The Crown Resorts Ltd (ASX: CWN) share price has lost all of its gains since it was initially approached for takeover by Blackstone Group Inc (NYSE: BX).
At the time of writing, shares in the casino operator are trading for $9.86 – down 1.6%. The S&P/ASX 200 Index (ASX: XJO), on the other hand, is 0.17% higher.
The negative price movement comes after counsel assisting the Victorian Royal Commission into the suitability of Crown Melbourne's casino licence said "it is not in the public interest that Crown Melbourne continue to hold the casino licence in Victoria."
Let's take a closer look.
"It is open…to doubt whether [the government] could ever trust Crown Melbourne again"
Crown Resorts took a beating during oral closing arguments at the Royal Commission and is still being pummelled in the written submission.
Counsel assisting says the commission has only two choices:
- Cancel the Crown Melbourne licence.
- Allow it to be retained on the proviso of massive changes at the company.
While counsel assisting says it is possible for Crown to reform, it will take a "complete, holistic, bottom up" approach that could take years and possibly cost millions of dollars. They go on to argue it is not feasible for Crown to be left unsupervised if it were to be allowed to reform.
These harsh words are leaving a scar on the Crown share price this morning.
Interestingly, the submission explicitly does not recommend how Crown should reform if the Royal Commission does intend to not cancel its licence. It does, however, say 2023 would be an appropriate benchmark for assessing whether reforms at the company have been successful.
Quoting from the submission:
At this point in time, it is not possible for this Commission to prescribe or describe with any particularity or precision what actions would be required for Crown Melbourne and Crown Resorts to become suitable.
The appropriate sanction would be a matter for the [Victorian Commission for Gambling and Liquor Regulation] VCGLR in the exercise of its discretion under s 20 of the CCA. It would not be desirable to limit the VCGLR's discretion by suggesting a prescriptive pathway to suitability.
Any reform will not be possible under Chair Helen Coonan or Crown Melbourne CEO Xavier Walsh, according to counsel assisting.
The evidence presented against Crown was so bad, Star Entertainment Group Ltd (ASX: SGR) pulled its bid to buy the company.
What if the Crown licence was cancelled?
Counsel assisting says if Crown's licence were to be cancelled, it should not be done with immediate effect.
Cancellation of the casino licence with immediate effect, for example, would be highly disruptive – having the potential to cause significant harm to many third parties who have had no involvement whatsoever in the misconduct of Crown Melbourne over the years. The impact of immediate cancellation would likely have inestimable negative consequences for many people, at least in the short term.
Any cancellation of the casino licence would need to provide adequate time for adjustment, including but not limited to, the conduct of an application process for a new licensee. A deferral of the date of cancellation could provide for a period within which a more orderly transition to a new licensee can be achieved – say a year to eighteen months.
The submission leaves open the possibility that Crown could reapply for its licence after it is cancelled if that were to eventuate.
It should be noted any recommendations that come out of the Royal Commission are just that – recommendations. It will be up to the Victorian Government to decide what to do with that advice.
Analysts do not believe the company's Victorian licence will be cancelled. Investors may think different, judging by the fall in the Crown share price.
Crown share price snapshot
Over the past 12 months, the Crown share price has increased 9%. Despite the negative press coverage and reputational damage, it has faced, it naturally rebounded from last year's COVID market sell-off.
With Australia's east coast gripped by the delta variant of the virus, business is currently down at its resorts. This may also be influencing investors to sell their shares in Crown.
Crown Resorts has a market capitalisation of around $6.7 billion.
