Casino and resort operator Star Entertainment is on the brink of corporate collapse. Over the weekend, a last minute attempt to save the business failed, but there are still hopes that a deal with the regulators and lenders can be struck.

If the worst-case scenario happens and no lifeline is extended to the company (whose directors couldn’t sign off on the December 31 accounts, which is a shocking sign), then Star would have to go into voluntary administration. This is one-step short of a total wind up or liquidation and a fire sale.

The business operates casinos and hotel precincts in Sydney, Brisbane and the Gold Coast but has fallen foul of regulators, tax officials and lenders, which is a pretty business-killing combination. And the AFR reported on Friday that the company had one week’s worth of cash left!

So, what happened to an Australian gambling business that many would think is a licence to print money? Well, it was licence issues that started the beginning -of-the-end for the success of this operation.

The share price chart shows the story unwinding along with the unravelling that followed. In 2018, this was a company with a $5.43 share price. Take a look at the graph below. Today the share price is 11 cents.

Star Entertainment Group

Here are the reasons for this epic business failure:

1. Covid and the loss of Chinese tourists.
2. Licensing regulators finding the company ignored money laundering and counter-terrorism issues.
3. New controls that have hurt the high-roller business.
4. A building cost blowout for its Brisbane Queens Wharf precinct.
5. Debts of $430 million.
6. Failure of the board and successive managements to run this business properly.

Meanwhile, would-be business rescuers such as Oaktree Capital have made offers that haven’t been accepted. Why? Because these guys don’t offer a fair price when they offer to take on a risky business deep in the ‘you know what’.

While I suspect a deal will be done eventually, what’s clear is that if you run these gambling businesses cleanly and according to their licences (killing the criminal element that frequents casinos), then you have a less a profitable business and therefore their values fall substantially.

It's an odd case where the old adages that ‘honesty is the best policy’ and ‘crime doesn’t pay’ don’t seem to work, at least in the long term with regulators looking over their shoulders