Hard Rock Cafe pitches Star rescue plan

Zoe SamiosBusiness reporter

May 20, 2024 – 5.00am

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Hard Rock Hotels and Casinos, the Florida entertainment giant, is considering taking control of Star Entertainment with a proposal that would inject more capital into the struggling gaming group.

Star would be rebranded and its properties separated from the casino operator under the proposal from a consortium led Hard Rock, the operator of The Mirage in Las Vegas along with more than a dozen other casinos.

Star’s shares have slumped more than 15 per cent this year, and the company is in the midst of a damaging inquiry in NSW which is considering whether to take back its casino licence in Sydney. The company’s chief executive and chairman have resigned this year.

Other casino owners and distressed debt funds have also considered making proposals for Star, which also operates in Brisbane and the Gold Coast. The company could be stripped of its licences to operate gaming floors in NSW and Queensland, and faces a fine from AUSTRAC, which has accused Star of “serious and systemic non-compliance” with anti-money laundering laws.

The Mirage in Las Vegas is owned by Hard Rock. The iconic casino is scheduled to close in July. AP

Star’s board received the proposal recently, two sources with detailed knowledge of the discussions said. Star is being advised by Barrenjoey Capital Partners; Hard Rock, which is working with investors from Australia and the US on a joint venture proposal, has engaged KPMG.

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SGRThe Star Entertainment Group

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Star declined to comment. Hard Rock did not respond to questions by deadline.

If successful, the proposal would transform Star’s properties into entertainment destinations less reliant on casino revenue and focused on live music, food and beverages, and hotels – a similar vision to the company’s soon-to-launch Queen’s Wharf precinct in Brisbane.

This week, Hard Rock announced plans to shut down The Mirage in July to allow for major renovations and construction. It is expected to reopen in 2027 as the Hard Rock Las Vegas, featuring a guitar-shaped hotel tower soaring more than 200 metres above the heart of the Las Vegas Strip.

The company, which also operates Hard Rock-branded casinos in Hollywood, Cincinnati and Atlantic City, has considered buying into Australian gaming for years. The Australian Financial Review’s Chanticleer column revealed this month that Hard Rock executives had met with Star stakeholders – including politicians and investors – to get a lay of the land.

Blackstone, which owns Star’s major local rival Crown Resorts, still has an interest in the asset, but sources with knowledge of the situation said no proposal had been put forward.

Blackstone would find the Sydney precinct appealing, as Star’s NSW licence allows it to run lucrative poker machines that cannot legally appear on its gaming floor at Barangaroo.

But Crown has its own problems; this month it announced it would cut up to 1000 jobs across its three casinos in a major restructure designed to offset weak economic conditions and ensure the group remains viable to compete with the best casinos in Asia.

The discussions with Star come as the Independent Casino Commission in NSW continues an inquiry to assess whether the company has done enough to change its culture since its licence was revoked in 2022.

Led by Adam Bell SC, the inquiry has focused on falsification of welfare checks on customers; bulk approval of source-of-wealth checks for high-risk customers; and a $3.2 million loss from a so-called malfunctioning cash-in, cash-out terminal.

It has also scrutinised the relationship between former chief executive Robbie Cooke, former chairman David Foster, and the regulator, exposing text messages which implied a level of contempt for the regulator and the manager overseeing the Sydney casino, Nick Weeks.

The inquiry was first announced by the NICC in February. Since then, Star’s chairman, chief executive, chief financial officer, chief legal officer and chief customer officer have left the company.

Mr Bell’s first report in 2022 found Star was unsuitable to hold its licence, describing its operations as “a case study of unethical conduct and cultural failure” that may have evaded taxes and facilitated $900 million of banned gambling transactions.

Star conceded last week in its closing submission that it was not suitable to operate a casino in its own right. But argued it should be found suitable to run its casino licence subject to conditions and circumstances where Mr Weeks’ term was extended.

The termination of Star’s Sydney casino licence may derail discussions, given the value and scale of its NSW operation.

The NSW casino inquiry is one of several issues facing the Star. The company is dealing with legal action instigated by Greek Cypriot Roys Poyiadjis over the sale of its luxury yacht and a looming multimillion-dollar AUSTRAC fine for breaches of anti-money laundering laws.

Its joint venture partner for the new Queen’s Wharf casino in Brisbane, Chow Tai Fook Enterprises, last week successfully sought an injunction preventing The Sydney Morning Herald from publishing details of a report from an independent inquiry into allegations that it was associated with junket operator and convicted organised crime figure Alvin Chau.

Star, which sought refinancing twice last year and received a NSW government tax reprieve, said in April that an exodus of high-rollers had tipped it to a $6.8 million loss in the third quarter.

It said it was losing large sums of money in VIP areas, and that monthly operating costs had ballooned as it focused on transforming the business. Normalised EBITDA fell 11.5 per cent to $37.9 million.

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