LVS Drops Spain Plan; Macau Growth Intact

January 2nd, 2014 by Trefis Team
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Las Vegas Sands (NYSE:LVS) has dropped its plans to develop a gambling resort in Spain. The company will now be focused on developing casinos in Japan and Korea. [1] Japan is the world’s third largest economy and could well be the world’s second largest gambling hub after Macau, subject to casino legalization.

On the other hand, Macau continues to see solid gaming growth and is boosting LVS’ overall revenues. Casino operators such as LVS and Sociedade de Jogos de Macau (SJM) predicted that Macau’s gaming revenue would reach somewhere in the vicinity of $80-$100 billion by 2020, as Macau’s market is currently drawing on a very small percentage of China’s total population. [2]  We believe that LVS in particular is poised to benefit from the growth in Macau as it has established a critical mass with its diverse properties and resorts there.

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LVS Says Adios To Spain

LVS recently stated that a proposal to develop a series of integrated resorts in Spain will not be forthcoming from the company. LVS was looking for guarantees of compensation in the event of future legislative changes. However, Spain’s government rejected such demands. [3] The project was planned on a massive scale with a budget of around $30 billion in six casinos, 12 hotels and many retail outlets on the outskirts of Madrid. The plan was fiercely opposed by many who feared that the casino project would lead to a change in non-smoking laws, promote prostitution and provide only low-paying jobs. [2]

The company’s latest move is a setback for Spain’s economy, as the project would have created around 250,000 jobs in a country with a 26% unemployment rate. [4] On the other hand, Japan recently moved one step closer to legalizing the casinos. Japanese lawmakers from the ruling Liberal Democratic Party submitted a bill to legalize casinos to parliament. [5] According to Union Gaming Group, Japan will generate $10 billion in annual gambling revenues, making it the world’s second-largest gaming market after Macau. [5]

Macau Gaming Revenues Continue To Surge

Macau’s overall gaming revenues grew by 21% year over year in November to $3.8 billion. This has been a solid year for Macau with 19% jump in gaming revenues amounting to $40.9 billion for the 11 months period. [6] Gaming growth in Macau is good news for Las Vegas Sands as Macau operations account for more than 65% of its value, according to our estimates. Macau is the only place in China where gambling is legal. China is seeing growth in the number of HNIs (high net worth individuals) and only a small portion of them visit Macau for gambling.

China currently has about 1.3 million HNIs with a combined wealth of $4.3 trillion. [7] As China continues to grow, more people are likely visit Macau for gaming activities and LVS will benefit from the rising demand. China’s macroeconomic situation is also improving. It is showing signs of stabilization helped by government measures such as lowering taxes for small firms and quickening infrastructure spending for growth. As the U.S. economy picks up, China is seeing growth in exports, which is leading to better economic conditions.  This is evident from third quarter GDP data, which came in around 7.8%. [8]

LVS Will Outperform In Macau

LVS is poised to benefit from the solid growth in Macau with its diverse properties in the region. The company operates through four properties in Macau, as opposed to one each for MGM Resorts (NYSE:MGM) and Wynn Resorts (NASDAQ:WYNN). Moreover, the company’s Cotai operations will bolster its casino business. Cotai is a new casino zone where gaming tables are in short supply in the near-to-medium term and LVS is one of the three casino operators in the region. While Wynn and MGM are also coming up with new resorts in Cotai by 2016, LVS will continue to enjoy higher market share. LVS is also developing a new resort – The Parisian, which will have replicas of Paris landmarks (including a half-scale Eiffel Tower) in Cotai. The property will have more than 3,000 rooms and suites, 450 table games and 2,500 slot machines. The Parisian will focus on the middle market mass customer.

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Notes:
  1. Las Vegas Sands No Longer Pursuing Spain Development, Will Continue Aggressive Pursuit of Opportunities in Asia, Las Vegas Sands’ Press Release, Dec 13, 2013 [↩]
  2. SJM & Sands CFOs optimistic about gaming revenue: “Safe forecast” – USD80-100 billion by 2020, Macau Daily Times, May 23, 2013 [↩] [↩]
  3. Las Vegas Sands abandons Madrid mega-casino project, Reuters, Dec 13, 2013 [↩]
  4. LAS VEGAS SANDS SCRAPS EUROVEGAS PROJECT IN SPAIN, Calvin Ayre, Dec 13, 2013 [↩]
  5. Japan’s LDP Lawmakers Submit Parliament Bill to Legalize Casinos, Bloomberg, Dec 5, 2013 [↩] [↩]
  6. Casino receipts rise 21 pct in Nov to US$ 3.8 billion, Macau News, Dec 3, 2013 [↩]
  7. Understanding the High Net Worth Market in China, Accenture [↩]
  8. China logs best growth so far this year, CNBC, Oct 17, 2013 [↩]