Star Sydney shocking culture and disregard for authority laid bare in Bell Report
The two volumes encompass more than 500 pages. With the recommendation that Star again be found unsuitable, the report paints a grim picture for both Star Sydney and Star Entertainment as a whole, which as of Friday (6 September) was still in a pause in trading on the ASX. The company is said to be analysing its financial options as investors take heed of possible sanctions.
The ongoing inquiry is the second time that Star Sydney’s suitability has been questioned. Both inquires have been led by Adam Bell, SC. Bell has served as a senior counsel in the state since 2003 and has been featured on the Best Lawyers in Australia list since 2010.
The first inquiry, delivered in 2022, deemed Star unsuitable for licensure in the state. Regulators pointed to massive anti-money laundering (AML), customer probity and responsible gambling violations. This resulted in an AU$100m (£50.7m /$67.28m/€60.2m ) fine and the appointment of an independent manager. The manager, Nicholas Weeks, has overseen operations and remediation since. Weeks previously served as chief operating officer of the National Rugby League and general counsel of the Australian Rugby Union.
Second inquiry called due to lack of progress
On the surface, the operator appeared to have been making progress in the two years since the first ruling. It replaced almost all of its board and was contrite in its messaging. But the reality was much less convincing, causing the NICC to call for a second investigation in February.
Public hearings throughout the spring proved disastrous for Star. The inquiry unearthed several new compliance and culture failures and former chairman David Foster and former CEO Robbie Cooke both left unceremoniously as a result.
In its closing remarks during the proceedings, Star admitted that it was still not currently fit to operate independently. The company requested another extension for Weeks, whose term has been extended to March 2025. For the second time in three years, the company faces the same conclusion of unsuitability. The only question remaining is whether the NICC will give Star another chance to redeem itself or terminate its licence, which would be unprecedented.
Report highlights all aspects of Star’s operations, misconduct
The second inquiry is essentially a sequel from the first. It picks up where the last left off and lays out details regarding Star’s remediation progress – or lack thereof – since receiving the first ruling. It also presents the premise that the operator should have been on its best behaviour as it was already on a conditional licence.
When the first report was published in September 2022, it outlined 30 recommendations. These were meant to help Star return to suitability and improve its outlook for the future. By the time the second inquiry was called, six of the 30 recommendations had not been implemented or were still in the process of being implemented. These included recommendations for:
- The introduction of mandatory carded play;
- The sharing of player data with researchers and law enforcement;
- A third-party assessment of “rebate play and any adjusted duties” owed to the state government;
- The introduction of “an objective test for when a player is considered ‘not normally resident in New South Wales'”;
- An amendment to its licence relating to the casino’s opening hours; and
- The consideration for state regulators to impose “obligations equivalent to any imposed on Star” on “other licenced gambling venues.”
Mandatory carded play, or the requirement for players to use loyalty cards so that their play habits can be tracked, has been a topic of great debate across Australia. It has been widely promoted as a way to bolster RG and AML protocols by understanding play patterns and reducing cash. But the rollout is slow as the bugs are worked out.
The same is true for cashless gambling, which is also mandated. In NSW, the NICC is currently overseeing a cashless trial across 14 venues in the state. The results are due to be presented to the state government in November.
Star, which was expected to be ready to launch carded play by 19 August, “indicated that it will not be in a position to fully implement that recommendation by the time the regulations are due to commence,” Bell wrote.
Hiccups from the start with remediation plan
Overall, Bell detailed how Star’s path to suitability has been marred by a flawed remediation plan.
In December 2022, the operator hired Deloitte Australia to advise in its rehabilitation. The consultancy presented a report in May 2023 that outlined several root causes for the problems identified by the first inquiry. Shortly after that, a non-profit ethics consultancy called the Ethics Centre conducted a cultural report of the business. This revealed a set of “shadow values” that lurked beneath the surface.
According to Bell, these sentiments permeated the staff and made for a miserable environment. Among those cited were “profit matters most; just get it done; play politics to stay alive and thrive; stay in your own swim lane; and do more with less.”
It wasn’t until 5 October 2023 that Star’s official remediation plan – its fifth draft – was approved. Bell said the plan was formed with a “great deal of hard work, high level of thought and reflection” but was imperfect.
The problems ranged from setting goals that didn’t “sufficiently focus” on the so-called shadow values to “anomalous” milestone dates and compressed timelines. This resulted in a “mindset where meeting deadlines took priority” over fully addressing underlying problems.
Under its own plan, Star was to have reached 200 milestones by March. But when public hearings began in mid-April, Bell said, just over 100 had been completed. Star has acknowledged the flaws in its roadmap and has proposed a reset, but nothing has been approved.
Governance issues between Star Sydney, HQ
One of the key themes of the report is Star’s governance structure. Most of the decision making has been concentrated at the group level rather than the casino level. The most glaring example was the fact that Star Sydney’s CEO role was vacant from April 2023, when former CEO Scott Wharton resigned, until February 2024 when Janelle Campbell’s tenure began.
Bell said that Cooke’s explanation for the extended vacancy was the “deteriorating” financial position of the company, which made it unappealing to quality candidates. Star ultimately acknowledged that the casino’s shortcomings “may have been prevented had there been closer and more direct supervision”.
Absent proper leadership, key compliance and responsible gambling protocols have gone unchecked. As one example, the report noted that the most senior RG role at the casino is a patron liaison manager. That role only has a reporting line to company management and not the casino’s. Additionally, Star Sydney still has yet to establish a head of risk role even now, Bell said.
There were also several references to the disparity between the boards of directors for the two entities. The company board was meeting frequently whereas the casino’s board rarely convened. Bell said that in a November 2023 meeting, the company board endorsed “the concept that the board of The Star [Sydney] should only meet as necessary to discharge statutory functions”.
TICO fraud went unchecked for several weeks
The report explained that the second inquiry focused on four main regulations. It started with those related to customer probity, AML and cage and revenue, but was expanded to include RG after the inquiry began.
Among the compliance issues unearthed during the investigation, perhaps none were more infamous than the so-called “TICO fraud event”. From 7 June to 24 July 2023, bad actors exploited a faulty ticket-in-cash-out (TICO) machine at the casino, resulting in an AU$3.21m loss.
When two tickets were inserted, the machine would pay the total but return one of them, allowing for repeated withdrawals. Bell said that there were 18 individuals in particular who were responsible for 1,800 transactions and AU$3.16m of the total loss. Overall, the incident is indicative of a lack of basic operational oversight.
Falsification of RG requirements
One of the other violations that inspired the need for a second inquiry had to do with Star’s falsification of RG paperwork. State regulations stipulate that any patron who plays for three consecutive hours must be approached by a staff member for a wellness check. These interactions must be logged and verified by the casino.
But in January 2024 inspectors happened to observe a patron eclipse the three-hour mark without being approached. When they discovered that the Star officer on duty had falsely recorded a wellness check, a deeper investigation ensued. By 24 March it was established that a total of seven officers had long been doing the same thing.
And on the topic of falsifying customer relations, another key issue was the casino’s lack of transparency with probity checks. Given the multitude of AML infractions over the years, the NICC required Star to perform wealth checks for over 32,000 patrons from its database.
On 30 September 2023 the company sent a letter to the regulator saying this had been completed. It was later revealed that checks had not been performed for as many as 25,000 of those patrons.
Relationship with NICC unraveled
From mid-2022 to mid-2023, Star was said to have a positive relationship with the NICC and Weeks, who was the chief liaison between both sides. But by the end of 2023, Star “lacked transparency, candour and rigour in its dealings” with both, Bell said. It was generally accepted that only a select few executives had any relationship with Weeks and those too were strained.
The chief example of this emerged in late 2023 and early 2024. On 24 November 2023, Weeks submitted an update to the NICC saying that Star’s engagement had “deteriorated” since his previous update earlier that year. The company’s formal response, dated 23 January 2024, was combative and defensive about the problems outlined by the manager.
In his report, Bell said the “strident and confrontational nature” of the response “failed to
take into account the wider context that in NSW The Star’s licence to operate a casino was
suspended and its social licence to operate was at risk.”
Going to war and conditional suitability
Foster and Cooke eventually accessed Weeks’ calendar without his permission and discovered that he had a meeting scheduled for 1 February 2024 with the NICC and Star’s attorneys. Foster then messaged Cooke 31 January saying that “they are prepping for war we better do the same”. Cooke responded with similar language, saying, “We are meeting Monday to get ready for war though.”
These examples, Bell argued, reflect “a common theme of a combative and antagonistic approach to the NICC and the Manager.” This mentality emerged “at the highest levels” of the company by the end of 2023, and Star now has “a worse relationship with the NICC” that it had with the previous regulator, the Independent Liquor and Gaming Authority, “at the time of the 2022 report”, he lamented.
Star lobbied for and has continued to hope for a finding of conditional suitability. But, Bell argued, that premise is inherently invalid. An operator is either fit for licensure as it stands or is unfit. The concept of suitability does not come with exceptions.
“The contention by The Star entities that they should be assessed as ‘conditionally’ suitable is not accepted,” Bell said. “The evidence presented to this inquiry establishes that, by each of the foregoing measures, The Star is currently falling short of what is required from a suitable casino operator.”
Bell offers second set of recommendations
In closing, Bell gave fresh recommendations to the NICC as it considers giving Star another chance. He advised the regulator to take action on specific incidents, such as the TICO fraud, the falsified paperwork and the customer probity issues.
Should the NICC allow Star to try again, Bell also recommended making changes to the company’s constitution. These centred primarily around ensuring the creation of an independent board for Star Sydney, one with an established meeting schedule.
He also laid out several suggestions for the regulator to follow up on. Among these were:
- Ensuring that the casino’s compliance team has direct reporting to casino executives;
- Amending a regulation to ensure that Star understands its duties as far as wealth checks for patrons;
- Ensuring that the revised remediation plan include prioritised items for board members and executives;
- “Noting the need for Star Entertainment to implement a charter for the [group leadership team] that imposes governance requirements designed to ensure the efficient and effective operation of that group, and take such action as it sees fit;” and
- “Noting the need for Star Entertainment to review the operating effectiveness of the
GLT and take such action as it sees fit.”
Cohen: NICC in tough spot
Peter Cohen, a consultant with The Agenda Group, spent eight years as executive commissioner and CEO of the Victorian Commission for Gambling Regulation. In his estimation, the NICC has three possible routes it can pursue.
The first is to award Star back its unencumbered licence – that, he said, has “zero chance of happening”. The other two paths involve revoking the licence or leaving it suspended. Both options could result in criticism for the regulator.
“If the NICC extends the suspension it will be criticised for giving Star a third chance, even though I would expect the NICC will try to portray the decision as an extension of the second chance,” Cohen surmised. “In truth, it’s just a question of semantics. But the portrayal of the decision as a ‘third chance’ is what makes it a difficult decision. The alternative of revoking the licence is also difficult because it requires the NSW government and the NICC to make subsequent decisions around what to do with the licence.”
Unclear how things would unfold if licence is terminated
Should the licence be terminated, Cohen said the state government would commence “some sort” of proposal and bidding process. That, he estimated, would take approximately 18 months if all went smoothly. But there are still a number of unanswered questions for that outcome.
“It’s more complicated than it looks because it’s unclear to outside observers as to what exactly bidders would be getting,” he explained. “Is it the casino floor only or the whole complex, for example? If Star has its casino licence revoked, is it a breach of its lease agreement? If so, what does this mean for the whole complex? The Star is on government-owned land, with the landlord being the NICC.”
In the end, Cohen predicts that the regulator will simply extend the existing suspension. This would be a way to “give the new management team an opportunity” to show it is different from the last. That is a reference to several new hires for Star in the last year. On 26 June, the company hired Steve McCann to replace Cooke as group CEO. A month prior, on 31 May, it brought on Jeannie Mok as group COO.
Both executives came from Star’s primary competitor, Crown Resorts. They helped that business through its own remediation process and its eventual sale to Blackstone in 2022. Similar to Star, Crown was also deemed unsuitable in multiple states for AML and RG violations. It has since regained full control of its licences in Victoria and NSW. Bell said in his report that the arrival of the executives “is to be welcomed” for Star.
In Crown’s case, the Blackstone acquisition was a huge boost to its turnaround. The company still faces operational challenges, but the introduction of new management has been credited as a key factor in its ability to pull itself out of the regulatory quicksand that Star now faces. If Star secures an extension, Cohen posited that it might give the company opportunities to explore M&A possibilities themselves.
“During that time, it would not surprise anyone should Star Entertainment sell the Sydney property or Star Entertainment itself be bought out by private equity or another company with casino operating experience,” he concluded.