Star’s accounts paint an ugly picture – and it’s not out of the woods yet

Star Entertainment’s US-based suitor Bally’s has made a habit of swooping in and buying distressed assets in unloved industries, so bailing out of Star Entertainment is certainly on-brand for the business.

Just how snugly Star fits Bally’s criteria of a business on its knees was on show on Tuesday, when Star’s long-delayed profit and loss statement revealed an ocean of losses.

In gambling parlance, Bally’s has clearly decided to put it all on the red. Anyone who hasn’t been living under a rock for the past six months would be aware that Star’s earnings for the six months to December were going to be ugly – it was only a matter of how ugly.

Star’s financial records have highlighted the severe stress the casino operator is under.Credit: Sam Mooy

The good news for Star is that despite its losses it’s still breathing and the fresh injection of cash that will be provided by Bally’s and its partner in the rescue – pokies billionaire Bruce Mathieson – will keep the lights on for a little while longer.

The earlier sale of the Brisbane casino to Star’s joint venture partners – Chow Tai Fook Enterprises and Far East Consortium – had already mitigated some of the immediate danger Star was facing.

But the Bally’s deal offers Star a reprieve, not a resolution.

There is nothing in Star’s latest numbers that provides any hopeful reassurance that when the cash injection provided by Bally’s and Mathieson runs out, it will be in shape to trade its way out of danger.

There are myriad reasons Star found itself financially destitute – and chief among them was the cost overruns in building its Brisbane resort. Then there is the deeper, structural problem – that customers have already been abandoning Star’s properties because of new regulations around carded play and betting limits.

Carded play means punters are required to have a card to gamble which sets time and loss limits. To date, these have been partly introduced at the Sydney casino, and cash limits will become more onerous later this year when they are fully rolled out.

In Queensland, they have been legislated but not yet introduced, so there is plenty more pain ahead for both Sydney and the Gold Coast.

In the six months to December revenue across the group fell by 25 per cent compared with the same period a year earlier.

And Star’s chief executive, Steve McCann, has been unable to take costs out of the business at the same rate as the decline in revenue, leading to a loss of $135.7 million in the six months – or $301 million once a bunch of one-off expenses are added on.

And revenue for the first three months of this calendar year has continued to slide as well – down 9 per cent on the three months to December. Star lost $21 million in the three months to March alone.

The casino operator rightly argues that it is losing customers to competitors that are not subject to more onerous regulations that the state governments have imposed on those gambling in casinos.

Star’s long-term future now rests, to a large part, on convincing the NSW and Queensland state governments to level the regulatory playing field.

There may be some appetite for this, but there is no certainty. And realistically, without the support from the state governments, it is difficult to see how the company can survive even in the medium term.

McCann has pointed out revenue initiatives that might entice punters back to Star’s casinos, but provided scant detail on Tuesday on how the initiatives would work.

The future of Star Entertainment now lies with Bally’s Corporation chairman Soo Kim.Credit: Getty

Ultimately, all of this will be Bally’s headache once it becomes the largest shareholder in Star as soon as the rescue deal is complete.

Star’s shareholders need to approve at least some element of the Bally’s proposal. And there is little doubt about which way they will vote, given they have a gun to their heads. After the previous rescue proposal fell through, Bally’s has become the “Steven Bradbury” buyer – i.e. the only one left in the race.

So it was Bally’s or insolvency for Star, which will remain a listed company after the deal. Its shares will resume trading on Wednesday. Anyone want to punt on what price they will open at?

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.