Star Entertainment Star gambles on after Sydney casino licence suspended, $100m fine

Financial Review
 
Star Entertainment Star gambles on after Sydney casino licence suspended, $100m fine
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The record penalty, the maximum under new NSW laws passed in August, and suspension of Star’s Sydney licence by NSW Independent Casino Commission chairman Phillip Crawford on Monday come after Star was found unfit to run the Sydney casino after a humiliating four-month inquiry led by Adam Bell, SC.

The outcome echoes the Victorian government’s appointment of a special manager to oversee Crown Melbourne, although that occurred without the suspension of the casino permit.

Mr Crawford said the NICC decided to allow Star to stay open – rather than rip up its lucrative casino licence – to protect the livelihoods of The Star’s 8,000 employees who can’t just be “tipped on the street.” But he insisted Star remains unfit to hold the licence.

Star will need to tap lenders for to stump up the $100 million fine, as the company only has $82 million cash on hand. It is also on the hook for multimillion-dollar fines by AUSTRAC, the financial crimes watchdog, with penalties of $22.5 million per breach of anti-money laundering laws.

‘Not out of the woods’

Mr Cooke said the appointment of Wexted Advisor’s Nicholas Weeks – who will take control of Star Sydney’s licence as special manager at 9am on Friday – will give Star the opportunity to “rebuild the trust with our regulator and the government.”

“We now know what we’re dealing with, which I think from my point of view, having that certainty is very important, and it just enables us to execute our remediation plan and do all the things we know need to be done to bring the business back to suitability.”

But Mr Crawford warned the NICC will rely on Mr Week’s reports before a full plan for Star’s remediation and pathway to suitability can be worked out.

“That’s going to take a lot of time. I think we’re talking about years, not months,” Mr Crawford said.

“They’re not out of the woods yet. They’ve got a lot of work to do.”

Under the conditions of the casino licence suspension, gambling will continue as usual at the sprawling casino complex but Mr Weeks will hold the licence and have ultimate decision-making power.

The casino licence suspension can last for 90 days, but Mr Crawford indicated that was too short “so it could be quite a bit longer.” The 90-day suspension may be extended with ministerial approval.

Exactly how the day-to-day decision-making at the casino will play out is not yet known, but Mr Cooke said he will sit down with Mr Weeks on Tuesday to nut out the relationship.

“That’s a matter for Robbie Cooke and Nick to sit down and work out their own protocol. They’ll have to work pretty closely together, but the overall control of the casino businesses now it’s going to be at 9am on Friday with Nick Weeks,” Mr Crawford said.

Not dealing cards, counting chips

Mr Crawford said expects one of Mr Weeks’ major jobs will be to manage a “root cause analysis” of the cultural and systemic issues at the company.

“We don’t want him dealing cards and counting the chips. We want him to look at underlying causes of the malfeasance and just see what can be done to remedy that.”

Under the new NSW law, Mr Weeks has extraordinary power to sell Star’s assets and borrow money, according to documents released to the Australian Securities Exchange by The Star.

But in the ASX notice, Star indicated the use of these powers is unlikely as the NICC has acknowledged that “it is the Manager’s present intention, subject to the Act, to operate the Sydney casino in a manner that is broadly consistent with the manner in which the former casino operator operated the casino.“

Exceptions to this include matters that Mr Weeks “considers necessary or appropriate to address matters identified in the Bell Review” or are “otherwise needed to address risks to the integrity of the casino” and adherence to the law.

Significantly, the new NSW laws say that once a manager is appointed, “no payment of net earnings” from the casino is to be made to the prior licence holder without the approval of the NICC.

Star is still entitled to a “fair rate of return” on the earnings from the property, and the NICC can divert any excess to a “consolidated fund” to pay for fines or other remedial action.

But Star stressed NICC have agreed that earnings will be untouched other than the fees for the special manger’s office, which have not yet been calculated.

Mr Crawford told the Financial Review those provisions will be used to ensure Mr Weeks’ costs are covered rather than to “skim” cash from the Star’s balance sheet.

“We want the manager and his costs paid. But other than that, to keep the doors open they’re going to need to have access to cash. They’ve got lots of creditors, they’ve got to pay the butcher, the baker, the candlestick maker on a day-to-day basis, and their staff, there are a lot of expenses.”

“So we don’t want to take that away from them, otherwise they’ll fail and… we’re giving them opportunity to succeed here. It would be counter-intuitive.”

The NICC’s $100 million fine is for the totality of its malfeasance under NSW law including allowing junket operator SunCity to do business at the casino despite allegations of criminality, and deliberately misleading the regulator.

The fine also includes punishment for churning almost $1 billion through the China Union Pay scheme, where Star made false invoices for patrons to hide gambling payments and deliberately misled the regulator and its bankers.

Still, the total fine is it’s lower than the expected fines Crown Melbourne will face. Crown copped an $80 million fine earlier this year for its China UnionPay scheme – in which almost $164 million was illegally churned through its Melbourne casino in a “clandestine process.”

But Crown is still on the hook for up to an $100 million fine from the Victorian casino regulator for unlawfully extending credit to patrons through cheques.

Mr Crawford said Chairman Ben Heap’s apology and the appointment of Mr Cooke were key factors underpinning the NICC’s decision to slap a fine on Star and appoint the special manage under a suspended permit rather than cancel the licence outright.

“We found them very adversarial during the whole of the inquiry... Their mindset wasn’t anywhere near cooperative in terms of getting the job done,” he said, but Mr Heap had demonstrated he was genuinely trying to remediate the group by apologising and pledged sweeping reforms in a letter to shareholders last month.

“Had Star not published this letter, it is very likely that there would be a different outcome announced here today,” Mr Crawford said.

Earlier this month, in response to the NICC ordering Star to “show cause” as to why its licence should not be torn up, Mr Heap laid out Star’s two-year overhaul, scheduled to be completed by the end of 2024, and vowed to do “whatever necessary” to retain the licence.

He chiselled his pledge, released earlier this month, to bring Star back to suitability into nine work streams, with 48 specific initiatives and 130 “milestones”, each tethered to an executive and monitored by consultancy and law firm Allen & Overy.

The earlier than expected start for Mr Cooke – who was due to start on December 31 – comes after the Queensland government joined NSW to demand the company prove it could be trusted to run its Brisbane and Gold Coast casinos earlier this month.

The damning review into Star’s corporate culture in Queensland left it open to the Palaszczuk government to find the company was unfit to hold a casino licence, which could lead to the possible suspension or loss of its permits for its Brisbane and Gold Coast casinos and millions of dollars in fines.

The Star told the market on Monday it was reviewing the effect on its Brisbane and Gold Coast casinos of fresh amendments to the Queensland government’s Casino Control and Other Legislation Amendment Bill passed on Friday.

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