Regulators are running the ruler over James Packer’s sale of a 19.9% stake in his gaming empire to Melco – and the investigation could take years

Crown has a new king – but regulators may get in the way of deal

Crown has a new king – but regulators may get in the way of deal

James Packer’s decision to sell 19.9% of his Australian gaming empire, Crown Resorts, to his former Macau business partner faces a labyrinth of regulatory approvals from three state gaming authorities and, potentially, the foreign investment review board.

With Crown holding casino licences in New South Wales, Victoria and Western Australia, each of the state-based gaming authorities is likely to want to run the ruler over Lawrence Ho’s acquisition and assess whether the newest significant shareholder meets requirements that casino operators are fit and proper people.

James Packer sells almost half his stake in Crown Resorts Read more

Ho’s company Melco may also require foreign investment approval, given the extensive commercial real estate held by Crown – particularly if it plans to buy more shares than its current 19.9% holding.

Most attention will centre on what the NSW regulator – likely to be the lead agency – decides, though each state must make its own call on whether Ho and Melco are fit and proper operators.

The reason NSW will take the lead is because the states’s authorities included a specific clause in Crown’s licence for Sydney’s new Barangaroo casino – now under construction – when they granted it in 2014.

Facebook Twitter Pinterest Lawrence Ho and James Packer at the launch of Manila’s City of Dreams in 2013. Photograph: Jay Directo/AFP/Getty Images

It says Crown will “ensure that it prevents any new business activities or transactions of a material nature between Stanley Huang Sun Ho or a Stanley Ho associate and Crown, any of Crown’s officers, directors or employees or any Crown subsidiary”.

Family connections

Lawrence Ho, 42, is the son of Stanley Ho, who for decades ran the gambling monopoly in Macau. Ho senior owned a number of the old-style Macau casinos which made the “Las Vegas of Asia” famous as place of pleasure, vice and money laundering.

Though Chinese authorities ended his monopoly in 2002, SJM Holdings – the company he founded – now operates 21 casinos in Macau and several others elsewhere in Asia, including one in North Korea. Over the years his casinos have been widely believed to be linked to organised crime syndicates, specifically the 14K and Sun Yee On triad societies.

The Ho family has always denied these accusations and they have never been proved. In 2010, after a long investigation, the New Jersey gaming authorities issued a report declaring a link between Stanley Ho and the triads and requiring that MGM Mirage Macau (a joint venture with Ho) divest its interest in an Atlantic City casino.

The 74-page report declared that Stanley Ho Hung-sun was an associate of known and suspected triads who had permitted “organised crime to operate and thrive within his casinos”. It found that the private VIP gambling rooms Ho introduced to his casinos beginning in the 1980s “provided organised crime the entry into the Macau gaming market that it had previously lacked”.

Facebook Twitter Pinterest Stanley Ho at the launch of his company’s flagship casino Grand Lisboa in Macau in 2007. Photograph: MN Chan/Getty Images

But that was nearly 10 years ago. Stanley Ho is now 97, in frail health and his daughter Pansy – Lawrence’s sister – has taken over the SJM empire. Once the tycoon dies the clause in the NSW licence may be irrelevant – and that could be any day.

On the face of it, it might seem that a son would automatically qualify as an associate of his father, but the term is a legal one which requires the establishment of legal control or influence over the associate’s corporate decisions.

Lawrence Ho has always insisted his casino empire is entirely separate, and developed without his father’s money or influence. Packer told the Australian Financial Review’s Chanticleer last week that Ho has built Melco Crown “on his own with no link or help from Stanley”.

Licence conditions

The NSW authorities looked into Lawrence Ho and his relationship with his father when they granted the Barangaroo licence in 2014. By that time, he and Packer were in business together in Macau.

“At the time Crown received its restricted gaming licence for Crown Sydney in 2014, the NSW regulator undertook extensive probity checks and carefully considered Crown’s interest in Melco Resorts,” the NSW Independent Liquor and Gaming Authority said last week.

Insiders said “the Stanley Ho clause” had only been included “in an abundance of caution” in case circumstances changed.

But that isn’t the end of the matter. There will be plenty of other avenues for the regulators to explore, notably Melco’s tie-ups with junket companies that bring high-rollers to its casinos in Asia.

Facebook Twitter Pinterest Lawrence Ho at the launch of Macau’s City of Dreams in 2009. He has always insisted that his casino empire is entirely separate from his father’s. Photograph: AFP/Getty Images

Junket operators have relationships with all the big Macau casinos. The arrangements vary but some actually run the VIP rooms or share in the casino profits. In return they bring high-rollers known as “whales”, usually from mainland China, offering them free accommodation, private jets, entertainment and bank-like services.

The junkets played a crucial role in money laundering from the mainland, which in 2013 was said to have reached $US203bn a year, according to one US congressional report. Because gambling debts cannot be enforced in China, the junket trade was historically dominated by organised crime and the triads.

But as the casino business has transformed so have the junket companies. Some are now listed companies run by apparently legitimate business figures. The problem is knowing who is who.

Despite the changes, a 2016 paper by the sociologist Prof T Wing Lo and the criminologist Dr Sharon Kwok lent weight to the view that organised crime was still a major factor in the the junket trade.

“The VIP-room operations are still dominated by triads to date,” the Hong Kong academics concluded after in-depth interviews with triad members, police and casino operators. “But they have readjusted their traditional intrusive role and reinvented harmonious business strategies to suit the market reality.”

Junket tours

According to the study, junket companies responsible for running VIP rooms in Macau “are the main drivers of economic profits for the triads”.

The researchers found that because of the casinos’ dependence on gamblers from mainland China, the triads had been forced to form connections with gangsters in China to assist in ensuring that debts were paid once gamblers returned home.

The Macau gaming authorities have rejected the findings of the study.

There have been no findings against Melco but this is the first time Melco has invested outside of Asia and Cyprus into a jurisdiction which has extremely strict probity requirements. The eyes of gaming authorities in the US and other countries will be watching the NSW inquiry.

In May last year Melco announced it would not be relying on junkets to bring gamblers to its new Morpheus tower at City of Dreams, and instead would be targeting a mass market directly.

Facebook Twitter Pinterest An artist’s impression of the Crown hotel and high-roller casino at Barangaroo, which is now under construction. Photograph: WEA

In announcing the move away from junkets, Ho told Reuters: “Eventually it’s much better to develop your own database than rely on junkets.”

But casinos still use junkets to lure the VIP gamblers, who on average splurge 10 times as much.

There are still many variables in the Crown-Melco deal. Ho has said he does not believe he needs approval but will seek it anyway – a signal, perhaps, that he intends to take an active role in Crown and a larger stake in the future.

In a statement to the New York Stock Exchange, Melco Resorts & Entertainment said: “Melco intends to pursue board representation on Crown’s board of directors commensurate with its ownership position. Additionally, subject to obtaining requisite regulatory approvals, Melco welcomes the opportunity to increase its ownership in Crown.”

The Australian investigations are likely to take at least a year, analysts says – though they could take even longer. An investigation by NSW authorities into the Malaysian company Genting’s bid to buy 25% of Crown’s rival Star took nearly three years.