Star deal with NSW keeps James Packer’s Crown out of poker machines

The owners of Sydney’s The Star say they’ll be entitled to compensation if the NSW reneges on a deal to keep rival Crown out of pokies for decades.

Sydney’s The Star Casino says it will be entitled to compensation if NSW goes back on a deal to allow poker machines at soon-to-open rival Crown. Picture: Flavio Brancaleone

Star Entertainment said it would be entitled to compensation from taxpayers if the NSW government reneged on its deal to make the Pyrmont-based casino group Sydney’s pokies king.

Star will be the only casino in Sydney to offer gamblers pokie machines until at least 2041, after striking a deal with the Berejiklian government, which the company said delivered regulatory certainty.

The agreement comes as rival Crown Resorts prepares to open its casino in Barangaroo in December and Star prepares to partially re-open its Pyrmont casino complex, including private gaming rooms, this week.

Under the new tax arrangement with the NSW government, Star pays the same duty rate on table games as Crown, ensuring competitive neutrality.

“The Star has agreed flat domestic gaming tax rates with the NSW government for a 20-year period. All rebate gaming revenue will continue to be taxed at a flat rate of 10 per cent, consistent with current arrangements,” Star said in a statement to the ASX.

NSW Treasury said in a statement that poker machines would “not be operated at Crown Sydney at least for the duration of the agreement” and funds raised would be “directed towards vital infrastructure and essential services across the state”.

“The agreement will allow long-term revenue certainty for the NSW Government and contribute billions of dollars to be directed to important projects,” NSW Treasury said.

“The new agreement also provides regulatory certainty for The Star, which enables them to continue to invest in their NSW business, which is a key contributor to Sydney’s tourism and entertainment industries.”

Importantly, Star said if the government did a backflip, it would not be left out of pocket.

“The Star will be entitled to financial compensation from the NSW government should EGMs (electronic gambling machines) be installed at Crown Sydney at any time until June 30, 2041.”

Star added that it would also be entitled to receive compensation if there were material changes to key regulations.

“While there are certain stated exceptions, the main triggers for compensation include changes to key existing operating conditions that include the permitted number of gaming

units — no caps on tables and multi-terminal gaming machines, 1500 cap on EGMs — operating hours (24 hours/7 days a week) and limits on jackpots and prizes (uncapped).”

Under the new agreement, Star will pay a flat tax rate of 29 per cent for table games — the same as Crown Sydney. For pokies, it will pay 32 per cent tax in the first three years of the agreement, rising to 34 per cent from 2028.

In the year to December, Star Sydney paid an average tax rate of 31.5 per cent or $312m on domestic non-rebate gaming revenue of $991m, which included pokies and table games.

Macquarie Bank analysts expected Star to be 1.5 percentage points better off in the first three years of the new tax agreement.

“Overall, we continue to forecast the blended tax rate during FY22-24 to be 30 per cent but stepping up around one percentage point in FY28 (and beyond),” Macquarie analysts wrote in a note to investors.

“The agreement with the NSW government is incrementally positive in that The Star Sydney has gaming tax certainty and exclusivity on casino slot products for 20 years. As such, Crown Sydney, which is expected to open gaming in early 2021, will truly only compete across domestic tables and VIP until at least mid-2041.”

Star said on Monday that it would re-open its private gaming rooms and up to 12 food and beverage venues within the casino areas this week. The restrictions, which were in place to limit the spread of COVID-19, had been costing Star $10m a month.

This initial reopening will be limited to up to 500 loyalty club members on an invitation-only basis. Meanwhile, a broader opening will include Star’s The Darling and The Star Grand hotels, signature fine-dining restaurants with up to 50 seated customers, other food venues and retail.

Chief executive Matt Bekier said: “This first step in the reopening enables us to welcome back a material number of employees and to re-engage with our guests in a safe environment.

“The restrictions mean that business volumes will be significantly below normal levels. We are focused on conservatively managing the business to provide us with the confidence for the next stage of returning our properties to more normal conditions as restrictions unwind,” he said.