The Star Sydney casino in New South Wales (NSW) is facing dire financial projections thanks to a combination of regulatory fallout from multiple suitability inquiries as well as planned tax increases in the state that, if enacted, could wipe US$1 billion or more off its balance sheet moving forward, the company announced.
Shares for Star Entertainment, the casino’s parent company, plummeted to all-time lows February 13, dropping 20 percent in response to the uncertainties.
The drop in price came on the same day that Star began proceedings in federal Australian court over allegations of repeated and brazen violations of anti-money laundering and counter-terrorism funding (AML/ CTF) regulations.
In a filing to the Australian Securities Exchange (ASX), Star CEO Robbie Cooke said, “Whilst the outcome of recent regulatory and legislative developments remains uncertain, we have taken a prudent approach to assessing the carrying value of our assets, which has resulted in a non-cash impairment charge which will be recognized in our [first-half] results.”
The tax hikes, which were introduced by NSW Treasurer Matt Kean in December, would raise the rate for earnings generated by poker machines in casinos to a whopping 60.67 percent, beginning in July.
Star has a preexisting deal with the NSW government which gives it the sole right to operate poker machines in the state; that deal, although once extremely lucrative, could prove disastrous, as Star controls less than 2 percent of the total machine count in NSW—the rest are spread across bars and clubs, which would undoubtedly benefit from the business lost from retail casinos.
The beleaguered operator has said that its upcoming earnings report will reflect the proposed tax increases, with implications ranging from US$500 million to over $1 billion, if enacted.
“If implemented in their current form, the proposed duty rate increases would have a significant adverse impact on the profitability of The Star Sydney, further compounded by the changing operating and competitive environment,” the company’s update read in part.
Star is currently working to regain sole control of its casino licenses in both NSW and Queensland, after both states deemed the operator to be unfit for licensure in separate suitability inquiries last year.
Fallout from the inquiries continues to unfold, as the company faces hundreds of millions in fines and legal action against current and former board members. Star has estimated that its remediation expenses for this year will reach anywhere from $50 million to $65 million.
If that wasn’t enough, attorneys in nearby Victoria also recently filed two shareholder class action suits against the company, which will likely proceed to the Supreme Court of Victoria.
In terms of overall revenues, the company’s two Queensland casinos—Star Gold Coast and Treasury Brisbane—largely kept the ship afloat in 2022, posting year-over-year increases of 30 percent and 9 percent, respectively.
However, Star Sydney’s numbers plummeted by 13.5 percent, and investors will be keyed into the operator’s next audited report, expected to be released on February 23.
Star recently appointed Scott Saunders as its new chief risk officer to aid in its multifaceted recovery efforts.
