Is Macao a Losing Bet for Las Vegas Sands?
The Venetian Macao Resort Hotel was supposed to be a 3,000-suite mega-resort, a kind of Disneyland copy of Venice, with casinos and shopping for an upscale Asian market. But now Las Vegas Sands Corp. is $10 billion in debt and sliding, its projects postponed or canceled just as the economy takes a swandive.
A look at its quarterly report doesn't hold much back. So far, on the Cotai strip, Las Vegas Sands owns the Venetian Macao, Sands Macao and the Four Seasons Macao (managed by the Four Seasons Hotel Inc.) At some point in the future it will feature 18 mansions and 1 million square feet of apartments.
The big problem is that there are plans for five more resorts, known in U.S. Securities and Exchange Commission filings as parcels 3, 5, 6, 7 and 8 -- but due to the credit crisis, loans have dried up -- and there are few banks willing to bankroll a new casino. In early November, Las Vegas Sands decided to suspend construction while it searched for $2 billion in financing. Since then, Las Vegas Sands found the money, but decided to halt development in Macao while it concentrated on its other holdings.
Unfortunately, the company doesn't have all the government approvals to develop the parcels -- and if they don't receive a "land concession" from Macao: "The Company . . . could forfeit all or a substantial part of its $1.45 billion in capitalized construction costs." According to the document, if the company doesn't complete development of Parcel 3 by August 2011, it could lose its right to operate the Venetian Macao and any other of its developments forever. So, the entirety of the development, all the billions of dollars, could be a wash if Las Vegas Sands can't find enough financing in the next year or so.
Another problem is that the slowing economy is hitting South China. According to reports, until recently China was experiencing about 10 percent growth each year -- until 2008. Now at only 8 percent, the Chinese government announced a $586 billion stimulus package on airports, subways and other infrastructure.
The new austerity is also affecting gaming. Although in 2006 Macao delivered gaming revenues that surpassed Las Vegas , the number of casinos in the area doubled and divided those profits. The nouveau riche, with plenty of money from cheap imports, are now being denied visas under China's newfound belief that gambling will drag the economy down further. Growth of visitors dropped to 2 percent in September, down from 17 percent for the earlier part of 2008.
It's a losing bet when both the government and economy are against your project. And it makes it easier for others to criticize.
"If someone tries to build six hotels at once and finds the market can't accommodate it, there's a problem in planning," casino mogul Steve Wynn, owner of Wynn Resorts Ltd. said. Executives from Sands said that they weren't the only company halting projects.
While Las Vegas Sands remains optimistic, its competitors seem like the only winners.
Melco Crown Entertainment Ltd., owned by Australian businessman James Packer and Lawrence Ho, son of a Macao magnate, will likely open the only new Macao casino in 2009, the $2.1 billion City of Dreams project. The partners' spokesman said the company welcomes the reduced competition.
As the end of 2008 approaches, Las Vegas Sands has approximately 32 months to complete development or watch the Macao project, and billions of dollars, drift away. The reality may be that in keeping all of its other holdings thriving, including its new resort in Singapore next year, Las Vegas Sands may have to let it go.
Photo courtesy of the Four Seasons Macao