The Star’s latest move to fire 500 full-time staff and freeze salaries for non-union staff “sounds as if they think they’re engaged in a poker game,” says IGamiX Managing Partner Ben Lee, but one which is “fraught with risk” given that the operator does not have a gaming monopoly in Sydney.
The Star announced the layoffs on Wednesday as a way to reduce costs among what it calls a ‘rapid deterioration in operating conditions’, saying that the move would help it slash operational expenditure by more than AU$100 million ($67 million).
The group is facing woes, with its New South Wales and Queensland properties under independent management after being found unsuitable to operate its casinos after breaching anti-money laundering legislation. It’s also facing four class-action lawsuits over the same practices.
Proposed tax increases
But the main cause for concern for the group, which it estimates will cost it $1.11 billion, is a possible tax increase by the NSW government, one which it previously said it was attempting to negotiate away even before this layoff announcement.
The new tax increase would require casinos (both The Star and Crown) to pay a higher tax on revenue on pokies than clubs and pubs, forecast to raise AU120 million ($80.7 million) a year for the authorities.
“It’s a move, typically, by someone who thinks they hold the upper hand. If they were a monopoly in Sydney that might have worked,” notes Ben Lee, “Crown is a monopoly in Melbourne and always remind the city that they’re the single-largest site employer in the whole of Victoria”.
The expert points out that The Star’s relationship with NSW is vastly different from Crown’s with Victoria, as evidenced by the fact that NSW “allowed Crown to get a second license without an open tender”. Crown’s Bangaroo casino has since been bleeding off clientele from The Star Sydney – causing a 13.5 percent drop in domestic revenue (in fiscal 2H23) after the opening of the property across the harbor.
“They would have been much better off letting the attrition sort out the staffing numbers and costs,” opines Lee on the group’s layoff strategy.
But The Star’s strategy could actually be working, somewhat, with The Guardian reporting that new NSW Premier Chris Minns on Thursday stated: “we need to make sure that when we do impose a new tax in NSW, the ability to pay is there […] we have to assess what the impact would be on employment, particularly in a highly skilled area like gaming and casinos”.
Possible sale of Star Sydney
The possible tax hike, coupled with the multiple fines that The Star has incurred (and could further incur once the AUSTRAC investigation is completed), have prompted the group to also consider the sale of its Star Sydney property, with speculation the move could split the group’s casino and real estate assets, or require new partners in the venture.
But an outright sale of its flagship property is unlikely, notes Ben Lee.
“The Sydney property is what gave them their identity. Why would you sell your premier property and concentrate everything on the second-tier city of Brisbane? It just doesn’t make any rational sense”, notes the gaming consultant.
“I think there’s a possibility that they are raising the flag to try to attract investors to take up a significant minority stake [in the Star Sydney],” notes Ben Lee.
But where would this investment come from?
Queen’s Wharf Brisbane
The group’s AU$3.6 billion ($2.42 billion) Queen’s Wharf Brisbane project is slated to open before Christmas, and the group has already resorted to raising $530 million in equity amongst its ongoing difficulties, including AU$80 million from its 50 percent partners in the project – Chow Tai Fook and Far East Consortium.
The likelihood that The Star would be seeking more funding from their consortium partners is low, notes the gaming consultant.
In fact, industry insiders have already stated that an independent inquiry into the suitability of the consortium partners – namely Chow Tai Fook – has been launched – with worries over possible ties to organized crime which could effectively eviscerate the group’s chance at a license for the property, if sufficient evidence were found to justify such an action.
This means that not only would raising additional funds from the consortium partners be unwise optics-wise for The Star but the possible sale of Queen’s Wharf as a way to prop up its finances and avoid a full Star Sydney sale could be risky.
Who’s lining up to buy The Star Sydney?
The Star’s major shareholder, pokie machine and pub giant Bruce Mathieson (worth $1.6 billion, according to Forbes), doesn’t appear worried about the possible partial or entire sale of Star Sydney.
Mathieson took a 9.97 percent stake in The Star during the equity raising move in February, with the group seeing continual hits to its stock price since then.
The club mogul told the Financial Review that “to me, all this is not unexpected at all,” pointing out that “it doesn’t do anyone any harm, under these circumstances, to look at everything, and there’s no use worrying about [it]”.
Ben Lee points out that, while Mathieson has deep pockets, “the question is does he really have the depth of finances to see The Star through the trough?”, and therefore the flag-raising to attract outside investment – one which could possibly come from none other than Crown majority investor Blackrock.
“They have a permanent monopoly in Melbourne. Why not grab a monopoly in Sydney to get both? They would get rid of a competitor. And, you’ve got to remember that the one thing the Crown brand doesn’t have yet […] is the slots market, which is huge in New South Wales”.
Suitability inquiries into both Crown and The Star are ongoing, however, and Australian authorities have made it abundantly clear that, no matter who is running the casino, operators must be strictly in compliance with every element of gaming legislation.
The multi-billion-dollar question is: who will be left standing at the end of the day?