China casino marketing scrutinized as Crown court date set

Crown Resorts Ltd. staff detained in China since October are due in court this month in a case that may determine how casino operators drum up business in the world’s biggest gambling market.

The Crown workers have been charged with offenses related to the promotion of gambling, Australia’s largest casino operator said Tuesday. Among the 19 scheduled to appear in a Shanghai district court on June 26 is the company’s head of international high-roller operations, Australian Jason O’Connor.

It’s illegal to gamble or promote gambling anywhere in China, other than in Macau, and the detentions eight months ago raised concerns of a renewed clampdown on overseas casino operators that woo Chinese citizens offshore to gamble. The charges come as Chinese authorities seek to halt hundreds of billions of dollars worth of outflows, some of which exit the mainland via gambling operations.

With a judgment now closer, the case might explain why the Crown staff were targeted and make it clearer to foreign casino operators such as Las Vegas Sands Corp. and Wynn Resorts Ltd. where to draw the line in attracting mainland clients without selling themselves as a gambling destination.

“It’s a matter of how you strategically market yourself and what you’re emphasizing,” said Bloomberg Intelligence analyst Margaret Huang. “You can’t be just like ‘Hey come to our casino here.”’

Crown shares headed for a second day of gains after the charges were announced, adding 0.1 percent to AUD12.96 at 10:06 a.m. in Sydney. The stock has increased 12 percent this year as the company pulled out of Macau in the wake of the detentions, announced a special dividend and pushed on with a share buyback.

Macau is the only Chinese city where casinos are legal. Elsewhere in the nation, it’s illegal to organize people to gamble. If convicted, the defendants could face up to three years in jail. For operating a casino and for serious cases, the penalty can stretch to 10 years.

The charges against the Crown workers, the most significant development in the case since the employees were rounded up by mainland authorities, follow tighter measures by Chinese authorities to curb capital outflows from the mainland that have drained capital reserves and driven down the value of the currency.

In May, Macau’s government announced plans to require facial recognition and identification card checks at ATMs before cash can be withdrawn by mainland users of China UnionPay Co. It’s common to see people using multiple cards to withdraw cash from Macau ATMs, with some possibly using other peoples’ accounts or cards, according to JPMorgan Chase & Co. analyst DS Kim.

“Overseas gambling is a key way of money laundering and sending capital overseas,” said Wang Guoqiang, a lawyer at Shanghai-based law firm Trend. “The government is very serious about stopping illegal capital outflows, so there’s a renewed emphasis on cracking down on related activities.”

While casino and junket operators are monitoring the Crown case for clues, the news didn’t dampen the rally in Macau casino shares. Bloomberg Intelligence’s index of Macau gaming stocks rose as much as 1.5 percent Wednesday, extending gains that reached a two- year high. Shares soared after a Credit Suisse Group AG note forecast the territory’s gaming revenue in June will grow 30 percent from a year ago – an eleventh month of gains.

“The detention has had a chilling effect on most if not all casinos previously marketing into China,” said Ben Lee, Macau-based managing partner at Asian gaming consultancy IGamiX. “The casino companies have modified their behavior but they have a certain level of amnesia.”

Melbourne-based Crown declined to comment beyond its statement Tuesday that said the cases have been referred to the Baoshan District Court.

Legal representatives for some of the Crown employees declined to comment and asked not to be identified because of the sensitivity of the case.

While the proceedings are notionally open to the public, there’s no guarantee that will happen, said Shanghai-based lawyer Si Weijiang, a lawyer at Debund Law Offices. 

“This is a gray area,” Si said. “Family is allowed to attend, and there is nothing forbidding observers to attend. However, the court officials may choose to deny admission to anyone.”

The case is Australia’s highest profile corporate clash with Chinese authorities since 2010. Stern Hu, the Australian who led Rio Tinto Group’s iron-ore unit in China, was found guilty in March of that year of bribery and stealing commercial secrets and sentenced to 10 years in prison by a Shanghai court.

For Crown, the charges may mark the beginning of a resolution after the crackdown triggered a slump in high-roller gambling at the company’s Australian resorts and upended the company’s international operations. Billionaire James Packer, who’s the biggest shareholder, returned to the board, replaced the chief executive officer, and made resolving the situation in China his top priority.

The case is key not only because it might shed light on why Crown staff were targeted, said IGamiX’s Lee. Gaming authorities in Australia are also likely to assess the outcome to determine whether Crown is allowed to continue holding casino licenses at home, he said.

“The real bite would be the punishment at home,” he said. “This case will have far-reaching repercussions for all and any casinos marketing in any foreign jurisdictions.”

Crown’s high-roller gaming in Australia cratered as the crackdown deterred VIP gamblers from visiting its casinos. Packer scrapped a spinoff of overseas assets and sold Crown’s stake in Macau casino operator, formerly known as Melco Crown Entertainment Ltd. Also binned: a proposed initial public offering of a trust holding Crown’s Australian hotels.

Under John Alexander, who replaced Rowen Craigie as CEO in February, Crown is focusing on its hotels and casinos in Australia, including a new AUD2 billion (USD1.5 billion) luxury resort on Sydney’s waterfront. Bloomberg

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