Star Casino To Cut 500 Jobs And Review Sydney Operations

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10 months ago

Due to regulatory and operational constraints in the post-pandemic recession, Australia’s Star Casino plans to lay off 500 full-time employees. The Star Entertainment Group-owned company revealed the distressing move as part of a larger scheme to cut operational costs and salvage shareholder interests. The board of directors of Star also announced plans to freeze salaries and reconsider some incentives as it considers other strategic options, including the sale of the company. The casino industry hopes that doing so will significantly contribute to its goal of reducing operating expenses by $100 million in the fiscal year 2022-23.

Star Casino to Cut 500 Jobs and Review Sydney Operations

Few Prospects For The Drowning Giant

The announcement of Star Casino’s financial difficulties in April 2023 came as a surprise to many, especially following the sudden resignation of the casino’s CEO. The casino’s parent company, The Star Entertainment Group, is listed on the ASX and operates locations in Sydney and the Gold Coast. The company cited unsustainable regulatory and economic pressures as the cause of its financial struggles, with current earnings performance at historically low levels that have never been seen before, except for the period during the COVID pandemic.

In response to the challenging operating conditions, the company announced plans to lay off workers. The board of directors cited restrictive regulatory constraints on providing complementary services to customers as a major issue, creating a problematic environment for the company and hindering its ability to operate smoothly. The Star Casino is Australia’s second-largest casino, making its financial struggles a cause for concern in the gambling industry.

The Root Cause Of The Company’s Demise

Since the outbreak of the pandemic in 2019, land-based casinos have struggled. On the contrary, profits at Australian online casinos have been increasing as more gamblers migrate to internet-based betting platforms. Star Sydney has perished due to the predatory relationship between the former and the latter. Star suffered losses of nearly $1.3 billion in the previous fiscal year. The gross revenue generated by the Sydney and Gold Coast casinos was $541 million and $276 million, respectively. According to Star Entertainment Group, people are spending less in its traditional casinos, hurting the company’s earnings. Worse, the company has been hampered by operational constraints imposed by regulatory authorities.

After failing to prevent criminal activity, the Star was fined, and its operating license was revoked in New South Wales in 2022. The casino group was fined $100 million in both Queensland and New South Wales. The company has yet to be cleared and has set aside $150 million as a contingency for potential fines from the Australian Transaction Reports and Analysis Centre (AUSTRAC).

Potential Resorts

The Star has identified its problem and is working to improve its situation. The casino’s board stated in its announcement that it is reviewing its Sydney operations with the assistance of Barrenjoey Capital Partners, a financial services firm.

The board did not disclose its objectives for reviewing strategic options that can increase value for the company’s shareholders. There is a chance the review could lead to the sale of the company. The insolvent company is already in the process of selling the Sheraton Grand Mirage Gold Coast and expects to receive preliminary offers soon.

The company intends to request leniency from the governments of New South Wales and Queensland, as well as AUSTRAC, regarding payment conditions for both current and future penalties related to previous money laundering offenses. It also intends to lay off 500 people. The company employs 8,000 people, 4,500 of whom work in Sydney and the rest in Gold Coast and Brisbane. The complex plot also includes a plan to eliminate short-term and other bonuses for the current fiscal year and halt salary increases for employees not covered by an enterprise bargaining agreement.

The company is moving forward with previously announced plans to refinance its current debt financing arrangements. Given the current earnings environment, the goal is to improve liquidity and increase available financial cushion.

Recap

Due to rapidly deteriorating operating conditions, Star Casino is in trouble. The company hopes to meet the needs of its shareholders by lowering operating expenses through salary freezes and significant employee reductions. The group also intends to initiate discussions with the governments of New South Wales and Queensland, as well as the body in charge of ensuring compliance with anti-money laundering laws. It hopes that the discussions will also benefit its larger plan by providing an opportunity to negotiate its duty rates and support more flexible payment terms for existing and potential penalties. We’ll have to wait and see if such discussions will offer any reprieve to the sinking company.

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