Betting Big on China’s Vegas
Las Vegas Sands (LVS) Chairman and CEO Sheldon Adelson has never been one to shy away from a bet, and on Aug. 28 he unveiled his biggest gamble yet: the Venetian Macao, a giant casino, hotel, and convention complex that cost $2.4 billion.
And that’s just for starters. By the end of 2009, the group expects to spend as much as $12 billion on 14 more hotels with casinos offering a total of 20,000 rooms on a strip of reclaimed land called Cotai in the former Portuguese colony of Macao, an hour’s ferry ride from Hong Kong. “Never before has such an entertainment center occurred in the history of Asia,” Adelson told a press conference at the Venetian a few hours before it opened its doors to thousands of gamblers waiting outside. “The opening is the beginning of what has been my dream, to reproduce the capital of entertainment [of Las Vegas] in Asia for Asians.”
Big doesn’t even begin to describe the sprawling complex, which the group claims is the second-largest building constructed in one phase in the world; only a flower warehouse in Holland is larger. (The Boeing (BA) factory outside Seattle is bigger, but was built in several phases.) The Venetian boasts 3,000 rooms, 51 gondolas for its Venice-style canals, a 15,000-seat indoor arena, and 1.2 million square feet of convention space. With 870 gaming tables and 3,400 slot machines, its 550,000-square-foot casino is the world’s largest. The employee canteen, which serves a staff of about 10,000, has more than 20,000 pairs of reusable chopsticks.
In Development: The Macao Strip
Originally, Las Vegas Sands had hoped to entice major hotel chains to build their own properties in Cotai, but when there were no takers, the group revised its strategy and now is building them itself, while international chains will manage them. The collection of hotels will include properties run by the Four Seasons, Sheraton and St. Regis (HOT), and Hilton (HLT).
Plunking down so much cash in bricks and mortar in Macao may sound like a risky strategy, but not to Sands President and Chief Operating Officer William Weidner. “It’s equivalent to asking if you could own 20,000 rooms on the Las Vegas Strip,” he says. “If you could own the entire center of the Las Vegas Strip with $12 billion, you would do it today in a heartbeat.”
Filling all those hotel beds is still going to be a major challenge. While Macao, a city of just 450,000, attracted more than 22 million tourists last year, they stayed on average only about 1.25 days. Weidner is expecting that convention-related guests at the Venetian will stay four to five days, and regular tourists two to three, with a strong weekend crowd visiting from Hong Kong and southern China. By October, he predicts a 90% occupancy at the Venetian, where suites go for about $200 per night.
Revenue Sharing Hurts Earnings
There’s no doubt that many Chinese are already flocking to Macao. The city trumped Las Vegas last year as the world’s biggest gambling destination, earning more than $7 billion in bets compared with $6.6 billion for Vegas. That lead looks to widen. Growth in the first half was up an explosive 46% year-over-year, to $4.75 billion, fueled in part by money from people who have made a killing on mainland stocks. The benchmark CSI 300 index is up more than 150% this year. “Macao is an indirect equity play for the region,” says Gabriel Chan, gaming analyst at Credit Suisse (CS) in Hong Kong. The market for high rollers “is totally driven by the wealth effect [from the stock market].”