Echo lashed by Skycity over Sydney casino loss

Skycity boss expects Echo to struggle having lost its exclusive casino licence in NSW.

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published July 15, 2013 7:30 am AEST

Nigel Morrison, the CEO of Skycity Entertainment (ASX: SKC), on Friday launched a scathing attack on Echo Entertainment (ASX: EGP) management for allowing the loss of their exclusive NSW casino licence. The AFR quoted Mr Morrison as saying, "If I was part of Echo and I'd let that happen in my backyard I'd be very upset with myself, it shouldn't have happened."

The criticism comes on the back of the NSW government allowing Crown (ASX: CWN) to progress to a third and final phase of negotiations for the construction of a new casino at Barangaroo in 2019. Echo will forfeit its exclusive gaming licence at the Star Casino if the new casino goes ahead. It comes barely 12 months after the company spent $870 million on upgrades to the Star Casino and associated facilities.

Mr Morrison noted the threat that Crown poses to Echo in the long term:

"There's no doubt that Crown is a very formidable opponent," he said. "But I think for [Echo] to have negotiated an extension on their exclusivity out to 2019, which probably wasn't such a long period, and then spend the best part of $1 billion of shareholder's money… and then be in the position where that exclusivity's coming up and to think they've got to spend another $1 billion, it's probably not an ideal position to be in."

Echo's loss of exclusivity comes as Skycity has extended the licence of its exclusive South Australian and Auckland assets by 20 and 35 years respectively. The deals require Skycity to invest $344 million on a convention centre in Auckland and $350 million on a hotel in Adelaide.

Finally Mr Morrison explained the importance of exclusivity to casino operators. "It means you can invest and you're not going to have somebody breathing down your neck investing more who is probably bigger and more powerful than you and probably could afford to be a loss leader," Mr Morrison said in reference to Crown's Barangaroo proposal. "If Barangaroo gets built it will make life difficult for Echo."

Foolish takeaway

The three main players in Australian casinos each maintain exclusive licences but developments and profit reports over the next six months will be important for analysing which will outperform over the long term.

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Motley Fool contributor Andrew Mudie does not own shares of any companies mentioned in this article.

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