3 Nov

Major Pokies destination owes $250 million to Victorian Gov

In December of 2013, the Victorian government surprised the casino community with a new tax on poker machines. Crown Resorts, which operates the Crown Casino and Entertainment Complex in Melbourne, as well as the Crown Perth in Western Australia, would have been forced to pay about $50 million annually due to the new pokies tax. Instead, the casino worked a 17-year license extension deal that will cost Crown $250 million up front, and includes a major expansion to the gaming floor.

James Packer, the owner of Consolidated Press Holdings Ltd, parent company of Crown Resorts, began talks with the Victorian government last December when the new levy on pokies was first announced. The two struck a deal in August that would save the casino a lot of money in the long run, but would cost a great deal in the short term. The amendments to the poker machine tax law went into effect this morning, Monday, November 3, 2014; the same day that Packer’s $250 million bill takes effect. The casino magnate has 7 days to pay the exorbitant tax, or the deal is off.

The terms of the agreement include a 17 year extension to Crown’s license with the Victorian Commission for Liquor and Gambling Regulation, tiding them over until the year 2050. The higher tax on VIP revenue from poker machines will be lifted for the casino company, and an expansion of 218 new gaming machines will be permitted at the Crown Melbourne. In exchange, Packer must pay the $250 million up front, plus another $250 million in 2033.

Crown Resorts may also have to pay supplementary taxes, depending on how well the establishment performs in upcoming years. If the casino’s normalized gaming revenue escalates by more than 4% annually over the next eight years, ending with the 2021-22 fiscal year, Crown will have to pay another $100 million bonus payment to the Victorian government. Should the revenue increase by more than 4.7% in that same period of time, an additional $100 million payment will be due.

Working in Crown’s favor is a very low expectation for that level of growth in the coming years. Based on recent performance, which included just a 2% rise in normalized revenue in the 2014-15 fiscal year, it would take a strong surge in the economy to reach that point. Then again, if the sluggish activity at Crown’s Melbourne and Perth locations does increase by a substantial amount, the end-result profits would be worth the additional $100-$200 million payment.

That’s not all, though. Packer also acquiesced to a $35 million fee to account for the expansion to the gaming floor. The new entitlements won’t begin until 2016, and will be installed gradually over the following 6 years. Crown will be integrating a total of 128 new pokies, 40 new manual table games and 50 new electronic table games.

In the end, Crown Resorts could end up paying anywhere from $535 million to $735 million by 2033, but avoiding the new poker machine levy, estimated to cost $50 million per annum ($1.75 billion by 2050, when the casino’s license expires), was well worth it. In addition, any further amendments to the pokies tax will not apply to Crown Resorts unless Packer consents (i.e. if it works in Crown’s favor).