LA Private

The unraveling of Star Entertainment Group

At the close on Monday, the near 4% fall in the price of Star Entertainment Group (ASX:SGR) shares ended up being a positive outcome on a day when yet more incredible and highly damaging news emerged from the second NSW Government inquiry into the casino.

The inquiry resumes in Sydney on Tuesday morning with witnesses including both current and former Star executives.

The shares ended at 48 cents, giving it a market value of $1.38 billion, which, just based on what was reported from the first day of the inquiry, seems far too high a figure.

As a Fairfax columnist wrote in Tuesday’s papers, “Day one of this inquiry makes for compelling listening for all but Star Entertainment shareholders, who must appreciate the catastrophic financial risks of losing its NSW licence.”

A second Fairfax columnist wrote, “The picture painted in the inquiry was of a chairman and chief executive declaring war on the very people who can save the casino operator’s Sydney licence.”

You wouldn’t be believed if you had written this as a story – ‘fiction’ the critics would have yelled, but from what we heard on Monday, it seems very much to be fact.

So what was revealed? Well, an astonishingly hare-brained scheme to track the key regulator of casinos and sue him, apparently dreamed up by the company’s chair and the CEO (since forced out, along with a couple of other executives).

In other words, a type of coup unworthy of a banana republic and yet plotted by the most senior people in Star against the regulator who had his hand on the life or death lever for the casino.

There was also a broken down cash machine that was allowed to pump out $3.2 million to lucky punters who had already cashed out wins – in other words, theft that went unchecked for seven weeks.

Senior managers didn’t like each other, with the Chief Financial Officer trying to leave for months, false welfare checks on gamblers, weak disclosure (which seems to be genetic at Star).

And all this with the casino operating under an already suspended licence and with a special manager whom management seemingly kept in the dark.

The regulator who was being plotted against has the power to either reinstate the casino licence, have it continue with the current provisional status, or order complete disqualification.

Going by the first day’s disclosures, the latter is looking like a good option, but this won’t go well with pubs and pokies king, Bruce Mathieson, who has an 8% stake in Star (or more than $100 million worth of shares).

He lifted his stake in the casino company in late February and early March from 6.21% to 8%. A year ago, he had a 9.9% stake, worth around $140 million but didn’t maintain his stake in the $750 million second capital raising in late 2023, which saw his holding diluted.

He then took advantage of the weak price to boost the holding back to the 8% level.

The shares last peaked at 57 cents in late March. How they held at 48 cents at yesterday’s close is quite amazing, given the seriousness of the claims on the inquiry’s first day.

And they are very serious, as the first Fairfax columnist wrote, “Given the explosive revelations and allegations made during the day one of the inquiry, it is very difficult to imagine how the current board of Star will be able to mend its relationship with the regulator and navigate the path to restore its licence.”

“On one side of the boxing ring are the recently departed chief executive Robbie Cooke and the Star board led by chair, David Foster. On the other is the regulator, the NSW Independent Casino Commission (NICC), headed by Philip Crawford, alongside the manager it had installed to oversee the rehabilitation of the casinos, Nick Weeks.

“The inquiry heard Cooke and the chairman, David Foster, hatched a plot to engage shareholders in a class action against Weeks and the casino commission. This speaks volumes to the toxicity of the relationship.

“Bizarrely, this is the board and management team that had been installed into Star to clean the place up after a 2022 regulatory inquiry by Adam Bell SC (who is conducting the second inquiry) found Star was unfit to hold a licence in NSW – describing it as a “case study of unethical conduct and cultural failure”.

Messrs Cooke and Foster will get a chance to give their version of events when they are called to give evidence later in what is a three-week inquiry.

Simply bizarre.