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Why the Crown Resorts Limited share price is cratering today  

Shares in casino operator Crown Resorts Limited (ASX: CWN) have crashed more than 10% today to $11.64 after the company admitted that eighteen of its employees had been detained by Chinese authorities.

Crown stated it has not been able to contact any of its employees and it has not been given an explanation as to why its employees have been detained. Among the detainees is the international casino operator’s Executive Vice President of VIP International, Jason O’Connor.

It’s no secret that the Chinese government is cracking down on attempts by wealthy Chinese individuals to illegally move capital out of China and traditionally casinos have been prime targets for anyone looking to covertly transfer funds across borders, hide wealth, avoid taxation, or generally subvert any number of general laws. For these reasons casinos carry substantial regulatory risks and given that the Fairfax press is reporting the Chinese authorities have accused some detainees of “gambling crimes” this looks a serious problem for Crown.

Accusations of “crimes” are more serious than the enforceability of contracts under the civil laws for example and it comes as no surprise that the Crown share price has been wrecked today.

The problem is probably related to the fact that Australian casino companies promote themselves and solicit business in China in an attempt to attract interest from mega-rich Chinese consumers.

Shares in other casino operators are also being sold off today on fears that the flow of Chinese capital into the Australian casinos’ coffers could come to an abrupt end.

Today Star Entertainment Group Ltd (ASX: SGR) is down 5.4%, SKYCITY Entertainment Group Limited-Ord (ASX: SKC) is off 4% and Donaco International Ltd (ASX: DNA) is off 3.5%. Shares in Hong Kong listed Melco Crown are also heavily down as investors react to the prospect of tighter law enforcement by the Chinese authorities.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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