Star Entertainment in battle to shake ‘bad reputation’ as Macquarie analysts bet on house to keep licence

Star Entertainment will retain its NSW casino licence but the reputational hit will be ‘hard to shake’, according to analysts at Macquarie.

Star Entertainment will retain its NSW casino licence but the reputational hit will be “hard to shake”, according to analysts at Macquarie.

Investors were expecting Adam Bell SC to find Star unfit to hold the licence – as was the company itself to a degree when it wiped $165.2m off the value of its Pyrmont gaming complex last month.

What was not expected was the fury from NSW gaming regulator Philip Crawford, who said he was not getting the “vibe” from Star that it understood its “problems” and was showing the necessary leadership to fix them.

Crawford took aim at Star’s interim chief executive Geoff Hogg, who told a Queensland inquiry that the company had allowed a patron banned by NSW police to continue to gamble in that state.

Chief commissioner of the NSW Independent Casino Commission, Philip Crawford. Picture: NCA NewsWire / Nikki Short

“When pressed it was almost as though the evidence was, unless there is proof beyond reasonable doubt of criminal activity, that they were happy to accommodate that person as a gambler in Queensland,” Crawford said.

Star now has 14 days to convince Crawford it should keep its NSW casino licence.

Initially, the company‘s share price surged 4.5 per cent after Crawford revealed the findings of the review by Adam Bell SC, with the market envisaging the regulator would provide Star with a pathway towards suitability, as it did with rival Crown Resorts.

But some doubt is creeping in. Shares fell 3.6 per cent to $2.68 on Wednesday, against a 2.6 per cent drop across the broader market.

Analysts at Macquarie, however, remain bullish on Star’s prospects, telling the investment bank clients: “With ongoing remediation, we see suitability achievable.” Analysts wrote in a note: “The outcome of unsuitability to hold a NSW casino licence is not a surprise, but we would have liked to have seen a clear pathway to meet suitability.

“We also suspect monetary penalties, up to $100m, and a special manager appointment.”

Star’s interim chairman, Ben Heap, is the only director willing to remain on the board, with all others flagging their departures after the NSW inquiry.

Star Entertainment interim chief executive Geoff Hogg. Picture: Liam Kidston

Bell did not make any adverse findings on the suitability of Heap and other directors – Katie Lahey, Richard Sheppard and Gerard Bradley – who remain as close associates of The Star.

But he was critical of the board, including its efforts to remedy millions of dollars in unpaid taxes to the NSW government after incorrectly classifying local patrons as international high rollers. Star engaged KPMG to complete an audit, with Heap going directly to NSW Treasurer Matt Kean to outline how much tax was underpaid, bypassing the regulator. Bell said while engaging KPMG was “a positive step”, the regulator needed to complete its own assessment.

Bell was also critical of the board for failing to follow up with management over the risks associated with disguising more than $900m in gambling transactions on China Union Pay debit cards as hotel charges. “At the board’s request, a management response to the CUP issue was issued by (Matt) Bekier, the (former) CEO and managing director, on October 1, 2021,” Bell said. Heap, Lahey, Sheppard and Bradley were directors at the time.

Star Entertainment’s interim chair Ben Heap. Picture: NCA NewsWire / Joel Carrett

“The board was on notice by this time that management believed the CUP process breached UnionPay’s rules; that NAB and/or UnionPay may have been misled by management; that the risk profile of the CUP process had increased over time; and that for many years the board had not been informed of risks associated with the CUP process,” the Bell inquiry report reads.

“Despite this, nothing further was done at the time by the board to follow up these matters.

“It was left to the public hearings of this review to uncover the deeply troubling culture permeating the ranks of senior management at Star Entertainment, demonstrated by the many facets of the deception involved in the use of the CUP process.”

The review also heard that Star was pressured to grant Sun-city – a Chinese junket run by Alvin Chau – a private room at its Pyrmont casino, given Chau’s links to Chow Tai Fook, which is developing Brisbane’s Queen’s Wharf with Star. At the same time, Suncity was building a $4bn casino with Chow Tai Fook along a 3km stretch of coastline at Hoi An in central Vietnam.

CCTV footage would later reveal Suncity staff illegally exchanging bundles of cash from backpacks for gambling chips inside the private gaming room, known as Salon 95, at Star’s Pyrmont casino. “The evidence suggests that the risk assessment was not rushed to allow the room to open, but Salon 95 proceeded to open before the risk assessment was completed,” Bell said.

The Bell inquiry sparked an exodus of executives, including Bekier, chief financial officer Harry Theodore, chief legal officer Paula Martin and NSW casino boss Greg Hawkins.

But Bell said he was not able to give findings on the suitability of the executives who remain as close associates including Geoff Hogg, company secretary Jennie Yuen and chief operations officer Damian Quayle, who have all been at Star for more than a decade; chief of staff Kim Lee, interim chief financial officer Christina Katsibouba and corporate affairs boss Peter Jenkins, who have been at the company for more than seven years; and chief marketing officer George Hughes, who joined Star in 2017.

“Whilst no credible adverse information has been received in relation to any of these executives, the review is not in a position to affirmatively determine their suitability. Accordingly, no finding is made about the suitability of these executives,” the report released on Tuesday reads.

Originally published as Star Entertainment in battle to shake ‘bad reputation’ as Macquarie analysts bet on house to keep licence