Now or never: Steve McCann has one last chance to save Star

The new boss of Star is surviving on just a few hours of sleep a night trying to save the casino and thousands of jobs. Even if he gets through this, does it have a long-term future?

Star Entertainment chief executive Steve McCann has been locked in talks all week with banks and government. Picture: Max Mason-Hubers

Steve McCann really has one roll of the dice left to save Star Entertainment and that is to get two state governments into his corner.

The problem is that both NSW and Queensland have so far shown very little appetite for getting behind a casino – especially one that’s fallen so far.

And apart from getting three hours of sleep a night, that’s been McCann’s biggest challenge since taking charge late last year.

None of his stakeholders – be they banks, government, regulators or investors – have ever been on the same page when it comes to saving Star.

Star, which operates Sydney, Gold Coast and the new $3.9bn Queen’s Wharf casino in Brisbane, issues its quarterly cashflow report early next week which will spell out the severity of its financial position.

It is burning through about $50m in cash a month and, at the end of December, it had $79m left in the bank, and lots of big, lumpy bills all falling at once.

At this rate Star has weeks left to live. The end could be even closer given Star’s board is weighing up whether it can sign off on its December half accounts to declare the business can continue as a going concern.

At last count there were more lawyers and advisers in the boardroom than directors.

Star casino in Sydney has been hit with tougher gaming rules. Picture: John Feder

An equity raising is out of the question given the collapse in shares, and a $160m subordinated debt raising too is pretty much dead in the water.

There’s no white knights with a real or immediate offer on the table.

There is a small prospect of hope. It is understood Star’s bankers that includes Westpac and Barclays, are open to committing another $100m which Star desperately needs. But they want some certainty from other big players – namely state governments to give Star some breathing room from its gaming tax obligations – allowing it to trade through the current cash crunch.

It is believed the banks, which essentially have Star on life support, have also pressed this line directly to respective state governments.

And an appeal to NSW and Queensland is essentially McCann’s last chance to keep Star intact and save thousands of jobs. However, it seems that until now no one is listening.

It is understood that in the coming week McCann will spell out the case to the governments that the longer-term cost of administration will be far bigger than the short-term hit to revenue from temporary tax relief.

An administrator has legal obligations to creditors only, and that means any jobs deal struck with unions and the NSW government covering 3000 workers in Sydney would be thrown out.

So too, an administrator would be quick to pull the remaining $200m or so needed to finish building the giant Queen’s Wharf casino and hotel complex in Brisbane.

Fines still outstanding to regulators are unlikely to be paid, including the big and still unknown Austrac fine. At the same time an administrator is just as likely to pause gaming tax payments to allow the casino operator to trade through its problems.

Under an administration, a break-up of Star’s Sydney, Brisbane and Gold Coast properties is the most likely outcome. This too means smaller operators and the prospect of Brisbane losing control of its centrepiece Queen’s Wharf.

Queen’s Wharf in Brisbane. Picture: Steve Pohlner

McCann has the option of a break-up of the business today to raise funds. But it is understood to be a least preferred option.

This would be a slow and complicated task to separate technology and staffing whereas Star needs the money now.

It is also uncertain that a smaller casino could absorb all the costs left behind for running the hotels and other services.

There’s little doubt Star’s problems are self inflicted. It overleveraged on Brisbane on the assumption business would boom forever and then it dropped the ball badly by allowing crooks and unsavoury elements to use its gaming rooms.

In some case it actively courted them.

But these problems have been compounded by an overzealous regulator in NSW which has arguably done more damage as Star was attempting to fix its own bad behaviour.
All this created the environment where Star has left itself vulnerable to unworkable casino rules and higher gaming taxes. In the quest to have the safest casinos in the world, NSW faces the prospect of having no casinos at all.

Star’s core gaming business has seen earnings collapse as much as 50 per cent. Revenue too has fallen off a cliff since the introduction of mandatory cashless gaming and daily $5000 limits. This drops to $1000 a day in August.

Surely Star can’t survive this mess over the long term?

These are all existential issues, to be sure, but McCann is confident Star can work through each of these over the longer term. But first he needs his financial bridge to get through the cash crunch.

It’s been the case that asset rich but cash poor companies have fallen before Star.

Part of this confidence is drawn out of the actual debt sitting on Star’s balance sheet; a gross position of $300m last June is not very high compared to the billions in assets including property and hotels.

Most of the debt is held in the Brisbane joint venture and this runs at about $1.6bn – and Star has a half share of this. The interest repayments are crippling but there are options for a restructure. McCann the builder has some other tricks up his sleeve to lower outstanding construction costs and cut some other jobs.

The remedial and legal charges will fall away in coming years as long as the work gets done. This too would put Star on a surer financial footing.

And the cashless gaming rules? McCann has reasoned Star can live with them if the technology catches up. Ultimately the world is moving away from cash and one day the pubs and clubs will too.

As the former boss of Lendlease, McCann made a $6bn bet on the development rights to Sydney’s Barangaroo just as the global financial crisis slammed markets. There he was firmly told by many that, given the crisis, no one would provide the backing to fund its audacious move.

But it only hardened McCann’s resolve that prevailing conditions today don’t last forever.

He secured backing from his board to push ahead with the development and investors tipped in billions of dollars, but Barangaroo powered Lendlease’s earnings for a decade.

Ironically, the waterfront site now houses Sydney’s other casino, Crown. In another twist McCann went on to run Crown after Lendlease, which was another saviour job of a different kind.

McCann has one final chance to save Star and he is putting this on the state governments, which have so far resisted his pleas.

If this doesn’t work, then the answer to who will join the fight to save Star becomes painfully clear. No one.

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Originally published as Now or never: Steve McCann has one last chance to save Star