China’s Crown Affair Puts Pressure on Casinos Everywhere

The world’s casinos need China’s money. They just have to be very coy about asking for it.

China’s authorities said Sunday they detained employees of Australian casino operator Crown Resorts CWN -13.90 % for suspicion of “gambling crimes.” Casinos are illegal in mainland China, and so is directly recruiting gamblers to venture abroad—even though they do it in droves.

Among the 18 people being questioned is Jason O’Connor, head of Crown’s VIP International team, which is responsible for bringing high rollers to Crown’s resorts in Australia. In a measure of how much these high rollers mean to the company, investors sent Crown’s shares down 14% Monday.

This isn’t the first time that employees of foreign casinos have gotten into trouble in China. Authorities detained dozens of people last year for arranging gamblers to go to casinos on South Korea’s Jeju Island, a popular destination for Chinese high rollers, according to China’s state media.

Places like Jeju and Melbourne, along with Manila and Las Vegas, have become increasingly important destinations for big-spending Chinese gamblers. This has partially supplanted Macau, the semiautonomous casino hub nearest to mainland China. VIP gamblers’ bets grew 27% in the quarter ended June everywhere in the world outside Macau, where it fell 21%, according to Morgan Stanley.

ENLARGE

The Crown Casino complex in Melbourne. Photo: Reuters

Gambling outflows are counterproductive to President Xi Jinping’s antigraft efforts, as it is difficult to trace where the money goes. That may be especially true away from Macau. A regulatory loophole in the Philippines, for example, allows untraceable cash to wash through its casinos. This was exploited in February when millions of dollars stolen from Bangladesh’s central bank were used to buy chips in two casinos in the country. It is perhaps no coincidence that Philippine casinos saw a 61% increase in VIP revenue in the second quarter. Chinese visitors to the country nearly doubled in the first half of the year.

Other countries’ bane isn't necessarily Macau’s boon. Macau casino stocks fell Monday in sympathy. Any inkling that Beijing is tightening the screws on letting its people gamble is right to cause concern given how badly Macau has suffered the past few years.

Macau casinos, in any case, face the same marketing rules on the mainland; several have already stopped marketing teams from traveling to China and have limited extending credit to Chinese gamblers, according to Credit Suisse. Though Macau casinos have tried to attract larger numbers of casual gamblers, their VIP business remains an important, if unstable source of revenue.

China is the whale in everyone’s casino—thrashing about, causing trouble.

Write to Jacky Wong at jacky.wong@wsj.com

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