You won’t see as many Chinese VIPs frequenting properties of Crown Resorts in the coming months. Crown has ceased all activity with junket operators with immediate effect.
Crown issued a statement to the Australian Securities Exchange (ASX) on November 17.
“The Board has determined that Crown will permanently cease dealing with all junket operators, subject to consultation with gaming regulators in Victoria, Western Australia, and New South Wales. Crown will only recommence dealing with a junket operator if that junket operator is licensed or otherwise approved or sanctioned by all gaming regulators in the States in which Crown operates.”
“The consultation process with Crown’s gaming regulators in Victoria, Western Australia, and New South Wales has commenced.”
The press release clearly states Crown has permanently ceased all activity with junket operators. This is not the case, however. Crown is only stopping until June 30, 2021. It hopes by this date to complete “a comprehensive review of its processes related to junket operators.”
Ties With Junket Operators Cause Crown Major Problems
Cutting ties with junket operators comes at a time when Crown’s affairs are under the spotlight.
An inquiry grilled Crown’s Board of Directors and its major shareholder James Packer for 48-days. The NSW Independent Liquor & Gaming Authority launched an inquiry into Crown’s suitability for a gaming license at its soon-to-open Barangaroo, Sydney property.
It stemmed from Crown breaking rules set out by regulators. Those regulators banned Crown or its key personnel from any dealings with the late Stanley Ho or persons and companies linked to him. Packer attempted to sell 19.9% of his Crown shares to Lawrence Ho, son of Stanley Ho. Lawrence Ho was listed as a director of one of the banned companies at the time of the transaction.
The inquiry heard Crown is unfit for a casino license anywhere, not only in Sydney.
Several media sources uncovered Crown’s use of junket operators earlier in July 2019. Those sources claim junket operators used Crown’s casinos for the purpose of money laundering.
A whistle-blower revealed Chinese VIPs received preferential treatment. This included private jets to bypass customs, huge credit lines and even drugs and prostitutes for clients.
Crown, of course, denied all allegations of wrongdoing.
Cutting Ties Isn’t An Admission of Guilt
Perry Herzfeld SC is a lawyer for Crown Resorts. He poured cold water on claims stopping activity with junket operators is an admission of guilt.
Herzfeld referred to Crown’s due diligence processes.
“We accept they had shortcomings, but we don’t accept the characterisation that they were not robust. A system can be described as robust even though an error has occurred.”
Many see this latest action as something of a Hail Mary on Crown’s part. The company faces the very real prospect of not obtaining a gaming license for its new $2.2 billion casino. There is also a chance its other licenses could be suspended if the inquiry rules they shouldn’t operate in Sydney.
Others believe Crown has nothing to lose by stopping junket operators activity until June 2021. Junkets specialise in bringing extremely rich Chinese and Asian gamblers to casinos. Revenue from this player type is massively down around the world as they either continue to stay away from casinos or remain in countries with strict travel restrictions. Crown is essentially saying it won’t use junket operators to bring in customers who won’t travel regardless.
Investors React Positively to the News
Shares in Crown Resorts finished 1.570% higher than the previous day at close of trading on November 17. You can buy those shares at $9.70 each.
This suggests Crown investors are happy with the news in the short term at least. They see this as a way to increase Crown’s chances of getting its hands on a Barangaroo gaming license. Longer term, however, not using junket operators will have a huge negative effect on Crown’s revenues. VIPs generate so much revenue they have their own section in casinos’ financial statements.
At least Crown has eight months to find a loophole to allow junkets to bring well-heeled gamblers to its properites.