Casino operator Star Entertainment has been under financial pressure for some time. The company’s share price has tanked, and the business, with its three casino properties, has been bleeding money.
Last year’s opening of a new riverside casino in Queen’s Wharf, Brisbane, was seen as a way to revitalise the business. But Star has swung from one lifeline to another.
Just as it was set to run out of cash on Friday March 7, Star announced a last-minute rescue package. This centred on selling its 50% stake in the Queens Wharf casino to Hong-Kong-based joint venture partners for $53 million.
Star has also started documentation for a $250 million bridging loan but still needs to finalise a proposal for long-term refinancing.
All of this remains subject to details being finalised, and regulatory approvals. An alternative $250 million takeover offer from US casino operator Bally’s currently isn’t Star’s preference because it is considered too low.
But Star is far from out of the woods yet. Whatever happens to it and its casino assets, there are bigger questions about whether the age of unfettered gambling revenue for casinos may have already ended.
Elsewhere, gambling is booming
If Australian casinos are struggling, it’s not because punters are giving up gambling. Whereas most of the gambling market recovered rapidly after the end of pandemic restrictions, casinos floundered.
Between 2018–19 and 2022–23, before and after pandemic restrictions were in place, total Australian gambling expenditure (in other words, gamblers’ losses) grew by 6.8% in real terms (adjusted for inflation).
Real wagering losses grew by 45%. This segment has clearly emerged as the second-biggest gambling market in the country, with gambling expenditure of $8.4 billion.
But over the same period, expenditure at casinos declined by more than 35% nationally, and by 42% in New South Wales.
Dan Peled/AAP
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Do casinos have a viable business model?
Both Star and Australia’s other major casino operator, Crown, have emerged from a range of high-profile scandals in recent years.
Media reporting, inquiries, and royal commissions into Crown, and then Star, give some insight into how the casino business used to be run in Australia.
Star’s (and Crown’s) business model appears to have previously relied on two major revenue streams: benefiting from the proceeds of crime (by operating as a cash laundry for organised criminal gangs), and exploiting every vulnerable person who walked onto their premises.
Both casinos facilitated money laundering, particularly via junket operators, organisers of casino visits by high rollers. Unfortunately, many of these people had strong links to organised crime gangs keen to launder their illegally acquired money.
Former Star executives and board members are now facing Federal Court proceedings brought by ASIC, with two already having been fined.
Read more:
‘Multiple red flags’: ASIC’s court case against Star executives shows the risks of complacency
Star and Crown preyed on addiction
Both Star and Crown were also found to have encouraged significant expenditure by addicted gamblers.
This wasn’t just high rollers. Ordinary people were also encouraged to use poker machines for hours without any attempt at encouraging a break, as mandated by “responsible gambling” codes.
The Victorian Royal Commissioner, investigating Crown, regarded its “responsible gambling” failures as particularly heinous.
The result was the turnover of the board and management, hundreds of millions of dollars in fines, and increased regulatory oversight.
Although neither casino chain closed its doors, regulatory breaches led to appointment of special managers to oversee the business and hold the licences. Further change included beefing up regulators’ powers and resources.
James Ross/AAP
Turning a page
Without significant funds from the proceeds of crime, or exploitation of the vulnerable, casinos are clearly struggling.
In NSW and Victoria, the casinos have been required to introduce “cashless gaming” systems.
This takes cash out of the system, deterring money launderers. Gamblers must also set a limit on their gambling spend, and adhere to it. The system is in the process of being introduced in Queensland.
Certainly, overcapitalisation of new developments has played a part in casinos’ struggles. Crown Melbourne was effectively sold to Kerry Packer in 1998 on the back of its own financial issues. Overcapitalisation of the business was seen as an issue then.
Stronger competition
Competition from online wagering and pokie venues may also be playing a part. These businesses are not currently regulated as effectively as casinos.
Precommitment systems for online wagering would be relatively easy to introduce. They would require punters to set a limit on deposits or bets, or indeed the time they spend gambling, and enforce these technically.
Getting these in place, however, may be as formidable a task as getting gambling ads banned from sporting broadcasts, if not more so.
The gambling industry understandably opposes this. After all, these measures would reduce the amount that people lose. From a public health perspective, however, they provide an effective system to prevent harm in the first place, rather than simply picking up the pieces.
Without effective reform of local gambling venues and online wagering, casinos may try to mount an argument for less effective regulation. That would be an admission that their “tourism” attractiveness has waned. It’s also a powerful argument to speed up the transition of effective regulation to all gambling operators.
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