Crown stock slips as investors ponder potential license loss

Crown resorts, casino

Shares in Crown Resorts slipped for a second day as investors begin to mull the impact of the potential loss of a casino license at the company’s flagship property in Melbourne.

In his final submission to the Victorian Royal Commission investigating allegations of corporate misconduct and money laundering at Crown, assisting counsel Adrian Finanzio said he recommended its casino license for Victoria to be cancelled

His argument was that the problems ran too deep for corporate restructuring to be able to return the company to suitability in a reasonable timeframe. He also questioned whether public confidence, an element in the suitability consideration, could realistically be restored.

The presiding judge now has until October to make the weighty decision as to whether to strip Australia’s largest operator of its license.

In the aftermath, some analysts quoted in local media said that if the license was lost they expected a domino effect, with a separate inquiry in Western Australia also likely to reach the same conclusion.

A probe in Sydney found the company to be unsuitable to run a casino at its newly opened Barangaroo resort in Sydney, but left the door open for Crown to find a way back to good grace.

Shares in the company fell a further 1.7 percent in trading on Wednesday and are down more than 22 percent since May as the commission heard damaging evidence against the company. 

Analysts say the company may need to transform itself into a pure hotel and entertainment play and allow a third party to manage the casino element. Under such an arrangement, Crown would be able to charge a hefty fee for leasing out the premises.

The company owns three integrated resorts in Australia – in Melbourne, Sydney and Perth – as well as Crown Aspinalls in London. It also owns online brands, Betfair Australasia, DGN Games and Chill Gaming. 

Still, the analysts concede rental income would only go a small way to mitigate the impact of a loss of a casino license. 

Earlier this month, the company itself warned that it risked breaching covenants on some $700 million of debt if the license was revoked, putting at risk the jobs of more than 12,00 people in the state. 

The disclosure was put forward in a letter sent by Crown Executive Chair Helen Coonan to the Victorian Gaming Minister, Melissa Horne. The note sparked criticism in Australia that Crown was trying to influence the course of the Commission inquiry.

In the financial year ending June, 2020, the company reported total revenue of A$2.2 billion. Out of that main floor gaming revenue accounted for $1.23 billion and VIP revenue was $398.2 million. 

Gaming revenue in the period was down about 27 percent and 26 percent respectively as the second half of the year was badly affected by the Covid crisis. 

Another option is to accept a takeover offer from its potential suitors. U.S. private equity firm Blackstone Group has made a bid for the company, while rival Star Entertainment also put forward a merger proposal.