Investors Lose Billions after Crown Resorts and Melco International Part Ways

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Saturday, January 27th, 2018 | Written by Shane Larson

Australian gaming group Crown Resorts – owned by James Packer – recently finalized its split from Melco International, with the company subsequently collecting around $3 billion from the offloading of its 34% stake in Melco Crown. According to Packer, the money will be used to help pay off debts accrued by Crown Resorts, and help the firm concentrate on consolidating its position within Australia’s domestic market.

In the meantime, the decision to end the partnership with Melco Entertainment has cost Crown Resorts and its investors an estimated $2.5 billion. That is because when Crown initially started selling off its Melco shares in December of 2016 the stocks were valued at around $16 each, rising to around $17.91 a few months later when the sale was completed.

Over the past 12 months, however, the 34% stake that Crown sold for $3 billion has exploded in value and is now estimated to be worth nearly double its original selling price, or around $5 billion. According to today’s prices, Melco shares are currently worth $24.35, meaning the stock price has increased by 50% since Crown began selling. In other words, the decision to split from Melco Entertainment appears to have been a bad one that has cost Crown Resorts investors billions of dollars, as well stopping the company from gaining a presence in the global casino industry.

Melco’s Global Expansion Plan

Melco Entertainment already has a strong foothold in Asia, and is now extending its expansion plan to the whole of the global market. Melco, for instance, has been granted permission to build the largest integrated casino resort in Europe, with the company set to spend half a billion euros completing the City of Dreams Mediterranean on the island of Cyprus. This is then expected to draw in wealthy gamblers from all across Europe, as well as Russia, and the Middle East.

Furthermore, Melco CEO Lawrence Ho says that his company is now in a position to challenge the standard casino model used in Las Vegas and bring gaming into the 21st century. In addition, Melco intends to establish a presence in Japan, with the company even prepared to relocate its headquarters to the country after Japan puts the finishing touches to its Integrated Resorts Bill.

Crown Taking Conservative Route

As Melco becomes more aggressive, Crown Resorts has been going in the opposite direction and taking a more conservative route following its split. In the third quarter of 2017, Packer subsequently conceded that Crown Resorts had failed in its global market expansion plan, with the situation having been badly impacted in 2016 following the arrests of Crown staff in China on illegal gambling promotion charges.

The scandal resulted in Crown halting its global expansion plan, shutting down its Asian operations, and selling off its shares in Melco. Meanwhile, Packer is also likely to abandon plans to expand into Las Vegas or Japan, too, with the company concentrating its efforts on its native Australia, instead. As Packer explains in a statement:

“We didn’t succeed in a global strategy. But in terms of the list of Australian companies that have gone offshore and have come back to Australia with their tail between their legs, I think we are at the top of the list in terms of we actually made a couple of billion dollars.”

Challenges of Australian Market

Crown is set to face a lot of new challenges in its home market of Australia, especially as the number of VIP gamblers visiting Australian casinos has stagnated of late. In fact, the Chairman of Crown Resorts – John Alexander – said that turnover from VIP players dropped by 17% between July and October 2017 versus the same period of time a year earlier. Furthermore, this contraction followed a 39.7% year-on-year drop in VIP turnover for the fiscal year ending June 30.

Nevertheless, Crown Resorts has faced many challenges and controversies over the past two years, and Packer says he is confident that things will improve for the company moving forward. Meanwhile, business is booming at the Crown Melbourne casino with VIP turnover exceeding investor expectations. This has also led Packer to believe that foreign gamblers are already beginning to return to Australia in bigger numbers.

Finally, another way in which Crown is consolidating its position within Australia is through the constructing of a new $2 billion luxury casino hotel in Barangaroo, Sydney, that will be heavily focused upon attracting high-end visitors and gamblers.