SYDNEY, (Reuters) – An Australian inquiry on Tuesday declared Crown Resorts (CWN.AX) unsuitable to hold a gambling licence in Melbourne but allowed it to run its biggest-earning casino under supervision, raising hope for its earnings and takeover prospects.
After months of hearings in which the casino operator was accused of enabling money laundering and misleading regulators, a Royal Commission called Crown’s actions “disgraceful” in a report published on Tuesday by the Victorian state government.
The company 37%-owned by billionaire James Packer had acted in a way which was “illegal, dishonest, unethical and exploitative”, the report said. Some actions were “so callous that it is hard to imagine it could be engaged in by such a well-known corporation”.
But rather than shut down Crown’s flagship casino, the inquiry recognised the board’s reform efforts and recommended letting it continue to operate the resort for two years under supervision.
It also recommended boosting the maximum penalty for casino wrongdoing to A$100 million ($75 million), from A$1 million, and forcing Packer to cut his holding to 5% by September 2024, meaning he must sell 32% of the company by then.
A spokesman for Packer was not immediately available for comment, while Crown said in a statement that it was reviewing the report and would “work cooperatively and constructively” with the government.
The report sent a rush of relief through Crown investors who have seen takeover approaches evaporate and the company’s shares dive as they braced for full licence cancellation at Crown’s Melbourne resort, which delivers three-quarters of its profit.
Shares of Crown soared 11% in early trading before settling up 7.5% by mid-afternoon, against a flat overall market (.AXJO). The stock is still down 17% since early 2020 when movement restrictions to stop COVID-19 forced full or partial closures of its casinos and kept foreign tourists out of the country.
Stock of smaller rival Star Entertainment Group Ltd (SGR.AX), which had binned a Crown buyout approach due to uncertainty about Crown’s future, also rose. Star is now under investigation over similar matters, and did not immediately respond to a request for comment.
“With a bit more regulatory certainty now, people can run the rulers and see what it’s worth again,” said John Ayoub, a portfolio manager at Wilson Asset Management, which has Crown shares.
“There are a lot of jobs and a lot of economic factors that need to be taken into consideration, and Crown is a long way down that remediation path.”
Nathan Bell, a portfolio manager at Investsmart, which owns Crown shares, said the company’s pivotal role in the Victorian economy and “the fact Crown’s key board members and CEO departed may have helped it get a second chance”.
Crown, Victoria’s biggest single-site employer with 11,500 employees at the Melbourne complex, has replaced its chairman, CEO, most of its board and senior management since its three state regulators began holding inquiries into its governance in 2020.
Packer, the company’s founder, also removed his designated nominees from the board after a separate inquiry in New South Wales found he held improper influence.
Victoria’s minister for gaming regulation, Melissa Horne, said the state government would accept all of the report’s recommendations.
“We are creating the most stringent oversight of any casino in the country. No longer will Crown’s destiny be theirs to manage,” Horne told reporters.
An independent manager would be able to investigate the Melbourne casino’s affairs and operations, attend board meetings and inspect all records, books and documents, the state government added.
The manager could direct the board and veto its decisions.
Earlier this year, the NSW inquiry led to the freezing of Crown’s licence for a new A$2.1 billion casino tower in Sydney. A third inquiry into Crown’s remaining casino, in Perth city, is ongoing.
As with the other two, the Melbourne inquiry heard detailed accounts of Crown enabling money laundering and failing to act on regulatory concerns.