Financially crippled Star gets salt rubbed into its wounds

Whether by coincidence or design the NSW casino regulator has given Barangaroo’s Crown Sydney a gold star and reinstated its full licence just as the second public inquiry into Star Entertainment’s culture enters the pointy end of proceedings.

As far as The Star is concerned, the NSW Independent Casino Commission (NICC) has moved to potentially push its rival a step closer to having a casino monopoly in NSW.

While The Star’s shareholders factor in the possibility of the casino operator having its licence revoked, the NICC has rubbed a large bucket of salt into the wounds of the already ailing company.

For the private equity owners of Crown, Blackstone, such an outcome would be the lucky break they could never have contemplated when they purchased the group controlled by James Packer for just under $9 billion in 2022. While Crown’s flagship property in Melbourne has struggled but is viable, the economics of Crown Sydney hadn’t stacked up since the Chinese VIP gamblers disappeared from the Australian casino landscape, well before COVID-19.

The Star’s executive chair David Foster

Whether Blackstone has the appetite to attempt to fashion some kind of merger between Crown and Star Sydney remains to be seen. There would be plenty of investment bankers running those numbers, regardless of whether they had a mandate.

And even if The Star ultimately gets the green light to run the casino in Sydney, its financial future is far less certain. After seeking more than $1.5 billion from shareholders last year to prop up the business, the inquiry has laid bare the limits to which the group’s resources have been stretched since it began the task of cultural rehabilitation.

Since former CEO Robbie Cooke’s departure, the company’s executive ranks are wafer thin. It is now looking for a chief executive as well as other key executives, including a chief financial officer and someone to head its Gold Coast casino. Meanwhile, the revenue hit The Star has endured as a result of cleaning up its act, combined with the profit hit sustained from the cost of remediation and regulatory fines has financially crippled the company.

These structural issues have arguably hindered The Star’s progress towards the regulatory suitability it needs to hold a casino licence in NSW and Queensland.

Despite public statements from The Star over the past year that it was in lock step with the regulator on the casino’s progression to compliance, the latest public inquiry has revealed that since December at least the concept of harmony was a gross mischaracterisation.

We have heard sufficient evidence to suggest that the relationship between The Star’s former chief executive and board and the regulator was toxic and even personal – with references from emails between the recently departed Cooke and his chairman David Foster being on a war footing with the regulator.

The NICC had lost confidence in Cooke but rather than immediately replacing him, the company dug a deeper hole and fortified its position with sandbags. Cooke and Foster seemingly failed to understand that in a fight with the umpire, they were never going to win.

The inquiry has heard that The Star’s board believed it wasn’t given the same degree of credit from the NSW regulator as Crown Melbourne had been given by the Victorian regulator.

According to messages shown to the inquiry by counsel Caspar Conde on Tuesday, Foster discussed the situation at the company with a family friend called John, who had knowledge of the casino sector, who told him he “thought Crawford was motivated to rewrite history.”

Such exchanges convey a sense of desperation from the company, rather than a sense that it was not on board with the broader task of improving The Star’s processes and culture.

The evidence to date hasn’t suggested that the board or the executives were complicit in any of the alleged compliance breaches. Instead, it seems that The Star’s governance team was hanging on by its fingernails, trying to juggle the desire to change and the need to remain solvent.

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