Crest of a Wave
Marina Bay Sands is catching an historic tide in gaming, say its creatorsSaturday, 15 May 2010
"We hope Resorts World does well. I think they're aiming at a different market level than we're aiming at. Our success doesn't depend on their failure. Neither does their success depend on our failure. I'm of the opinion that we should work together to bring in more and better quality and quantity of customers to Singapore."
So said Sheldon Adelson, Chairman and Chief Executive of Las Vegas Sands Corp (LVS), at the opening of his US$5.7 billion Marina Bay Sands integrated gaming resort in Singapore.
Mr Adelson is justifiably proud of the gaming, tourism and meeting amenities that will be available at his new property when it is fully open in the second half of the year. They include 2,560 luxury hotel rooms and suites, 800,000 square feet of shops, 50 restaurants, two theatres, 1.3 million square feet of convention space and the much talked about Sands SkyPark. The SkyPark, will sit atop the three-tower hotel, making the complete hotel structure look like a giant version of those cast iron boot scrapers seen on doorsteps outside townhouses in the grander parts of New York or London.
But from an investors' perspective, no one is in any doubt that the engine that drives this whole enterprise—an engine so big that if it could be represented in literal form in old fashioned pistons and valves, it probably wouldn't even fit inside the huge atrium at the main entrance of the MBS property—is casino gaming by gambling obsessed Asian players.
Upward and onward
Wherever casino gaming is legal in Asia, regulators indicate an upward trend in revenue, supported by GDP growth well ahead of the Western economies. The most famous and high profile example of Asia's gaming growth is Macau. Gross gaming revenue there grew 70% year on year in April.
If LVS follows the financing pattern established in Macau, don't be surprised—subject, no doubt, to Singapore government approval—to see a listing of a local LVS unit for Marina Bay Sands on the Singapore stock exchange approximately one year to 18 months on from the full opening of the property in June.
"I believe we are participating in a tide," stated Mr Adelson just before the opening ceremony for MBS.
"When the tide goes up, it carries all boats. When the tide goes down, it carries all boats. So nobody gets stuck outside the movement of the tide. Nobody gets stuck in the air, nobody gets stuck under water. Everybody goes up and down together."
That may be true, but it's likely that in strict gross revenue terms, gaming's contribution to MBS will be proportionately smaller than gaming's contribution to the LVS operation in highroller focused Macau.
"In Las Vegas, the casino contributes 30% to the bottom line," Mr Adelson told the assembled media on MBS's opening day.
"In Macau, it contributes between 70% and 75% to the bottom line. Here in Singapore, it should be somewhere in the middle. It's too early to tell exactly".
Nonetheless, the annual revenue from Singapore's two casino resorts forecast by analysts (anywhere from US$2.5 billion to US$5 billion per year, from most recent estimates) is what created the leverage to raise the cash (US$3.6 billion of it in loans and US$2.1 in equity) to build such an ambitious project in the first place. Revenue from the casino is what will decide the rate of return on investment on Marina Bay Sands, and ultimately the business success of the whole scheme and of Singapore's IR experiment. That's why most of the MBS casino opened on 27th April, but some of the shops, the museum and some of the conference facilities did not.
Elsewhere in this edition, Michael Leven, Mr Adelson's right hand man as President and Chief Operating Officer of LVS, makes the point explicitly to Inside Asian Gaming that the sort of infrastructure provided by the company's resorts simply cannot be sustained without casino gambling being in the mix.