Crown Resorts Limited, the largest gaming and entertainment group in Australia, has recently been beset with problems. In addition to the loss of business brought on by the COVID-19 pandemic, they’ve also come under investigation by the government.

Now, to make matters worse, they’ve been placed on negative watch by Fitch Ratings. For details on what this means and how it came to pass, please read the following article.

What Caused the Ratings Drop?

Crown’s trouble started after a series a news reports linked them to money laundering at their Perth and Melbourne casinos. Furthermore, there were questions about the company doing little to prevent China-based employees from being arrested, as well as possible ties to organized crime.

These revelations led the government of NSW to launch an investigation into Crown’s suitability to hold a license within their state. But even as late as September 24th, Fitch Ratings gave them a grade of BBB (stable).

Now, near the end of October, Fitch has dropped the rating to BBB (negative) due to two new investigations. The first comes from the Australian Transaction Reports and Analysis Centre and involves possible non-compliance by Crown Melbourne with anti-money laundering laws. The second involves the Victorian Commission for Gambling and Liquor Regulation wanting more details on Crown Melbourne’s junket operations.

Who Are Fitch Ratings?

Based in London and New York, Fitch Ratings is an international credit rating agency. Founded in 1914 by John Knowles Fitch, they are one of the three major companies in their field (along with Standard & Poor’s and Moody’s).

Fitch provides grades for publically-traded companies around the globe. Investors then use these ratings to determine which investments might yield a positive return (as opposed to defaulting). Ratings are based on numerous factors such as debt, positive cash flow, internal turmoil, etc.

Fitch Investment Grades

Fitch offers two categories of grades: investment and non-investment. The first category is reserved for businesses that are worth investing in. Meanwhile, the grades in the second category indicate unwise investment opportunities.

Investment Grades

  • AAA – Exceptionally high quality.
  • AA – High quality, but more risk than AAA companies.
  • A – Low risk, but slightly more vulnerable.
  • BBB – Low expectation of default. This is the current rating for Crown Resorts. If they drop one spot, they’ll be considered a bad investment.

Non-Investment Grades

  • BB – Elevated vulnerability to defaulting.
  • B – Degrading financial situation.
  • CCC – Real possibility of default.
  • CC – Strong possibility of default.
  • C – Default process has already begun.
  • RD – Issuer has defaulted on payment.
  • D – Defaulted.

A Shocking Confession

At the recent NSW inquiry, Crown chairwoman Helen Coonan admitted that the company “enabled” money laundering at their Melbourne casino. However, she was quick to point out that this was a case of “ineptitude” and “lack of attention” instead of “turning a blind eye.”

Crown Resorts Chairwoman Helen Coonan

Much of this stemmed from Crown’s relationship with Suncity, a junket tour partner that specialized in high rollers. Suncity even operated their own gaming room within Crown Melbourne, despite evidence that it was run by a former member of organized crime.

Changing Her Story

A few days later, Ms. Coonan addressed shareholders of Crown Resorts Limited. Despite her earlier admissions, both the tone and meaning of her statements had changed.

According to Ms. Coonan, “What I said in response to the inquiry is that there may have been some suspicious matters at Crown – that doesn’t prove that there’s money laundering. There was possibly some ineptitude in management not noticing suspicious matters; that falls very far short of failing to protect Crown from money laundering.”

What Does the Future Hold?

The NSW inquiry is expected to present its findings by February of 2021. Fines and penalties are the most likely outcome, with Crown being able to absorb around A$800 million and still keep its rating consistent with its profile.

Of course, there’s also the chance that Crown could lose their license in NSW. This would be an extraordinary outcome, and most experts see it as unlikely.

Some analysts are also calling for a merger between Crown and Star Entertainment Group. Each company is facing a litany of challenges at the moment, although Crown’s problems are certainly much more publicized. I see this as unlikely, though, as such a move would require all manner of state and national approval from regulatory agencies.

Additional Reading

For even more news from the world of gambling, please see the following articles: