U.S.-based gaming operator Las Vegas Sands Corp is “deep” into its exploration of the potential of the nascent Japan casino market, and “would like to be there” but also wants to take a disciplined approach to capital allocation in a market likely to require a US$10-billion spend in order for a property not to be considered “subpar”.
So said Robert Goldstein, the firm’s president and chief operating officer, on the group’s call for its third-quarter earnings, which were announced on Wednesday.
It was the first such quarterly conference call in 12 months to involve his boss, group chairman and chief executive Sheldon Adelson, who had recently been treated for a form of cancer. Mr Adelson last took part in such a quarterly conference call in October 2018, relating to the third quarter 2018, according to transcript documents.
The company Mr Adelson founded is parent to Macau casino operator Sands China Ltd, and also to Marina Bay Sands Pte Ltd, the operator of the Marina Bay Sands casino resort in Singapore. It also runs operations in Las Vegas, Nevada, in the United States, as well as having aspirations for a Japan casino licence. A maximum of three casino resorts – known locally as integrated resorts or “IRs” – will be permitted in the latter country in a first phase of market liberalisation.
Mr Goldstein told analysts regarding Japan: “We’re starting [by] not writing it off. We’re deep into it, and we’d like to be there but…. we’ve got to… make sure at the end of the day it is prudent” and that it offered acceptable returns.
An investor presentation document issued to support the earnings call mentioned that Las Vegas Sands targeted for new investments a “minimum of 20 percent return on total invested capital,” although it didn’t specify over what period of time.
The document also mentioned the group preferred 65 percent to 75 percent of total project costs should come via “project financing” – understood to be a reference to borrowed money – and 25 percent to 35 percent via “equity”.
Japan has yet to clarify details regarding the permitted ownership structure for casino resort projects in Japan; whether international operators would be allowed to have a majority interest in either the infrastructure or the gaming and non-gaming operations; and what financing structures might be either required or permitted.
Mr Goldstein told analysts on Wednesday’s quarterly earnings call regarding total capital expenditure in Japan: “I think US$10 billion is the starting point. I don’t think anybody is going to do it for less… unless you’re going to do [build] something subpar.”
Osaka vs Tokyo Bay
Referring to the Las Vegas Sands chairman, Mr Adelson, the executive stated: “You could spend the equivalent of what Sheldon has spent in China for many casinos and retail malls, you spend that in one building, one IR in Japan.”
Mr Goldstein added: “No matter how good you are at this business, that must give you pause, and [to] stop and think ‘Is that prudent, can you really deploy, can you get the return?’, and we’ve had those discussions, and we’ve had them with the Japanese government.”
The Las Vegas Sands president also gave some brief commentary on the group’s decision not to pursue a project in the Japanese metropolis of Osaka. He alluded in that commentary to what the casino firm says is its strengths: catering to mass-market casino customers and the meetings, incentives, conferences and exhibitions (MICE) sector, said to be a focus of the Japanese government’s interest in permitting casino resorts.
“We looked at Osaka … and we think it is a wonderful market, a wonderful city … But in the end, we felt our strengths and… what we do for a living so well, is better represented in the opportunity in the Tokyo Bay region in Yokohama,” stated Mr Goldstein.
In Japan “a lot of capital is required, a lot of thought process to make sure the numbers work,” said the executive.
“We just thought Yokohama was just the better fit for our skill set… The governor has issued the RFC [request for concept], we’re hard at work at that right now… I think there’s some time to ponder… how Japan plays out in the end and we hope to be right in the middle of it and make the best decision… for our company, our shareholders,” noted Mr Goldstein.
Las Vegas Sands is already committed to spending circa US$2.2 billion on infrastructure upgrades in its Cotai facilities in the Macau market – including on converting Sands Cotai Central to The Londoner Macao – even ahead of an expected public retender process associated with the expiry in 2022 of the current six gaming operator licences.
In Singapore the group has pledged to the government there to make a circa US$3.3-billion further investment in Marina Bay Sands in the next few years, in return for its licence being extended until 2030.
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”The board believes that the Japan IR project presents a unique opportunity for the company to enhance its growth profile”