The Crown Resorts' 'VIP recruitment' staff were picked up in coordinated raids across cities including Shanghai and Beijing in an operation targeting Crown's marketing activities in China.
The arrests present a huge problem for Packer and Crown, who rely on big betting Asian gamblers to top up the company's profits and had been counting on big gamblers to underpin the A$2 billion casino they are building on Sydney Harbour.
Gaming companies put a huge amount of effort into attracting big gamblers, wining and dining them and offering them private jets to the casino, free accommodation and multimillion dollar lines of credit.
But in China, casino companies' marketing staff are severely restricted. Casino marketing agents are prohibited from promoting gambling, but skirt the regulations by supposedly just promoting the resort which happens to contain the casino, as well as its restaurants and tourism in general.
In the annual report, Crown's head of Australian Resorts Barry Felsted is quoted as saying that more than a third of revenue generated by the Australia arm of the company was from international visitors, "predominantly from mainland China".
It is little wonder gaming companies are tempted to wade too deeply into the murky grey area that makes up the Chinese regulations on promotion of casinos.
It's hard to know what, if anything, the Crown high roller team has been doing - despite its march towards modernisation China remains opaque - but the company cannot claim it wasn't warned.
The arrests came amid an anti-corruption drive that has targeted the flow of cash overseas through underground banks and casinos, particularly in Macau.
Shares in Crown plunged 14 per cent when the sharemarket opened after news of the arrests as investors grew concerned about the impact on earnings from the crackdown. The risk is that Chinese gamblers might decide it's better to keep a low profile and lose their money in places other than Crown.
The concerns have spread to other gaming companies. Shares in SkyCity fell steeply as the company said the Crown arrests could further hurt its falling VIP customer revenue.
Crown moved to reassure investors that Chinese VIPs weren't such a big deal, suggesting business from mainland China generates only about 12 per cent of revenue and - extraordinarily - isn't all that profitable anyway.
But no international business wants to be denied access to the Chinese market. Crown will need a hell of a lot of old age pensioners pulling $20 notes out of their polyester pants to replace the Chinese billionaires they are at risk of losing.
The raids also present a problem for the A$2 billion casino Packer is building at Barangaroo on the Sydney Harbour foreshore.
The six-star casino is designed specifically to cater to high rollers and the upper end of the market. Some investors were already concerned about whether the project would generate sufficient return and these fears have intensified with the possibility that Chinese whales might not come.
The raids highlight the importance of reading the tea leaves and staying close to the government when doing business in China. All the signs were there for Packer and his execs to see.
As early as February last year, an official at China's Ministry of Public Security was quoted as saying: "A fair number of neighbouring countries have casinos, and they have set up offices in China to attract and drum up interest from Chinese citizens to go abroad and gamble. This will also be an area that we will crack down on."
Among those detained was Jason O'Connor, Crown's executive general manager in charge of international VIP services. O'Connor isn't based in China and rarely visits, so his inclusion in the round up suggests that Crown was specifically targeted in the raids.
Chinese authorities are sending Crown and other gaming companies a warning, but if Crown had listened to earlier warnings, this whole mess could have been avoided.
