Australia: The Star's VIP business hit by US-China trade war

Australian casino giant Star Entertainment Group has been hit by a sharp fall in spending from its wealthiest high-stakes foreign gamblers, dragging profit from its VIP program down 35 percent in a year.

The group on Friday reported that a slump in VIP high-roller gambling had sliced the company's normalised net profit after tax by 8.4 percent to AUD 224 million. Turnover from foreign high rollers was AUD 42.4 billion over the 12 months to June 30 – a decrease of 30.7 percent on the previous year.

The outlook for Australian casinos' programs catering to foreign high rollers particularly from China, who can turn over millions of dollars an hour, has become difficult to predict in the midst of the US-China trade war and softening economic growth in China.

The industry has also been affected by revelations in an investigation by The Age, The Sydney Morning Herald and 60 Minutes that Australia’s biggest casino operator, Crown Resorts, had gone into business with Chinese gambling recruiters with links to crime gangs. In light of the revelations, the national casino industry is now the subject of multiple state and federal inquiries and faces the prospect of tougher rules governing their high-roller operations.

The Star CEO Matt Bekier on Friday said the company had “comprehensive” anti-money laundering and counter-terrorism financing programs, and regularly worked closely with law enforcement authorities. He said the recent scrutiny surrounding the alleged crime links to junket operators had been damaging to The Star's share price, but said the company had not been implicated in many of the regulatory and law enforcement investigations examining Crown.

“In terms of the regulatory action, we have not really been caught in the same inquiries that others have,” he said. “The ASIC [Australian Securities and Investments Commission], for example, we have not had any contact from them.”

Bekier said US-China trade tensions were causing high-stakes punters to pull back by between 30 and 40 percent when gambling in Australia. "They are looking at tensions between the China and the US, they are not sure what the next year is going to look like and they are holding back," he said. "They still show up – they have business interests in Australia, kids at university – but when they show up to play they don't take the same risk.”

According to The Star's accounts released on Friday, "solid" domestic gambling growth at its casinos in Sydney, Brisbane and the Gold Coast helped lift domestic profit before interest, tax, depreciation and amortisation (EBITDA) 5.4 percent.

Chairman John O'Neill said growth in its domestic business, which accounts for 88 percent of group earnings, had not been enough to "offset declines in our international VIP business, which was impacted by weaker market conditions".

Bekier said management was focused on delivering savings through a restructure of the business, which had achieved $40 million in cost benefits so far, and bolstering visitation across its venues nationally. "The group remains focused on executing our long-standing strategy of investing to drive visitation and earnings to our network of properties in sought-after destinations," he said.

Shares in Star Entertainment rose 5.87 per cent on Friday to finish trading at $3.79.