Michael Leven of LVS tells IAG why he thinks Marina Bay Sands will be a big success
Amid the justifiable razzamatazz surrounding the opening of the ambitious and impressive Marina Bay Sands integrated gaming resort in Singapore, there’s a multi-billion dollar question. How big is the Singapore gaming market going to be?
Elsewhere in this edition, CLSA Asia Pacific Markets, an independent brokerage and investment group, offers its latest assessment on the city-state’s new casino market.
Here, Inside Asian Gaming gives the perspective of a key member of the Las Vegas Sands Corp (LVS) leadership masterminding the company’s expansion into Singapore.
Michael Leven, President and Chief Operating Officer of LVS, spoke about Singapore gaming revenue, the thorny question of table quota in Macau, and about the company’s aspirations for an integrated resort (IR) in Japan.
Inside Asian Gaming: What’s your anticipated return on investment for the Marina Bay Sands project?
Michael Leven: Our expectations are to get at least a 20% return on investment [per year]. The investment is US$5.7 billion, so that’s US$1.14 billion a year over a five-year period to achieve payback. There are various ways of looking at return on investment.
If you want to dig into it, and to look at our return on equity, we had US$3.6 billion of financing, and we put up US$2.1 billion dollars [equity]. So a 20% return on equity would only be US$450 million a year, roughly. We prefer to look at the return on total investment.
Do you anticipate most of that return coming from the tables?
I think initially most of our return will come from the tables.
I think over a five year period, there’ll be a flattening out of that [table] return. I think one of the things that most of the financial people seem to be missing is how great this facility will be in its totality. They’re focusing primarily on the gaming based upon Macau-type numbers. I think over time what will be proven is that there will be an equalisation of gaming revenue to hotel, MICE [meetings, incentives, conferences and exhibitions], entertainment and shopping revenue. Shopping is going to be a big area here in Singapore.
Actually, I’m referring to an equalisation of income, rather than revenue. The revenue from gaming is much higher and the margin of profit is less. I think the equalisation on income [gaming to non-gaming] will come maybe by the time we reach year three [of MBS operation].
What do you think the size of the gaming market is going to be in Singapore? Your chairman, Sheldon Adelson, said he thought a figure quoted recently for Resorts World Sentosa of US$3 million per day gaming revenue for RWS was incorrect. How far out do you think that figure is?
The numbers we are getting out of Genting’s operation [RWS] so far are pure observation numbers. One of the frightening things for me is that people have talked about win per [slot] unit per day in the area of US$1,000 to US$1,100 dollars per slot machine. That’s significantly higher than anything that anyone’s ever seen in the gaming business—and win per unit on the tables estimated at US$5,000 to US$6,000 per unit per day. Nobody’s estimating the VIP, because we don’t know what’s going on in there.
Tom [Arasi, President and CEO of Marina Bay Sands] mentioned to me the other day that the estimate on slots has come down to about US$800. That’s still an unbelievable size number, and no one knows the sustainability and how deep the market is of that kind of play. It’s really too early to tell.
Analysts have estimated the total [annual] gaming market for both us and Genting at anywhere from three to five billion US dollars—I’ve maybe seen a low of US$2.5 billion. But it’s such a hypothetical; I don’t know where they get numbers from, because it’s never happened here before. When I ask them the question where they’re getting their estimates, it seems they talk to some of our gaming people. The people that deal in the VIP market, they’re excited, but they’re sales people. In general they exaggerate everything—and sometimes they’re right!
Even when the gaming revenue [statistics from the Casino Regulatory Authority] comes out in May for the first quarter, it’s going to be inflated by Chinese New Year dramatically. That sends the numbers way up both here and in Macau.
We really won’t know until Genting is open about six months and then we’re open for six months. Genting doesn’t have all the tables open. We’re going to have a significant amount of our tables, but not quite all of them. But we’ll have a higher percentage of our tables open [in the first six months] than them.
The question is a very good question, but it’s really too early to answer with certainty.
Why did you decide to have your soft opening on 27th April? Were there any covenants on an opening date from lenders or was there any pressure from the markets?
We decided a couple of months ago that April 27th was the date, in order to provide a target for everybody to shoot at as a soft opening. We knew that if we made the April 27th date, we would be able to have a hard opening on 23rd of June. But part of the [MBS] product—for example the Louis Vuitton Crystal Pavilion—will not be finished until February [2011]. But if you don’t start, and you don’t set a date, you really never get going. If you waited to finish everything [before opening] you wouldn’t get there.
How important will Marina Bay Sands be in terms of its contribution to your global operation?
Marina Bay Sands will be the most important product in our system, although it doesn’t have the amount of [hotel] rooms that [our] Las Vegas [offer] has. From a financial investment as well as a return on investment standpoint, Singapore should be the largest [operation] in the company.
When Singapore is open and mature, about 85% of our EBITDA [earnings before interest, taxation, depreciation and amortisation] for the company will come from Asia—that is, Macau and Singapore. Only 15% will come from the United States.
The major market for Singapore is Singapore itself from an integrated resort standpoint. From a casino standpoint, Indonesia and Malaysia will be the second most important markets. A little bit after that would probably come India, Hong Kong. We are not targeting mainland Chinese. There will be some tourism business [from China]. The tour business has increased in Singapore from mainland China, but it [that business] would not necessarily be a gaming target. As the middle class in China grows, there may be some visitation from China.
Do you anticipate having the gaming industry trade show G2E Asia at MBS?
I haven’t heard anything about the possibility of that. Actually we’d probably like them to stay in [The Venetian] Macau. I don’t think we’ll need it here. Macau right now is a little slower on the MICE. It’s still getting out of the ‘blocks’. But G2E Asia might come here one day.
I want to turn now to Macau and Cotai plots five and six. Mr Adelson has told us that you are going to get the workers you need for Cotai five and six. But will you get all the tables you need?
The conversation with the [Macau] government at this point is that we’re guaranteed a certain amount of the tables we need to open, and the maximum amount of tables we need in 2013.
A ‘certain amount,’ but not all before 2013?
We will support those ‘missing’ tables with tables from our other facilities until we get the tables in 2013. In other words, we will use some tables we currently have that are not being maximised.
Do you have any further ambitions in Asia?
Our first target really now is Japan. The press has said that Japan is considering seriously building an integrated resort. We have visited both Tokyo and Osaka, and contacted people on the ground there.
If there is hope Japan will do it, we believe it will be done on an integrated resort basis in Tokyo or Osaka or possibly Okinawa, which is not really our target, but the first two are.
I said to Mr Adelson recently: ‘I think we ought to spend all our time on Japan right now and not diversify our effort [away from Asia].
There have been some inquiries from [South] Korea. Korea is a little bit more difficult because they do not allow locals in all but one casino. We would not do an integrated resort if locals are not allowed, even if there has to be a fee [for entry] as with the Singapore model. That model, with a fee payable by locals [for casino entry], would be the model we would propose if we went into Korea.
Also the tax rates in Korea are a little egregious for gaming. They would need to be modified [from the LVS perspective]. Korea would like to have an integrated resort, but you can’t support our kind of integrated resort there [with the no locals rule].
We have a delegation coming in from Korea for the grand opening of Marina Bay Sands on 23rd June.
There’s been talk about Japan legalising casino gaming for at least the last ten years. There’s no guarantee the government will do so. Could you do a Japanese resort without gaming?
You can’t support our sort of infrastructure without a gaming base of revenue. Mr Adelson’s proposal is that the gaming allows you to build the other facilities. To wait for the MICE business to mature and to wait for the transient business to mature is something you just can’t afford to do.
Nobody would come in and build a 2,500-room hotel like this [at Marina Bay], with all these facilities, without gaming. You can’t pay for it.
How do you sell the idea of an IR to the Japanese authorities?
With gaming as a base to develop an IR in either Tokyo or Osaka, it could provide a whole lot of incentive for people to bring international meetings to Japan. I think the Japanese authorities are intelligent enough—looking at this [Marina Bay Sands] to see they need a boost of tourism. Japan’s economy is relatively flat, so they are looking for opportunities to develop.
The Tokyo facilities for conventions and meetings are not very adequate for the demand that could be created, and the same in Osaka. They have facilities, but they’re really not very good in terms of the size and the infrastructure of hotel rooms. They can’t develop it.
Look at where Japan currently ranks in the MICE business compared to Singapore. You’ll see my point. Japan is way down the list. It’s somewhere on a par with Stockholm as a convention destination for goodness sake. That’s ridiculous relative to Japan’s importance as a country and as an economy.
The pressure to legalise casino gaming in Japan seems to be coming from local government—the prefectures—rather than the national government.
There have been various politicians in the Diet [Japanese Parliament] who have taken up the gaming cause in terms of having an integrated resort, and one of the governors from one of the prefectures and his staff has also looked at it.
Steve Wynn said recently he wouldn’t do anything that would hurt his business in Macau. Would doing something in Japan have an impact on LVS’s Macau operation? I was thinking of the fact that the Four Seasons brand that you have on Cotai seems clearly targeted at Japanese customers.
Japanese business in Macau is a very small percentage of Macau’s business. I hope Steve Wynn doesn’t want to go to Japan because we want to go to Japan.