The inquiry was first launched in February by the NSW Independent Casino Commission (NICC). It is the second time Star Sydney has faced suitability questions. The first Bell inquiry from 2022 deemed Star to be unsuitable for licensure. Star was hit with huge fines and its licence became conditional under the supervision of a state-appointed manager, Nick Weeks.
The NICC launched the latest inquiry (dubbed Bell Two) due to concerns over its remediation progress. The investigation has been crushing for both Star Sydney and the company overall. Former CEO Robbie Cooke and former chairman David Foster have both left the company in the wake of the investigation.
In public hearings throughout the spring, several damning revelations were unearthed. Perhaps the most notable were messages exchanged between Foster and Cooke. In one instance, Foster asserted that Star should prepare to “go to war” with the NICC. The message was in relation to a meeting Weeks had planned with the regulator. The only way Cooke and Foster knew about it was by accessing Weeks’ calendar without permission.
Foster also expressed a desire to “abolish” the NICC. He later clarified this to mean that he wished a new regulatory body would be formed to oversee casinos, pubs and clubs.
Additionally, Star Sydney was found to have falsified records pertaining to mandated responsible gambling procedures. In addition, the casino didn’t fix a faulty cash-out machine for over a month, resulting in a multimillion-dollar loss.
In its closing remarks the company admitted it was not ready to operate independently. Rather, it hopes to receive an extension for Weeks’ term and continue its path as before. The final ruling is due by the end of July.
McCann appointment seen as positive development
On 26 June Star appointed Steve McCann as its new CEO and managing director in hopes of garnering favour.
McCann previously served as CEO of Star’s rival Crown Resorts and helped guide that company through its $6.3bn sale to Blackstone Group. He is widely considered to be one of the few Australian casino executives whose reputation remains intact. His compensation package for joining Star is reported to be steep – a $2.5m sign-on bonus plus up to $15m over two years – but necessary.
“I recognise that there are many complex issues and challenges for the company to address,” McCann said in a statement at the time. “I am committed to working with the board and the various stakeholders to help drive change, restore confidence and achieve a sustainable resolution.”
Peter Cohen, a longtime regulator in Victoria and director of regulatory affairs for The Agenda Group, told iGB that the appointment was positive for Star’s chances. Instead of a 50-50 chance of getting an extension or revocation, Cohen posits it’s now closer to 70-30. But the threat of revocation still looms.
Potential revocation represents “uncharted waters”
The idea of revoking the Star Sydney licence altogether is so rare that even Cohen admits stakeholders are in “uncharted waters” with respect to what would follow afterwards.
His best guess is that in that scenario, the NSW state government would take the lead on the re-licensing process. This is because the NICC “as it currently stands does not have the resources to do so”. The agency was formed in 2022 as a casino-specific body in response to regulatory tumult.
A joint effort could also happen, especially if a request for proposals is issued for the vacant licence. In that case, the due diligence for potential bidders could be split in such a way that one group anaylses finances and the other looks at operations and background.
“It is possible that the process might be a hybrid of NICC checking for probity suitability while another department, such as NSW treasury, examine the bidders’ finances and operational capability,” Cohen explained.
Timeline hard to nail down
Cohen said that certain factors make it “difficult to estimate” a potential timeline should it be deemed necessary for another operator to take over the licence.
The biggest thing to consider is whether the NSW government has already done any preparation work. If it has started to consider that outcome, the entire process could take “around 18-19 months,” Cohen said. But “if it hasn’t done that preliminary work, add another six months.”
Of that timeline, the proposal window would probably be open for three or four months. From there the assessment process “would then take around 12 months”. Once a decision is made, “there is likely to be a further three months to finalise transaction documents.”
Licence could draw interest from multiple regions
Overall, the vacant licence could be an attractive asset to operators around the world. With a population of over five million, Sydney is the biggest market in the country.
Australia as a whole is also the most prolific gambling market in the world per capita. According to data from the Australian Institute of Health and Welfare, 73% of Australian adults (18+) spent money on at least one form of gambling in 2021. The institute estimates that Aussie bettors lose nearly AU$25bn (US$16.8bn) per year on legal gambling.
Its geographic location is also interesting in that it could appeal to operators in the US, Europe or Asia.
“Star Sydney is in a major city with a strong locals market,” Cohen said. “I would have thought it would be highly desirable for operators from anywhere. It should be particularly appealing for US or European operators seeking access to the Asian market. It could be appealing to Asian operators seeking to diversify beyond Asia.”
Hard Rock snafu indication of things to come?
One operator that has already been linked to Star, but not for positive reasons, is Hard Rock International. On 20 May, the Australian Financial Review reported that takeover talks were happening between the companies. Star then confirmed it had been approached by “a number of external parties regarding potential transactions.”
After several statements and refutations from Hard Rock, it was discovered that Star had merely been in contact with Patrick Farrugia, a man who had previously been associated with a Hard Rock Cafe in Surfers Paradise. Hard Rock denied the takeover talks and said at the time it would pursue legal action against Farrugia.
Hard Rock aside, Las Vegas-based consultant Brendan Bussmann told iGB that the regulatory environment and future prospects of the market could weigh heavily on how many bidders would actually come to the table.
“You’ve got some great facilities, some very large facilities,” he said. “But putting it in Vegas terms, do I get to own a Strip property that I can only operate a PT’s [Tavern] in? That’s not a sustainable business model.”
Bussmann cited Wynn Resorts’ cancelled US$7.1 billion takeover bid for fellow operator Crown Resorts in 2019 as an indication of how the market is perceived. Blackstone’s purchase price three years laters was nearly $1bn less. Crown has since won back its licences, but faces steep operational challenges ahead.
“The question is,” he said, “can you get the value that’s there versus the perceived business model for the future and get that to pencil out? That’s where you’re going to have a limited amount of people who can look at that and have conversations with a publicly traded company like Star.”
Original article: https://igamingbusiness.com/casino/integrated-resorts/bell-two-inquiry-what-happens-if-star-sydney-loses-its-licence/
