Australia’s beleaguered gaming operator The Star has already been facing hardships but is likely to be facing more ahead, as the New South Wales Independent Casino Commission (NICC) will announce to address the findings of the Bell Two inquiry ‘and any subsequent disciplinary outcomes’ sometime this month.
The potentially most significant of these outcomes would be the cancellation of The Star Sydney’s casino license in New South Wales. The NICC issued the operator with a ‘show cause’ notice in mid-September aiming to give them the chance to prove that they deserve to maintain the license. This was answered on September 27th, but the contents aren’t public.
For Peter Cohen, former Executive Commissioner and CEO of the Victorian Commission for Gambling Regulation, “the NICC’s decision needs to balance what is an appropriate penalty with what is best for the State of New South Wales”.
That being said, “disciplinary action taken in response to the current ‘show cause’ notice which is anything other than cancellation of Star’s Sydney casino license will likely be seen by some as further evidence that Star is considered “too big to fail” and is being given a third chance having failed to respond appropriately on its “second chance”.”
What could the NICC do?
The former gaming regulator and current Director of Regulatory Affairs for The Agenda Group points out that the NICC has multiple avenues, aside from or in combination with the cancellation of the Sydney casino license.
- Imposition of a fine of up to AU$100 million ($66.7 million);
- Amendment of the terms or conditions of the casino license;
- Imposition of a requirement that a casino operator, or a close associate (Director or senior executive) of a casino operator, be given an enforceable undertaking to do or refrain from doing something.
Last, and less intense, would be the issue of a letter of censure to the casino operator.
Highly worthy of note, points out Cohen, is that “if more than one ground for disciplinary action is made out, the penalties referred to above can be imposed each time. Accordingly, a fine could be imposed multiple times for different breaches, each one of them being up to AU$100 million.”
Regarding the possible outcomes, Cohen notes that “what is more likely is a combination of a further suspension of the license due to the general unsuitability of the operator with the addition of significant fines for specific breaches such as the TICO fraud, the breaches of the three-hour limit and the failure to undertake proper source of funds and AML checks.”
What’s in question?
In its most recent financial results, The Star notes that the Bell Two inquiry ‘made findings and recommendations in relation to four areas of non-compliance which resulted in various breaches by The Star Sydney during 2023 and 2024’.
The NICC details that the four include ‘one that resulted in a cash fraud against The Star, a failure to run source of wealth checks on hundreds of members flagged as high risk, and fraudulent guest welfare entries that put already vulnerable customers at higher risk of harm.’
What was not mentioned explicitly by the NICC are statements by former Star Entertainment Chairman David Foster in correspondence to then Chief Executive Robbie Cooke that the state-appointed manager should be removed and that the state casino regulator be scrapped. Cooke even allegedly sent messages to Foster about “preparing for war”.
Regarding The Star’s lack of progress with a remediation plan and the choice “to attack the regulator and the manager appointed by the regulator,” Cohen notes “it is unclear what possessed the most senior of Star’s people to pursue such action – and it’s impossible to understand why they committed to doing so in writing. That they did both, though, confirms that the Star’s leadership at that critical time was inadequate to the company’s needs.”
Both Foster and Cooke have since left the company and Anne Ward now chairs the company while Steve McCann is CEO.
Cohen notes that the departure of Foster and Cooke “has probably pushed that penalty away for the time being”, but regulators tend to have long memories.
Financial woes
The regulatory issues facing The Star are also intrinsically tied to its financial issues. For its financial year ended June 30th, 2024, The Star registered a net loss of nearly AU$1.68 billion ($1.12 billion), higher than the revenue it generated in the same period.
Its cash assets amounted to AU$299.6 million ($200 million), versus total liabilities of AU$1.06 billion ($707 million).
Following the sale of its leasehold interest in the Treasury Casino building in Brisbane, the group aims to further dispose of non-core assets and continue to seek new loans to prop itself up.
*Interestingly, that hasn’t stopped some investors, such as JPMorgan – who acquired a stake on October 1st (after the financial results came out) granting it 5.47 percent voting power.
Any of the outcomes regarding The Star Sydney’s casino license outlined above “can have significant effects on Star’s bottom line,” notes Cohen.
“Even if Star Entertainment wanted to sell the Sydney casino asset, any potential purchasers should be mindful of Blackstone’s experience when buying Crown Resorts. Not only did Crown’s new owner have to pay a AU$450 million ($300 million) penalty for AML breaches, it was also stung with AU$250 million ($167 million) in fines imposed by the Victorian Gambling and Casino Control Commission for breaches by Crown which all occurred prior to Blackstone’s purchase of Crown,” notes Cohen.
“Any new owner of Star Entertainment or Star’s Sydney Casino may consider it unreasonable that they end up paying fines for the poor operating practices under previous ownership. However, the regulators consider that the entity that holds the license, irrespective of the ultimate beneficial owner, must be held accountable for any breaches of laws, regulations or directions,” points out the expert, noting Australian casino regulators “have always considered that the ability of shareholders to make a profit is not a relevant consideration as to the way a casino should be regulated”.
Misfortune “brought upon itself”
Crown Resorts, as outlined by numerous analysts to AGB previously, was much quicker and more effective in their response to regulators and remediation efforts. The result: both Crown Sydney and Crown Melbourne have their casino licenses back.
Crown’s work in complying with authorities was also noted when the fines against it by the financial regulator AUSTRAC and by the Victorian Gambling and Casino Control Commission (VGCCC) were leveled, helping to clarify their financial position. Plus, Crown was deemed suitable to retain the Sydney and Melbourne casino licenses.
“The return to suitability also strengthens Crown’s ability to negotiate with governments and regulators in all the States in which it has casinos. This is an essential operational requirement as it needs to be able to put forward its position on any proposed regulatory reform. On the other hand, Star’s continuing lack of suitability means it has to negotiate from a position of such weakness that it can barely negotiate at all,” opines the former head casino regulator.
In essence, states Cohen, “For Star it is a confluence of significantly damaging events, but it is misfortune that it has brought upon itself.”
