Star warns of major hurdles to earnings at The Star Sydney on increased casino duty rates, regulatory challenges

In an earnings and outlook update filed with the Australian Securities Exchange on Monday, Star explained that it anticipates a non-cash impairment charge in relation to its NSW business in the range of AU$400 million to AU$1.6 billion (US$277 million to US$1.12 billion), with the high end of this range based on full implementation of the proposed NSW casino duty rate. The low end of the range assumes no change in the NSW casino duty rate, it added.

“The Star and the NSW Government are in discussions on the implementation of the proposed changes to NSW casino duty rates,” Star said.

“The Star understands the proposed changes will require legislation to be passed by the NSW Parliament, unless the NSW Government and The Star reach agreement.

“If implemented in their current form, the proposed duty rate increases would have a significant adverse impact on the profitability of The Star Sydney, further compounded by the changing operating and competitive environment as described above.

“In this scenario, The Star intends to undertake an urgent review of The Star Sydney’s operating model and assets, with a view to maximising value for the group’s shareholders.”

Even without the implementation of increased casino duty rates, Star revealed that The Star Sydney is already feeling the pain of regulatory changes as a result of the recent Bell Review into its operations.

While The Star Gold Coast booked a 30% increase on pre-COVID domestic revenue and Treasury Brisbane a 9% increase in 1H23, The Star Sydney saw domestic revenue fall 13.5% on pre-COVID levels.

“The Star Sydney trading performance has been adversely impacted by several factors, in particular by increased operating restrictions from mid-September following the Bell Review and amendments to the NSW Casino Control Act,” the company explained.

“This saw an increase in the number of excluded patrons and a reduced level of complimentary services and benefits in private gaming areas (impacting both slots and table games performance). The Star has also been impacted by increased competition since the opening of Crown Sydney in August 2022.”

Group-wide revenue was down 1% on pre-COVID levels, although Star still expects to report underlying EBITDA of AU$195 million to AU$205 million (US$135 million to US$142 million) in 1H23 – growing to underlying EBITDA of AU$330 million to AU$360 million (US$229 to US$249 million) for the year ending 30 June 2023.

Group CEO and Managing Director Robbie Cooke said, “We have been pleased with the ongoing strength of trading across our Queensland based properties, while trading at The Star Sydney has been impacted by operational changes associated with the outcome of the Bell Review as well as competition from Crown Sydney.

“Whilst the outcome of recent regulatory and legislative developments remains uncertain, we have taken a prudent approach to assessing the carrying value of our assets, which has resulted in a non-cash impairment charge which will be recognised in our 1H FY23 results.

“We are engaged in constructive discussions with the NSW Government in relation to the proposed casino duty rate changes.

“We are singularly focused on working with our regulators and the NSW Manager and Queensland Special Manager to remediate our businesses, as we seek to return to suitability. Our key priority is to regain the trust of our community and demonstrate to our regulators that we are suitable to hold our casino licences.

“Aligned to that, we continue to support the NSW Premier’s initiatives around cashless gaming and improved harm minimization across the industry.”

By Ben Blaschke