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07 Jul

For Star Entertainment Group, sometimes the house doesn’t win enough

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Casino numbers are up in Sydney and the Gold Coast, recovering from softness during the federal election, Star Entertainment Group says Photo: Peter MorrisThe iron-clad rule of gambling is that the house always wins. But for Star Entertainment Group, sometimes the house doesn’t win enough.
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Its win rate historically averages 1.35 per cent on its international VIP business, with anything better than 1 per cent leaving the house ahead.

Since 2014, the win rate on this business, which comes mostly from Asia, has been below 1.35 per cent, falling to 0.88 in the second half of 2015 before rebounding to 1.5 per cent this year.

“In the first half, we were exceptionally unlucky,” the chief executive Matt Bekier​ said. “It was a less than 1 per cent probability to end up at that rate. And 1.5 per cent is above the expectation but it didn’t compensate” for the full extent of the losses.

The renewed strength of the international VIP business saw the debts of gamblers who leave its tables owing the house money rise to $33 million by the end of June from $17 million a year earlier, prompting it to double the level of impaired debt to $11.5 million, although much of this was incurred late in the year and has since been recouped, Mr Bekier said.

Earlier this decade, wealth creation in Asia was so strong that the number of millionaires being created was running at 40 per cent a year, the Star Group boss said. That has slowed to around 5-10 per cent, which means it is unlikely that the group will need to expand its Bombardier aircraft fleet to bring in the ‘big whales’, as big time gamblers are called within the industry.

“We’re seeing more players but with smaller amounts, not the super-whales, so they could come in flying first class especially as flights into China improve,” he said.

The international VIP business involves paying rebates to junket operators who introduce these players to the casino. To help remove the volatility of this business, Star is establishing its own direct sales presence in South-East Asia, which could also help lower costs.

“The challenge is loading up with creditworthy visitors,” Mr Bekier​, said on Friday.

Another target is to encourage more Chinese tourists to visit its casinos.

“Only around 3 per cent of revenue comes from tourists,” Mr Bekier said. “A surprisingly large number of Chinese tourists – around 25 per cent – find their way into our properties. But we can’t get them to stay on our properties. Therefore we need  more rooms to get them to stay.

“We’re just a side trip. Therefore we need to work with the relevant tour operator on how to maximise that.”

The group is finalising around a $3 billion spending program on additional hotel and apartment room capacity in Sydney, the Gold Coast and Brisbane, along with upgrades to its gaming floors, in part to also prepare for tougher competition from James Packer’s Barangaroo casino, which will be competing particularly at the premium end of the market in Sydney.

“The main rooms bring people in – you then want to tier people up,” Mr Bekier said, by developing more differentiated offerings for gamblers. “We can’t do that in Queensland.”

“Sydney has more tables/VIPs, which are lower margins than slots,” he said, which has meant that the underlying profitability of its Queensland casinos is higher. The upgrades there should help it to bring in more international VIP gamblers to those casinos.

The strength of its international VIP business saw revenues rise 7.2 per cent in the year to June, eclipsing the 6.8 per cent growth in domestic gaming revenues to leave group revenue ahead 6 per cent at $2.4 billion.

Revenue growth, with cost control, saw the group lift the net profit in the year to June 30 by 15 per cent to $194.4 million. Earnings per share reached 23.6¢, up from 20.5¢, running well ahead of the 4.4 per cent rise in revenue to $2.4 billion for the year.

The final dividend has been raised to 7.5¢ from 6¢, as part of the earnings uplift has been shared with shareholders.

The margin performance of the group’s Brisbane and Gold Coast casinos outstripped the Star City casino, but th Sydney casino drives group earnings. However weak consumer confidence late in the year hurt group operations.

“May-June was relatively soft due to macro factors – Brexit and the long election campaign, which impacted consumer confidence. That trend has not continued – we’re back into pretty solid growth,” Mr Bekier said.

In Sydney, Star Casino held its share of the market steady, it said, amid a sharper offering from rivals for the gambling dollar.

“Reflecting more strenuous competition – clubs and pubs upped their business, there are more pokies management businesses out there,” he said, with the focus now on a relaunch of its loyalty program later this year.

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