Star Entertainment is likely to follow the same path of contrition and repentance as Crown Resorts, in order to retain its NSW casino license. The inquiry pilloried the company for its failure to manage risk and governance amidst a culture where business goals took precedence over compliance.
Unsuitable. The NSW Independent Casino Commission (NICC newly established following the Bergin inquiry into Crown Resorts) has found SGR unsuitable to hold a casino license in NSW. SGR has been given 14 days to respond before the NICC makes its decision on disciplinary action. That is ostensibly giving the company a chance to show what it has done, and is doing, to rectify its behaviour, processes and systems.
Board was in la-la land. NICC boss, Phil Crawford, notes that the Bell inquiry found that the Board “did not have a clue what was going on in their company”. The inquiry instead focuses on the possibility of a new inquiry into the conduct of certain executives, some of whom are still employed in key roles by SGR.
Legal and Risk do not mix. The inquiry said it was a mistake to combine the legal and risk roles into a single position of responsibility. The inquiry said the two roles required different skills and that the executive was given too many responsibilities resulting in critical failings in both functions.
New legislation. Subsequent to the Bergin inquiry last year, NSW has already introduced new legislation which came into effect on 5 September 2022. The new legislation adopted all 19 of the Bergin inquiry recommendations, but there are additional recommendations from the Bell inquiry that might require amendments to the legislation. The new regulator can retrospectively fine operators up to $100 million for serious breaches, so this looms as a possibility confronting SGR given the findings of the inquiry.
Mandatory carded play. Bell recommended that mandatory carded play be introduced to track gamblers’ play and assist with financial crime monitoring and responsible gambling. This is a key change that will take perhaps two years to fully implement, but we note that more than 70% of casino play is already linked to carded play (loyalty scheme) so the transition for customers would not be onerous.
Meanwhile, the pent-up demand for access to gaming venues is being unleashed on Queensland’s clubs and hotels. After a record month in July, August posted the second-highest monthly gaming revenue since 2004 with the Gold Coast featuring a 30% increase on pre-COVID levels in August 2019. State-wide gaming revenue (ex-casinos) increased 26% over August 2019.
Investment view
The template for the outcome of the Bell inquiry was set by the two prior inquiries into Crown Resorts (Bergin/NSW and Finkelstein/VIC) where the casino licences were retained by CWN but under vastly changed oversight. The Finkelstein inquiry was blisteringly damning of CWN describing the company’s behaviour as “illegal, dishonest, unethical and exploitative”. The Bell inquiry into The Star’s behaviour was unlikely to top that resounding admonishment but it came very close.
SGR has been publicly humiliated and must now adhere to the new industry oversight put in place following the Bergin inquiry. A new regulator, the NICC, has given SGR a stay of execution by allowing it to say how things are being fixed, before deciding on an appropriate punishment. Compliance costs are likely to increase significantly although ironically, with no more junket play, the primary source of SGR’s compliance breaches is no longer part of the business.
SGR’s most obvious change is the new CEO Robbie Cooke, a respected industry veteran. He has already appointed Scott Wharton as CEO of The Star Sydney and Group Head of Transformation.
The Bell inquiry found that the Board was largely ignorant of what was going on amongst the senior management who were contributing to a ‘dysfunctional culture’. The inquiry has found the current Board Members to be suitable to hold a casino license giving the company a base from which to reinvigorate its approach. The new chairman, Ben Heap, has a mountain to climb to regain the market and regulator’s confidence.
In Queensland, the Gotterson inquiry into SGR’s affairs is underway and is expected to report by the end of September. There should be no prizes for guessing the tenor of that report.
Risks To Investment View
The delay in recovery of normal business conditions could suppress the earnings recovery for SGR. The Queensland inquiry is underway and presents a similar risk if the findings result in a loss of license and/or penalties.
Recommendation
We have retained our Hold recommendation.
