Big Bad Bet

“The house always wins”. Gambling odds are never in favour of the average punter, and that has been confirmed by the recent cancellation of the gambling licences of Australia’s two large Casino operators, but they will still be allowed to operate. So despite a supposedly heavily regulated industry falling foul of the law, as fishy as this story smells, I’m willing to bet that it will be pretty much business as usual. Which begs the questions: how did we end up in this predicament? If the regulators aren’t doing their jobs, why have the rules in the first place? And what does this mean for Brisbane’s Queens Wharf mega casino project?

First, a brief outline of what has happened. The players involved are Australia’s duopoly casino operators, Crown Resorts (Melbourne, Sydney and Perth casino’s) and Star Entertainment (operator of the Brisbane and Gold Coast Casino’s, as well as Sydney’s The Star), as well as a multitude of regulators. In 2016, 19 Crown Resort executives were detained in China relating to recruiting wealthy Chinese citizens to gamble in Australian casinos through gambling junkets. Then in 2019, local media stories started emerging about illegal money laundering activities in Australia. This should be bleedingly obvious, and for anyone who didn’t think there was dodgy money going through casinos I have a nice bridge to sell you.

What the casinos were doing was disguising gambling revenue from organised crime (Chinese Triads for instance) as hotel expenses. To understand the magnitude for Star alone the tally the regulators have uncovered is over $900 million in fake hotel expenses. In other instances, backpacks of cash (without asking how the money was accumulated as required under the licence conditions) were handed over in exchange for gambling chips before later being cashed in. Out the other end they paid “winnings”.

The Federal regulator Austrac (responsible for monitoring money laundering, organised crime, tax evasion and terrorism financing) has been accused of being asleep at the wheel. As the link between the State gambling regulators, they took until August 2020 to commence proceedings against Crown, and even to date, not one person from either casino group has been charged, and no bonuses paid to now-disgraced executives have been clawed back.

Victoria’s regulator VGCCC was first to investigate and since then Crown has been deemed unfit for a casino licence in the three states it operates in (Vic, NSW and WA). More recently, the newly formed NSW’s Independent Casino Commission (NICC) and Queensland’s Gotterson inquiry into Star have come to the same conclusions and are appointing external management to oversee the Casino operations. So Government departments that failed in their duties are now embedded in the companies they failed to oversee.

If the crimes committed are of such a huge magnitude and with hindsight 4 different regulators have now proven the wrongdoing, why are the companies still allowed to operate? Crown employs about 20,000 people and Star another 8-9,000. Two companies dominate the industry, and they are simply too big to fail.

The root cause of many of the problems is that they are regulated by State Governments that have a vested interest in them making money. Crown has paid $3.2 billion in state taxes over the past 5 years and spent $4.5bn on development costs including $2.2bn at the recently opened Barrangaroo high rollers venue. In the past 5 years, Star has paid $1.38 billion in NSW taxes and $589m in Queensland. Star spent $2.5bn on development costs the past 10 years and is also spending $3bn to develop Queens Wharf. More casino’s means more employment, more taxes and more tourists.

If this story doesn’t stink enough already consider this. In 2016, the then Queensland attorney-general and casino regulator (Yvette D’Ath) signed a commercial in confidence contract with Star to get the Queen’s Wharf Brisbane development underway that promised to compensate the casino giant if the State Government hiked “any taxes, levies or licence fee’s”; or cut poker machine numbers or tables without Star’s consent; or if the company’s earnings dropped by $5m. In return, Star gained development approval with a 99 year casino licence, committed that it would pay the Queensland Government $272 million before Queens Wharf opened, and a “minimum guaranteed state gaming tax payments” of $880 million in total over the first decade of operation. Star also hosted and covered all the costs of a Labor fund raiser for Ms D’Ath a year later in the lead up to the 2017 state election, at the time Star was lobbying the Government not to proceed with a rival second casino on the Gold Coast.

The problem now of course is if the State Government banned Star from operating, there wouldn’t be any company that had a licence let alone the funding to complete the Queens Wharf project.

So what is happening? Star have been fined $100 million by the NSW regulator. They have $82 million in cash in bank and are losing money ($35 million last year). They also face possible fines of $22.2m per breach from Austrac (Westpac and Commonwealth were fined $1.3bn and $700m respectively over similar issues).

The irony is that this whole issue was caused by money laundering issues from rich Chinese gamblers and payments of illegally acquired money. Pre-Covid Star’s high roller revenue was $155 million in a 6 month period. Covid cancelled the ability for people to travel, and now the Chinese Government has clamped down on the overseas junkets, Star had only $5.5 million VIP revenue over the last comparable period. So the market has killed itself. The only one laughing in this matter should be James Packer, who managed to offload his $2bn investment in Crown for $3bn to Blackstone Group that now has empty high roller rooms.

The Queens Wharf project is protected by Queensland Governments underwriting of the project and will be completed. Too many jobs and too much tax money hangs on it. Had the Federal regulator being doing its job, the solution would be to have one national regulator as it is the States that get the taxes etc. However, so long as you can walk into a casino with some money and come out with a receipt for “winnings” that is then accepted as “clean profit”, the money washing will simply find another way into the laundry machine.

If you can’t make sense of something, it always helps to simply follow the money. Liza Minelli was right: “Money makes the world go round”.


Words from the wise

“In gambling, the many must lose in order that the few may win” – George Bernard Shaw.

“I’m a great believer in luck, and I find the harder I work, the more I have of it” – Thomas Jefferson, 3rd US President.

“Power tends to corrupt; Absolute power corrupts absolutely” – Lord Acton

As always, onwards and upwards!

Fred Carlsson

General Manager

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