SYDNEY (BLOOMBERG) - Crown Resorts has been given two years to save its flagship Melbourne casino by addressing a litany of wrongdoing after being found unfit to hold a gaming licence.
In an unprecedented step to rein in Crown, a so-called special manager has been appointed to supervise the company, with the power to veto board decisions and unfettered access to all areas of the casino and its accounts, the Victorian state government said on Tuesday (Oct 26) after an independent inquiry headed by former judge Ray Finkelstein.
Crown shares jumped 11 per cent in Sydney trading after the company avoided the worst possible outcome from Mr Finkelstein's Royal Commission - an immediate loss of the Melbourne licence - which would have put the company's entire future in doubt.
It could, however, be stripped of its permit after two years unless it satisfies the government that it has sufficiently changed.
"This will be a tough test to satisfy," Mr Finkelstein said in his report.
His months-long investigation into Crown Melbourne revealed the company had underpaid casino taxes, and heard evidence the casino facilitated money laundering and exploited problem gamblers.
It had also bullied the regulator and provided false and misleading information, and some senior executives had put profit over their moral and sometimes legal obligations, the report said.
"Within a very short time, the Commission discovered that for many years Crown Melbourne had engaged in conduct that is, in a word, disgraceful," the inquiry said in its 652-page report. "This is a convenient shorthand for describing conduct that was variously illegal, dishonest, unethical and exploitative."
Mr Finkelstein said "perhaps the most damning discovery" of his inquiry was the way Crown dealt with the many vulnerable people who have a gambling problem.
"Crown Melbourne had for years held itself out as having a world's best approach to problem gambling," he wrote in the report. "Nothing can be further from the truth."
Tuesday's verdict is key because the flagship Melbourne site generates most of Crown's revenue. Its future is also central to suitors, including Blackstone Group and Star Entertainment Group, that have circled Crown in recent months. Any takeover of Crown before the Melbourne casino's future is assured is now fraught with risk.
Star shares rose as much as 8 per cent on Tuesday.
As it released the damning report, the Victorian government proposed increasing the maximum penalty for breaking casino legislation to A$100 million (S$101 million) from just A$1 million. New legislation also creates the Victorian Gambling and Casino Control Commission, which will focus uniquely on the Melbourne casino.
While far from the most severe outcome, Tuesday's finding is just the latest blow for one of Australia's highest-profile corporations and its billionaire shareholder James Packer, who owns about 36 per cent of Crown Resorts.
Mr Finkelstein recommended that no individual shareholder should own more than 5 per cent of a casino operator, without the regulator's approval.
That rule should apply to Mr Packer's private investment company, which holds his Crown stake, from September 2024, Mr Finkelstein said. That effectively gives the billionaire a little less than three years to sell down his stake - without succumbing to the financial pressure of a fire sale.
In February, Crown was found unsuitable to run its brand new casino in Sydney. The company's precarious position is an improbable turnaround from just five years ago, when Crown boasted a network of casino, entertainment and property assets stretching from Australia to Macau and Las Vegas.
The Victorian inquiry drew on the findings of the Sydney probe, which found that Mr Packer's influence over the board had "rather disastrous consequences" for the company.
"Mr Packer also used his influence to exercise control over Crown business operations to suit his own interests, even after his resignation" from Crown and his private investment company, Mr Finkelstein said.
Crown's gambling operations began to unravel with a crackdown by authorities in mainland China in late 2016, leading to the arrest and conviction of more than a dozen employees.
By the end of that year, Crown had scrapped a spinoff of its international assets, including a stake in Macau casino operator Melco Resorts & Entertainment, and started a retreat to Australia.