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Echo and Crown to commence battle for Queensland casinos

The battle for up to three new casino licences in Brisbane is officially underway. Acting State Development Minister Ian Walker said that the first round of Expression of Interest (EOI) documents had been issued to the eight parties to so far declare their interest in three new integrated resort developments across the state.

So far the eight parties haven’t been named, but Echo Entertainment Group Ltd (ASX: EGP) and Crown Resorts Ltd (ASX: CWN) have both expressed an interest and it could be speculated that rival SKYCITY Entertainment Group Limited  (ASX: SKC) may be interested too. Larger property developers may also be part of the bidding process.

The three developments include the redevelopment of the government precinct in Brisbane, known as Queen’s Wharf, and two in regional Queensland. In the announcement Queensland premier Campbell Newman said that the state would be looking for more than just a hotel and casino for the developments, rather proposals would need to include something special in order to ‘put Queensland on the map’. One of the main aims of the new developments is to increase Asian tourism and spending in Queensland.

The redevelopment of the Queen’s Wharf area is guaranteed to include a Casino licence, while the other two developments’ casino approval will depend on the submission.

The start of the expression of interest period follows an announcement from Echo in November that it would be investing $1.5 billion to upgrade its Jupiters Hotel and Casino on the Gold Coast, and build a new Brisbane casino to replace its Treasury Casino.

Echo Entertainment is expected to be a major player in the development after losing out on the contract to develop the Barangaroo area in Sydney to Crown. The company’s plan in Queensland is to give its Jupiters Gold Coast casino a facelift and a 6-star hotel, while the existing Treasury Casino in Brisbane City would be transformed into a luxury hotel to make way for a new casino in the heart of Brisbane city. The new casino will have to be awarded through the EOI process.

Echo’s problem is that the existing Brisbane casino is housed in the heritage listed Treasury building, limiting the company’s ability to expand and upgrade the facility.

Formal expressions of interest are required by March 31 and attract a lodgement fee of $100,000 to assist with the costs associated in assessing the proposals. Submissions will be rated based on how well the company can demonstrate that “they have experience in design, development and operation of large scale integrated resort and entertainment projects, or will be part of a bona-fide bidding team”.

Foolish takeaway

The Barangaroo process will have provided Echo with some important lessons learnt for the bidding and design process in Queensland. Additionally, Echo’s three existing Casino licences in the state, and established relationship with the local government should give it an advantage over peers when it comes to awarding the contract. Should Echo lose out on the new development in the city, questions will start to be asked about the long-term sustainability of the company given Crown’s increasing dominance of the Australian market. Echo dropped from a 52-week high of $3.78 to its current price of around $2.60 after losing the Barangaroo contest, one imagines a similar or larger fall would follow should Crown win the contract in Brisbane too.

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Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned

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