‘Playing with fire’: Star shareholder WAM admits wrong call on gaming giant

One of Star Entertainment Group’s biggest shareholders says it has been ‘burnt’ but says there is still time to rescue the troubled casino business.

WAM Leaders Fund, which holds about 4 per cent of Star, has called for the acceleration of asset sales as the casino group struggles to prevent a financial collapse. Picture: John Gass

One of The Star Entertainment Group’s biggest shareholders says it has been “burnt” but there is still time to rescue the troubled casino business.

The $1.9bn WAM Leaders Fund, which holds about 4 per cent of Star, has called for the acceleration of asset sales as the casino group struggles to prevent a financial collapse.

Star shares have been suspended from trading for two weeks as it faces a $300m cash crunch and the continued ire of regulators, including the powerful NSW Independent Casino Commission (NICC). WAM Leaders portfolio managers Matthew Haupt and John Ayoub recently told investors that Star was one of the worst performers in its portfolio last year, with its shares slumping 43 per cent over the past 12 months.

“Sometimes we do play with fire, and when we do play with fire, occasionally we get burnt,” said Mr Ayoub, adding Star sits at about 3 per cent of WAM’s current assets.

“We are the ones accountable for the position. We acknowledge we got that one wrong, but the journey isn’t quite over there.”

Mr Ayoub said new Star chief executive Steve McCann was “the right person” to turn the business around and there had been some recent positive developments, including the sale of the Treasury casino building in Brisbane for $67.5m.

Mr McCann remains locked in talks to convince financiers to sign off on a much-need cash injection amid cost overruns at the new $3.6bn Queen’s Wharf project in Brisbane.

The Star is in danger of losing its Sydney casino licence. Picture: AFP

The NICC on Friday issued a “show cause” notice against The Star that could result in a $100m fine and the loss of its Sydney casino licence. “There are a number of challenges that the business is facing and has faced, and we think the previous board and management are absolutely culpable for a lot of those decisions and missteps,” Mr Ayoub said.

He said The Star’s cost base was “absolutely swollen” but the business was set up for a more sustainable future if assets could be offloaded.

“There are no sacred cows anymore,” he said. “And for us, every single asset is for sale. It’s time to return cash back to shareholders in one form or another.”

He said WAM got the call wrong on Star but might have been blinded by previous positive experience with Crown Resorts, which was taken over by US-based Blackstone in 2022.

“What we got absolutely wrong was the deterioration in earnings and how quickly the earnings deteriorated and the amount of capital that was required,” Mr Ayoub said.

He pointed to the two-year delay in opening the new Queen’s Wharf as the company’s biggest challenges.

“All the feedback that we’re getting from the opening of Queen’s Wharf is that it’s been a roaring success, albeit we would classify it as a partial opening because a lot of the entertainment precinct, restaurants and retail sites aren’t open yet,” he said.

“But that was a necessary evil to get it open at the end of August. Where we stand today is that we still have a view that the assets – and if you think about the $3.6bn they spent as a combined entity in the Queen’s Wharf, the freehold assets that they have in the Gold Coast, the casino and the hotels that they have here in Sydney – there is still a lot of embedded asset value there.”

Costs, regulatory oversight and mismanagement would continue to test the investment case and whether the value of the assets were to be realised. “It’s time to execute on some of these strategies but a lot of what’s taking place now is behind closed doors and we’re not privy to that,” he said.