China detains staff from Australia's Crown for 'gambling crimes'

October 16, 2016 6:48 PM EDT

The Crown Casino complex is pictured in Melbourne March 19, 2016. REUTERS/Jason Reed/File photo

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By Byron Kaye and Farah Master

SYDNEY/HONG KONG (Reuters) - Australian casino giant Crown Resorts Ltd said on Monday China had detained 18 of its employees including three Australians, sending gaming stocks tumbling on concerns about their strategy for luring Chinese gamblers.

The Sydney-listed company, 53 percent-owned by billionaire James Packer, said it had not made contact with its employees, including Australia-based head of international VIP gambling Jason O'Connor, and was not aware why they had been detained.

Australia consular officials in Shanghai were making arrangements to visit the Australians to offer assistance, the Australian Department of Foreign Affairs and Trade said, without specifying when the meetings would take place. It said support and information was also being provided to the families of the employees in Australia.

China's Foreign Ministry told Reuters in a statement that it detained some Australian nationals for suspected "gambling crimes" without further explanation. It said it was still investigating the matter.

Crown shares fell 14 percent, their biggest one-day decline, while smaller Australian rival Star Entertainment Group Ltd (NYSE: SGR) dropped as much as 6 percent, amid concerns about the impact the move would have on the companies' ability to attract wealthy Chinese gamblers to major new developments in Australia.

Vitaly Umansky, an analyst at Bernstein in Hong Kong, said the detentions appeared to be a repeat of China's crackdown on South Korean casino marketing efforts a year earlier, a move seen less as an attempt to curb Chinese gambling than to keep it under domestic control.

"The Chinese government seems to be making a clear statement about its view on gaming activity being offshored to foreign jurisdictions, while Macau is not being targeted in the same way," said Umansky.

Thirteen South Korean casino managers were arrested in China last year for offering Chinese gamblers free tours, free hotels and sexual services.

Melbourne-based Crown holds a 27 percent stake in Melco Crown Entertainment Ltd (NASDAQ: MPEL) based in the Chinese territory of Macau. It does not directly run casinos in China but relies heavily on Chinese gamblers at its Australian operations.

Shares in other non-Chinese Macau gambling companies also fell, including Melco Crown, down as much as 5.6 percent, Wynn Macau Ltd <1128.HK> and Sands China <1928.HK>.


Although it remained unclear what prompted the mass detention, analysts said the move suggested Crown had misread the enforcement climate about marketing its venues on the mainland, where gambling is illegal except for regulated state-sanctioned lotteries.

Most other operators have toned down their marketing in China over the past two years, focusing on their live shows, restaurants and accommodation.

"Crown apparently either thought nothing to worry about, or they have only recently revived operations in (China). Whatever, they got it wrong," said David Green, an analyst at Newpage Consulting, which focuses on the gambling industry in Asia.

The detention may affect Crown's operations in its home country, too. Crown is planning a A$2 billion ($1.5 billion) gaming resort on the Sydney waterfront, targeted largely at Chinese tourists.

"It's getting harder and harder to see how you continue to do business in that space when regulatory increases are clearly the highest risk factor," said Evan Lucas, a strategist at IG Markets.

The Crown staff were held following raids in Shanghai, Beijing, Guangzhou and Chengdu, the Australian Financial Review reported at the weekend. Crown did not comment on the circumstances of the detentions.

Packer stepped down as co-chairman of Melco Crown earlier this year, as a Chinese government corruption crackdown put the brakes on gaming revenues in Macau.

(Reporting by Byron Kaye, with additional reporting by Ben Blanchard in BEIJING and James Regan in SYDNEY; Editing by Stephen Coates, Lincoln Feast and Ian Geoghegan)

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