Despite the rising cost of construction of Las Vegas Sands Corp’s Cotai Strip development, company chairman Sheldon Adelson remains bullish on Macau and Asia.
The final bill for construction of the Cotai Strip, the integrated strip of casino resorts in Macau trademarked as “Asia’s Las Vegas,” could be more than a third higher than originally expected, says Sheldon Adelson.
Mr Adelson, chairman and principal shareholder of the strip’s developer, Las Vegas Sands Corp (LVS), said rises in world commodity prices had pushed costs up from theUS$10 billion originally estimated, to somewhere between US$11 billion and US$14 billion.
Mr Adelson, speaking during a visit to the Cotai site, said: “The demand we’ve created for construction cranes in this community has so overwhelmed the capability of the community to handle it, that our costs have gone up significantly, along with world prices of steel and concrete. This is not to the extent that it makes it uneconomical – not by a long shot – but costs have gone up.”
Mr Adelson stressed however that the resort would start paying back earlier than originally planned, with the first phase of opening for Venetian Macau’s casino hotel and the exhibition centre now brought forward to August. He added: “There are no delays. If anything, it’s accelerating. When we started we gave the order to book conventions from October. Now we’re booking conventions for August.”
The cost rise announcement is not surprising, given the recent rise in commodity values partly fuelled by demand from China’s rapidly growing manufacturing and property sector. It may, however, have wider implications for LVS’ business, as the company is heavily exposed to two other major construction projects still in their early stages. They are Henqin Island, the leisure, conference and holiday resort over the Chinese border from Macau, which recently passed a milestone with the appointment of a master-planning group by the Zhuhai government, and the Marina Bay Sands integrated resort in Singapore. The latter, with an estimated price tag of US$3.6 billion, is in the early stages of construction and is due to open by the end of 2009. Mr Adelson says the investment in Henqin, which will offer hotels, an exhibition centre, holiday homes on a part ownership basis, a marina and sport facilities – but no casino, since it’s located in mainland China, where casinos are banned – will cost as much as LVS is currently spending in Macau.
Given that Mr Adelson still owns 70% of LVS, however, and that he says he is putting around US$10 billion of his own money into the Macau project, the news of the Cotai cost rise is unlikely to have an adverse effect on Sands’ share price.
Asked if he was concerned about the cost increases, Mr Adelson said: “It’s always a concern. Is it a deal-breaking concern? No. We paid much more [for construction] in the States and pay a lot less in China.”
Bullish all around
One of the reasons Mr Adelson is so ready to take the pain of increased construction costs created by a bull market in commodities is that he is bullish on Asia.
The Cotai Strip’s planned 20,000 hotel rooms, three million sq. ft of retail space, 1.2 million sq. ft exhibition hall (at Venetian Macau), 2,900 gaming tables and 16,000 slot machines is impressive, but is just the beginning, says Mr Adelson, pointing out that Las Vegas has 135,000 hotel rooms serving a US population of only 300 million, versus China’s 1.3 billion. He hopes to expand the Cotai Strip by acquiring two more plots.
The transformation of Macau gaming from a low-spending, mass market day-trip destination to a multi-night, high-spending, business tourism destination is just the first phase in his Asian master plan.
Regional aspirations
Having started life in the trade show business, Mr Adelson understands that annual shows and conferences rotate their venues from one year to the next. He would like to create a critical mass of resorts – ideally with casinos in them – across Asia, to catch as much repeat business for Meetings, Incentives, Conventions, and Exhibitions (MICE) as possible.
Mr Adelson currently has his eyes on Taiwan, Japan, South Korea, Thailand and India as countries either in the process of liberalizing their gaming laws, or at least flirting with the idea.
Mr Adelson said: “We think we are the premium developer of integrated resorts, and most sensitive to the needs of the Asian market. As we develop the MICE business, we see ourselves as developing a network. All convention planners, all meeting planners and all tour operators go to multiple locations. If we have a relationship with someone in Singapore and they want to come to Macau, we have the best chance to get that group as they rotate around Asia.”
Mr Adelson explained that just as the premium hotel and retail brands coming to the Cotai Strip would all help each other by attracting visitors, so a “string of pearls” of integrated LVS resorts around Asia would feed each other with business. “We’re specialists in business tourism so-to-speak, and that’s what the Chinese government wants, and that’s what we can deliver.”
Mr Adelson says 90% of the 22 million visits made to Macau last year were by day-trippers from Guangdong. He thinks well-heeled visitors from further away could be willing to spend up to 40 times as much.
“Someone coming from Hong Kong to play might bring US$500. He knows that he can always come back next week or next month. But someone coming from further away, such as Beijing or Dalian, might only come once a year, and might bring much more money with him,” believes Mr Adelson.
“I would say [for the Cotai Strip] the average visitor would take ten- or 20- or 30- or 40-thousand [US dollars]. Twenty thousand dollars is 40 times 500, which is not a lot of money when you can take 50,000 dollars out of China, and there’s potentially no limit to take money out of the other countries. So that customer with the higher budget will mean a lot more for our development in the Cotai Strip than many more customers coming into the existing [day trip] market.
“There is no doubt in my mind about the viability of the concept. In order to deny this concept you have to believe that Asian people are different from any other person in the world. Every adult wants to be entertained.”
There’s no doubt about the ambition of the scheme, as it will offer leisure and convention activities on a scale never previously seen at one location in China. What the company calls the podium area of the Cotai Strip – the low-rise section of buildings between the four towers – has 13 million sq. ft of space.
Mr Adelson says: “To give you a frame of reference, the Pentagon in the United States in Washington DC is one half the size of that. That’s the equivalent of two Pentagons, which at the time of construction was considered the largest building in the world.”
The software
As well as lavish construction, LVS is also investing heavily on the ‘software’ – the shows and entertainment to draw visitors in. It is spending US$160 million on a new show from the popular circus franchise Cirque du Soleil, and the company has confirmed it is in negotiations with Manchester United to play an exhibition match in Cotai’s new arena. America’s National Basketball Association may also have teams on display at Cotai, and international singing performers are also likely to play at the venue that will seat between 12,000 and 18,000 depending on the event.
Better links
LVS says the transport links to move people to its new site are also improving. A new rail link from Guangzhou to Zuhai should be open in time for the first phase opening of the Cotai Strip in the summer said Mr Adelson.
Stephen Weaver, President, Asian Region, said LVS would soon be offering a Hong Kong to Cotai ferry service to rival the Hong Kong to downtown Macau service operated by Mr Adelson’s casino rival Stanley Ho. LVS has placed an order with an Australian firm for ten ferries each capable of carrying 420 passengers. The first three will be delivered in November, shortly after the Venetian Macau opens, and will drop their passengers at the new ferry terminal, which will sit next to Macau International Airport and only a few minutes’ drive from the Cotai Strip.
To rub salt in the wound, Mr Adelson said the new ferry service would leave from Mr Ho’s landmark Shun Tak Ferry Terminal in Hong Kong. Although the terminal bears the name of Mr Ho’s company Shun Tak Holdings, the owner of the building is actually the Hong Kong government, said Mr Adelson.
The move is practical but also symbolic of Mr Adelson’s determination to see his dream realised. He said: “We see that all throughout China and the other [neighbouring] countries, there is a latent market waiting to be attracted. It is impossible for anyone to come up with a rational, reasonable argument that says ‘Asian people won’t travel to Macau because of X’. There is no such reason. It simply doesn’t exist. So we’re going to change the market.”
