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Why Queensland’s huge casino push could fail for investors

Queensland could be transformed into Australia’s very own Macau or Las Vegas if state Premier Campbell Newman has his way. The premier has proposed offering three new casino licenses to developers who offer bold visions for landmark attractions.

The hope is that a wave of new five- and six-star integrated casino resorts will stimulate a surge in tourism, turning Queensland into a playground for high-rollers and wealthy Chinese tourists.

Queensland already has four existing casinos throughout the state. These include two owned by Echo Entertainment Group (ASX: EGP) and one held by Reef Casino Trust (ASX: RCT).

The granting of three additional casino licences will give Queensland a total of seven casinos. This will still be a fraction of the 33 casinos in Macau which is still growing at a rapid pace thanks to wealthy Chinese visitors. Data for August published by Reuters shows gaming revenues were up 17.6% for the month year-on-year to US$3.88 billion.

The big question for investors is whether the new casinos will stimulate enough demand to cover the massive investment and operating costs, or if they will merely saturate the market and cannibalize demand from existing casinos from both inside and outside the state.

This is a very real scenario witnessed by the USA. The US saw a spike in the number of states opening casinos in an attempt to rake in revenues after the GFC, pulling gamblers away from previous gaming hubs Las Vegas and Atlantic City.

One company that will most likely be making a play for one of the licences is James Packer’s Crown (ASX: CWN), which has made no secret of its intention to move into the state.

Crown could be a good fit with the expectations of Campbell Newman after unveiling an audacious plan for a new integrated hotel and casino in Sydney earlier this year. Mr Newman used Crown’s existing Melbourne casino as an example of the sort of resorts he envisaged for the state.

Foolish takeaway

Casinos are always a contentious social issue in the communities they are earmarked for, but they should also be thought of in conjunction with potential demand. Although the result could be big benefits for Queensland, if new casinos are failing to operate profitably, the scheme will be a failure for investors.

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Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned. 

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