AUSTRALIA

The Crown has slipped but will it fall

By David Green*

There has rarely been a less edifying spectacle in 21st century corporate Australian history than the serial evisceration of the directors of Crown Resorts before the Bergin Inquiry into, among other things, the suitability of its subsidiary licensee of the Barangaroo casino.

31The many governance failures and vulnerabilities exposed by the Inquiry speak to a hubristic corporate mentality. This has arguably been encouraged and enabled by the regulatory and political inertia which appears to have its origins in the symbiotic relationship between Crown and its host governments, in particular Victoria and Western Australia.

While the evidence and testimony presented to the Inquiry has been well covered by the mainstream media, it cannot, of itself, determine Crown’s fate in Sydney. The Inquiry’s terms of reference make it clear that it cannot recommend cancellation or suspension of the casino licence granted in 2014 by the regulator, the Independent Liquor and Gaming Authority. Rather, it must report whether the licensee is a suitable person to continue to hold the licence, and whether Crown is a suitable person to be a close associate of the licensee. If the answer to either or both questions is no, the Inquiry must report what changes would be required to make those persons suitable.

The terms of reference are drawn on the apparent assumption that any failure of suitability can be cured. The fallback, in the event either that the suitability failure is irremediable, or the proposed manner of remediation does not satisfy the regulator, is the exercise of disciplinary action by the regulator against the licensee in accordance with section 23 of the Casino Control Act 1992.

Options for disciplinary action encompass the cancellation or suspension of the casino licence. While there are several grounds for disciplinary action, two are most likely of relevance here. First, it is a ground for action if “… the licensee is, for specified reasons, considered to be no longer a suitable person to give effect to the licence…”. The Inquiry report may provide such “specified reasons”, as this is a matter directly within the Terms of Reference.

There is a second disciplinary ground which potentially has significant ramifications for Crown in both Victoria and Western Australia. It is “that for specified reasons, it is considered to be no longer in the public interest that the licence should remain in force”. There is no generally agreed definition of what constitutes the “public interest”, but Australia’s most senior judge observed in a 2011 case that “when used in a statute, the term derives its content from ‘the subject matter and the scope and purpose’ of the enactment in which it appears. The court is not free to apply idiosyncratic notions of public interest”.

So, what is the subject matter, scope and purpose of the Casino Control Act in New South Wales? In keeping with most gaming regulatory regimes in Australia, the stated objects of the law include containing and controlling the potential of a casino to cause harm to the public interest, and ensuring that the operation of a casino remains free from criminal influence or exploitation. In this context, it is abundantly clear why the public interest is very much front and centre.

Crown is under investigation by Australia’s financial intelligence agency, AUSTRAC, for potential violations of anti-money laundering laws.

Matters which arguably concern the public interest that have been raised during the Inquiry include (i) the arrest and conviction of Crown employees in the PRC in 2016 for violation of mainland law, and the apparent governance and communication failings that led to those detentions; (ii) Crown’s business relationship with the Macau junket operator, Suncity and (iii) the role of Crown’s major shareholder in structuring the Board, receiving information not generally available to other shareholders, and engaging in other behavior raising serious concerns about its suitability to remain associated with the company.

While a licence revocation would constitute a nuclear option, there are points of difference between Crown’s situation in New South Wales from that in Victoria and Western Australia which may mean the prospect is not as remote as it may appear. First, Crown made an unsolicited offer to the then government to construct and operate the Barangaroo property; there was no competitive tender. The administration which made the decision to accept the proposal is no longer in power.

Secondly, the world has changed since 2014 when the casino licence was granted. The rivers of gold associated with international commission business, including junkets, are not what they were. Thirdly, there is an existing casino operator in New South Wales, Star Entertainment. Does the public interest support two casinos, especially now that Barangaroo’s VIP business model is significantly challenged?

Finally, Crown has yet to produce a stream of tax revenue for the government, unlike in Victoria, where it contributes around 5 percent of all its revenue.

*David Green is the founder and principal of Newpage Consulting. Prior, David was a partner of PricewaterhouseCoopers in Macau, and later Director of the firm’s gaming practice. He has advised on casino regulation in a number of geographies, including New Zealand, Singapore, Macau and Taiwan.

Australian gambling gains during Covid

Australians gambled more during the Covid-19 outbreak, despite a lack of access to venues, with the proportion who gambled four or more times a week increasing from 23 percent to 32 percent, according to the Australian Gambling Research Centre.

Horse racing, sports betting, greyhound racing and lotto were the main products that participants gambled on before and during COVID-19. Seventy-nine percent of participants were classified as being at risk of, or already experiencing, gambling-related harm.

J.P. Morgan raises F21 estimates for Crown/Star

J.P. Morgan said it has raised its FY21 estimate for Star Entertainment Group’s EBITDA by 10.7 percent due to stronger revenue from Queensland and better margins.

However, it has downgraded the stock from overweight to neutral with a price target of A$3.50. For Crown Resorts, the firm has raised its normalized EBITDA forecast by 18.8 percent.

That’s mainly due to technical reasons as it reallocated 1H21 closure costs to significant items. It retails a neutral rating with a new price target of $8.10.