Casino operator SkyCity Entertainment Group [ASX:SKC] has seen its shares fall by 17% in trading today, losing 37 cents in a swift blow this morning with the share price currently at $1.795.
The drop came after news that the department overseeing the gambling industry has applied to suspend all the company’s NZ venues.
The extraordinary move comes after a former customer complained that the company failed in its duties to prevent problematic gambling by customers.
In the opening moments of trade this morning, the company saw its biggest losses in three years of trading, losing approximately $160 million in market cap to $1.45 billion.
With today’s losses, the company’s 12-month performance is down by 29.61% as it also faces challenges with regulators in Australia for alleged breaches at its Adelaide casino.
Source: TradingView
SkyCity casinos could face temporary closure
Australasian Casino operator SkyCity shares have plunged today after it was revealed the Department of Internal Affairs (DIA) has asked the Gambling Commission to temporarily suspend its casino licences for all of NZ.
SkyCity Casino Management holds operator licenses for the Auckland, Hamilton and Queenstown casinos.
The DIA’s application was made under the NZ Gambling Act 2003. This comes after a complaint in February last year to the department by a former customer who gambled at the Auckland casino from August 2017–February 2021.
The complaint alleges that SkyCity did not comply with requirements in its SkyCity Auckland host responsibility rules relating to detecting incidences of continuous play by the customer.
The regulated host responsibility programs are designed to identify and help problem gamblers. They typically involve staff training to spot the signs of problem gambling and offer support to those who need it.
The company also employs facial recognition software to identify ‘persons of interest’ as they enter and move around the casinos.
SkyCity CEO Michael Ahearne said on 23 August that new systems would be installed above ATMs within the casinos to help identify problem gamblers, saying:
‘The technology has advanced over the years. We brought it in to track people coming in at the first stage, but now it monitors individual behaviours on the gaming floors. In Adelaide, we have the first version and we’re looking forward to bringing in the more advanced system over time.‘
These promised changes appear to be too little, too late for the DIA, whose application says that SkyCity failed to implement its host responsibility program effectively in the case of the former customer.
The application also says that SkyCity did not take appropriate action to help the customer when they were identified as a problem gambler.
SkyCity has said it will fully cooperate with the DIA’s investigation and that it takes gambling harm minimisation seriously.
The Gambling Commission is expected to decide on the DIA’s application in the coming months.
If the application is successful, it would be the first time that a casino licence has been suspended in NZ. The expectations would be that the suspension would last approximately 10 days and cost the company an estimated $12 million in revenue.
The move is a major blow to SkyCity, which faces intense regulatory scrutiny and rising costs.
SkyCity is facing a civil court penalty of up to AU$91 million over alleged anti-money laundering failures at its Adelaide casino.
The company said it has set aside $49 million for possible penalties relating to the case and has written down the value of its Adelaide casino by $45.6 million.
SkyCity’s future is a gamble
The suspension of SkyCity’s casino licences in NZ is another major setback for the company and could significantly impact its financial performance.
The vast majority of SkyCity’s revenues are generated by its Auckland customers, and a short suspension of NZ operations could throw the company’s financials into disarray.
SkyCity’s financial performance for the financial year ending June 30 showed the company had finally turned a corner, rebounding from a loss in 2022 and posting a $8 million net profit.
However, the company admitted it was seeing weakness in some of its table games performance and rising cost pressures from both regulations and staffing shortages.
Much of the company’s future strategy seems to be gambling on the regulatory approval of online gaming spaces that would allow the company to establish an omnichannel gambling site covering NZ.
This seems extremely ambitious at this stage, as the company’s experience in this space is limited to a small $15 million annual revenue offshore online casino created and operated by the international iGaming company out of Malta.
For hopeful investors, the company’s improved FY23 performance could mark the return of SkyCity’s core casino operations to pre-pandemic business as usual.
But for concerned shareholders, the company’s returning revenue seems to be met by ballooning costs. While some of these will be one-off, the impact of fines, plus temporary closure, could see the company face another year battling regulators and another year in the red.
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