US private equity group Blackstone is on the brink of buying the troubled Crown Resorts after the casino group accepted an $8.9 billion bid from the $2 trillion giant.
But such a move could radically reduce scrutiny of the gambling group.
Crown has been under pressure in recent years after state investigations exposed money laundering and various other misdeeds at its casinos.
The group’s major shareholder, James Packer, was humiliated when New South Wales authorities found Crown was not fit to hold a casino licence at Crown’s new Barangaroo tower in Sydney.
Shareholder activist Stephen Mayne called for the deal to be blocked and said he thinks “there is a fair chance it will be”.
Moving ownership to the US private equity group would reduce scrutiny of the casino group.
“I don’t think it’s appropriate for a foreign private equity giant to own a business as sensitive as Crown after all the scandals that have happened [there],” Mr Mayne said.
Blackstone is a massive international investor with investments in property, private equity, hedge funds and distressed loans worth $1.13 trillion.
It is listed on no stock exchanges and that means it will face far less scrutiny if it buys Crown than the current ownership does.
Because Crown is currently listed on the ASX, activists like Mr Mayne and anti-gambling campaigner Tim Costello can grill the company at its annual general meeting.
“If it becomes owned by a private equity company, I won’t be able to go and ask questions,” Reverend Costello said.
It would also mean that the detailed reports made to shareholders and available to all on the company’s operations would no longer be available.
“That would be a massive loss of transparency with no stock exchange announcements, no annual meetings, and no 60,000 shareholders,” Mr Mayne said.
Although the casinos would still have to report to gaming authorities, details of its operations would be far less visible to the general public.
The deal suggests Crown and Blackstone appear to be betting that the royal commissions ongoing in three states will have little effect on the casino group’s operating profitability.
“The problem they have is, if all that malfeasance that Crown engaged in is taken seriously by the regulators in three states, then they would have to introduce significant change,” said Charles Livingstone, associate professor of public health at Monash University.
“There has been one tranche of reform in Victoria but it doesn’t actually go to some of the important issues raised by the Finkelstein commission”.
Dr Livingstone said Victoria’s reforms ignored responsible gambling and harm prevention.
Overall regulatory changes and the pandemic have the potential to hold back profit growth into the future.
“If you don’t have vast numbers of wealthy or middle-class Chinese people visiting casinos and you don’t engage in money-laundering activity, which clearly provided a lot of cash flow, and you implement [harm] prevention measures then revenue is going to be down,” Dr Livingstone said.
Blackstone has insured against regulatory changes before it hands over the cash to Crown.
But if change were to come a year or two down the track, then that would put pressure on the private equity giant.
Blackstone could fight
“The Packers and Crown previously had enormous influence in Australian politics and Blackstone would no doubt seek to have some sort of influence and if they succeeded then we would end up with an equally bad situation,” Dr Livingstone said.
Through its gambling business, Blackstone owns dozens of casinos in South America and its chair and founder, Stephen A Schwarzman, had an advisory position in the Trump administration’s Strategic and Policy Forum.
“So are the casinos going to be run out of the South American division?” Mr Mayne asked.
The casinos and their marketing should be run out of Australia to ensure the local business is top of the agenda.
“What happens if they start to tell big international tourist groups to go to Colombia and not Australia?” Mr Mayne asked.
Without the business being based in Australia, Blackstone’s only interest will be “to drive profits” and that will not necessarily be in Australia, Reverend Costello said.
‘Super cheap’ price
Problems with regulation and geographic incentives could be overcome, however.
“I think the logical solution is for Blackstone to buy the property and for Crown Resorts to continue to operate the actual casinos,” Mr Mayne said.
That would allow Crown shareholders to cash out some of their stakes with a property selldown while keeping the actual gambling operation in Australian hands, where the regulation and public scrutiny would remain strongest.
It would also ensure that marketing efforts would be based solely on Australia to maximise international tourist flows.
A financial analyst who spoke on the condition of anonymity said Blackstone would be getting a bargain at the price being offered.
“I think in two years from now we are going to say it was a super cheap price,” they said.
That is because the pandemic has dramatically reduced visitor flows in the casinos and regulatory issues have frightened potential buyers.
“There are no other bidders around and Packer’s got his back against the wall.”
The analyst said it appeared that regulators were unlikely to take further actions that would negatively affect Crown’s profitability, given where the sale price was pitched and state government responses to date.