Price tag in the billion range
Australian casino company Crown Resorts may buy the Cosmopolitan Las Vegas, according to the Sydney Morning Herald. And the Brisbane Times reported that Crown Resorts, which is controlled by Chairman James Packer, is planning to “lodge an expression of interest.”
The three-year-old casino complex on the Vegas Strip is owned by Deutsche Bank. Germany’s largest bank was forced to go into the casino business when developer Ian Bruce Eichner defaulted on a construction loan before the property opened.
The resort, conceived during the real estate boom, was under construction at the bottom of the recession. Originally priced at less than $800 million, it was supposed to open in 2008. With the economic downturn and the change of ownership, the Cosmopolitan did not open until December 2010. By that time, costs had ballooned to almost $4 billion. And in its first three years of operations, the Cosmo has accrued net losses of $298.3 million.
If Crown Chairman James Packer makes the move, it will be his third attempt to enter the U.S. market. In 2007, the company ended plans for Crown Las Vegas, planned for the Strip between the Sahara and Riviera. The Federal Aviation Administration rejected plans for a hotel tower of 1,888 feet, which would have been the tallest building in the Western Hemisphere. And in 2009, Crown pulled out of a deal to purchase Cannery Casino Resorts for $1.8 billion, reports the Las Vegas Review-Journal; it paid a dissolution fee and other penalties totaling $320 million.
Packer has described the previous attempts to expand into the United States as “his biggest strategic mistakes,” the Herald reported.
Crown is in a better position to pursue expansion because a capital expenditure program in its home base of Melbourne is drawing to a close, and a hotel development in Perth will be finished by 2016. The company will also begin to see ongoing revenue from Melco Crown, its Asian investment with partner Lawrence Ho.
Crown owns about a third of Melco, which operates two casinos and is building a third; it received a recent dividend of about $71 million, the Herald reported. And strong growth in Macau has led to a 32 percent increase in Crown’s share price over the past year. Melco Crown also owns and operates City of Dreams, the second largest casino resort in Manila.
Asking price for the Las Vegas casino is estimated to fall somewhere between $1.5 billion and $2 billion, and comes with a $3.5 billion bank loan to Deutsche Bank.
The Cosmopolitan reported a net loss of $25.5 million in the quarter that ended December 31, and net loss of $94.8 million on net revenues of $652.5 million for all of 2013, reported the Las Vegas Review-Journal. In 2012, the Cosmopolitan lost $106.6 million on net revenues of $595.2 million.
The Cosmopolitan has proven to be effective driving non-gaming revenues with large rooms and suites, conventions and meetings, nightclubs and restaurants, retail and entertainment at several property venues. But the casino revenue has long been a disappointment and new owners will have to revamp that area of the business. Crown could capitalize on its Chinese customers, the same way Las Vegas Sands, Wynn Resorts and MGM Resorts have been able to do at their Las Vegas properties.
Packer has a net worth of $6.5 billion, reports the Review-Journal, and is the No. 2 richest person in Australia. But he still may be looking for a deal on the Vegas Strip. Deutsche Bank “reportedly hopes to get about $2 billion, but Las Vegans familiar with the Cosmo and its struggles smile and shake their heads at that kind of optimism,” says GamingToday.com
