You win some. You lose more

That annoying little slogan tacked on to the end of every broadcast gambling advertisement, as a warning to those with an addiction, has come back to bite casino owners and investors.

Suddenly, the house no longer appears unbeatable.

Strip away the huge money-laundering operation from mainland Chinese-based criminal gangs, and the business model upon which Australia’s two big casino groups has been built suddenly is under threat.

Star Entertainment Group’s shares bombed on Friday, losing close to half their already heavily discounted value, after the company narrowly avoided collapse, securing a last-minute $200 million bailout from its bankers.

Its accounts, delayed by a month, portrayed a company close to the edge as asset write-downs of more than $1.4 billion inflicted a full-year loss of almost $1.7 billion.

Prior to the pandemic, Star’s stock was changing hands at north of $4. Yesterday, the shares briefly dropped below 20c, valuing the group at just $1.2 billion.

Investors were spooked by a financial performance that revealed an operation haemorrhaging cash with little prospect of an immediate improvement.

Putting aside the massive cost blowouts on the construction of its overblown new Brisbane venture at Queens Wharf, losses have been mounting at its Gold Coast operation and at its flagship Sydney business.

More than the economy

If you believe the company, the tough economic times are taking a toll. Revenue is down and costs are up.

But even a cursory look at the figures suggest the game, if not over, has shifted dramatically since regulators started taking their job seriously and began enforcing the law.

Operational earnings have plunged from about $19 million a month in the first half of the last financial year to just $4.6 million in the second half. It bounced a little in July but August was abysmal at just $1.1 million.

The absence of foreign “high rollers” isn’t the only challenge facing our gaming establishments.

One of the key challenges highlighted in Star’s belated set of accounts is the introduction of cashless gaming cards. The cards are designed to identify problem gamblers and to more easily enforce money-laundering rules.

Since their introduction in Sydney in September last month, with $5,000 limits in some areas, average daily revenue has dropped more than 10 per cent when compared to the previous four weeks.

Preying on the vulnerable has been a lucrative little earner for Star and Crown. Now, even that is coming to an end.

Ongoing investigations

Both Crown and Star have been the subject of ongoing investigations and royal commissions in four states over the past five years.

Applying almost identical strategies, they had links with the very same criminal organisations in Macau and China and senior staff routinely swapped roles at the opposing organisations.

Both groups used a model banned by almost every jurisdiction in the world, apart from Macau. They allowed outsiders to run private gambling operations within the confines of their casinos. That paved the way for organised Chinese crime syndicates to launder money in Australia.

US investment giant Blackstone bought Crown in 2022 for $8.9 billion with grand plans for a refurbishment and expansion, which appears to have come to nought.

No longer listed on the ASX, its financial performance is difficult to gauge but if it had hopes of a quick turnaround and easy profit, they may have been dashed. It since has been selling neighbouring properties in Southbank, bought by Crown when James Packer was still running the outfit.

In recent months, a series of senior executives appointed by Blackstone have parted ways with Crown including boss Ciaran Carruthers and his offsider Justin Casey.

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Hard task to turn Star around

Star Entertainment chief Steve McCann, who oversaw the rehabilitation of Crown before Blackstone’s purchase, is now tasked with a far more difficult resurrection.

In the job just eight weeks, insiders say he was stunned at the state of the company’s finances and the contracts that had been negotiated over the Brisbane development by the previous board and management.

McCann, for years the chief executive of property group Lend Lease, knows a thing or two about gambling. He was once a champion poker player.

But even he is realistic about the future of casinos in Australia.

From now on, he says, the business will be about accommodation, retail and restaurants with gambling as a sideline.

Despite all the revelations about alleged criminal activity at both outfits, no charges have ever been laid. 

Investigations, however, still continue.