Blackstone May Be Mulling Star Entertainment Buy With a Catch

Posted on: February 4, 2025, 09:20h.
Last updated on: February 4, 2025, 09:20h.

In the latest twist of a saga involving a distressed casino operator, Blackstone Group (NYSE: BX), the massive private equity firm, is reportedly eyeing a potential acquisition of Star Entertainment. However, there’s a significant caveat: Blackstone may wait until Star Entertainment faces insolvency, putting itself under government administration, before making any move. This potential deal is part of the ongoing uncertainty surrounding Star Entertainment, which has faced immense financial and regulatory challenges recently. While nothing is confirmed, sources close to the situation have hinted that Blackstone could be gearing up to step in at a time when Star is most vulnerable.

Star Entertainment: A Company in Crisis

Star Entertainment has been in the headlines frequently in recent months, mostly for all the wrong reasons. One of Australia's most prominent gaming operators, the company is grappling with significant financial woes and a slew of regulatory problems. Despite recent efforts to stabilize its financial situation—such as selling the Star Sydney Event Centre for AU$37.5 million—Star's ability to survive in the long term remains questionable. Analysts have expressed concern about the company's cash burn rate, which is believed to be so high that it may only have enough capital to survive for a few more weeks at best.

To make matters worse, there has been widespread speculation about the company’s debt, which is a staggering AU$400 million. Sources close to the situation have suggested that Star’s creditors are highly doubtful of ever seeing the full repayment of these debts. This uncertainty has led to discussions that Star may soon face a significant financial restructuring, with voluntary administration—potentially overseen by the Australian government—on the horizon.

In the context of Star Entertainment’s troubles, the involvement of Blackstone adds another layer of intrigue. Given Blackstone’s history in the gaming industry, it is not entirely surprising that the firm is considering a potential acquisition of Star. However, the firm’s interest may be more strategic than simply adding another casino property to its portfolio.

Blackstone and Star: What’s in It for Blackstone?

Blackstone’s interest in Star Entertainment appears to be driven less by the prospect of acquiring the operator’s physical casino properties and more by its valuable gaming machine business. Star Entertainment, which owns major assets such as The Star Sydney, The Star Brisbane, and The Star Gold Coast, is also known for its extensive network of electronic gaming machines (EGMs) found in bars and taverns across Australia. These machines are highly lucrative, and Blackstone’s interest may be more focused on acquiring the rights to this gaming machine business rather than the casinos themselves.

Interestingly, Blackstone's rumored strategy could involve a two-pronged approach. The firm could potentially offer to take control of Star's gaming machines, including the related licenses, while divesting itself of some of Star’s brick-and-mortar casinos. Such a strategy would allow Blackstone to benefit from the cash flow generated by the EGMs without dealing with the regulatory issues tied to the casinos. This approach could also ease the concerns of regulators, particularly in New South Wales, who have been wary of allowing one company to control multiple casinos in the province.

Regulatory Challenges: Could New South Wales Relax Its Stance?

One of the key challenges facing Blackstone in any potential deal with Star Entertainment is the regulatory landscape in New South Wales, where Star’s flagship property, The Star Sydney, is located. New South Wales law generally prohibits a single entity from operating multiple casinos within the state, a rule that would normally prevent Blackstone from acquiring Star Entertainment’s assets. However, this obstacle could be eased if Star Entertainment enters administration and the state government sees the acquisition as a way to salvage the company’s assets.

The current state of Star Entertainment’s financial troubles may push lawmakers in New South Wales to reconsider their stance on this issue. If Star is facing collapse, the government may be more willing to allow a merger or acquisition that would help preserve jobs and the local economy. In this context, Blackstone could swoop in and take control of Star’s assets, provided it complies with any regulatory conditions imposed by the state.

Blackstone’s Track Record in the Gaming Industry

Blackstone is no stranger to the gaming industry, and it has a proven track record of making high-profile acquisitions. While Blackstone does not directly operate gaming venues in the United States, the firm has made significant moves in the gaming sector over the years. Most notably, Blackstone was the former owner of the Cosmopolitan of Las Vegas before selling the operating rights to MGM Resorts International (NYSE: MGM).

Even after selling its operating rights to Cosmopolitan, Blackstone still maintains a strong presence in the Las Vegas market through its real estate holdings. Blackstone’s Blackstone Real Estate Income Trust (BREIT) currently owns the majority of Cosmopolitan’s real estate, as well as a significant portion of the property assets associated with Bellagio, another MGM-operated property. This expertise in managing gaming-related real estate could be advantageous if Blackstone were to pursue a deal with Star Entertainment.

Moreover, Blackstone has demonstrated its willingness to engage in high-stakes transactions in the gaming world. For example, in 2021, Blackstone and MGM entered into a massive deal in which Blackstone paid MGM $3.89 billion in cash for the property assets of the Aria and Vdara casino hotels on the Las Vegas Strip. This deal was part of Blackstone's strategy to increase its holdings in the gaming sector and capitalize on the lucrative real estate associated with casinos.

A Possible Wait-and-See Approach

Given Star Entertainment’s precarious financial position, Blackstone may adopt a "wait-and-see" strategy before making a move. As mentioned earlier, Star Entertainment could be headed toward insolvency, and it’s likely that the company will enter administration if its situation worsens. At that point, Blackstone could step in and take control of Star's assets, including its gaming machines, without facing the same regulatory hurdles that would exist in a normal acquisition scenario.

The Australian government may be more willing to approve such a deal if it helps stabilize Star’s operations and prevent further financial instability in the region. In this scenario, Blackstone’s approach would not only focus on acquiring gaming machines but also on minimizing the impact on the broader gaming ecosystem in Australia.

A Shifting Landscape for Australian Gaming

If Blackstone were to proceed with acquiring Star Entertainment’s assets, the broader Australian gaming landscape could undergo significant changes. Star Entertainment’s gaming machines, in particular, represent a critical piece of the puzzle in the Australian gaming market. With the potential acquisition of these assets, Blackstone would solidify its position in the Australian gaming sector and increase its footprint in one of the most lucrative markets for gaming operators.

However, the outcome of this potential acquisition is still uncertain. While Blackstone has not made any formal statements regarding its interest in Star Entertainment, the ongoing financial troubles of the casino operator have set the stage for a potential deal. Whether Blackstone will proceed with the acquisition or explore other opportunities remains to be seen, but one thing is clear: Star Entertainment’s fate is far from certain.

Conclusion: Blackstone’s Potential Role in Star Entertainment’s Future

The speculation surrounding Blackstone's potential acquisition of Star Entertainment highlights the fluid nature of the Australian gaming market and the complexities involved in large-scale acquisitions. While Blackstone's involvement in the gaming sector is well-established, the firm’s rumored interest in Star Entertainment is driven by more than just a desire to acquire new casino properties. Instead, it appears that Blackstone is more interested in gaining control of Star’s valuable gaming machines, which could be highly lucrative in the right hands.

Whether or not Blackstone proceeds with an acquisition remains to be seen. However, if Star Entertainment is indeed headed for insolvency and voluntary administration, Blackstone could seize the opportunity to acquire the company’s assets and solidify its position in the Australian gaming market. For now, regulators, investors, and gaming enthusiasts will be watching closely to see how this story unfolds.