Star Entertainment begs and borrows its way to survival

Some of the desperate problem gamblers that populate Star Entertainment’s cavernous gaming halls use pay-day lenders charging massive interest rates to finance the addiction. Call it karma, but now Star is the desperate casino signing an onerous and expensive borrowing package in order to stay afloat.

It is now so dependent on regulators and lenders that its fortunes are largely outside its control.

Star CEO Steve McCann.Credit: Dominic Lorrimer

The banks that have extended $200 million in staggered emergency funding have taken their pound of flesh, including a 13.5 per cent interest rate and guarantees over the casino assets, while putting their foot on any cash that the company raises from selling assets.

Steve McCann is being paid handsomely as Star’s chief executive, but he and the board will answer to the banking syndicate on any big decisions and strategic plans.

To say the banks are now the de facto owners of Star isn’t a stretch.

After four weeks of waiting for its 2024 accounts to be filed and the share trading suspension to be lifted, the full horror of Star’s precarious financial position is now in full view.

To say the banks are now the de facto owners of Star isn’t a stretch.

Ugly as the full-year loss of $1.68 billion was, it wasn’t unexpected given the enormous impairments that had been foreshadowed.

It isn’t so much the fall in 2024 earnings that shareholders would be concerned about. Rather, it is what lies ahead in the current year when a raft of regulatory changes around cash limits and carded play come into effect in NSW and are then rolled out to its Queensland casinos. Add to that the ongoing costs of rehabilitation, and it is easy to see why Star carries such significant risk.

That’s what would have been giving auditors pause for thought when ticking off the company as a going concern. And it’s why the banks played hardball on giving Star fresh debt.

The Star’s new casino at Queen’s Wharf in Brisbane is at the heart of its financial troubles.

The first two months of the 2025 financial year were diabolical, with the group recording a $6.6 million loss in July and $1.1 million in August, and that’s before interest, tax and depreciation have been expensed. It looks even worse compared with July and August earnings the year before – which were profits of $20.3 million and $21.6 million respectively.

The introduction of effective regulation will provide a much clearer picture of what each of its casinos can earn when cleared of money laundering of problem gambler proceeds.

Of course, regulation and remediation costs are not Star’s only problem.

It has been caught in a building bind that many companies and people have also found themselves in as post-COVID costs have skyrocketed over the past few years. The company’s Queen’s Wharf casino has come in well over budget at an estimated cost of $4 billion.

Additionally, thanks to the state of the economy and regulatory changes, the earnings that Star can bank from the Queen’s Wharf won’t be nearly as large as would have been anticipated when the project began in 2017.

On top of this are the hundreds of millions of dollars in penalties that Star has attracted for past behavioural sins, and shareholder class action that is yet to be litigated.

Queensland Premier Steven Miles confirmed this month that his government was prepared to negotiate a possible deferral of tax payments to protect almost 3000 jobs at the recently opened Queen’s Wharf complex in Brisbane.

The NSW government, however, wasn’t so prepared to join the rescue party by providing a better tax deal. Last year it agreed to defer the full implementation of a tax increase on poker machines in casinos until the end of the decade. In return, the Sydney casino complex has to maintain more than 3000 jobs until at least 2030.

And all these troubles are having to be navigated through a cost-of-living crisis and uncertainty around whether Star will regain suitability to hold a full licence in NSW.

McCann wins the prize for corporate understatement of the year for commentary on Star’s position.

“There are a number of significant challenges currently facing the business from an earnings, liquidity and balance sheet perspective.”

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