.

“The first priority for me,” she says, “is really to build on the strong foundation that Delaware North started when it first purchased the casino.”

Clouds over VIP gaming amidst trade war, Crown debacle

Outside of the global pandemic, the trade war between Australia and China is casting another dark shadow over Australia’s already-strained VIP gaming industry, prompting operators to start looking elsewhere for recovery.

The spat between the two countries began towards the height of the coronavirus pandemic – around April 2020. At the time, Canberra was calling for an inquiry into the origins of the coronavirus, a move that China’s deputy head of mission, Wang Xining said: “hurts the feelings of the Chinese people.”

China responded by blocking many of Australia’s goods and services. As of today, exports of Australia’s timber, barley, coal, copper, sugar, wine, and lobster have ground to a near standstill, which is estimated will cost the country up to A$19 billion a year.

However, the most significant development for our industry came as a move from China’s culture and tourism ministry warning its citizens not to travel to Australia for study or play. More than 1.4 million Chinese tourists travel to Australia each year (pre-pandemic), and 260,000 students are enrolled in Australia’s schools and universities.

Choking the supply of Chinese visitors (including tourists, students, and their wealthy families) would most definitely have an impact on VIP-facing casino operations, but there are mixed views as to how this would affect their overall financial stability.

Asia Gaming Brief spoke to Kelly Amato, Director of South-East Asia Industrials at Fitch Ratings, about the impact of the trade war on international-focused VIP developments, such as Crown Sydney – notwithstanding the current NSW license debacle and company shakeup.

“In answer to your first question on what would happen to developments like Crown Sydney which were “banking” on Chinese VIPs, undoubtedly this will affect the economics of the project if there were limitations on visitations from these VIPs,” she said.

Amato pointed out that China’s arrest of Crown employees in October 2016 led to a significant fall in VIP visitation and revenue, but noted that this eventually rebounded.

“Further, VIP has historically made up a smaller proportion of Australian gaming operators’ revenues than domestic. It is inherently more volatile, and operates at lower profit margins than domestic – so, from our perspective, further volatility or declines in this business would have less of an impact on the overall operations of the gaming operators given the size and stability of their domestic mass-market operations,” she added,

Gaming industry veteran Ben Lee, however, did not share the same optimism as Amato, arguing that a large part of what is classed as the “domestic VIP market” is still made up by Chinese international players – the only difference (between that and VIP) is that they are not under any rolling chip program.

“China is the biggest market for tertiary education in Australia,” said Lee. Over 260,000 students were enrolled in secondary and tertiary education in Australia in 2019. These students are visited by their parents and relatives, who spend big amounts across Australia’s casinos.

Lee said this domestic factor was so significant, that there was a stage when Crown Resorts had even set up a lifestyle team, whose sole purpose was to assist Chinese VIP families to set up bank accounts, buy property and enroll their children in schools – services akin to those of a private bank.

“There was a lot of business coming to casinos indirectly as a result of Chinese students,” noted Lee.

VIP has historically made up a smaller proportion of Australian gaming operators’ revenues than domestic.

“With the ongoing trade war and Crown’s targeting of Chinese gamblers in 2016, there is suspicion that Australia has made it onto China’s blacklist,” added Lee.

“If we are on the blacklist, that means any Chinese citizen wanting to travel to Australia will need to go through massive scrutiny in order to obtain the appropriate exit visa.”

With the trade war showing no signs of abating anytime soon, operators may need to look to other VIP markets to fill the void post-Covid, according to gaming industry veteran David Green.

“With the departure of SunCity from the market and the aggressive focus which the PRC has now on the recruitment of Chinese for gaming tourism, there is no doubt that Australian casinos are looking elsewhere for VIP players.”

“Indonesia has always provided a pipeline for Burswood (Crown Perth) and there is a smattering of Thais, Malays, and Singaporeans. Australians also have a high propensity to gamble, and there are enough of legal gambling age to ensure the domestic market remains substantial and robust (COVID aside),” he said.

Aristocrat eyes digital M&A

Aristocrat Entertainment CEO Trevor Croker said the company plans to “significantly escalate” its focus on convergence products and services, which may involve mergers and acquisitions.

In his annual address to shareholders, Croker said the group had undertaken a strategic review of its business over the past year in response to the Covid-19 crisis. While the overall strategy of the company won’t change, there may be changes in emphasis, he said.

“In the context of COVID, and with the encouragement of our customers, we will continue to significantly escalate our focus on convergence products and services as part of our strategy,” he told the meeting. “We remain ready to invest to accelerate our strategy.”

Donaco returns to Q4 Ebitda profit

Donaco International, the operators of casinos in Cambodia and Vietnam, said it had positive EBITDA of A$0.2 million in the first half of the fiscal year after the final three quarters of the year generated $2.7million. Revenue declined to $6.3 million from $40.9 million.