If any other gaming CEO than Sheldon Adelson opened the most expensive casino ever ($5.5 billion) and projected it would recoup its tab in five years — requiring a return on investment well above 20% when you take operating costs into account — Wall Street analysts would be rushing the phones to put “sell” orders on the stock.
Yet when the Las Vegas Sands CEO predicts a $1 billion or more annual profit on mega-expensive megaresort Marina Bay Sands, nobody bats an eyelid. Then again, there was nary a peep of skepticism when Sheldon forecast 17% ROI for Sands Bethlehem, despite its unfinished condition and runaway cost. Its actual return has been in the low single digits and the company says the $740 million (and counting) project is losing money.
Analyst projections for Marina Bay run the gamut from a conservative 5% ROI to an Adelson-like 14%. Despite various cautionary notes (like the fact that only 10% of Marina Bay’s “shoppes” and a quarter of its hotel rooms are open), Adelson responded with cloud of platitudinous blather about the property being a “grand slam home run.” Yes, he made a profit within a year of opening Sands Macao … on a property built at 1/20th the cost of his pharaoh’s monument in Singapore.
His executives don’t even know how much of Marina Bay’s revenue will be derived from the casino. Maybe it will be 30%, maybe 70% or maybe — as Adelson astutely predicts — somewhere in the vast spectrum between. But a billion dollars in annual profit. This — this — the Sands boys know for certain.
Whatever they’re drinking, I’ll have some too. At least they’ve got a reasonable tax rate (12%) working in their favor, although those Malaysian visitors who are being bused in — from 130 different cities — had better be packing serious moolah.
Adelson also said his long-mooted sales of shopping malls (or would those be “shoppes,” per Sands’ customary affectation?) and apartments in Macao would constitute a $12 billion bonanza. He’s spun that platter so often and for so long it’s acquired golden oldie status. Then again, the only thing that’s cheap at Sands is talk.
Who’da thunk? According to one bond analyst, The Rio might be worth as much as $650 million, if Harrah’s Entertainment is planning to unload it, having obtained Planet Hollywood. That’s using the old 7X-cash flow multiplier. Anything higher would be awfully generous when one considers that Harrah’s will strip the property of Penn & Teller, the World Series of Poker, its Total Rewards customer base and anything else of value that’s not nailed down.
What you’re buying is a 20-year-old casino with some mighty nice high-roller villas, plus a lot of parking space that can be repurposed for expansion, once the market warrants it. One rumored bidder, Penn National Gaming, would probably balk at $650 million, despite nearly going off the deep end in pursuit of white elephant Fontainbleau. The other, Colony Capital, has a history both overpaying for assets (Station Casinos) or overleveraging them (the bottom-dwellers that constituted its Atlantic City “portfolio”), so its profligate ways give it front-runner status.
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