What does the end game look like for Star Entertainment?
The NSW casino regulator has brought out the heavy artillery in a form of a royal commission-style inquiry to ram home a desired outcome. And that’s increasingly looking like the loss of Star’s licence in NSW. The so-called Bell Two inquiry into Star’s gaming licence is taking no prisoners, shredding the reputation of everyone standing in the way.
There is still some way to go, but the loss of Sydney would be a near fatal event for Star, given much of its $450m debt facility is linked to the ongoing operation of its flagship Pyrmont site, as well as its properties on the Gold Coast and Brisbane.
And adding to the financial squeeze faced by Star in coming months it also faces a massive fine from financial crimes watchdog Austrac after the casino was able to sidestep money laundering rules over much of the past decade.
Rival Crown was slapped with a $450m Austrac penalty last year, and for deep-pocketed owner Blackstone that was an expensive pill to swallow.
This doomsday scenario is playing out daily on the sharemarket with Star’s already weakened shares down more than 30 per cent in the past six months.
Investors who backed two separate capital raisings to secure a combined $1.55bn are deeply underwater. The first raising got away at $1.20 a share. Six months later, funds were raised at 60c. Star is now four days into its 15-week inquiry and on Thursday the stock closed at a fresh low of 42c.
Given the very narrow path ahead for Star to come out intact on the other side, why on earth would multibillionaire pokies king Bruce Mathieson want to increase his stake?
Mathieson has now upped his stake in the fading Star to 9.51 per cent, from 8.21 per cent this time last month. Star has shareholder restrictions in place over going beyond 10 per cent, and any new backer would need to be approved by the pugnacious NSW Casino Commission.
But for Mathieson, his investment is more than a punt on whether Star stays afloat. The pubs baron is anticipating a break-up of Star and as the single biggest shareholder this gives him a very big seat at the table.
Gold Coast-based Mathieson is eyeing Star’s “cleaner” Queensland properties and the $3bn Queen’s Wharf development set to open in August. Star is well down the path of getting a return to suitability from Queensland regulators. In NSW it hasn’t even got to the starting line.
Running the numbers
Mathieson is punting on an elegant solution to Star’s woes if it gets stripped of its NSW licence for good. And the solution sits just across water on Darling Harbour.
The Blackstone-backed Crown really needs a full service licence in NSW beyond its conditional gaming tables to operate on the scale it is accustomed to. Crown knows this and Star, having run the numbers, is acutely aware of this as well. Blackstone, which has more than $US1 trillion in funds under management, is intent on building up Crown, but to do this it really needs scale in Sydney. All this gives Blackstone’s global boss Jon Gray plenty to mull over when he returns to Sydney next month.
A pivot to the faster-growing Queensland also gives Mathieson a hedge against Endeavour, where much of his wealth is tied up. Woolworths pubs and gaming spin-off faces its own significant pressures as state governments take a tougher stand on pokies. Rules such as cashless cards, betting limits and stricter operating hours will help problem gamers, but on the whole are bad for the bottom line.
Endeavour’s grinding underperformance since listing in 2021 prompted Mathieson to step into the spotlight last year with a public campaign to oust then chairman Peter Hearl. At the time Matheson said he had billions of his family’s money and a lifetime of work invested in Endeavour and he “was not going to sit by and watch this great company fail”.
Over the past year, Endeavour’s shares are down 22.4 per cent compared to the 4 per cent gain in the ASX 200.
Culture wars
A deep dive into Star’s cultural change journey on Thursday also had broader lessons for companies coming through their own crisis. A specialist in organisational change programs, Attracta Lagan, who has worked with Crown and later Star in their efforts, says the first six months are the most critical period in any program to bring about change.
“That’s when you have your burning platform,” Lagan told the inquiry. “That’s when you have your internal story: ‘We’re not fit for purpose. We have got to rebuild a new organisation. Here’s what’s good about the organisation. We’re going to keep this – and here’s what’s not working. We’re going to change this, and we’re going to have a new Star arising like a phoenix from the ashes’,” says Lagan.
From her perspective, Star was too slow to start its cultural change journey. The right moves were made, such as staff being surveyed, but these were never acted on. It also relied too heavily on consultants including Deloitte to design and implement changes, when this really needed to be done by a dedicated executive. She expressed frustration after she repeatedly mentioned to then chief executive Robbie Cooke and even the board that a transformational executive was needed.
“It was obvious to me that it was missing, and the cultural change program wasn’t going to happen without that role,” she told the inquiry. Lagan noted it wasn’t until July last year that things started getting moving on cultural change. That was more than eight months after the first damning review into Star was released. She conceded Cooke, who took charge in October 2022, was “extremely hardworking” and industrious.
“He saved the business, I’m sure, with those capital raisings, but it came at the cost of the cultural reform program.”
Lagan gave ground that Victorian authorities in assessing the bigger Crown Resorts had declared that serious cultural change needed three to five years.
After four days of witnesses a picture is emerging of a casino facing a deep crisis over the past year, with management overwhelmed by the external shocks directed at the business while trying to rebuild it.
The “save the company” approach came at the cost of equally important moves. The downside for Star and ex-CEO Cooke is the assessment of the Sydney licence is being considered in isolation of any gains made by stabilising other parts of the business.
johnstone@theaustralian.com.au
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