The weakness in SkyCity shares has mostly been due to regulatory headwinds. A short suspension of the New Zealand casino licence looks likely due to alleged breaches of harm minimisation laws. The Adelaide casino licence is also under review, and there is significant uncertainty around the AUSTRAC civil penalty against SkyCity Adelaide. Our analysts think a loss of the Adelaide casino licence is unlikely and that the potential impact is limited — Adelaide only constituted around 10% of pre-coronavirus earnings. They do note, though, that SkyCity's regulatory and compliance costs are up sharply and could stay at these higher levels. The weaker discretionary environment is also weighing on the mass market consumer —notably in gaming machine play. And if that wasn't enough, investors appear to be concerned that SkyCity's huge investment projects in Adeleide and Auckland may not pay off. Our analysts think the pessimism is overblown.