In August 2019, the New South Wales government established the Bergin inquiry into whether Crown Group was fit to hold a Casino licence in NSW. The licence relates to the yet-to-be-opened Crown Casino at Barangaroo and the attendant high roller, junket-dependent VIP Gaming rooms.
The inquiry was set up after video footage, leaked company documents and whistleblower interviews aired on the ABC’s Four Corners and a joint investigation last year by Fairfax Media and Channel 9’s 60 Minutes.
The Bergin inquiry heard a deluge of damning evidence and a series of stunning admissions from the Crown executive and board regarding money laundering, organised crime connections, shadow directorships and abysmal risk management failures. The final report was tabled in Parliament on February 9.
Crown financial deed
Of all the fallout and political, governance and regulatory failures this exposed, a deal done in 2014 with Crown by then NSW Premier Mike Baird, is proving one of the greatest risks of all to the state.
The Crown financial deed requires taxpayers to compensate Crown by up to 10 and and a half times the negative financial impact caused by any new conditions imposed on Crown’s licence.
The numerous triggers and thresholds for compensation and the complex calculations for it are spelled out from page 43. In short, the minimum damages Crown would receive under the Deed is $200 million, with the projected revenue-based components having the potential to run into the billions.
It seems absurd that any government would sign a compensation deal indemnifying an entity it is supposed to be regulating using financial penalties against the cost of those penalties it has issued.
Nonetheless, corporately, it is a legal and properly executed document. It is a textbook example of a large corporation protecting its own interests (and those of its financial stakeholders) while negotiating with government.
It is a pity the NSW government did not do the same for taxpayers in its negotiations with Crown. It has now fallen to NSW Independent MP Jusin Field to find a way to save the NSW government from itself and a multi-billion dollar payout to Crown.
Private Member’s bill
Field had already been successful in getting documents made public that went to the inquiry about Packer’s now-defunct $2 billion deal with Lawrence Ho’s Macau-based casino group.
Now, he wants to scuttle the NSW government’s compo deal with Crown.
Last November, Field tabled his Casino Control Amendment (No Compensation) Bill 2020. It aims to amend the Casino Control Act 1992 to specify that there is no right to compensation enforceable by the Crown Group of companies against the state arising from protected actions.
Green Left asked Field about how he expected his private member’s bill to go, particularly as the Bergin inquiry has released its findings and Western Australia has announced its own inquiry.
“I’ll only bring on debate on the bill if it is needed,” he said. “The Bergin report and the NSW Independent Liquor and Gaming Authority’s response have been very strong. It is now up to how Crown responds.
“If Crown goes down the path of trying to activate the compensation clauses in its agreement — which would be outrageous given its behaviour — [then] I’ll bring on the bill to protect NSW taxpayers.”
When asked what he hoped the bill might mean for Crown’s interstate operations, Field said: “It is a very specific piece of legislation which deals with Crown’s agreement. It won’t have specific effects on Crown’s operations in other states but, ideally, it will make governments more cautious about making these sorts of agreements in the future.”
Field has said previously that the probity assessments that allowed Crown to have the licence in the first place were inadequate, as has now been borne out by the Bergin inquiry.
Questions about links to organised crime and money laundering were already known to authorities when the government signed the compensation deal with Crown on the promise of a $100 million licence fee and $1 billion in royalties into the state’s coffers over 15 years.
GL asked Field if he knew of other similar compensation deals with other state governments hosting casino venues.
“I don’t know for sure,” he said, “but I suspect this is commonplace and may also be the case for the Star Casino in NSW.”
Star Entertainment has casinos in Sydney and Brisbane, and manages the Gold Coast Convention and Exhibition Centre on behalf of the Queensland government.
Junket operator ban
The entire Barangaroo juggernaut was going to be a VIP casino, highly reliant on the volatile junket business model.
Field is pleased the Bergin report mirrors his own call to ban junket operators.
“[That report] also recommends casinos in NSW pay for a new Casino Commission to be established,” he said. “This will have a substantial hit on likely profits from the casino which makes the risk of compensation [payable by NSW taxpayers] extreme.
“The government can cancel the licence [outright] without compensation [being payable] provided the company has been found not to be a suitable person to hold a casino licence.
“Now that has happened, the government is in a strong negotiating position to reset any future licence conditions.”
Crown also has the option to answer Field’s public calls to tear up the compensation agreement as a gesture of good will while negotiating over the Bergin inquiry findings.
Field noted that, historically, governments have provided special arrangements for all casino operators, including exclusive operating arrangements to protect their profits.
He said the casino industry is highly regulated and the ability to make profits is highly dependent on the regulatory environment.
He said he can understand why the casino industry seeks these sorts of agreements to protect against regulatory changes, but in this case it has clearly worked against the public interest. Furthermore it has provided an environment in which bad behaviour has been able to flourish.
“The Bergin inquiry shows that the industry isn’t above the law,” said Field, “but it shouldn't have taken such egregious behaviour and multiple media expose’s to illicit a government response. I’m concerned these sorts of clauses [such as the compensation Deed with Crown] work to prevent appropriate regulatory responses to protect the public interest.”
What are the odds?
Buried in the detail of the compensation deed with Crown, is the mathematical formula Crown used when calculating projected revenues relative to compensation.
It uses a “theoretical win-rate of 1.35%”. In lay terms, this means when a gambler walks into a Crown venue, Crown’s formidable accounting and risk management machine has already calculated that the customer only has a 1.35% chance of winning. The house will win 98.65% of the time.
If it weren’t for Field’s no compensation bill, the government may well have found out the hard way just how accurate that formula is.
[Suzanne James is a freelance writer with a background in policy and risk management.]