Star Entertainment boss Robbie Cooke must regularly tell himself not to look down, as he negotiates the ultimate highwire act to keep the doors of his Sydney casino open. There’s any one of a myriad legal actions, investigations and even property disputes threatening to send him over and that would take Star with it.
There’s plenty to be done and the next six months are likely to represent the make or break moment for Star. It is in confidential talks with Austrac over a settlement for massive money laundering breaches. Bigger rival Crown was hit with a $450m penalty. There’s talks with NSW Treasury about underpaid casino duties and the tax office on GST. There’s an ongoing shareholder class action on continuous disclosure. (Star intends to file a defence on the class action).
Star’s Queensland casino licenses remain under suspension although it operates with oversight of a manager and it will need to show the Queensland government it has changed its ways by the end of May.
NSW is the biggest concern with a new royal commission-style inquiry to be held under Adam Bell QC to make a recommendation to the NSW Independent Casino Commission by the end of May about whether Star is suitable to hold a licence. NSW’s top casino regulator Philip Crawford has previously expressed concerns over the pace of reform.
For his part Cooke says he welcomes the NSW review and it gives Star an objective forum to show how it is changing the way it is doing business. He says a big focus has been about hitting hundreds of separate remediation demands with hundreds more to come. These will be delivered “as rapidly as possible without compromising quality,” Cooke says.
“We know that ultimately it will be for the relevant regulator in each of our jurisdictions to make its own assessment of the adequacy of the completion of our milestones,” he adds.
The work taking place behind the scenes at Star is immense.
Since Cooke took charge 15 months ago Star has seen a new board take change and the CEO has painstakingly rebuilt the management team, including the addition of more senior risk and oversight executives. The scale of the change also shows how poorly equipped Star under its previous management had been to operate a modern casino.
In the past year Star has increased its anti-money laundering staff numbers to 115 full-time roles from 26. The risk team has expanded to 95 staffers from 53, and staff dedicated to safe gambling have increased to more than 80 from under 20 previously.
Internal controls in Sydney have been completely rebuilt and this involved redoing nearly 550 separate processes. Controls in Queensland are being brought up to scratch. Cashless gaming is now being trialled in Sydney under an agreement with the Minns government.
All the tightening the governance screws on Star and a move to safer gaming is being felt on the gaming floor. Star’s revenue across its Sydney, Gold Coast and Brisbane properties dropped 15 per cent in the December half. Sydney’s revenue alone was off 17 per cent and the revenue from the high rollers room was down 50 per cent.
Star is also starting to feel the pinch from competition from Crown Barangaroo, which has now opened its gaming room up the public. Gold Coast has been hit with a drop-off in tourism, while Brisbane’s Treasury casino has also been hit given the massive rebuild of Queen’s Wharf. The question is whether this is a permanent re-basing of Star’s revenue or a result of management and operational distractions.
One big thing Cooke has in his favour is the robust state of his balance sheet. This is as a result of two capital raisings last year that have cost shareholders dearly, given both are under water. But Star has paid off most of its debt and remaining borrowing of $300m isn’t due for repayment until 2028. This gives it enough runway to make the changes needed without worrying about running out of cash. Another bright spot is the staged opening of Queen’s Wharf in August, Cooke is already seeing early bookings from the mega hotel and casino development.
Cook calls his strategy Our North Star as he knows the bigger purpose about rebuilding the company’s culture is about retaining its social licence to operate. This is about putting safe, responsible and ethical gaming at the core, he says.
Punting on Star’s shares has become like putting a bet on one of its casino roulette tables, with the biggest unknown remaining about whether the NSW gaming regulator will let it keep its licence beyond June. This is the big reason that Star’s market capitalisation of $1.4bn is trading at a significant discount to the enterprise value of $2.5bn. Shares jumped 8 per cent on Thursday as Cooke managed to keep his balance, but at 52c each, they are just a fraction of their post-Covid peak.
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