Fallen casino kings have advice for Blackstone

The rise and fall of two casino magnates offer lessons for Blackstone (BX.N) as it bids A$8.9 billion ($6.5 billion) to take charge of disgraced Australian gambling group Crown Resorts (CWN.AX). Elements of Packer’s former business partner Lawrence Ho are worth copying.

Packer, scion of media magnate Kerry Packer, has much in common with Ho, another heir living in his late father’s shadow. Ho called Packer “brother,” and Crown partnered with his Melco group to open a Batman-inspired casino, whose lavish opening was graced by Packer’s then-girlfriend Mariah Carey. But in 2016 Packer’s ill-advised marketing push into mainland China, where it is illegal to promote gambling, landed his employees in jail.

After Ho and Packer parted ways, their growth strategies diverged. Packer plowed $1.6 billion into an opulent resort overlooking Sydney’s harbour. The palatial property needed big spenders to make it commercially viable, but Crown’s VIP revenue peaked in 2015 after its China crisis left local marketing in disarray. The company became increasingly reliant on third-party “junket” operators to arrange travel and credit for wealthy Chinese gamblers.

As Ho planned his Zaha Hadid-designed Morpheus resort, he targeted China’s middle class, arguing that the mass market could be four times as profitable as VIPs. Although Melco continued to work with junkets and VIPs, Ho favoured direct sales to gamblers and tourists, avoiding hefty commissions. The bet seemed to pay off. Between late 2016 and the end of 2019, total returns from Ho’s Hong Kong holding company doubled while Crown gained only 23%.

Crown’s cosier relationships with the junkets cost shareholders in other ways. In 2019, Australian media exposed its feeble due diligence, which saw it rely on promoters allegedly linked to organised crime. Subsequent inquiries by local regulators showed Packer’s heavy-handed manipulation of the firm – even after he left the board – precipitated a governance crisis that culminated in watchdogs labelling the company unfit to hold casino licenses.

Ho was not spared. The media investigations revisited Ho’s father’s alleged links to triads, scuppering his plan to buy into Crown. That stung; Australian assets could have helped hedge against the downturn in Macau.

Assuming Blackstone’s bid is approved on April 29, the lessons are simple. Knowing your customer is paramount; the best customers are ordinary people; over-dependence on China is a liability either way.

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