14/12/2011 05:02 GMT | Updated 11/02/2012 05:12 GMT

James Packer Wins His Casino Bets and Heads Back to Media

James Packer is the most famous man in Australia. He's the 44-year-old businessman whom Aussies variously admire, despise, love for his Australian-ness, and respect for his under-sung business achievements in the shadow of a famously demanding father.

James Packer is the most famous man in Australia. He's the 44-year-old businessman whom Aussies variously admire, despise, love for his Australian-ness, and respect for his under-sung business achievements in the shadow of a famously demanding father. And, then, there are the people who want to see him fall flat on his face simply because he is a billionaire by inheritance.

Many Brits remember Jamie Packer as a 1980s playboy. His late father Kerry was the rough-tough TV mogul who turned sport upside down in the 1970s with his piratical launch of World Series Cricket which ushered in day-night games, non-white outfits, and many of the variants that have since revitalised the once so-conservative game. And the world's media revelled in stories about his massive losses on the world's gaming tables, reportedly down A$28m during a three-week losing streak in London in 1999.

A larger than life father

The polo-playing Kerry Francis Bullmore Packer was larger and louder than life. He was either an Australian hero who deserved to be honoured by the great and the good at a packed-out 2006 State memorial service at the Sydney Opera House two months after his death. Or he was a power-crazed bully who intimidated politicians in the pursuit of his business interests. You take your pick. But he unarguably created strong, successful businesses and played a major role in the popular culture and economic life of Australia across 30 years.

Kerry Packer was populist to his fingertips, juxtaposing foul-mouthed outbursts with attacks on his executives for over-explicit advertising or 'adult' programmes. He could be crude or a prude. The man who objected to adverts for tampons and suggestive commercials for Cosmopolitan, and who once pulled the plug on a live 'sex' programme, was also responsible for publishing Australia's biggest-selling soft porn magazines.

Is James as smart as Kerry?

Packer's towering image is conjured repeatedly by everyone who has a view on whether or not James has his Dad's smarts. It's a debate fed by milestones like these:

  • 15 years ago, James Packer signed the ground-breaking 9MSN joint venture with Microsoft that still dominates Australia's online landscape
  • 10 years ago came the 'you-saw-it-coming' collapse of OneTel, the racy Aussie phone company that James Packer and Lachlan Murdoch had persuaded their dads to support. The Murdoch-Packer public companies blew A$1bn on the adventure, recounted painfully by a bestselling book "Rich Kids".
  • It was 6 years ago this month,that the irrepressible Kerry Packer died aged 68, from kidney failure, 15 years after first cheating death with a heart that stopped beating for 6 minutes on the polo field: "I've been to the other side, and let me tell you son, there's nothing there," he chirped a few days later. He suffered up to eight heart attacks, kidney cancer and transplants across 20 years of near-death scares. Nothing seemed to slow him down - or halt his addiction to cigarettes and junk food.
  • 5 years ago, James sold his family's main media interests (in magazines, online and free-to-air TV) to the private equity firm CVC for some A5.5bn. The deal was structured to give Packer a cool A4.5bn in cash, most of which went into the expansion (and internationalisation) of his already-powerful casino business. Now, we know that the Packer heir almost called the very top of the market for media company values.

    Those are just a few headlines in the life and times of James Douglas Packer. But more recent events might just inform the debate on the mettle of Australia's most famous son, including:

    • The striking success of his City of Dreams casino resort in Macau. China's home of casinos has been growing at 35% a year and now has five times the revenue of Las Vegas. Packer's Melco-Crown joint venture is one of six authorised casino operators in Macau and is now building its third complex. The US-quoted company floated on the Hong Kong stock exchange last week, which will help increase the company's value over time.
    • The400m profit on his 25% early-stage stake in, bought in 2003.
    • The400m sale of the Packer cattle ranches to UK private equity firm Terra Firma
    • The forthcoming sale of his 25% in Jurlique cosmetics for80m
    • CVC's panicky attempts to refinance the indebted media group it acquired from Packer in 2006 for a price more than double its current value.
    • It is that CVC purchase of his family's media business which, more than anything else, defines James Packer the businessman.

      A casino empire is born

      The genesis of the deal was in the 1999 purchase of the Crown Casino in Melbourne by the Packer-controlled, then quoted company Publishing and Broadcasting Ltd (PBL).

      Kerry Packer had invested privately in Crown Casino, launched by his closest friend Lloyd Williams. Hundreds of millions of dollars of losses later, costs were way out of control and the casino was in deep trouble. Kerry and James Packer came to the rescue, staging an unlikely merger of Crown with their quoted PBL media company. Even Kerry's normally compliant non-executive directors were aghast at the dramatic shift in the media company's strategy, sprung on them by phone conference one Saturday morning. But he silenced them by invoking the legendary deal which had "returned" Channel 9 to him for just $200m after the earlier sale of $1.1bn had bankrupted Alan Bond in the early 1990s. Then, he had gloated: "You only get one Alan Bond in your lifetime and I've had mine". Now, Kerry claimed his second 'Bond' and the legendary gambler added for good measure:"I can tell you, because I know, that the house always wins."

      And so it proved. The combination of Crown's cost-cutting turn-round to profits and the transfer of huge Crown tax losses to offset against then-soaring media profits gave PBL shareholders what became their most profitable business (now with 3 hotels and 3,000 gambling machines) effectively for a price of not much more than a single year's casino profits. Next, came the Burswood casino in Perth, and a lucrative Australian joint venture with online gambling company Betfair. For James Packer, who had navigated PBL early into online media past his sceptical father, it was a short step from forming an unlikely media+casino group to recognising that the gaming business was the more durable and cash-generative. In the last months of his father's life, James' ambition to switch out of Kerry's beloved magazines and free-to-air TV must have been one of those deeply private, heir-apparent plans - up there with Prince Charles' whispers about turning Buckingham Palace into a museum after his mother dies.

      For all the wild stories (and despite flipping Channel 9 to Bond and back), Kerry Packer's media employees had come to see him as dependable as the Christmas hampers he bought them each year. So, when James Packer sold Channel 9, ACP Magazines and 9MSN to CVC in 2006, just months after his father's death, journalists started dusting off their stories about "clogs to clogs in three generations" and "selling the family silver". No sooner had the ink dried on the CVC purchase of PBL's magazines, online and TV network than the newly-unshackled son embarked on an investment splurge that saw him loading up with casino investments in the UK and US. He was a young man in a hurry. And, sure enough, by 2008, people were writing his business obituary. That year, for the first time in 21 years, the name Packer (shock, horror!) was not at the top of the list of Australia's richest people. The pundits were variously estimating that the man who had inherited $7bn barely two years before, had already lost $4bn of it, much of it on the kind of foreign investments which Packer Sr had always been wary of.

      Traditional media under fire

      But, by then, strange things had started happening to the media industry Kerry had left behind. The internet that James Packer had been captivated by as far back as 1996 (when there were few sites and fewer profit makers) had started to weave its magic. And traditional media began to feel the heat. Advertising revenue wobbled, magazine sales plummeted and the TV networks started to suffer at the hands of newly-emerging pay TV. And Channel 9 (many of whose key executives had decamped to the rival Channel 7 during Kerry's tumultuous final 18 months) spectacularly lost its longtime market leadership. By 2008, the closure of the 128-year-old The Bulletin seemed to symbolise the changed era for media that had been forecast by Macquarie Bank and others who had advised James Packer's bold business moves. Significantly, though, he kept hold of the erstwhile PBL investments in pay TV companies, Foxtel and Fox Sports, and online job site Seek. Even at the height of the stable-clearing, the Packer heir kept his eyes on media futures.

      But his next three years was ecstasy followed by agony. The CVC coup was followed by the pain of new fast-paced casino investments that themselves proved to be hugely over-priced as the world dived into banking crisis. And he had his own corporate near-death experience over commitments to acquire American casino businesses. But, by the time he had paid his way out of some potentially ruinous deals in the US, divested his father's farming interests and some of his own trophy assets, James Packer was able to relax and watch the just-starting seismic shakes in traditional media.

      CVC under water

      CVC's $5.5bn deal for the PBL media businesses was the stuff of legend. It had been marked by cock-a-hoop private equity executives publicly enjoying the limelight in media-obsessed Australia. The cocky Brit who sealed the deal could not believe his luck: he was a media baron and such a close friend of Australia's most famous man. But, soon enough, the mood changed as everyone realised the declining business was worth nowhere near what CVC had paid for it. The bankers moved back from the social pages to the business ones - and wished they had never claimed the credit for out-negotiating a Packer.

      PBL Media (which was renamed Nine Entertainment Company in 2010) has become a private equity basket case. The magazine and TV profits are fractional (just enough to cover the interest charges). Channel Nine has to be content with the No.2 position in an under-pressure market it had long dominated; and ACP Magazines' profits were down almost 20% last year. CVC has already been forced to inject more cash in order to prevent a default and, now four years after the original purchase, they are faced by needing to reschedule some $2.6bn of debt - or face losing their entire investment as the business is snatched by the lending banks which will then scramble to get back as much as possible of their $2.6bn. That now seems the unavoidable fate. CVC has effectively already lost all its $1.9m equity. It's just a matter of time before it loses control as well.

      Like traditional media everywhere, much of the old PBL Media group will survive the CVC debacle, but it will be a smaller, less illustrious business - unless it is used effectively as a platform for major new media. But, unlike many of the media winners in the next decade, the CVC-owned business has been unable to invest for the future during times when it has been scrambling to pay the bills. Although, there are some smaller assets CVC can sell to raise cash (and it has cashed in most of these) the still-strong Channel 9 and the increasingly weak ACP Magazines are bound together by the 9MSN partnership which owns rights to their content and promotion. Packer's far-sighted early-internet deal with Microsoft is now effectively a poison pill for CVC.

      James Packer going great

      For James Packer, it is all turning into a great middle chapter. His Crown quoted casino business is hugely profitable and the Macau joint venture is expanding fast, both exploiting the expanding Chinese economy. His UK Aspinalls group is also starting to recover, with a big new casino opening at the heart of Westfield's Olympic City shopping centre. His many private investments in Jurlique et al are coming good, his pay TV and 'new media' media investments in quoted company Consolidated Media Holdings are also performing well.

      Dad's opportunism

      James Packer is already showing some signs of his father's opportunism. Having sweetly divested Channel 9 ahead of the slide, last year he returned to the free-to-air TV fray by snatching a slice of the second-tier Channel 10 - with his erstwhile OneTel partner Lachlan Murdoch. Some now believe that his instinct for a smart, opportunistic deal will lead him (either alone or in a consortium) to buy back his family's former media business if /when CVC loses it to the banks in the next year or so. An eventual sale back to Packer was, ironically, something that CVC executives used to talk optimistically about in the halcyon days when they were contemplating rising values and big gains. But not like this.

      A second 'Alan Bond moment'?

      James Packer has always been a fair bit more PR conscious than Kerry and would enjoy media coverage of how his family had sold and bought Channel 9 so lucratively not once but twice. It could be a steal, and his own first 'Alan Bond moment'. And it would be a nice way of showing that he is every bit his father's son.

      One outstanding question will be whether Kerry's old media business, now called Nine Entertainment Co. (whose CEO David Gyngell is James Packer's best mate and Kerry's godson) will change hands before or after Australia's Channel Nine starts screening "Howzat: The Kerry Packer Story" in August. The big budget mini-series may be crucial to the channel's 2012 results. So, the Big Fella may still be calling some of the shots from the grave. Whatever the score, just watch James Packer move back into the media mainstream...

      Declaration of interest: Colin Morrison was CEO of ACP Magazines and a director of PBL Ltd 1995-99; and CEO of ACP-NatMags 2004-8