How much longer will Star Entertainment stay afloat? How big of a reprieve will the $60m fire sale of its events centre be?

How much longer will Star Entertainment stay afloat? By now it seems a fait accompli that Star Entertainment (ASX:SGR) will collapse – it is question of when and not if. It had a cash balance of $79m as at the close of CY24, is burning through $50m every month, its debtors have had a gutful of management’s pleas and excuses (having heard it all before), the NSW and Queensland governments are unwilling to give it sufficient tax relief (even if only because of the PR problem it could cause).

How Star Entertainment got into this mess?

Star’s problems are a mixture of bad luck and also poor management decisions. Had the pandemic and trade war with China never happened, we could still be living in a world where high-rollers from Asia (particularly from China) are coming to the casino enmasse and spending big. No doubt if James Packer had not been allowed to build a second casino at Barangaroo, it would be a further boost. Obviously, this is not what happened, so we shouldn’t ponder what might have been any further.

The pandemic happened, causing this revenue source to evaporate overnight. To this very day, they have been slow to return for various reasons. Lower margin tourists from other parts of Australia couldn’t make up the difference. Plus, the development in Brisbane cost a lot more than anticipated and hasn’t been bringing the paybacks anticipated. Arguably, this was the least of the company’s worries.

Star Entertainment was dragged into legal problems for past misconduct. In 2022, NSW Senior Council Adam Bell ran an investigation and recommended that Star was unsuitable to run a casino in the state – because it had engaged in many of the illegal activities Crown had previously done and been censured for. Specifically, Star had hidden criminal gang-linked junket operator Suncity’s illegal cash cage and allowed it to operate a secret gambling room. It found it facilitated ~$900m of banned gambling transactions and had evaded taxes. Bell’s report described Star as,’ A case study of unethical conduct and cultural failure’.

A false dawn appeared in early 2023 when the then Perrotet government was replaced by the current Minns government and the plans to charge an additional $120m in taxes which the company had warned would put it out of business were axed. The company successfully raised capital twice in 2023 – the first of which was $595m and not enough to last 6 months. The company told investors it had to insulate itself from potential forthcoming pressures but also refinance its debt.

In 2024, Adam Bell was once again appointed to lead a review into Star, after NSW’s Independent Casino Commission (ICC) indicated it was concerned about the change of pace at the company.  Ex-CEO Robbie Cooke left in April after the regulator expressed no confidence in him, with text messages coming to light implying contempt for the regulator and the manager overseeing the casino.  Star has conceded in its final submission to the report that it is not suitable to run a casino in its own right, but should be found suitable subject to conditions. The inquiry has also focused on further allegations including falsification of welfare checks on customers.

Ultimately, the report stopped short of formally revoking its license but fined the company $15m, imposed extra regulatory requirements and kept its license suspended at least until March 31, 2025. At this point, you may be wondering how can Star casino still operate with its license suspended? The inquiry appointed its own manager to have oversight of the operations. The regulator did give it credit for making efforts to turn things around. But, the company may have run out of cash by then, even if a fire sale buys it slightly more time.

How much longer will Star Entertainment stay afloat? At least a few more weeks

It looks like Star Entertainment won’t collapse any day soon, but it is still fighting for its survival.

Earlier this week, Star Entertainment revealed it would sell its event centre to Foundation Theatres for $60m. It has also sold the leasehold of its Brisbane building to Griffith University for $67.5m. The former figure will be reportedly paid in the same week, held in a special account established under the terms of the group’s debt facility. There has been an argument that the deal was undercut, but perhaps $60m within a week is better than $100m or so in a month – perhaps the situation is that dire. Star had told investors it was burning cash fast, and the state governments have refused to grant further tax reliefs.

This fire sale buys Star Entertainment time, no doubt, perhaps another month or two before it runs out of cash. But it needs to either reduce the cash burn or somehow convince its lendors to have yet more patience. Star’s debt is over $400m and this does not even include debt owing in conjunction with its joint venture partner for its new Brisbane precinct – it owns 50% with two other partners owning 25% each and $1.6bn in debt is owing as a consequence of the project.

The AFR has reported that distressed debt giant Cerus Capital Management is canvassing Star’s lenders to identify banks or credit funds willing to sell. But even if it sells all of it, the company made only $299m in revenue during the first half of FY25. The company blamed the closure of its old precinct in Brisbane, a slowdown in spending caused by the introduction of ID cars and cash limits in Sydney, among other things.

Star Entertainment is due to release earnings in the first week of February and this could provide us with a further answer to the question.

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