The heat is building for Echo Entertainment

After Crown’s (ASX: CWN) maneuvering for a casino of its own in Sydney in August, a little more than a month later, we are starting to see more movement in the Brisbane arena as a bout between it and Echo Entertainment (ASX: EGP), Brisbane’s and the Gold Coast’s sole casino operator, ensues.

Echo Entertainment has the only licences for casinos in Brisbane and Gold Coast, and it’s very clear that James Packer’s Crown would like to set up shop there even if it had to compete. Crown has the casinos in Perth and Melbourne, but that’s still not enough, so apart from applying for a licence for a second casino in Sydney’s new Barangaroo development site, it is also approaching the Queensland government with plans to develop a $1.5 billion casino and hotel complex along the Brisbane River.

The proposed development site is currently the location of several state government buildings that have been earmarked for possible demolition when the government moves to a new multi-story office building, freeing up the land for a world-class entertainment centre.

Echo Entertainment is also eyeing the land, which is close to its current casino, so it is beginning the bid to win the land by offering to build a $1.3 billion new casino, and is willing to swap the historical Treasury building in the process.

To make the story more interesting, the Queensland Premier, Campbell Newman, stepped into the ring when he announced that the Brisbane and Gold Coast casinos are not “world-class” venues, and haven’t been refurbished as he would expect from a company that has sole casino licences for the two cities.

The Queensland government has its own plans on how to make the state more attractive to tourists, one of which is to oversee a revamping of Brisbane CBD, and the other is to build a new cruise ship terminal on the Gold Coast with its own casino/hotel complex.

The Premier has said that Echo Entertainment did not follow through with its $350 million promise to upgrade the Gold Coast Jupiter’s Casino. This rhetoric is similar to Packer’s own estimation of the quality of the two casinos as “a disgrace”.  If expertly done, Crown could come to QLD, and snare both of the new sites.

Foolish takeaway

It’s like a classic Economics 101 textbook explanation of companies that have exclusive licences or other barriers to entry that safeguard their business. The licence protection has unfortunately led them to think that they would always have control. Echo Entertainment’s management should take a trip to Las Vegas, and see the constant renewal and rebuilding that goes on just to keep gamblers and tourists coming each year.

Even to have one competitor, especially if that turns out to be Crown, is very dangerous because the other advantage of a classic monopoly — having the money, size and economies scale to do things cheaper than others — clearly doesn’t apply against Packer’s wealth and international casino development experience.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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