With its lucrative casino operating permits facing uncertainty, Star Entertainment has been facing some serious financial difficulties after being handed about AU$100 million in fines for the anti-money laundering failures at its NSW and Queensland casinos, and four shareholder class actions accusing the company and its former managers of failing their duties. And still, market experts claim that the worst is yet to come.
Last week, the Australian casino giant hinted that it considers the possibility of selling its flagship asset in Sydney – a 28-year-old establishment that had cost the company about AU$1.3 billion in redevelopments and upgrades over the last 14 years. Although Star Entertainment’s advisers at Barrenjoey Capital Partners may decide that a sale would be the best way forward for the embattled gambling business, such a decision would also occur as the last drop in the bitter cup of humiliation for Star Entertainment that has been in the living hell of regulatory action for more than two years.
It was not long after its year-old rival Crown Resorts faced some Royal Commission inquiries in three Australian states when Star Entertainment also got exposed, as it was found to have knowingly and intentionally misled regulatory bodies on its money-laundering risk.
For the time being it remains unknown whether a potential sale of its iconic Sydney asset would help the gambling giant recoup its investment. Star Entertainment has been found to have written down the value of the asset by almost AU$1 billion, and a further write-down is likely to happen if the state of New South Wales proceeds with the planned increase of casino duty tax. Still, some well-wishers remain positive and say that finding a buyer for the aforementioned asset would not be that hard of a task to accomplish, despite the obvious ongoing troubles. Other analysts have even said that the company may consider a merger with its main market competitor, Crown Resorts.
For some reason, most analysts still value Star Entertainment on a consolidated basis, so they believe that selling the asset would be enough for the company to overcome the ongoing financial difficulties.
Market Analysts Projects Star Entertainment Would Lose About 30% of Its Business to Crown Resort in Three Years
The future of Star Entertainment’s wider business also does not seem very bright, especially when it comes to its rivalry with Crown Resorts in Sydney. For the time being, analysts prefer not to make any projections, considering the gambling operator’s earnings remained lower than expected and it also recently revealed plans to cut 500 jobs.
Morningstar analyst Angus Hewitt has recently projected that Star Sydney would lose about 30% of its business to Crown Resorts over the first three years of its competitor’s casino operation. Mr Hewitt further noted that the ongoing regulatory restrictions had been creating even more difficulties for the company to deal with, along with the lower levels of complementary services in private areas that have affected gaming machine and table game revenue and the bigger number of self-excluded casino patrons.
The aforementioned layoffs are likely to save about AU$60 million of the AU$100 million in annual costs that Star Entertainment has revealed to be willing to cut, unfortunately, they would come with a higher price, because they would make it harder for the company to hold its Sydney market share. According to figures cited by Mr Hewitt, Star Sydney should settle at a market share of approximately 70% of NSW table gaming and approximately 40% of NSW high-roller gaming, in the longer term.
Last week, NSW Treasurer Daniel Mookhey severely criticised the previous state Government for due diligence and lack of consultation failures at the time it formulated the tax increase. At the time, Mr Mookhey called for an urgent review of the issue and confirmed that the gambling giant was given the chance to explain what the expected impact on its business would be.
- Author
Olivia Cole
