Inside Asian Gaming

INSIDE ASIAN GAMING | August 2012 16 in the world. The US$229.2 million adjusted property EBITDA [earnings before interest, tax, depreciation and amortization] recorded at the US$2.4 billion Venetian Macao in the second quarter of this year far exceeds LVS’ expected 20% return on its projects. Supply-Creates-Demand Thesis Mr Adelson believes passionately that demand among Mainland Chinese for his product inMacau is insatiable, andas such, he desirestoownandcontrolasmuchofCotaias possible. After unveiling the Venetian Macao as the Strip’s anchor property inAugust 2007, Mr Adelson kicked off an aggressive Cotai development plan (while simultaneously also building the world’s most expensive standalone integrated resort, Marina Bay Sands, in Singapore). Unfortunately, this left LVS over-leveraged and debt ridden as the 2008 financial crisis hit, bringing it to the brink of bankruptcy. The company’s woes were compounded by Beijing’s tightening of visa rules on Mainland Chinese wishing to visit Macau, which drove a decline in gaming revenues from September 2008 to the first half of 2009, ending an unbroken five-year run of spectacular growth. LVS was forced to suspend its Cotai development, but managed to ride out the storm, as Mr Adelson extended a US$475 millionpersonal loan to the company. Beijing eased up on the visas again, the company raised US$2.5 billion by listing it’s Macau operating subsidiary, Sands China Ltd, on the Hong Kong Stock Exchange at the end of 2009, the US$5.7 billion Marina Bay Sands was completed in April 2010 and became perhaps the most profitable casino property in the world, and LVS secured financing for and resumed construction on Cotai Plots 5 and 6 (Sands Cotai Central) in May 2010. The wisdom of Mr Adelson’s bullish development strategy on Cotai has been called into question by the early performance at Sands Cotai Central, which arrives at a time whenVIP gaming revenue growth is slowing, and has been accused of cannibalizing Sands China’s other Macau properties. Since the opening of Sands Macao in May 2004, every major new casino opening in the city has coincided with a spike in overall visitor numbers and gaming revenue, suggesting an unbroken trend of new properties growing the overall revenue pie, rather than cannibalizing existing venues. SCC may have ended that streak. Still, it is too early to pass judgment on SCC. The second phase is scheduled to be unveiled in October, and the new amenities therein could well boost its appeal. Furthermore, given the lull in new property openings until mid-2015 or later (ahead of the second wave of Cotai resorts—Galaxy Phase Two, Wynn Macau, and whichever other projects get approved), SCC might provide much-needed capacity in the interim—both in terms of gaming and entertainment, as well as the inventory of 5,800 hotel rooms and suites it should have in place by early 2013. The mass market continues growing strongly in terms of visitor numbers and revenue, and some of that traffic will naturally head to SCC. Meanwhile, the VIP trade could well pick up as junkets and casinos increase their efforts to recruit new high-end players from both the major cities and inner reaches of Mainland China. Sands China has been much more aggressive than any other Macau casino operator in developing non-gaming amenities. As SCC hits its stride following the phase two opening, it could emerge as “a game-changer for MICE in Macau,” says LVS President and COO Michael Leven. The combined room count and MICE [meetings, incentives, conferences and exhibitions] facilities of SCC, Venetian Macao and Four Seasons could help bring meaningful numbers of high-value business tourists to the city. Before Sheldon Adelson became a casino magnate, he was known as the “Convention King” in recognition of his prowess in developing that industry in Las Vegas. Mr Adelson’s reputation in the field of conventions is believed to have been a deciding factor in the Macau government awarding him a casino license (while Steve Wynn secured his license thanks to his reputation for developing extravagant resort entertainment). The first step towards delivering on the convention promise was providing 100,000 square meters of MICE space at Venetian Macao. SCC clearly continues the mission. It is unclear when demand for non- gaming businesses in Macau will become significant, with retail showing the most potential. What is clear is that Sands China stands to benefit the most from an uptick in non-gaming demand, by virtue of having the most capacity in place to serve it. What is also clear is competition is eroding margins in Macau, and SCC’s return on investment will pale beside that of Venetian Macao and Marina Bay Sands. The latter recorded adjusted property EBITDA of US$330.2 million in Q2 this year—although that figure was negatively impacted by a significantly lower than expected rolling chip Still ramping up—Sands Cotai Central In Focus