This is the most unrealistic option, not because the current business necessarily deserves to keep operating but because of what is at stake if it doesn’t.

Star Sydney made up more than two-thirds of The Star’s overall earnings before COVID-19 and the demise of its reputation. While it’s unlikely to return to that same mix any time soon, if Star Sydney closes, the parent company could end up in administration.

The Sydney casino – the company has two others, on the Gold Coast and in Brisbane – employs more than 3000 people, has 650 hotel rooms and contributes millions of dollars in taxes to the state government each year.

The NSW government is set to make $2.7 billion in gambling taxes from Star Sydney between 2030 and 2040. The government will not get this money if the casino doesn’t stay open.

It’s also sitting on an approved master plan to refurbish the Pyrmont premises. This would involve the construction of a 105-metre, six-star hotel, two new theatres – including a 1550-seat Broadway-style venue – and new rooftop dining, but it will be years before the current business has enough spare capital to implement the bulk of it (and some think it’ll never happen). This means it’s difficult for The Star to bolster its non-gambling revenue in Sydney as easily as its main rival Crown in the event its casino arm is shut down.

The chances of Star Sydney being found unfit will increase dramatically if the second Bell inquiry exposes further lawbreaking since it was disgraced by the first probe. But it’s also worth remembering that any breach of either the Anti-Money Laundering and Counter-Terrorism Act or the Casino Control Act will mean the regulator has failed in its core duty to regulate the company ... again.

Star Sydney is found unfit but given a last-ditch lifeline via another suspended licence

This is one of the most likely scenarios, but it’s also the one that will frustrate the company and its investors the most (next to the whole gambling business being shut down). It will mean another period of instability and still no guarantee of being able to operate independently in the future.

The lifeline could come in the form of suspending the licence (again) and extending the tenure of special manager Nick Weeks to keep the casino operating. This would require obtaining cabinet approval, a less onerous task than the complexities that come with cancelling the licence.

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The regulator could also explore an opco/propco model where The Star would become the “operating” company and retain control of its hotel and restaurants while a separate body would run the casino as a subsidiary “property” company. This model has been used all over the world but has never been tested in Australia and is unlikely to be popular given the bulk of the parent company’s value is in its licences.

The struggling business has invested some $68 million into its remediation and compliance efforts. Of that amount, Weeks receives $75,000 a month to monitor the Sydney business, according to recent disclosures to NSW parliament. This means his yearly pay packet of more than $1 million is about a quarter of Star Sydney’s total revenue over the six months to December ($4 million). To put Pyrmont’s underwhelming revenue into context, some of the biggest pubs and clubs across the state made more than double this amount over the same period.

Weeks’ tenure has already been extended three times since his 90-day appointment in October 2022, meaning Star Sydney has paid him for 18 months longer than originally expected.

Even if Weeks does step down from Star Sydney in June, he’ll still be on the books for the rest of the year due to his compliance roles at The Star’s Brisbane and Gold Coast outfits.

Star Sydney is found fit to operate, but told to operate under a conditional licence

If Bell finds The Star has adequately reformed its culture, the regulator should reinstate its casino licence. But Crawford has made no secret of how unimpressed he’s been with the pace of change at The Star, so it’s hard to imagine the company’s management regaining total control any time soon.

There are now only two executives who held senior positions within the company when it was disgraced in 2022: company secretary Jennie Yuen and the newly promoted chief executive of the Gold Coast premises, Jessica Mellor.

Crawford could lift the suspended licence and issue a conditional one to The Star under an agreed remediation action plan. This is what was imposed on Crown Sydney after Blackstone bought the business in 2022.

Crown’s monitor, Kroll, is set to be retired in May if NSW follows Victoria in deciding the business has regained suitability to operate.

The Star cashes in

Talk to any investment banker in Australia and they’ll say a takeover of part or all of The Star is not a question of if, but when. With a share price that’s fallen by about 80 per cent since 2022, its many hospitality and entertainment assets have never been cheaper. Its market capitalisation has fallen from $5 billion in 2018 to just $1.5 billion six years later, making it ripe for a private-equity giant or hospitality business to swoop in at a big discount.

There are a lot of different numbers flying around about the enterprise value of the Sydney business at the moment. Macquarie recently valued Star Sydney at $667 million while boutique MST Marque estimates it is worth $1.3 billion.

Shareholder and Sydney banker David Kingston, who owns a number of hospitality businesses, puts the number somewhere in the middle, at between $750 million and $1 billion. He says there’s often overlooked value in its hotel rooms but believes any valuations above $1 billion do not properly account for the looming tax rises due to hit in 2030.

He believes the casino will not be shut down and a takeover is a while away.

“Crown Melbourne was accused of similar crimes and has recovered,” he said. “The Star’s board and leadership has been eviscerated, its earnings have been obliterated. What more could the NSW regulator possibly want?”

Others close to the company believe Crawford will never reinstate its licence to operate poker machines and table games in NSW. They say the second inquiry is an overzealous and expensive way to further punish an already battered business for embarrassing the NSW government and regulatory system. They believe The Star’s only chance of survival is through a takeover and are hoping Crawford allows the current business a grace period to find a buyer.

Given Cooke’s resignation was quickly followed with a major regulatory win for its biggest rival, Crown Resorts in Melbourne, it’s no wonder all eyes are on whether Blackstone, or any other private equity or hospitality outfit, makes a long-mooted bid for the embattled business.

But that doesn’t mean a takeover – by Crown or by anyone else – is any closer than it was before Cooke quit.

There are a couple of reasons for this. For one, a company is unlikely to buy The Star before the size of its looming AUSTRAC penalty is determined. Why? Because it’s harder to justify to the Federal Court that it cannot afford to fork out more than about $250 million for its prior sins. That being said, Blackstone’s first bid for Crown was lodged well before the size of Crown’s penalties were determined and any fine will pale in comparison to the discount price.

Then there’s the fact that all casinos in Australia have struggled to make money since COVID-19 wiped out all foot traffic and the regulations tightened.

Crown Resorts has so far spent about $200 million on reforming its three casino premises. One of the most expensive parts has been converting Crown Melbourne’s 2,600 poker machines to carded play. The process has taken 18 months and Sydney Star will need to do the same by August. It will eat into the revenue of the already cash-strapped Sydney operation.

In the event of a Blackstone takeover of Star Sydney (or the entire business), there are a number of other complexities. A Crown/Star merger would require approval from the state government and its two gaming regulators, the NICC and NSW Liquor and Gaming, so Crown could take over Star Sydney’s 1500 poker machines. The competition tsar, the Australian Consumer and Competition Commission, would also be asked to approve any takeover involving the country’s two biggest casino groups.

Then there’s getting Blackstone’s HQ in the United States to sign off on the group spending more money on Australia’s casino industry after acquiring Crown in 2022 for $8.9 billion. It’s not yet clear whether this investment will ever pay off thanks to the hangover from COVID-19 and the cost of its remediation.

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Regardless of the inquiry outcome, it’s clear neither casino in NSW is making money. There has never been much logic in having two casinos operating in one state, but in the current environment, where foot traffic is at an all-time low (COVID-19 excepted) and taxes and costs are high, consolidation is all but guaranteed.

There are, however, two other groups in NSW that have experienced significant upticks in revenue since the two casinos were disgraced and the rules surrounding gambling in casinos were tightened: pubs and clubs.