Las Vegas Sands sinking fast

Han Ming Wen, Guest Writer

Bad news about Las Vegas Sands is piling up faster than its construction of the Marina Bay Integrated Resort. Just this year alone it was reported that its Macau project was failing, its Q4 operations reported a loss, and it is facing another shareholder lawsuit.

Most recently, it was reported that the gaming giant laid off nearly 300 workers in its hometown.

  • Las Vegas Sands : A big rise, a big fall (19 Jan)
  • Macau casino supply causing Las Vegas Sands concern (2 Feb)
  • Las Vegas Sands swing to loss in fourth quarter (11 Feb)
  • Las Vegas Sands falls short (11 Feb)
  • Las Vegas Sands faces third shareholder lawsuit (19 Feb)
  • Genting, Sands face more cost overruns at S’pore casinos (19 Feb)
  • Singapore casino construction moving along at a high price (22 Feb)
  • Sands CEO aims to avoid debt default (3 Mar)
  • Las Vegas Sands has options to prevent default: CEO (10 Mar)
  • LV Sands board member quits (16 Mar)
  • Jeffrey Schwartz appointed board member of LVS (17 Mar)
  • Head of Singapore project second exec to resign in March (25 Mar)

Where is LVS heading? More important to us here in Singapore is, where is the Marina Bay project heading? We have to take a keen interest in what’s going on in LVS because it is the developer of the Marina Sands development and Singapore has a lot riding on this project.

Singapore’s reputation and lots of taxpayers’ money are at stake. It must be remembered that our leaders have touted this as one of the engines of growth for Singapore in the new century despite massive objections from Singaporeans.

Matters, it must be said, don’t look too good.

It seems incredible that the future of this country, whose history has always been that of a shining star ever since its days as a colony of the British Empire, now seems to be hinging on one project and one man Mr Sheldon Adelson, owner of LVS.

The latest piece of news about the retrenchment of its staff in Las Vegas was bad enough. But it was what the company said that was cause for real worry: “Like many of its competitors, Las Vegas Sands faces huge interest costs because of its massive debt load — $10.4 billion — at a time when business at its resorts has been hurt by the recession.”

You know things are really bad when companies try to mitigate the negative impact of their statements by dragging in their competitors. In the PR world it’s called damage control. The massive debt of more than $10 billion also means that bankers could trigger a recall at any time and for the slightest of reasons, especially during times like these.

In the same statement, it was also said that LVS is working towards the opening of its $778 million Sands Casino Resort Bethlehem in Pennsylvania on 22 May 09.

The outlook for this casino, located 70 miles from New york City, seems bleak given the current economic situation in US, and the depressed state of the financial, manufacturing, retail and service industries in and around the New York area.

This new casino, taken in conjunction with their already massive debt, will most likely be a further drain on LVS and a further strain on its balance sheet, bearing in mind that the company just lost a massive $111 million in the last quarter.

There are two other factors that are of great concern. The first is the changing profile of Las Vegas’ gaming market. In a recent report of the Las Vegas Convention and Visitors Authority it was highlighted that:

  • The average visitor spent $102 on a room each night, down from $109. The average gambling budget of $532 was down from $556.
  • 76 percent of the visitors were 40 or older, up from 72 percent; and the average age of 50.6 was up from 49.
  • 16 percent were first-time visitors, down from 19 percent.
  • 39 percent were here for vacation or pleasure, down from 42 percent.
  • 57 percent drove into town or otherwise arrived by ground transportation, up from 54 percent.
  • 44 percent used the Internet to plan their trips, up from 40 percent.

The findings of this survey points to a declining market. So it can be expected that earnings are going to be negatively affected. Considering that the report was done in 2008 before the full impact of the financial tsunami was felt, it does not take a genius to figure out the present circumstances are a lot worse.

The second factor is Mr Sheldon Adelson himself. In an article “Sands not so adored in Macau these day, Its image has taken a hit along with profits,” Ms Liz Benston of Las Vegas Sun wrote: “Adelson’s aggressive growth plan and the arrival of new competitors turned out to be too much too soon, resulting in thousands of layoffs. Those layoffs, according to Macau experts, have hurt the company’s image.”

The report also pointed out that LVS is fighting two Macau-related lawsuits that have not gone well for the company.

Mr Richard Suen, a Chinese businessman who set up a meeting between Sands executives and Chinese government officials to build the Macau casino, said he was promised a commission for bringing the two parties together but was not paid by Mr Adelson. He sued LVS and won $58.6 million.

The Las Vegas Sun report wrote that LVS, by not paying Suen, has damaged its own reputation in Asia, “where handshake agreements are common and verbal promises are honored in spite of changed circumstances.”

All these developments have shaken investor confidence in the company leading one major investor to recently unload 40 million shares.

The state of health of LVS will affect Singapore. If it falters, our Marina Bay Resort may grind to a halt, unless another (or the same) white knight steps in and pours in another couple of billion dollars.

The PAP Government has is playing roulette with the IR project. It must be remembered that in the gaming world, the house always wins. The problem in this case is that the Government is playing with the people’s hard-earned money.

Han Ming Wen is an investor and financial analyst. He contributed this piece for the SDP website.

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