The timing of Las Vegas Sands’ sale of its U.S. assets couldn’t be better in light of the Macau government’s announcement that it will stick to the June 2022 deadline for re-tendering the territory’s six casino concessions.
A public consultation on the government’s plans for new licenses will he conducted in the second half of this year. That’s according to Macau’s Secretary for Finance and Economy Lei Wai Nong, who also said that the draft of a new gaming law to guide the process will be ready for review by the territory’s Legislative Assembly in the fourth quarter.
This places things more or less firmly on track for next June.
“The gaming industry is related to Macau’s future and welfare, and the re-tendering of gaming licenses is being prepared accordingly,” Lei was quoted as saying.
Sands Chairman and CEO Rob Goldstein has been careful the future of the company’s invaluable Macau concession from the blockbuster $6.25 billion deal that will transfer the company’s Las Vegas Strip holdings, the Venetian, the Palazzo and the Sands Expo Center, to VICI Properties and Apollo Global Management.
“We didn’t sell with that intent, that is not our goal,” he told attendees at a recent industry forum hosted by J.P. Morgan “We don’t worry about Macau licensure. We’ve spent a lot of time in Macau and have done it very thoughtfully. We have full confidence in our Macau licenses and we will be in Macau for many decades to come.”
Most analysts and observers agree. They say the deal has to be framed with the understanding that, pre-Covid, Macau and Singapore were generating 85 percent of LVS’ group-wide revenues and 90 percent of property EBITDA. As Goldstein put it at the J.P. Morgan gathering, “A dollar spent in Macau is more valuable to us than a dollar spent in Las Vegas in terms of return on investment.”
In other words, the company had come to see the Strip as no longer worth the expense and trouble, a conclusion no doubt hastened once the pandemic reduced its convention-centric business model to tatters.
“While there will be a recovery, long-term outsized growth in Las Vegas was never going to be something that Las Vegas Sands had any confidence in,” Hong Kong-based brokerage Sanford Bernstein suggested at the time.
Then there’s the fact that deals of this size don’t come along that often in gaming—and when they do, they can be too good to pass up, as Brendan Bussmann, director of government affairs for industry consultants Global Market Advisors, told GGB News.
“Obviously, any time you can get a $6 billion check you can reinvest elsewhere, and by selling only 15 percent of your business, it’s a win-win.”
Yet speculation that there were more profound calculations at work has persisted ever since the company’s decision to exit the U.S. was tipped off by Bloomberg News last fall.
“The geopolitical makeup of China and the South China Sea is something all the operators are paying attention to,” said Bussmann. “The challenge is the uncertainty. We don’t know the geopolitical situation at this point and how it will play out.”
Adelson-Trump Alliance May Have Hurt Sands China
One theory holds that the spike in tensions between Beijing and Washington under the Trump administration had become baggage for LVS and the other two U.S.-owned concessions, MGM China and Wynn Macau. LVS, in these terms, may have stood out in Chinese eyes for the massive financial support the company’s late founder, chairman and majority shareholder Sheldon Adelson had thrown behind Donald Trump’s failed bid for a second term.
While these considerations may or may not be minor, being a “less American company” could see LVS as “more acceptable or tolerated,” as one industry commentator told Macau-based news site Inside Asian Gaming.
“It’s definitely not fun to be in a ‘storm eye,’ positioned amidst a variety of disputes/tensions, both domestic and foreign,” he said. “What used to be ‘advantages’ during normal times can be harmful when the circumstances have changed substantially.”
The ownership factor is not insignificant. In January, Snow Lake Capital, a Chinese company, publicly called on MGM China Holdings, the Hong Kong-listed subsidiary of MGM’s Macau casinos, to sell 20 percent of the company to a Chinese partner. This would help secure its concession, Snow Lake claimed, and dispel concerns about the renewal which Snow lake said was hindering its valuation.
The same might apply to LVS’ Sands China subsidiary, or so Macau-based industry consultant Ben Lee suggested to Reuters. The sale of the Vegas assets, he said, “presents a window of opportunity for Chinese parties to come in and take a strategic stake in the company.”
Matthew Ossolinski, principal of Macau-based investment group Ossolinski Holdings, agrees.
“Increased Chinese ownership in any of the large operators makes sense for political reasons and could be a net positive for existing shareholders,” he stated in the same report.
“It would help for what comes next in Macau after the licenses are awarded: access to new land and opportunities in (the neighboring mainland island of) Hengqin,” added Anthony Lawrance, managing director of consultancy Greater Bay Insight.
Performance Aside, ‘Geopolitics Matters’
“Were the casino licenses in Macau in jeopardy, you would have to ask why?” said Warwick Bartlett, principal of UK-based Global Betting & Gaming Consultants.
“Sands does a good job,” he told GGB News. “High standards of probity, customer service, a continual flow of tax payments to the Macau government, plus huge investment in breath-taking properties. Why would anyone make a decision to end that? It comes down to geopolitics. The Biden administration is more relaxed about China than his predecessor, there are issues but they will be discussed around a rules-based environment, and business in the West now realizes it cannot operate profitability without manufactured supply from China. So, I see the rhetoric being dialed down. The licences will be renewed, at a price in terms of money and conditions. One would hope that there will be a negotiation with each side content with the outcome, but China holds the cards.”
Goldstein and COO Patrick Dumont speak often, and convincingly, about the sale of the Vegas assets as a windfall in terms of the opportunity it provides to reinvest in the Macau portfolio.
But LVS didn’t need to sell to pay for any of that, not with its sterling balance sheet and some $2.5 billion in unencumbered cash on the books.
As Bussmann said of the sale, “This was gravy.”
Sanford Bernstein spoke to this in part in a report to investors published with the announcement of the sale, which it described as immaterial to LVS’ plans to spend $3 billion-plus to expand its Singapore mega-resort, Marina Bay Sands.
It “may not be necessary,” a trio of analysts with the firm stated, noting that “over US$1.1 billion” had already been invested in that commitment, and the “residual investment could be funded at the property level with future cash flows.”
But, of course, this doesn’t address the obvious value of those dollars and the promise of more when it comes to leverage with the government of the city-state over licensing and regulatory matters.
Likewise, as Bussmann noted, the original Macau concessions “were based off of investment, and with the extensions, something like that will be included along the way. We don’t know what that is until the process unfolds.”
At the J.P. Morgan forum, Goldstein expanded at length on the company’s commitment to the Chinese casino hub, and in terms fulsome enough to leave no doubt about his intended audience.
He said, in part, “I believe the Macau government as part of this license renewal process will come to us and ask us to spend more dollars, large capital dollars, to grow our business, and we would be delighted to spend as much as they want.”
He added, “We got great feedback from the governments over there about the sale, but it wasn’t meant to free us up from regulatory concerns or to make the Chinese government more positive. It wasn’t done to make the Chinese government say, ‘Gee whiz.’”
But it was well-orchestrated music, for sure, to the ears of a Macau government whose gambling-centric economy was battered in 2020 to the tune of an 85 percent plunge in visitation and an 80 percent decline in taxable gaming revenue.
Negative Reviews for Macau Stimulus
It’s a government more eager than ever in the aftermath of Beijing’s crackdown on dissent in Hong Kong to assure the central government of its “patriotic” bona fides. This has always been structured around keeping its population fully employed and politically docile, and it’s been stung sharply in recent days by a groundswell of criticism from lawmakers and community groups over a package of stimulus measures aimed at boosting consumption and alleviating the economic impacts of the pandemic on residents.
Their main target is a MOP5 billion (US$625.1 million) e-voucher consumer plan providing residents, including non-resident workers and students, with different value vouchers following purchases made via mobile payment platforms. The vouchers have to be used within 15 days, and their value is capped at MOP600 per month, about $75, and MOP200 per day.
Last week, a trade union group called the Association of the Rights of Gambling Workers delivered a petition to the government seeking withdrawal of the vouchers and a reintroduction of a 2020 consumer card scheme that paid out MOP8,000 per resident.
Directly elected legislator Agnes Lam criticized the vouchers as no different from the consumer discounts offered by merchants and electronic payment platforms.
“This kind of ‘aid’ by the government is really not enough, and it is misdirected,” she said. “The government should focus on supporting economically disadvantaged groups such as the unemployed, those on unpaid leave and those of low income.”
From the other side of the political spectrum, Zheng An Ting, an establishment legislator representing a business group called Macau-Guangdong Union, agreed, saying the government should not merely promote consumption but should consider the spending ability and livelihood pressures residents are suffering.
“The relevant calculation method is more complicated and nerve-wracking for ordinary residents, and it also brings consumption burdens to those with weaker means,” he said.
Legislator Sulu Sou Ka Hou, representing the New Macau Association, issued a written critique of the vouchers, blasting them as “complex, convoluted and offering limited incentives.”
He also criticized statements by Lei that it was up to residents to do their part to help the economy recover.
“Unemployed residents or residents on unpaid leave or with low income cannot directly ‘save other people,’” he wrote, “and whether they can ‘save the market’ is also questionable.”