Australians were the biggest punters in the Western world. Then the number of casinos doubled. Do we need them?
ALAN Massie winces as he passes the centrepiece of his casino, a garish tableau featuring an enormous urn spilling out a torrent of ersatz gold coins above a sign advertising that the “pot of gold” prize has reached $22,000, payable in cash or bullion.
“The original plan was for an elegant European-made fountain,” he apologises, “but that didn’t happen and nothing we have tried since seems to work. Maybe we should have live, nude jelly-wrestling.”
A desperate solution, but then these are desperate times at the Reef casino in Cairns, Australia’s newest gambling emporium – and the first to go broke, just one year after the first roulette wheel spun, the first hand of blackjack was dealt and the first coins clattered into the “slots”.
Since the first casino opened 24 years ago at the other end of the continent in Hobart, casinos have been regarded as a licence to print money. Now, with 14 of them scattered across the land, a battle for the gambling buck as ferocious as any Las Vegas Mafia vendetta is on – as well as Cairns, at least five other casinos are in serious financial trouble and further takeovers and possibly even closures are on the way.
This weekday afternoon, with the first breaths of a cyclone tossing the palm trees outside, the gaming floor at the Reef is two-thirds empty; the secluded silk-lined high-rollers’ room is deserted because the bank has cut off its line of credit; the take for the day will be lucky to exceed a pitiful $100,000. “Australia has reached saturation point,” says Alan Massie. “There is no room for any more large casinos; it is a highly competitive, aggressive market.”
At stake is the future of Australia’s fastest-growing “sunrise” industry, one which is remodelling the country’s cities and dramatically changing the way of life of millions of people. Australians were already the Western world’s biggest gamblers, punting as much as we save – three cents in every dollar of disposable income, or three times as much as the Americans.
But the past five years, in which the number of casinos has doubled, have seen an exponential expansion. Australians now lose a staggering $10 billion a year gambling – equivalent to the combined profits of the country’s 10 largest public companies – and the biggest winners are casinos, which increased their slice of the cake to about $2 billion, mainly at the expense of the racing industry.
However, among the tat and the tinsel, the neon-basted halls where the sun never shines and the only clocks count down the megabucks for the next jackpot, there are winners and losers. While the Reef casino teeters on the brink of bankruptcy, Crown in Melbourne floats on a river of gold – when it opens next month, its colossal permanent home opens next month, it will be both Australia’s biggest building (it cost half as much again as Parliament House in Canberra) and Victoria’s largest employer.
And in Sydney, the wheel is still spinning on what (measured by market capitalisation) is the biggest gamble of all – the $1.5 billion of investors’ money now riding on the ability of Kerry Packer, Australia’s richest person and one of the world’s most feared gamblers, to turn a struggling gambling den on a harbour backwater into what its chief executive boasts will be “the jewel in the crown” of Australian casinos.
“WITH hindsight, the projections were a bit bullish,” says Alan Massie, in what would have to be the understatement of the investment year. And he ought to know – Massie is one of Australia’s most experienced casino operators, working his way up over two decades from rookie dealer at Hobart’s Wrest Point to director of the Reef casino in Cairns. A diamond ring glitters on his right pinkie.
Those projections, in Reef’s prospectus just three years ago, forecast that it would be “one of the most opulent boutique-style casinos in Australia, if not the world … (positioning) Cairns as the Australian destination for both domestic and international visitors”.
Even more embarrassing were the financial forecasts. In its first year of operation, the casino should have had revenues of more than $100 million and a pre-tax profit of $13 million. Instead, as 1996 drew to a close, the casino managers discovered they had taken less than half what they expected, and made a loss of $13 million. Reef’s bankers have in effect taken over and the casino is running on empty while they seek financial refuelling from a new investor or owner.
How did it come to this?
Keith De Lacy, the former Queensland Treasurer who approved the deal and who happens to be the local MP, believes we now have simply too many casinos. “It seems obvious to me that all of a sudden Australia has become over-gambled and a lot of people didn’t take sufficient cognisance of that,” he says. “The numbers were done in the halcyon days.”
The experience in other States, as the initial exclusivity agreements expire and revenue-hungry governments hand out more licences, seems to bear him out. Dr Jan McMillen , Australia’s leading gambling academic, says government greed and investor recklessness have driven the industry to “crisis point”.
Also facing difficulties are the Breakwater Island casino in Townsville, whose shareholders are fighting a civil war; the tiny Lasseter’s in Alice Springs, where two Japanese gamblers are said to have broken the bank last year, winning more than $10 million and precipitating its sale at a bargain price; and the struggling casino in Adelaide’s gloomy Victorian railway station, which the South Australian Government is desperate to sell.
Even some of the larger and more established casinos are experiencing upheavals. In Sydney and at Perth’s relatively successful Burswood casino, new management companies are being brought in, and, at the remote Christmas Island casino in the middle of the Indian Ocean, gambling has ground almost to a halt (the biggest bet you can get on is $50) as the Indonesian owners battle to oust the Austrian managers.
It is slowly dawning on investors that although the casino gambling take has quadrupled to $2 billion in the past five years, net after-tax profits have remained stagnant at about $100 million. In 1995, according to the Australian Bureau of Statistics, Australia’s top five casinos (Brisbane and the Gold Coast, Sydney, Melbourne and Perth) made $175 million, while the nine others lost a total of $67 million. The casinos’ return on assets, just 4 per cent, is half the average of all Australian businesses and less even than you would get leaving your money in the bank’s term deposit.
Other factors have also hit the Reef casino, not least a slump in tourism, which has become the region’s most important industry, worth more than mining and agriculture put together. With a local population of only about 100,000 (and only 2 per cent of these Australians of Asian origin, disproportionately heavy gamblers), it was always going to be heavily dependent on tourists. But the opening of the casino coincided with Cairns’s worst year for tourism since the 1989 pilots’ strike.
Steven Noakes, head of the recently “rebranded” Tropical North Queensland Tourist Authority, says one reason is dissatisfaction with misleading marketing – he pushes across his desk a Qantas advertisement for Cairns from a Bangkok newspaper showing two surfboards impaling a sandy beach. As disconsolate foreign tourists soon discover, Cairns itself has no beach and no surfing … just an endless vista of muddy mangrove swamps. It is lashed at this time of the year with monsoon rains and the sea is infested with swarms of poisonous box jellyfish.
In any case, the Japanese, who make up about a third of Cairns’s foreign tourists, are no great gamblers, at least, not on casino games. They come to North Queensland for the reef and the rainforest, the “blue and the green”, which Alan Massie reckons are the casino’s real competition. The casino gets its best crowd when it rains.
Most people do not think the Cairns casino will close. A new buyer – Kerry Packer? Jupiters? Auckland? – is being sought at a more realistic price than the $220 million the casino and its adjoining hotel cost. Several hundred unlucky shareholders (including the Australian Olympic Committee) are about to discover that an investment in a casino can be as risky as a roll of the dice on the craps table – they may lose the lot.
“PEOPLE think I am talking bulls— because I tend to speak in superlatives, but it’s all true, I can assure you,” says Gary O’Neill, the fast-talking former journalist who is the public relations man for surely one of the the most extraordinary business enterprises this country has seen.
Like Reef, Crown Casino in Melbourne has a problem, but it is its success, not its failure. Since the day it opened its temporary premises in June 1994, its patronage and its profitability have exceeded even the most rose-tinted forecasts. As nuns are said to become the most wanton whores, staid, stuffy Melbourne – where a great tract of eastern suburbia is still a pub-free zone under 19th-century blue-stocking laws – has embraced the god of gambling with shameful abandon.
From the banner draped above the airport freeway and the signs on city street corners to the garish trams and the loudspeakers blaring propaganda – a $100,000 jackpot, a giveaway car every three days, a pensioner concession card – the casino is inescapable. About 22,000 people a day pour into the building and on a recent Friday night, it seemed as though every one of its 1,300 poker machines, every seat at its 250 blackjack, baccarat and roulette tables was taken.
Although O’Neill scoffs at the idea – “our success is because we are a very experienced, very expensive team of people who know how to run a casino on an international basis” – Crown still looks like that proverbial licence to print money, in spite of its heavy debt burden and its recently sagging share price. In the latest half-year, Crown made $30 million after tax on revenue of $271 million; the Sydney casino struggled to squeeze a mere $600,000 out of $184 million.
The formula is such a winner that Crown has formed a joint venture with Packer’s Consolidated Press Holdings to evaluate taking over licences for new casinos overseas, particularly in Asia and South Africa. “It is an international business and we have to be internationally competitive,” O’Neill says.
He even seems unperturbed that construction delays on the casino’s permanent building across the Yarra are costing Crown $50,000 a day. “Building” is hardly the word for this $1.7 billion extravaganza sprawling along the river, with its 1,000-room hotel, 14 cinemas, 40 bars and restaurants, its theatre, its ballroom, its half-kilometre-long arcade of brand-name boutiques. Hyperbole city.
IT WILL be the largest casino in the world (based on the number of gaming tables) and it will attract 15 million visitors a year, not far short of the entire population of Australia. Melbourne traders are worried it may suck the retail life out of the city itself, although O’Neill reassures them: “I cannot believe there is this huge market here for people who want to spend $5,000 on an Armani suit or a Gucci watch. We will not put DJs or Myers on their arse.”
Inevitably, the casino has become a lightning rod for the fears and frustrations old, establishment Melbourne feels with the run-over-the-bastards style of the new Victoria and its boiler-plated Premier, Jeff Kennett. “It’s only people from the north and west who go,” sniffs one critic. “People from the eastern suburbs wouldn’t be seen dead there.”
As well, the Opposition has claimed the licence was rigged and has called for a royal commission. But, as O’Neill vigorously reminded the Labor leader, John Brumby, at a recent encounter: “I understand that you have got to try and make political capital by having a go at us now, but if and when you get into government you are going to be just as keen to grab the revenue we provide as the other lot.”
The casino has also been linked by a largely hostile media with a number of suicides (gambling, but not specifically the casino, has contributed to several suicides, says the Coroner’s office), and with a rise in crime (only the sort of petty offences you would expect, says Victoria Police Crime Commander Rod Lambert). In fact, Jan McMillen, who is a member of the Queensland casino control authority and professor of gambling studies at the University of Western Sydney, says: “We simply do not have the data on the social and economic effects of casinos.”
O’Neill is naturally keen to downplay all this and point to what he claims is a reduction in crime. “What is surprising, considering all the moral outrage, is that from day one a huge number of people arrived here, particularly from the ethnic communities, who already knew how to play blackjack and roulette. The police will tell you that illegal gambling disappeared almost overnight.”
One of the most important factors in Crown’s success has been its aggressive grab for the international high-roller market. These people – individual “whales” like Packer and groups of mainly Asian businessmen prepared to wager anything up to $20 million in a session – represent less than 1 per cent of patrons, but in the case of Crown provide 30 per cent of revenue.
Nothing is too good for them. When its two Gulfstream jets could not cope with a rush of Hong Kong businessmen seeking a multi-million-dollar flutter over the Chinese New Year, Crown chartered a Boeing 767 at a cost of $500,000 to fly 250 gamblers and their families to Melbourne for the week.
These high-rollers are given free meals and luxury accommodation, tickets to shows, a round or two on the casino operator’s own golf course at Moorabbin … and, the biggest incentive of all, a highly complex system of “commissions” under which mega-gamblers can be paid back 10, 20, 30, or even 100 per cent of any money they lose.
But all this only goes part of the way to explaining the Crown phenomenon. “It is absolutely astounding,” says McMillen. “I think they have tapped into a profound change in the social and political culture which is under way in Victoria. Just in the past few years it has become much more entrepreneurial, much more in-your-face, and the casino suits that mood.”
“WE just get the passing trade,” says Peter Grimshaw, the publicity man of the Sydney casino, conducting a quick tour of the gaming floor one weekday morning. While Melbourne whisks its billionaires across the world by jet, the Sydney casino has just welcomed a coachload of elderly women from Cabramatta with a bargain buffet ($5 off the normal price for all you can eat) and $5 worth of free poker machine tokens.
Although the newly appointed chief executive, Neil Gamble, says comparisons between Australia’s two largest casinos are “ludicrous”, they are inevitable. By almost any standard, the Crown casino is streets in front – it opened earlier (Sydney’s permanent building, complete with giant artificial waterfall, will not open until December), it has more tables and machines, it attracts more gamblers, it takes more money and makes vastly more profit.
It seems like a combination of bad luck, bad judgment, a bad deal with the State Government – and a bad location. While Melbourne’s casino dominates the city, Sydney’s is hidden away on a wharf at the back of Darling Harbour on what used to be an old overseas passenger-ship terminal, initially with almost no parking, poor public transport, and black courtesy buses which the superstitious Chinese community immediately branded “hearses”.
It opened without an Asian restaurant (about a third of Melbourne’s casino gamblers are of Asian origin) and with little promotion. In a city blase’ about “pokie palace” clubs – the first poker machines were licensed 40 years ago – the temporary premises seem to have little to offer that the local RSL or football club could not provide. James Bond it is not.
As well, the original owner/managers struck a poor deal with the State Government. Their failure to obtain a lower tax rate for their takings from overseas “high rollers” has meant that Sydney is uncompetitive in this lucrative market; nor do they have enough tables or poker machines to cope with peak demand.
All this, Gamble hopes, is about to be addressed now that Packer has taken over the casino management. Gamble expects a high-roller tax concession to be announced within a month and an increase of 50 gaming tables. As well, he says, there will be “obvious synergies” with the Packer media-and-leisure empire, particularly joint promotion of the two casinos in which he has a stake – Sydney and Melbourne – in Asia. Eventually there may even be a merger.
Whether that will do the trick, no-one knows. Gamble, for one is optimistic: “It is inevitable that Sydney will succeed – it is the largest city in terms of population, it is the most attractive, it attracts the largest number of tourists. The casino is going to be our second most important attraction, after the Opera House.”
For all that, he acknowledges that the “dream run” the casino industry has had in Australia is over. From now on, it is all hard work. Not everyone may survive. It is, after all, a gamble.
KEEPING IT CLEAN
THE first time he went to Las Vegas, John Haddad (pictured right) was introduced to a casino manager named Jack Entratter, a huge man with scarred and nobbly knuckles. Entratter explained that when he first went to work in the gambling business he fell foul of the Mob, who had his fingers broken over an iron bar for a warning.
That was a lesson Haddad, then “the young, dispensable chief executive” of the riverside Wrest Point Hotel in Hobart, never forgot. He is the man who wrote the rules that are still the basis for government legislation regulating casinos – the laws that (so far) have kept the casino industry in Australia free of the sort of scandal, corruption and criminality for which it was notorious overseas.
Tasmania was another country, 1967 another time. John Haddad had just been put in charge of Wrest Point and was wondering how to fix the hotel’s biggest problem: “Five months of the year we did well, seven months of the year we died because Tasmania died in the winter. Tourism was almost non-existent – Hobart had two restaurants and you couldn’t even get a taxi.”
One morning, Haddad had a telephone call from his boss, Ray Markillie, the head of Federal Hotels, which was then Australia’s largest hotel group. It went something like this:
Markillie: I want you to go to Manakah.
Markillie: Manakah … you know, where Princess Grace comes from.
Monaco turned out to be just one stop on a two-month round-the- world trip that educated, and appalled, him. “The industry was full of graft and corruption. (The head of a London casino) had just been locked up after they found ¤2 million under his floorboards.”
When he returned, he had to convince the administration of Tasmania’s long-serving Premier, Eric Reece, that regulations could be devised to keep the industry honest. “I invented clean gambling,” Haddad says. “I came back from that mission with a list of ‘don’ts’.”
The list contains what he calls the three commandments of the Australian casino industry: no tipping the dealers and croupiers, no gambling by any employee, manager or director, and government supervision of the physical counting of the money – concepts then unique in the world.
“When I first went to Las Vegas they were very interested in getting involved in the industry in Australia,” says Haddad, recently retired after 10 years as chairman of the Australian Tourist Commission and still deputy chairman of Federal Hotels and of Crown Management Ltd, the Melbourne casino group.
“But after we told them what the rules would be, they suddenly didn’t want to know. They told me it would fail, it would be a flop.”
Even so, it took six years to convince a sceptical Tasmanian public that a casino would not destroy the State’s moral fabric. At a press conference, Haddad was asked how Hobart would cope with the influx of prostitutes. In the end it was put to a referendum, and the casino was narrowly approved, by 10,000 votes out of 400,000.
The entertainer Jerry Lewis opened Australia’s first casino and Tasmania never looked back. The casino made money from day one, the Government reaped millions in desperately needed taxes, and within two years, says Haddad, the number of tourists had doubled.
Haddad thinks that now, with 14 casinos, Australia may have reached its limit. But he is confident that, thanks to the guidelines he helped draft, we have avoided the depredations of organised crime.
Pub: Sydney Morning Herald
Pub date: Saturday 22 March 1997
Word count: 3016
Classification: Sport/Gambling/Casinos Company/Reef Casino Trust Company/Crown Casino Ltd
Geographic area: Australia
Caption: Cashing in …
1. The Crown Casino in Melbourne
2. Reef in Cairns
3. Model of the Sydney Harbour casino
Comments: “Keeping it clean” joined to story.