NSW casino inquiry: Crown needs to ‘blow itself up’ as analysts tip sale or merger

The head of the NSW gaming regulator says Crown ‘needs to blow itself up to save itself’, but hinted at a possible timeline for the casino’s opening.

Analysts say Crown’s casino operations are now ripe for a sale or merger.

Chair of the NSW Independent Liquor & Gaming Authority Philip Crawford says the idea that Crown Resorts “needs to blow itself up to save itself” is “probably pretty close to the mark”.

But he has indicated Crown’s Barangaroo gaming floor could open as soon as April, even with James Packer as a major shareholder in the company.

Speaking in Sydney on Wednesday, the chair of the regulator that oversaw the inquiry into Crown’s suitability to operate its $2.2bn Barangaroo casino in Sydney said he would not be going into detail on the report’s finding before his board convened on Friday.

But he did say that he had contacted Crown chair Helen Coonan to begin a required process of consultation with the company.

“There’s also a quite complex set of contractual arrangements between the state and Crown entered into seven years ago,” he said. “One of those … is to consult with Crown in circumstances such as we have at the moment.”

ILGA denied Crown’s bid to open the gaming floor at Barangaroo last December, saying it would wait for the release of their inquiry’s findings, which were tabled in parliament on Tuesday.

A temporary liquor licence was granted for the hotel’s non-gaming areas, but it runs out in April.

Mr Crawford said he was “quietly confident” Ms Coonan could satisfy ILGA that Crown committed to reform by April, paving the way for a full opening of the casino.

“I saw her give evidence and she was impressive,” he said, adding she is the “one person who could pull it off.”

Crown announced that Packer nominee directors Guy Jalland and Michael Johnston would step down during Mr Crawford’s press conference.

“That’s great news,” Mr Crawford said in a response.

“That means somebody is listening to us.

“It sends a big message to me and a big message to the media”

However, Mr Crawford also said the casino industry had money laundering issues “in spades” and said the days of self-regulation for both Crown and the casino industry was over.

Although the inquiry's findings recommended a 10 per cent cap on shareholdings in casinos, ILGA would not seek to “boot” Mr Packer “off the share register” right away.

“We will find a commercial way forward, but things will have to happen, things will have to change. It is pretty obvious,” he said.

The report also called for the creation of a new casino regulator in the state, but Mr Crawford said this was a matter for the government.

On Wednesday NSW Premier Gladys Berejiklian said the government would do what it needed to reform the industry, but a formal government response would not occur until ILGA had briefed the government on the 19 recommendations in the report.

“Whilst we accept Commissioner Bergin’s report, the NSW government is awaiting independent advice from ILGA,” she said.

Other recommendations in the scathing 800 page report authored by former Supreme Court judge Patricia Bergin included a statewide ban on the use of gambling promoters – or junkets.

Mr Crawford said ILGA would discuss this recommendation with Star Entertainment, who have used junkets to attract VIP clients to the Pyrmont casino across the harbour from Crown Sydney.

“We’ll have a dialogue with the Star – we’ve got a pretty good dialogue with the Star anyway,” he said.

Commissioner Patricia Bergin during the NSW Casino Inquiry. Picture: supplied

Gaming industry analysts had a mixed reaction to the Bergin report, but broadly agreed that a merger or acquisition of Crown – potentially with Star Entertainment – was on the cards.

The Australian understands that Mr Crawford is not opposed to a Crown-Star merger in principal, despite the monopoly on casino gaming it would create in Sydney

Analysts at Macquarie downgraded their rating of Crown Resorts to neutral following the report’s release, noting the conversion to suitability could take up to two years.

They also said that the Bergin report “brings into question Crown Resorts’ suitability for Crown Melbourne and Crown Perth”.

Macquarie’s underlying earnings forecast for Crown was flat for the 2022 financial year, shrinking by 3 per cent in the 2023 financial year.

Goldman Sachs analysts said the report would delay the opening of Barangaroo’s gaming floor. They added the Bergin report reaffirmed their belief that Crown was the least attractive listed casino operator on the ASX and said the impact of the report meant Crown was “facing heightened M & A probability,” which may support its share price in the face separate regulatory challenges from Austrac and the Victorian gaming regulator.

Analysts at UBS maintained a buy rating on Crown, taking a bullish view towards the company’s ability to achieve suitability.

“In our view these conditions could be achieved after undergoing significant changes to the organisation and we would expect Crown to pursue these changes as a priority,” they said.

E&P analysts also maintained a positive rating on Crown, saying it maintained its opinion that Crown could merge with its competitor Star Entertainment.

“We also maintain our view that a merger of Star and Crown is a reasonable possibility given synergies valued at $A1.4bn,” the analyst said, adding that a merger would also allow James Packer to dilute his shareholding below 10 per cent.

“It permits Crown‘s major shareholder to dilute its holding then sell down into a more liquid, and more valuable, entity.”

Crown Resorts emerged from a trading halt to fall as much as 10 per cent, before clawing back seven per cent to $9.85 per share.

Originally published as NSW casino inquiry: Crown needs to ‘blow itself up’ as analysts tip sale or merger