Embattled Australian operator Star Entertainment has announced plans to cut at least 500 positions and freeze employee incentives in efforts to slash expenses following lackluster earnings, a slew of regulatory penalties and possible tax increases in New South Wales (NSW).
In an update to the Australian Securities Exchange (ASX), the company asserted that it is “experiencing a significant and rapid deterioration in operating conditions, particularly at The Star Sydney and Star Gold Coast. This has largely been driven by the compounding impact of regulatory operating restrictions and exclusions, and by emerging weaknesses in consumer discretionary spending behavior.”
Star also said that it now predicts its earnings for the current financial year to fall somewhere between AU$280 million and AU$310 million.
No framework or timeline was given for the impending lay-offs, but many expect the majority to come from Star Sydney, the company’s flagship property.
According to the Sydney Morning Herald, the company has partnered with Barrenjoey Capital Partners to undergo an analysis of Star Sydney’s operations moving forward. The company’s recent ASX update said that Barrenjoey is “also working with The Star to consider any structural alternatives available to maximize value for the group’s shareholders.”
Earlier this year, Star announced that it was exploring a potential sale of its Sheraton Grand Mirage hotel to help offset some of the mounting expenses, and that sale will in fact move forward, per the Herald.
In its ASX filing, Star also said that it is “accelerating its previously foreshadowed plans to refinance its existing debt funding arrangements, with a focus on improving the group’s liquidity position and separately increasing covenant headroom in light of the group’s current earnings environment.”
Even though the company posited that the decision to slash expenses was”independent of any potential impact from the proposed casino tax increases in (New South Wales),” many believe that it is indeed a contributing factor.
Under the proposed new structure, Star Sydney’s tax rate on its casino profits would effectively double, increasing from 31.57 percent up to 60.67 percent. The company has said that the increase could result in a loss of AU$100 million per year.
As a result, the United Workers Union (UWU), which represents thousands of gaming and hospitality staff at Star Sydney, is also growing increasingly uneasy as the enactment of the proposed hike draws near.
UWU Director Dario Mujkic recently penned a letter to newly elected NSW Treasurer Daniel Mookhey to reiterate the union’s belief that the tax hikes, if enacted, would prove disastrous for the casino and would likely result in hundreds of lay-offs, if not more, a claim that was obviously bolstered by Star’s recent announcement.
When Matt Kean, Mookhey’s predecessor, first announced the planned increases late last year, they were presented as a means to align NSW’s tax structure with nearby Victoria.
However, confidential correspondence between treasury officials and the NSW government recently reported by the Herald has indicated that that is not true.
Per the Herald, treasury officials noted that the “increase in rates was intended to align [NSW and Victoria],” but in reality, “The Star has argued, correctly, that NSW’s effective rates will be higher because Victoria provides casino operators with credit towards state taxation for GST paid on non-rebate and gaming revenue.”
The Labour government has said previously that it would not amend the tax, but the option is still viable, and industry representatives are hopeful that the increased scrutiny will draw them back to the negotiating table.
In his letter, Mujkic asserted that the UWU “believes in progressive taxation, but I don’t think this proposal was ever about tax justice, it was really about having someone – Star – to attack politically in the context of the gambling reform debate,” per the Herald.
He added that Star has faced a litany of regulatory backlash, which was “entirely appropriate because of misconduct and poor management,” but the tax hike goes even further, so as to make an example of the operator.
Star CEO Robbie Cooke echoed those sentiments to the Herald, saying that the company was “blindsided by this proposed tax.”
“There was no consultation. It was dropped on us right before the Christmas break. Was due process followed?” Cooke added.
Mookhey declined to comment to the Herald but has said previously that the tax would be difficult to unwind because the former government has already allotted it in the budget for next year.
Per the Herald, the treasury will present an economic statement to the government in June, and the first full budget for the new government will be unveiled in September.
