SkyCity told the ASX on Thursday after the release of the casino operator’s first half financial results that a legal ruling on the interpretation of how it paid tax to the state government could see it forced to backpay millions to Treasury.

The case pertains to the interpretation of relevant provisions in the Adelaide Casino Duty Agreement 1999 – specifically how to determine the treatment of loyalty points converted to gaming machine play and the deduction of loyalty points earned for the purpose of calculating casino taxes.

The complex legal case was entered into by both parties as they sought clarification from the South Australian judiciary on how to interpret the relevant provisions.

SkyCity first filed its statement of claim in September 2022, and in November the Crown Solicitor’s Office filed a cross-claim which formulated Revenue South Australia’s position on the unpaid duty and interest on top of that.

“Given the complexities of the issues involved, both parties agreed to seek declaratory relief from the South Australian Courts as to the proper construction of the Casino Duty Agreement to determine the correct determination on both issues,” SkyCity said.

On Thursday, the South Australian Court of Appeal ruled in favour of the Treasurer of South Australia’s interpretation of the Casino Duty Agreement and found “credits on gaming machines arising from conversion of loyalty points, when played by customers, are to be included in gaming revenue for the purpose of calculating casino duty” according to SkyCity.

“Loyalty points earned by customers for gaming machine play may not be deducted from gaming revenue.”

As such, SkyCity estimates it is obligated to pay additional casino tax of about $13 million in respect of complimentary bets arising from the use of loyalty points made from January 2014 to January 2024.

On top of that, it could end up paying a further $20 million in penalty interest on the unpaid tax, should the Supreme Court decide in a manner “unfavourable” to SkyCity.

However, the Court of Appeal yesterday ruled in the casino’s favour on the interpretation of the interest clause.

“This leaves it open to SkyCity Adelaide to argue that the interest clause is unenforceable as a penalty,” SkyCity said.

“As a result, the question of the applicable interest rate for outstanding duty, and whether the contractual interest provision is enforceable, remains to be determined by a single Judge of the Supreme Court at a later date.

“If the Supreme Court’s decision is unfavourable to SkyCity Adelaide in this regard, SkyCity Adelaide may be obliged to pay penalty interest on the additional casino duty, which could be up to around $20 million (as at 31 January 2024).”

The company said it was considering its legal position, but that the impact of the ruling will be an approximately $2 million hit to company earnings in the financial year.

“The additional $2 million of duty in FY24 is indicative of the ongoing duty that SkyCity Adelaide would expect to incur under the current structure of its customer loyalty programme,” SkyCity said.

The announcement followed the release of SkyCity’s half year results, which saw the company’s underlying earnings dive by 10 per cent to $16.9 million due to a “challenging operating environment”.

Treasurer Stephen Mullighan told InDaily that he welcomed the judgment.

“South Australia has long held the view that the use of loyalty points, when played by SkyCity customers, should be treated as gambling revenue,” Mullighan said.

“I welcome the judgment which clarifies that duty is payable on these transactions under the Casino Duty Agreement.”

SkyCity is also embroiled in two other legal disputes – the first against AUSTRAC which led to SkyCity Adelaide squirreling $73 million away for a potential regulatory hit.

Announced earlier this month, the company put an extra $28 million aside to cover what it anticipates to be a “material civil penalty” from the outcome of an AUSTRAC-instigated money-laundering court case.

SkyCity also said in February it came to an agreement with AUSTRAC to admit in court to “serious breaches” of the Anti-Money Laundering and Counter-Terrorism Financing Act.

The financial crimes watchdog’s claim included allegations the casino failed to conduct ongoing customer due diligence on 59 people, that it made $74 million from “high-risk” customers who had reported links to organised crime, and that some gamblers at the North Terrace venue used “cash that appeared to have been buried”.

The casino also faces a South Australian government investigation into whether SkyCity is fit to hold its casino licence. That investigation was “put on hold” while the AUSTRAC proceedings are ongoing.