The Star’s shares slump as Cooke roasts NSW plans for tax hikes at Sydney casino

The Star Entertainment Group (ASX: SGR) CEO Robbie Cooke has blasted a move by the NSW Government to raise an extra $364 million in taxes from casino operators over the next three years, arguing that the casino operator is already paying its ‘fair share’.

The tax hike comes on top of a $100 million fine already imposed by the NSW Independent Casino Commission (NICC) following the Bell inquiry earlier this year that found the company unsuitable to hold a casino licence.

The news has already given The Star’s shares an early hit, with investors marking the stock down almost 12 per cent to a low of $2.27 in the morning session on the ASX.

NSW Treasurer Matt Kean announced on the weekend that the government would introduce a higher casino gaming taxes for The Star and Crown’s Barangaroo casino from 1 July 2023.

The taxes will apply to casino earnings from gaming tables and poker machines that the government expects to raise about $120 million a year in extra taxes from the casino operators in the first three years. The Star is currently on a lower tax relative rate for gaming machines than clubs and pubs in NSW.

“It’s important that casinos pay their fair share of tax,” says Keane. “These reformed tax rates will replace the existing regime under which casinos pay less tax on poker machines than hotels and clubs.”

Keane says the new poker machine taxes will bring NSW into line with those of Victoria announced in this year’s state budget.

The NSW Government’s current forecasts are for gambling tax revenue to hit $3.2 billion in FY23. The opening of Crown Sydney is expected to contribute $100 million to that forecast.

Crown, which was bought out by Blackstone earlier this year, doesn't operate gaming machines at its Sydney casino and the company has an existing agreement in place that guarantees the NSW Government at least $1 billion in tax revenue from its gambling operations over the first 15 years of operation.

"We will review the proposed tax changes announced by the NSW Government," a Crown spokesperson tells Business News Australia. "The impact of these changes will depend on the final details of the tax and other pre-existing arrangements we have in place at Crown Sydney."

However, The Star’s Cooke has blasted the NSW Government for failing to consult with the industry ahead of the planned tax hike.

“We are not sure how the government modelled its financials nor the basis for suggesting The Star does not pay its fair share of taxes,” says Cooke.

“Specifically, in addition to state gaming taxes, The Star also pays millions in corporate taxes, with total taxes paid as a percentage of The Star’s profits being around 70 per cent, and as high as 80 per cent in the last five years when all the tax regimes are considered.”

The Star says it is seeking to hold urgent talks with the NSW Government to argue against the sustainability of the proposed tax changes.

The company is particularly concerned that the new impost comes on the heels of reforms emanating from the Bell inquiry which it says has prompted the company to fast track the introduction of cashless gaming and carded play to protect gamblers and diminish the risk of money laundering activities.

The Star is also undertaking an extensive remediation program to restore its status of suitability to hold a casino licence, a process that is being led by government-appointed external manager Nicholas Weeks.

The Star announced last Friday that Weeks, who has also been appointed by the Queensland Office of Liquor and Gaming Regulation to oversee the company’s remediation program in that state, will remain in place at The Star Sydney until 19 January 2024. Weeks had originally been appointed by the NICC for a 90-day period.

The Star says that at this stage it has not received details on the potential tax increases including how these taxes will be levied or applied.

The extra cost to the business has put a cloud over the company’s near-term earnings performance in light of the $100 million fine imposed by NSW authorities and a separate $100 million fine from the Queensland Government after it also ruled in October that The Star was unsuitable to hold a casino licence. The fines are to be paid in three tranches.

The Star was found by the Bell inquiry and the subsequent Gotterson review in Queensland to have failed in its duty to adhere to its obligations regarding responsible gaming, anti-money laundering and counter-terrorism financing.

The company is also facing a Federal Court civil action brought by financial crimes watchdog AUSTRAC which has alleged ‘serious and systemic’ failures that exposed the group to criminal exploitation.

More recently, ASIC brought charges against 11 former and existing directors and senior executives at The Star for alleged breaches of their duties.