Star Entertainment Faces Potential Writedown of Up to $1.1 Billion Due to Casino Shortcomings and Imposed New Taxes
Troubles Mounting for Star Entertainment in Australia
Star Entertainment forecasts significant financial setbacks, not just due to the AUD200 million (US$138.3 million) in fines it needs to pay. The anticipated losses also stem from New South Wales (NSW) demanding higher taxes, which Star claims will result in an impairment of up to AUD1.6 billion (US$1.1 billion).
The tax reform announced by NSW last December, effective from July, poses a significant threat to Star's operations in Sydney. This reform is expected to negatively impact Star's profitability, according to the group, as half of its fiscal 2022 revenue came from the Star Sydney.
Once the state government's plans are put into action, Star stated it will initiate an "urgent review" of its Sydney operations, including its assets. This move is aimed at preparing for any changes and maximizing value for Star's shareholders.
Star's Downward Spiral
The tax reform plan is a crucial factor in the upcoming election in NSW, happening on March 25. The government aims to use the revenue to aid communities affected by floods and wildfires in the region.
Star is also required to continue addressing past transgressions, such as enabling criminals to gamble at its casinos and facilitating money laundering. Inquiries confirming the company's repeated violations have led to stricter supervision. As a result, Star has already spent at least AUD20 million (US$13.83 million) to cover related expenses.
Star, embroiled in various shareholder-initiated lawsuits over its regulatory violations, believes the impairment could cost as much as US$1.1 billion, but has provided a wide range. It could also be as low as AUD400 million (US$276.6 million).
The news took a toll on the company's stock. It fell from AUD1.88 (US$1.30) on February 10 on the Australian Securities Exchange to AUD1.48 (US$1.02) on Monday morning. It had dropped to a low of AUD1.465 (US$1.01) before slightly recovering.
The tax changes are part of a broader initiative to modernize gambling in Australia's largest state. Regardless of which party wins the elections, cashless gaming is likely to be introduced in NSW and most probably, the rest of the country.
The primary opposition party, the Labor Party, is advocating for a trial of cashless gaming to mitigate gambling and money laundering issues. The incumbent Conservative government, on the other hand, aims to implement cashless gaming machines within five years.
Star, Crown Scandals Trigger Reforms
The deliberate disregard for regulatory standards by Star and Crown Resorts in Australia is prompting changes to gambling laws and policies. State-level legislators are enacting reforms, and there's been a call for federal-level changes as well. The latter isn't feasible under current laws.
This doesn't mean there aren't ways to circumvent the limitations. Senet, an Australian-based gambling regulation law firm, is launching a new program to address responsible gambling and money laundering.
The Senet Assure program offers accreditation for operators to ensure they surpass regulatory requirements. It's not a government-led initiative but is designed to emulate government expectations. Therefore, receiving accreditation, in theory, indicates the operator strictly adheres to established regulatory guidelines.
Senet is currently certifying one operator in its new program. Norths Collective, which operates several pubs in the country, is currently being assessed.
The good news for Star — which recently bought 420 acres of farmland for an undisclosed sum — is that its Star Gold Coast property showed a 30% increase in performance during the first half of the new fiscal year. Additionally, the Brisbane Treasury saw a 9% uptick. Consequently, the company expects to report up to AUD205 million (US$141.75 million) in earnings this month.
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