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Australia – Fitch outlines era of tougher scrutiny in Australia following Crown investigations

By - 27 June 2021

A new report by Fitch Ratings believes that recent rulings against Crown Resorts being a suitable operator in New South Wales as well as ongoing financial investigations against gaming operators mark the start of an era of much tighter scrutiny on how casinos operate.

Fitch said: “We expect compliance costs for gaming operators to climb given the heightened scrutiny, which is likely to increase regulatory oversight and investment in compliance systems. Some elements of the operators’ businesses may also be forced to cease, which could dampen their overall revenue generation ability and margins. We also believe the gaming operators will be required to increase their contributions to pay for the greater regulatory oversight. One of the recommendations out of the NSW inquiry was the creation of a specific gaming regulator, which would be funded by the operators – mainly Crown and The Star.”

“The cessation of junket operations will shrink VIP revenue,” Fitch added. “In particular, operators will find it difficult to cater to Chinese VIPs, as China prohibits the direct promotion of gaming activities and junkets are used to facilitate international play. We believe a fall in Chinese visitation will significantly affect VIP revenue. However, VIP has historically made up a smaller proportion of Australian gaming operators’ revenue than domestic mass-market gaming, which remains stable. This should limit the impact of any decline in VIP revenue for operators.VIP revenue is also inherently more volatile and generates a lower margin than the domestic business – this means that the decline in profit will not be at the same level as the top-line decline.

“Domestic mass market performance has been stable over the past few years, with declines in 2020 due to the closure of the properties under pandemic-related restrictions. Most properties have reported a healthy return to profitability following their reopening progressively over 2H20, highlighting the market’s resilience, even when operating under social-distancing restrictions.

“We expect such restrictions will have a greater impact on gaming operators over the short term, as they are at the forefront of closures when governments are seeking to contain a Covid-19 outbreak, rather than other restrictions that more so impact the VIP market.”

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