There might have been a bit of heart burn at James Packer's casino operator, Crown, on Wednesday morning as its stock dived just as news emerged it is considering a fire sale of hundreds of millions of dollars worth of toys that had been used to entertain its Chinese high rollers.
First item on the block could be Crown selling its half share of the Packer family's rural property, Ellerston, back to James Packer. He sold it to the casino operator in 2015 for $60 million so it could be used as a venue for its VIP gamblers when its Barangaroo casino is completed.
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The impact of China's raids on Crown Resorts
Elizabeth Knight comments on the potential impact to Australian businesses after a government crackdown on Crown Resort's offices in China.
The more alarming news is that all the other VIP toys might also be on the block: the executive jets, the Melbourne golf course and luxury yachts which were acquired at great expense to tempt the high rollers to its casinos.
The extent of the fire sale could answer a crucial question for the market. Will the VIP gamblers - who have avoided Crown's casinos since the detention of 14 employees in China last year - return to its casinos?
If they were, Crown would not be looking to sell all of the toys that these high rollers expect to play with, as a matter of course.
The stock dived more than 10 per cent on Wednesday - weighed down also by the fact it was the first day the shares traded without the right to Crown's massive $1.13 dividend announced last week. In early trading, Crown shares had dropped as much as $1.53.
The stock has posted strong gains over the last week on the prospect of increased dividends, a strong focus on getting better returns from its Australian operations, and expectations that the loss of Chinese VIP gamblers would ultimately recover from the exodus triggered by the detention of the Crown staffers in China.
At last week's half-year results, Crown's new executive chairman John Alexander said the company's decision to "pause" its pursuit of Chinese high-rollers was not a retreat from the region, and that it would return to China.
Analysts believed it too.
"We continue to forecast revenue declines in the VIP although (sic) see a slowing of the pace of decline as players slowly begin to return with the fading of negative sentiment," said the gaming analysts at Goldman Sachs.
The UBS team was even more upbeat: "We have assumed a 45 per cent reduction in VIP volumes in FY17 followed by 6 per cent growth in VIP thereafter."
The extent of Crown's fire sale will give the strongest indication of whether Packer's team at Crown believe this, too.
Assets being reviewed for sale include three Bombardier Global Express XRS jets acquired for $US100 million in 2014. According to reports, Crown Perth's $50 million, 40m long Italian-made super yacht, Infinity, will also be on the block.
The Capital Golf Club in Melbourne, acquired from Melbourne Cup winner Lloyd Williams in 2014 for $67.6 million, is also expected to be up for sale.
Crown has also informed the rugby league teams it sponsors - the Melbourne Storm and South Sydney - that it will not renew its sponsorship when the current deals expire. Crown's sponsorship of The Oaks will not be renewed either.
Former Australian cricket captain Michael Clarke has had his Crown sponsorship downgraded, while former Chinese tennis star Li Na has lost her sponsorship.
Follow CBD on Twitter. Got a tip? ckruger@fairfaxmedia.com.au
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