Inside Asian Gaming

September 2015 inside asian gaming 7 The thing that has always set Sands China apart from the competition is the unshakeable belief of its chairman, backed at the risk of his company’s billions, that Macau could, and would one day, be about a lot more than high-limit baccarat pits thick with cigarette smoke. With the crash of the VIP market that once propelled the city’s casinos to aggregate gaming revenues seven times the size of the Las Vegas Strip’s, it appears that day has arrived. As Sheldon Adelson phrased it in his inimitable style during Las Vegas Sands’ second-quarter earnings call—“Now, everybody is cutting off their arms to get into Cotai.” Cotai … More than US$20 billion is being poured into the reclaimed marsh a short drive by bridge from Macau’s southern tip to create an enclave of super-resorts, each of them in their way designed to replicate the success of the tourist-oriented business model Mr Adelson pioneered almost a decade ago at The Venetian Macao. Until they open, The Venetian is likely to remain the most visited and the most lucrative casino hotel in the city, with more retail shops, more conventions and meetings space, more entertainment and sporting events, more operating profit on more revenue, than any single rival. Even when they do open, none will be able to approach the scale of the $9 billion or so Mr Adelson has invested in Cotai to date, most of it under the auspices of Sands China, the Hong Kong- listed subsidiary 70% owned by Las Vegas Sands, founded in 2009 to manage and grow the company’s expanding portfolio of Macau assets. That portfolio today encompasses 45% of the city’s total hotel inventory and more than half of the gaming industry’s—some 9,300 rooms and suites in all, housed in four resort complexes supported by 1.5 million square feet of shopping, 2 million square feet of MICE space, the city’s largest multi-purpose arena, dozens of restaurants and leisure and family-style attractions and five casinos totaling more than 1,500 live table games and more than 3,900 machine games and electronic table game positions. Combined, these operations employ more than 24,000 people full-time. Through the first six months of this year, they generated $901 million in cash. Given the sheer breadth of the business, Sands China’s EBITDA lead over the rest of the market, calculated by the company through the first quarter at a 34% share on a trailing 12-month’ basis, may well be unassailable. At the same time, the downturn the market is suffering through— principally the result of a weakening Chinese economy and a nationwide crackdown by the ruling Communist Party on corruption and capital Sheldon Adelson Chairman and Chief Executive Officer Las Vegas Sands Chairman and Chief Executive Officer Sands China flight—is of a scale that none of the six gaming concessions has been untouched by it. Sands China is weathering it the best to date, though, thanks to the breadth and diversity of the offering. It’s far less reliant on gaming, which accounts for only 85% of total revenues, far less than its competitors. VIP accounts for only one-quarter of its table inventory and contributes a mere 12% or so to gaming revenue. Its mass-market tables are weighted toward the lower end of the spectrum, what it terms “base” mass, at a ratio of almost 3:1 over higher-limit “premium” mass. Sands China’s resiliency relative to the market was clearly apparent in the six months ended in June, when the company was able to hold up a net revenue decline of 30.7% year on year against the market’s minus-37%. Room revenue was down only 6.6% on an occupancy rate that beat the citywide average by 500 basis points. Its market-leading retail sector, which runs at an 85% profit margin, continued to expand and actually grew revenue in the first half and by a robust 22.6%. Then, of course, there is Marina Bay Sands in Singapore, whose trio of curved 55-story hotel towers stand as the city-state’s most recognizable landmark. An outdoor park stretches the length of the summit and features a 150-meter infinity pool. Below are 2,600 rooms and suites, 160,000 square feet of gaming, 1.2 million square feet of conventions and meeting space, two theaters, a trademark array of restaurants and a full one-third of LVS’s 1.92 million square feet of Asia retail, second only to The Venetian Macao. Singapore and Macau account for a combined 90% of Las Vegas Sands’ EBITDA and more than 85% of revenues, the cornerstones of the largest multinational resort gaming operation in the world.