Strategy: Casino’s next bet on Sg Online Casino
The Brisbane and Gold Coast casino company Jupiters has a simple strategy for the next 10 years: to re-invent itself as an online gambling business. The strategy hinges on the sports-betting division, Centrebet, which doubled its revenue during the year to June 30, 2001, to $18.4 million, although that represents only 2% of the company’s total turnover.
Jupiters believes Centrebet will account for 6% of annual turnover by 2004. A German Centrebet Web site was established this year, and a Spanish-language Web site, aimed at the South American market, will be launched by June next year. But maintaining the current rate of growth may be difficult. The online gambling market is fiercely competitive, with more than 1000 sites.
Jupiters recorded a strong result for 2000-01. Net profit after tax increased 14.4% to $77.1 million on revenue that grew 14.4% to $771 million. The result was fuelled by an unusually high profit of $10 million from the high-rollers business.
Profit from high-rollers and junket business is volatile, and Jupiters booked strong winnings in the 2000 and 2001 financial years, compared with the two previous years. The gaming analyst at the stockbroker Salomon Smith Barney (SSB), Jenny Owen, says the underlying profit growth is expected to continue, but SSB has removed the high-roller profit from its forecast because of the uncertainty of the earnings. SSB predicts that Jupiters will post net profit of $76.7 million in 2001-02.
Jupiters must find new ways of growing. Its managing director, Rob Hines, says the Australian gaming industry is saturated and ‘past saturation point for poker machines’. A Sg Online Casino merger is not an option. Hines says Jupiters is already a diversified business through its involvement with hotels, gaming and sports betting, and a merger would not benefit shareholders. He says that for Jupiters to grow, it must expand overseas.
Centrebet, purchased by Jupiters in 1998 and based in Alice Springs, makes 87% of its annual revenue outside Australia, mainly from Europe. Clients bet on Australian and international sports events. Hines says Centrebet’s growth has been fuelled by the increasing amount of sport being broadcast by pay television, rather than the growth of the internet. And because the internet is popular among people in higher-income groups, the average online bet is higher than in other forms of gambling. The average bet through Centrebet is about $50, the average casino bet is about $20 and the average Keno bet is about $5.
Hines says Centrebet profit has grown at a compound annual rate of more than 60% for the past three years, growth that he says will continue. ‘In 10 years’ time, Centrebet will be bigger than the rest of Jupiters.’
Hines says Jupiters has a watching brief on the lotteries sector. He believes that lotteries will eventually be held on the internet. ‘We would like to participate in the transition from tickets to the internet.’
Most of the Jupiters revenue comes from its wholly owned casinos – Conrad Jupiters on the Gold Coast and Conrad Treasury in Brisbane – and its 47.5% stake in Breakwater Island Trust, the owner of Jupiters Townsville. The casinos accounted for $482.4 million of the company’s 2000-01 revenue. Hotels represented $124.9 million, Keno games $83.8 million, and other sources, including Centrebet, $79.9 million.
In 1999, Jupiters announced a $150 million upgrade of the Gold Coast casino, but investors questioned the return from such an investment. Last year, the budget was revised to $84 million, but Hines says the refurbishment program is being re-assessed. ‘We won’t spend $84 million this year. We have spent $25 million so far. As far as I am concerned, the rest is not approved. I really want to look at return on investor capital before we go ahead.’ (Jupiters did spend $17 million this year upgrading the high-rollers room at the Gold Coast casino).
In 1999, Jupiters won the right to operate a new Gold Coast convention centre, which will be built on land next to the casino. The $118 million project, being project managed and operated by Jupiters and funded by the Queensland Government, is due to be finished by mid-2004. However, the September 11 terrorist attacks in the United States and the collapse of Ansett Australia have caused a slump in the convention industry.
Hines says the cancellation of the Commonwealth Heads of Government meeting (which was scheduled to start in Brisbane on October 6) and the failure of Ansett have had a limited effect on Jupiters. Some high rollers were deterred by the loss of frequent-flier rights after the collapse of Ansett, but the occupancy rate at the Jupiters hotels in Brisbane and the Gold Coast is 68-70%, compared with 71% a year ago.