Crown Resorts has recently made the news thanks to its dealings in Macau and China. Back in October, almost 20 Crown Resorts employees—all of which were Australian—were detained by Chinese authorities, being accused of various offenses relating to business dealings in Macau.
To provide some background, though owned by China, Macau is referred to as a Special Administrative Region with laws that are entirely different from the mainland. Chief amongst these legal differences is the fact that gambling is as legal in Macau as it is in Las Vegas despite it being strictly forbidden in mainland China.
As a result of the recent Macau turmoil, Crown Resorts Ltd. Has announced that it will be selling $1.18 billion in shares of Melco Crown Entertainment, which is based in Macau. This move by Crown Resorts would reduce the company’s stake in Melco Crown to 17% from 24%, thus massively reducing its exposure to the Chinese/Macau markets.
A Response to Legal Issues
As was mentioned above, the move to sell shares in Melco Crown came about after an October story broke which showed that 18 Crown employees were arrested by Chinese authorities and were facing a number of charges. When this story broke, Crown’s stock fell dramatically. The reason for this is due to the fact that the charges being brought against Crown employees might result in high-rollers from China avoiding the use of Crown casinos.
Adding to the problems, the Wall Street Journal is reporting that Crown’s revenues through the first 23 weeks of this fiscal year are 12% worse than what they were a year ago. In addition, VIP play has dropped off significantly. Most are pointing their finger at the arrest that took place back in October.
China has extremely strict rules governing how casinos can operate on the mainland, and the short explanation of this is that they cannot. Casinos located in Macau are not even allowed to show one advertisement in China per the country’s law. Another feeling emanating from the arrest of Crown’s employees is that this is a move, by China, to warn foreign countries that they are not willing to bend or overlook laws regarding casino operations and advertisements.
With casinos in Macau extremely reliant upon Chinese high-rollers, these events are devastating for Crown as even its properties in Australia are reporting less and less VIP traffic. With Chinese authorities releasing very little information about what the future holds for the 18 detained Crown employees, we will just have to sit back and play the waiting game. In the meantime, Crown is attempting to formulate ways by which it can dig itself out of the hole created by this controversy. This is another one of those stories we will have to continue following closely as more details are released.
Something that would be interesting to find out is how other Macau properties—those not related to Crown—have been performing since the 18 were arrested. You would think that revenues have improved, but there has not been all that much coverage on the matter. We will follow this and other developments relating to this story as they are made known.