The Star Entertainment Group’s (ASX: SGR) CEO Robbie Cooke blames an ‘ego-driven battle’ for market share by The Star and Crown Resorts for the regulatory woes that have befallen the country’s largest casino operators.
Cooke, who has clocked up seven months since his appointment to turn around the fortunes of The Star and create a new culture of responsibility within the group, gave this stunning assessment at a business breakfast hosted yesterday by the Gold Coast Central Chamber of Commerce.
In a wide-ranging Q&A session that touched on his reasons for taking on the job, Cooke was also critical of the pile-on from all sectors that left The Star ‘friendless’ following the damning findings of the Bell review in NSW and the subsequent Gotterson inquiry in Queensland, both of which determined that the company was unsuitable to hold a casino licence.
“The Star and Crown got themselves into trouble more so because they were trying to attract a particular demographic to their properties,” Cooke told Gold Coast business and political leaders who attended the breakfast at The Star’s Broadbeach casino property.
“There was almost a head-to-head contest about bringing junket players in from overseas and they didn’t have the right financial crime systems in place that should control that.
“They were hiring people from the same teams, the same gene pool, and so the behaviours that were happening at one (property) were transferred to the other and it just ended up in this competitive, ego-driven battle to gain market share.”
Cooke noted that The Star has abandoned its junket business, adding that ‘we are never going back to that space again’.
“We are uplifting our financial crimes systems to get to a standard where we can be sure and confident that no bad actors are on our properties.”
Cooke, the former CEO of Tyro Payments (ASX: TYR), was approached by The Star in April last year to lead the company out of the woods.
He said that while some may have considered the move ‘crazy’ at the time, he had no regrets because, challenges aside, he saw the opportunity the company represented.
“We’ve got three of the best properties in the country – The Star Gold Coast, which is phenomenal, Queen’s Wharf in Brisbane which is going to be amazing, and The Star Sydney, which is a little bit tired and is the poor cousin in the network.
“It’s the industry, the intersection of gambling which I love. I have worked in the industry since the start of my career.”
It began in a 'scungy' office
Cooke’s career began in the gambling space in 1999, working in regulatory affairs with TAB Queensland which after a succession of mergers ultimately morphed into UNiTAB and then Tatts Group.
He became COO of Wotif.com, a fledgling startup at the time that was based in a ‘scungy’ office in the inner Brisbane suburb of Milton. A year later, Cooke was appointed CEO of Wotif.com, a role that forged his reputation for corporate turnarounds after growing the last-minute hotel booking business into the industry’s biggest player in Australia and overseeing several acquisitions.
“Wotif was probably the purple patch of my career. It was my first major corporate gig and it was a great time in my life - I really enjoyed it.”
Cooke, a keen supporter of startups and one of the early investors in craft beer maker Stone & Wood before it was bought out by brewery giant Lion, faced his fair share of challenges at Tyro as well. Among them were the high-profile technical glitches that plagued the company’s point-of-sale services to merchants.
As he stepped into the CEO’s chair at The Star in October last year, the company's pool of experience was depleted by the resignation of 20 senior executives, including the entire board, in the wake of the findings of the Bell inquiry. But Cooke credits The Star’s depth of talent within the senior ranks for making his job easier.
“The team that stepped up sitting behind those leaders has been phenomenal. We’ve been lucky that we actually haven’t had to go out of the organisation (to replace) most of the roles.”
However, the challenges for The Star remain, notably $100 million in fines each from NSW and Queensland gaming authorities, four class actions, a looming civil action by AUSTRAC and a near doubling of casino taxes in NSW. On top of this, a downturn in business led The Star to lay off 500 staff last month.
Cooke wryly describes The Star as a company that is ‘issues rich’.
“There are a lot of challenges, but they’re all things we can resolve - and it does require support from all our regulators. That’s a lesson in this.
“When your social licence gets damaged, which ours definitely did, you become friendless. It becomes very easy for regulators, politicians and the community to say you are bad actors, that you deserve what you are getting and here is some more to deal with. We’ve definitely gone through that as a business.”
Tax hit came 'out of the blue'
Cooke cites the casino tax increase announced by the NSW Government in December as one of those issues that came ‘out of the blue’ for The Star, a move that has added about $100 million in ongoing costs to the company’s bottom line annually.
“They didn’t tell us; we found out through a few journalists ringing us to ask what we thought of this new tax rate,” he said.
“So, there’s no consultation; we find out that our tax rate is going to double. Our share price dropped 35 per cent on the day it was announced and that put the business in a stress position.”
Cooke noted that the tax increase had the biggest impact on the company’s share price amid the rollercoaster ride experienced during the public inquiries last year.
“The consequence of that has been quite intense for the business, but nobody really cared,” he said.
“The problem with our business is that people see it as generating cash, but like any business we have limits. If you keep piling things on, then there comes a time when the business is not sustainable.”
Cooke said he would have liked to have spoken with the NSW Government ahead of the tax hike, noting that it was modelled on the company’s FY19 results.
The profit curve for The Star has changed considerably since then, with competition stepping up in the Sydney market following the opening of Crown’s Barangaroo property.
When The Star announced a $1.26 billion bottom-line loss for the FY23 half year in February, the company accompanied it with an $800 million capital raising to repay debt and provide liquidity.
While The Star posted a 74 per cent increase in revenue and a net profit after tax of $44 million for the half year, the loss of big whale clients due to casino exclusions is exacting a toll on the business. Cooke said this, along with new regulatory constraints, was part of the reason for making 500 jobs redundant as most of them were corporate positions in Sydney.
“We’re not pushing back against that – it’s just the nature of where we are at. And there’s been a softening of the consumer environment; we saw a very significant drop-off in revenue, so we had to take some immediate steps.”
However, Cooke remains confident The Star can ride out the storm, looking ahead to the opening in December of the $3.6 billion Queen’s Wharf development in Brisbane and progressing plans for further development of the Gold Coast property over the next five years.
He sees the Queensland market heading for ‘a great decade’ leading up to the Brisbane 2032 Olympics and beyond.
Cooke these days spends more time at The Star Sydney than at the company’s Queensland properties. But he is equally keen to get on with establishing a timeline for The Star’s remediation plan to win back public and investor trust.
“We are about to embark on putting our remediation plan together which will go to the Attorney-General in Queensland and, once that is approved, we will then have a roadmap that we can publicly talk about,” he said.
Cooke is hoping that once the plan is in place, progress updates will give shareholders and the community certainty. At the moment, he said the company is facing ‘all this regulatory overlay with no roadmap to where it all comes to an end’.
“All we know is that we are unsuitable, we’ve got all this uplift work to do, but we have no program as to when this comes to an end.”
After working in the gambling sector for most of his career, Cooke understands the significance of the task ahead.
“I’ve seen the harm that can be caused by our products,” he said.
“There are risks with any gambling product, be it sports betting, race wagering, lotteries, casinos and slot machines.
“To run the businesses that we run, you have to do it with a mind that you try and prevent harm from happening. That is part and parcel of having the social licence to run the business we’re in.
“When I joined the business [TAB Queensland] in 1999 there was a lot of talk about responsible gambling, but it was more lip service than action.”
Cooke said The Star is currently working on implementing systems to ‘identify problems before they become problems’.
“Our technology will be a big part of that, looking for trends and patterns from our data. Uplifting our safer gambling team is something we have in process at the moment," he said.
“Now we have got to a point where we, as a business, understand our obligations in that regard, we’re focused on doing everything in our power to make sure our product is safe.”
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