Australian casino giant Star on brink of collapse as cash runs out

SYDNEY – Australia’s biggest listed casino operator, Star Entertainment Group, once had it all. Its gaming licences stretched out for centuries. The domestic market was home to the planet’s most prolific gamblers.

The company’s harbourside resort in Sydney drew a constant flow of high rollers from China.

Now Star is bleeding cash, desperate for funding and – by some analyst estimates – has a 50-50 chance of collapsing.

The plight is a saga of financial malpractice, deception and cultural decay. Almost A$4 billion (S$3.4 billion) has been wiped from Star’s market capitalisation since late 2021, leaving the company valued at just A$387 million. 

The trouble started in October 2021, when the Sydney Morning Herald reported Star enabled suspected money laundering, organised crime and fraud at its casinos for years.

Regulatory inquiries have found it unsuitable to operate its Sydney and Queensland casinos, placing them under government supervision. 

The company has also churned through key personnel, including two chief executive officers (CEO). It has burned through so much cash that despite raising more than A$2 billion in equity and debt since the start of 2023, it warned last week that it had just A$79 million left – barely enough to see it through this quarter.

The denouement could play out within weeks. While assets like hotels and carparks could be sold to raise cash, voluntary administration and a shareholder wipeout remain a “high likelihood”, said Morgans Financial analyst Leo Partridge.

According to Morningstar, Star is so financially fragile it may not survive beyond February without some kind of lifeline. 

“Star is continuing to explore all viable options to strengthen our financial position,” CEO Steve McCann said in an e-mailed statement. “We are engaging with our key stakeholders to try and ensure the long-term viability of our business.”

Star has become a cautionary tale of the risks of chasing intoxicating – and sometimes illegal – profits from China.

After a series of damning inquiries, Star casinos in New South Wales and Queensland are being overseen by government-appointed caretakers.

The company has been left overwhelmed by the cost, in time and money, of overdue compliance, financial controls and regulatory fines. 

“Poor governance is ultimately a big part of this story,” said Ms Elizabeth Sheedy, a professor at Macquarie University’s business school. “It seems once you run a casino cleanly, it’s not nearly as profitable,” she added.

Star’s failure, if it comes, would mark the passing of an old guard of Australian casino operators that have been systematically dismantled by the authorities in the past decade.

The crackdown was spurred by revelations of questionable business practices and porous anti-money laundering policies.

Crown Resorts, Star’s domestic rival, was also subjected to successive public regulatory investigations starting in 2020, which each found that it was not fit to run casinos.

Crown, which was the primary asset of Australian billionaire James Packer, was bought by Blackstone in 2022 and he has since largely retreated from public life.

Star’s woes are all the more startling given its former dominance in a country that loses more money gambling per capita than any other in the world.

Gambling losses in Australia grew 14 per cent to A$31.5 billion in the year ended June 2023, the most recent government data available. That equated to more than A$1,500 per person.

The trouble is, traditional casino owners like Star and Crown are ceding power and influence to a new breed of online competitors such as Sportsbet and Bet365. These 24-hour digital platforms do not have the fixed costs of a gaming resort.

Already there are signs that investors are positioning themselves for a shakeout. This week, little known Macau-based investor Xingchun Wang emerged with a 6.5 per cent stake in Star to become its second-largest shareholder. 

Even if Star somehow manages to raise A$150 million to access a second tranche of debt, it will not be out of trouble. Earnings are under pressure from a cost-of-living crisis and analysts expect Star to lose money for a fourth straight year.

Half-year results are due on Feb 28.

At the same time, daily gambling cash limits at the flagship Sydney casino are due to drop to A$1,000 by August as the authorities attempt to limit personal losses and eliminate money-laundering opportunities.

There is also a looming penalty from Australia’s financial crimes regulator for alleged breaches of anti-money laundering laws. 

Morningstar and Morgans estimate the fine could be in the region of A$330 million, a sum that is not far short of Star’s total market capitalisation. BLOOMBERG