The Star in Sydney is set to be saved as part of a $300 million rescue package by US operator Bally’s.Credit: Aresna Villanueva
Investors have been holding their hands to their throats for months as the spectacle of a once cocky casino company lurching towards its demise played out before them.
The Star Entertainment Group’s chief executive Steve McCann had flogged assets, sold out of Brisbane, squeezed the government for regulatory mercy and nearly secured a long-term funding deal, only to come up short.
But as the company trickled down to its final dollar of cash, the former professional poker player had one more card in his hand.
US casino giant Bally’s Corporation, a self-described “buyer of last resort” whose advances Star had previously rebuffed, now offered $300 million in funding in exchange for control of the company. This time, McCann signed.
Introducing mandatory carded play in October was the final, fatal blow to Star’s casino in Sydney.Credit: Louise Kennerley
The rescue deal will come as a relief to Star’s 9000 employees and the NSW government, which company insiders privately blame for its travails.
Among Star’s many injuries, the NSW government order for its Sydney casino to stop accepting cash from October last year threatened to be the fatal blow.
The new cashless gambling regime required the casino to conduct extensive “know your customer” checks on its patrons, and revenue dropped immediately and sharply after it was introduced.
Too many of Star’s customers did not wish to be known.
Less than 400 metres down the road from the Sydney casino, Pyrmont Bridge Hotel has 19 poker machines where customers can play anonymously. It jumped 100 places up the state rankings by gaming machine net profit in the quarter after the changes at Star took effect.
It is a dizzying turn of events for a company that less than four years ago was openly floating a $12 billion takeover of its weakened rival, Crown Resorts.
When Star shares went into a trading halt this year, plenty of pundits envisaged a scenario where Crown bought the jewel in Star’s portfolio – the Sydney casino – and with it the poker machine licences that would reverse its own fortunes.
It will now be up to Bally’s to return Star to profitability in a regulatory environment where it continues to be the only poker machine operator in Sydney that is not allowed to accept cash.
The NSW Independent Casino Commission chief commissioner Philip Crawford said on Tuesday he had begun a probity assessment of Bally’s Corporation and was continuing to work with Star on remediation.
Ben Lee, managing partner of IGamiX Management and Consulting, said the NSW government’s lopsided approach to gambling regulation suggested cashless gaming was being used as a punishment rather than a wholesale attempt to prevent money laundering.
“I think a lot of people were naive about the intention of the NSW authorities,” Lee said.
“They didn’t realise the depth of antipathy that the NSW government had for Star, and it’s come to this point where Star and its representatives and even suitors like Bally’s have no clear indication as to what the path is to recovery.”
Back in 2015, when Echo Entertainment rebranded itself to become The Star Entertainment Group, the company had a thriving market in Asian high rollers and the confidence to submit a $2.6 billion three-way bid to develop the Queens Wharf precinct that would be central to the Queensland government’s revitalisation of the Brisbane CBD and accommodation of the 2032 Olympic Games.
The arrival of Crown, with a tower in Barangaroo, added to the Star casino’s woes.Credit: Wolter Peeters
Two years earlier, the company had come off second best in a bruising contest with Crown, whose chairman, James Packer, had won government approval to operate a competing casino in NSW and was developing a luxury hotel at Barangaroo. But Star had leveraged this to its benefit by securing government funding to develop its own resort-style entertainment complex in Pyrmont. It was on the ascent.
The business model developed by Crown and mimicked by Star was the cultivation of Chinese high rollers who were moving their private capital offshore on gambling tour groups known as junkets. In February 2018, Star’s market capitalisation reached a high-water mark of $5 billion.
Such was Star’s chutzpah that it continued to aggressively pursue the VIP market even after The Sydney Morning Herald and The Age revealed in 2019 that one of its major partners, the junket operator Suncity, was linked to organised crime.
It did not pivot its business then, or in 2020 when the Bergin inquiry into Crown Resorts that resulted from those media reports uncovered breaches of anti-money laundering requirements so flagrant that Crown was deemed unfit to operate a Sydney casino.
Instead, as the Bell inquiry was later to learn, Star became good at covering its tracks. It removed Suncity’s branding from its private gaming salon, where bags of cash persisted and which continued to be operated for the junket operator’s exclusive use. It disregarded independent audits of its money laundering systems, misled banks and helped Chinese high rollers to disguise their gambling expenses.
Only when Star, too, was exposed by the media in 2021, and Adam Bell, SC, made his damning findings, did Star cease its association with some of the organised criminals, tax cheats and corporate fraudsters who were using its premises to clean their dirty cash.
By this time, the high-roller market had dried up in the aftermath of COVID-19 and amid a crackdown by Chinese authorities. But the NSW government announced sweeping new regulations to be imposed on the company, including mandatory carded play, extensive due diligence on patrons, and $1000 cash limits.
Then casino regulator fined the enfeebled company $100 million.
The Star casino and Queens Wharf complex in Brisbane.Credit: Glenn Campbell
Star’s luck had turned. The cost of the Queens Wharf development had blown out by $1 billion, and one of Star’s partners in that project, Chow Tai Fook Enterprises, was facing probity questions. Star’s saving grace was the willingness of the Queensland government, which was counting on the taxes to be generated by the casino, to dismiss concerns that Chow Tai Fook had misled regulators over its links to underworld figures as a misunderstanding.
However, the alleged links between Chow Tai Fook and organised crime ruled it out of rescuing Star in NSW, where any ownership stake greater than 10 per cent would trigger probity checks.
The NSW Independent Casino Commission then ordered a second inquiry into Star last year, resulting in a $15 million fine for compliance breaches.
Star successfully argued for the cash limit to stay at $5000 for 12 more months and for cardless play to be delayed from August until October 2024. But the change when it finally arrived was immediate.
Addressing shareholders in November, chief executive Steve McCann disclosed that daily average revenue was down 15.5 per cent compared with the four weeks before cardless play took effect. It was clear the casino had lost market share, he said.
“I think it’s fair to say we are not currently operating on a level playing field.”
By the end of last year, the company had just $79 million in the bank, having burned through $100 million in the previous three months. Still pending is a fine from AUSTRAC, which is expected to top $300 million.
Star offloaded its stake in the Queens Wharf project to Chow Tai Fook and its Hong Kong partner Far East Consortium in March and took full ownership of its Gold Coast properties in return for $50 million in cash.
Morningstar analyst Angus Hewitt said that even with the Bally’s lifeline, Star needed an improvement in operating conditions to return to profitability.
“We think casinos in Australia will never be the lucrative businesses they once were,” Hewitt said.
“Pubs and clubs don’t have the same restrictions that Star has, which is obviously hurting, and the VIP players that used to be a big part of the casino business have gone, maybe forever. But we do think this is cyclical, and there’s no guarantee that cardless play is not going to apply to pubs and clubs eventually.”
Shareholder activist Stephen Mayne said Star and Crown both ran their businesses well beyond the scope of the law.
“They were enabled to do that by a hopeless, sleepy, complacent and underfunded regulator,” Mayne said.
“Then I think it’s fair to say [Star has] been subjected to an unfair overreaction by various regulators which have contributed to [its financial trouble] with a $100 million fine.”
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