The Star casino story is like the kind of financial destruction that often befalls gamblers. The unfolding story shows that this company was badly named as it’s currently looking like a supernova! For non-stargazers, a supernova is a star that blows up at the end of its life.

While that’s not the actual situation for Star Entertainment that owns casino operations in Sydney, the Gold Coast and Brisbane, it is teetering, with the latest drama being a refusal of the NSW Government to grant substantial tax relief and the Queensland Government’s reluctance to do so, though it might.

All this has meant Star has found it hard to get lender support to finish the newly developed Brisbane casino, ahead of selling the old casino building.

These lenders threw in $450 million last year and aren’t happy about the building cost blow out and the fact that Star is still looking for assistance to be a player. To make matters worse, there’s this from AFR’s Zoe Samios and James Hall: “Star’s shares were suspended on Monday because the company failed to file its financial results with the ASX over the weekend. The company has been negotiating with its lenders and shareholders over additional financial support”.

The expert view is that the NSW Government holds the trump card of temporary tax relief that will possibly help existing lenders attract a new lender and get the shares trading again on the ASX.

This chart shows Star’s life of financial destruction and wealth-killing for shareholders.

Star Entertainment Group (SGR)

Source: msn.com

The fall from a $6 share to 45 cents in the course of six years is an absolute shocker for the company’s shareholders and underlines why gambling on a company with too many question marks is really like punting. As the anti-gambling advertisements add nowadays: “You win some. You lose sum. You lose more!”

So, why is Star in such a mess? Try these:

1. Poor regulation that permitted crimes and bad practices to prevail.
2. Poor management not believing that integrity inquiries would one day blow up their business models.
3. The current excessive level of regulation and scrutiny that ignores the ongoing threat to the business, the losses of shareholders and the potential job losses for 3,000 workers.
4. Covid’s impact on tourism and gamblers, especially high rollers.
5. The slow recovery of China and the impact on that country’s tourists.
6. The impact of 13 interest rate rises on potential customers who have cut back on what economists call discretionary consumer spending.
7. The Bell Report.

Here’s the AFR on the Bell Report: “Star shares were halted on Friday after the release of a report, authored by Adam Bell, SC, into its ability to run the Sydney casino precinct. The report was scathing of Star’s previous board and management, but Mr Bell said he was confident the company’s new leaders, including Mr McCann, who turned around rival Crown Resorts, would repair its culture.”

The report substantially pointed the finger of blame at former CEO Robbie Cooke who was appointed to rescue the then failing and largely conflicted business.

The biggest shareholders for Star are billionaire publican Bruce Mathieson, Perpetual, Wilson Asset Management and Soul Patts. They could be talked into a convertible note issue for $300 million, which in the future could be converted into shares.

The business has value and is not dead supernova style, but it’s losing its glitter. In 2018 according to the stock market, it was a $5 billion business. Now it’s worth $1.3 billion and shrinking. And this value shrinks until money is found, tax assistance is granted and, ultimately, a private equity buyer emerges.

The legendary Casey Kasem used to finish his American Top 40 radio show with “keep your feet on the ground and keep reaching for the stars”. It was the former advice that was the big problem for Star’s management, as they chased the glittering prize of more money from gamblers.

It’s also fair to say that previous governments should have regulated the casino industry better.