James Packer returns to Crown board
The ambition of billionaire gaming magnate James Packer to build a global casino empire is in tatters. It was always a high-stakes game.
He had placed multibillion bets to expand his business from Australia to China to the United States in a way that showed he was a much bigger risk taker than his late father Kerry.
But when those bets started to go bad towards the end of last year Packer quickly cut his losses. The head of key executive Rob Rankin was the first to roll as Packer grappled with the loss of his dream and what will become of his legacy.
Packer, who turns 50 this year, is trying to salvage an inheritance that was seeded almost two decades ago with the investment he and Kerry made in Crown's Melbourne casino.
He had envisioned his company Crown Resorts would become a global casino operator alongside industry titans such as Las Vegas Sands Corporation, Wynn Resorts and MGM Resorts.
It may one day: Crown has had two attempts at the US casino market, but it's unlikely it'll ever return to being a substantial player in Macau, the only part of China where gambling is legal, which happens to be the world's biggest gambling market. Last year gambling turnover in Macau was $28 billion, which is at least three times that of Las Vegas.
In the past year, Crown has abandoned its international plans and shrunk back to mostly being an Australian gaming operator.
"Crown's retrenchment is a concern to many of us in the gaming industry," says Andrew Klebanow, a Las Vegas-based partner of casino consultancy Global Market Advisors.
"A successful gaming company must have assets in multiple markets and not be dependent on one market. This was the problem for Caesars Entertainment when it was so dependent on the US gaming market that when the recession struck it found itself in bankruptcy."
Eighteen months ago Packer stepped down as executive chairman of Crown Resorts, of which his private investment vehicle CPH owns 48.2 per cent, to pursue his other business interests in Israel and the US. He entrusted the executive chairmanship of Crown to Rankin, a former investment banker, who also took on the role of chief executive of CPH.
In the US, Packer's investments outside of casinos are in movie production arm RatPac, which produced the Leonardo Dicaprio movie The Revenant, as well as stakes in Robert De Niro's restaurant chain Nobu.
To outsiders it looked as if Packer was enjoying the life of a wealthy playboy businessman with his private jet zipping between Israel, Australia and the US. There was his yacht in the Mediterranean, his Hollywood friends, and to top it off he had found love in the arms of music diva Mariah Carey, who Instagrammed their romance.
Packer allowed the Crown board and management team to oversee his casino empire and his fortune. He trusted them and felt like he was winning. When you win people admire you, envy you and fear you. Packer was riding high.
And then he wasn't.
Crown is an $8.6 billion casino company. At the start of 2016 it had properties in Perth, Melbourne and was planning a $2 billion casino in Sydney, which is expected to be completed by 2021.
It had plans to build another $2 billion-plus casino in Las Vegas – since 2010 there has been been no new casino on the strip.
It also had a decade-old joint venture with Melco Crown Entertainment in Macau, in which it owned 34 per cent. MCE had developed the Macau casinos Studio City and City of Dreams, a Philippine casino and had looked at expanding into Japan and Singapore.
MCE was widely considered a success and its co-chairmen James Packer and Lawrence Ho alpha males.
Crown Resorts in the first half 2016 reduced its stake in MCE from 34 per cent to 27 per cent as it raised money to pay down some of the company's $2.5 billion in debt and release capital to fund its Sydney and Las Vegas properties.
There were also plans afoot to demerge the international and Australian casino operations, to unlock the value in the latter. And there was also a plan for the partial listing of Crown's Australian hotel businesses via a REIT, which would raise capital. The latter plan is still being pursued.
But then the world turned upside for Crown last October, when Packer, Crown's board and management were shocked to learn that 18 staff had been detained in China and arrested on "gambling-related crimes". One staff member has since been released. The rest are still in detention.
Crown's marketing team visited China to encourage wealthy locals to visit its casinos outside the country. But, since 2014 there has been a corruption drive in China that led to a crackdown on any illicit flow of funds to offshore casinos. While other foreign casino operators had cut back their marketing efforts in China, it appeared Crown's senior management team had failed to read the signals coming from Beijing's regulators.
"I was shocked," says Global Market Advisors' Klebanow. "Our chief legal counsel has always said the one thing a casino operator never wants to hear is 'employees were arrested'. While Crown can re-enter the US gaming market, they have suspended the partnership with Melco. From a purely financial standpoint it didn't make sense. Why would you leave the most important market in the world in the gaming industry? It ties into the detainment and arrest of Crown's staff."
By December, Crown had slashed its stake in MCE further from 27 per cent to 11.2 per cent and shelved its Las Vegas plans. The demerger was dead and Packer's romance with Carey had soured and unravelled. At his Ellerstina ranch outside of Buenos Aires in Argentina plans were also being hatched by Packer in December for a board and management shakeup.
He decided he would rejoin the board as a director and Rankin would be replaced as executive chairman of Crown by John Alexander from February 1.
Rankin would have been aware that Packer, like his father, could be a Jekyll and Hyde character. He's engaging and at times his charm can be intoxicating as he becomes enamoured with people – until he no longer needs them or they lose him money. Then he can switch into a tyrannical, foul-mouthed bully.
Both Rankin and Packer have said Rankin's departure was by mutual agreement and they remain friends and business partners in a funds management business.
At CPH, Rankin will be replaced as chief executive by Guy Jalland, a long-time legal adviser to Packer. Both Alexander, Jalland and Michael Johnston have worked alongside Packer for two decades. AFR Weekend understand Jalland will in time replace Rankin who remains as a director on the Crown board.
The three men are the old guard who are trusted by Packer. Alexander is credited for turning around Australian Consolidated Press and helping Packer achieve a $5.6 billion price tag for ACP and the Nine television network when it was sold to private equity players in 2006. Before the sale Alexander earned a reputation for stripping costs out of Nine and now his focus will be on where those costs savings can be achieved within Crown.
Packer told The Australian Financial Review on Tuesday that the five priorities for Crown in the next 12 months were: "managing through the whole China situation in a way that is respectful to China and in a way that best represents our staff"; ensuring the Australian business was run in a "more lean and focused fashion"; building a "meaningful, profitable, online business"; delivering the Sydney casino "on time and on budget" and "being shareholder focused in the way we do business".
As Packer regroups with his old team around him and reshapes Crown it has raised question about the new, and younger talent that Packer might eventually entrust to run his business until he is ready to pass it on to his own children Indigo, Jackson and Emmanuelle, if that's his intention.
James, who has his 50th birthday in September, is no longer the young gun. Both his father, Kerry, and grandfather, Frank, died before reaching 70.
Packer's three children are some years off teenagehood. Although that would be the age when David Smorgon, executive chairman of PWC's Family, Business & Wealth practice, would tell any business person to begin succession planning in a family businesses.
"Succession planning must be a process and not just a single event," he says. "If you want family continuity and family succession the earlier you start the better it is. We would encourage teenage children to come and work during vacations and in their gap year in the family business and get a feel of what it's like and sit around the board table. You start to positively influence them about the benefits and the challenges of being involved in the family business from the youngest age. As you go through different experiences they then have a greater understanding of what the attributes are to be a successor to the family head."
Packer's had a few failures in his career, like most businessmen, but the triumphs have far exceeded those. His biggest success has been escaping the shadow of his father and grandfather and building Crown.
For now succession is probably not front of mind for Packer, who instead is probably more focused on preserving his wealth and Crown's future and not being the last stage in the old saying: the first generation makes the fortune, the second spends it, and the third blows it.
