Looking around the regulatory landscape at the moment, you’d be hard pressed to find a more familiar villain than casinos (ignoring social media companies).
And with Australia’s leading casino stocks getting slammed — is it safe to invest in them anymore? Just look at short seller activity for Star Entertainment Group: It’s crept up through 2024, now covering nearly 7% of the stock.
This is in part because for the last few years, Australians have been treated to headline after headline regarding allegations (and proven instances) of dodgy behaviour from Crown, Star Entertainment, and Skycity.
Just count how many inquiries there’ve been in the recent (and more distant) past.
It feels a lot like regulators used COVID lockdowns to go after casinos, though, maybe that was coincidental. Then again, money laundering and anti-terrorism laws were brought into force in 2006, but never meaningfully acted on for about 15 years.
Reports in the last 5 years have spelt out everything from Chinese-gang-led money laundering, to letting VIP gamblers circumvent customs on private jets, to giving money to problem gamblers.
One can only imagine what else goes on behind closed doors. And we’re starting to see that play out on the share market for casino stocks.
Let’s look at the metrics for Star Entertainment (ASX:SGR) — on Thursday, the most hotly watched stock on HotCopper — and Skycity Entertainment (ASX:SKC).
(Remember, Crown de-listed back in 2022 – more on that in a second.)
Star Entertainment
- 1Y returns -57.15%
- 2024 YTD -50.5%
- Shorts: 6.37%
Skycity Entertainment
- 1Y returns – 28.7%
- 2024 YTD -25.95%
- Shorts: 1.98%
The latest story in the barrage of scandalous casino coverage comes from Star Entertainment. It failed to report its FY24 annual on time, got stung, then a month later released some absolutely dismal numbers.
Now it’s in a fresh pot of boiling water. A NSW regulator on Thursday allowed it to keep operating, but reprimanded it with a $15M fine and kept a ruling in place that for Star’s management probably feels a lot like being under house arrest.
Star on Thursday halted shares ahead of a response — that’s what HotCopper users in their tens of thousands were watching on Thursday.
Then there’s Adelaide’s Skycity Entertainment, which got stung with a $13M fine on Wednesday from a court in South Australia. (And a far smaller fine in NZ just last month.)
But Skycity received another fine in June this year of $67M for money laundering. Included in that case were allegations in court documents suggesting the casino knowingly welcomed entities to gamble who were associated with human trafficking.
So what about Crown?
Crown de-listed in 2022 after being bought out by Blackstone, but that a casino was bought out at all suggests it was already in strife. Every takeover story is really a story of vulture and prey.
(Hard Rock was sniffing around Star Entertainment earlier this year.)
And, since that nearly A$9B payment Blackstone made for Crown, a number of Crown chiefs have left and Blackstone appears to be selling some Crown-linked properties.
So, should investors buy casino stocks while they’re cheap? I can’t offer financial advice, but look at yourself in the mirror and ask yourself that question seriously.
You could, of course, consider performance of companies that offer casino tech — notably, games and software.
The best example is Light & Wonder (ASX:LNW), a multibillion dollar capped company that, in layman’s terms, makes pokey machines. It’s an interesting exercise to compare performance of LNW with that of Star and Skycity.
Light & Wonder
- 1Y returns +18.55%
- 2024 YTD +17.6%
- Shorts: 0.89%
It’s worth noting here if casinos go under, LNW doesn’t necessarily stand to collapse either. After all, every east coast pub has pokie machines (though we could see its hefty market cap take a humbling.)
And here we’ve also got to look at the even-more-diversified Aristocrat Leisure (ASX:ALL). It doesn’t dabble only in casinos but does make software for them.
Aristocrat Leisure
- 1Y returns +50.27%
- 2024 YTD +45%
- Shorts: 0.37%
Clearly, the numbers reflect a market truth on casino stocks here.
There are more people putting faith into the companies that provide tech and hardware to casinos, then there are people putting money in casinos themselves.
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