The fourth quarter earnings season is finally past the half-way mark and by now it is clear that the big surprise is that there have been no big surprises.
As mentioned previously in this space, U.S. regional markets keep humming along and Las Vegas and Macau are getting along fine, though showing signs of slowing down.
So, rather than dwell on numbers crunching and stock upgrades and downgrades, let’s consider items that might have impact longer term:
- Macau continues to be a back-and-forth of hopes and worries. Will casino concessions be renewed, how and at what terms? Will the new bridge connecting to Hong Kong and Mainland China open the city to the vast Chinese population, or will it deliver relative-low grade visitors who won’t move the needle? Will the Chinese economy slow enough to hurt business? Will ambitious regional competitors from Australia, Philippines, Japan, Vietnam, Cambodia, South Korea, and even Far East Russia, ruin Macau’s day?
Here’s one analogy: Macau is to East Asia as Las Vegas is to the American Southwest. The proliferation of Indian gaming on the Pacific Coast and in Arizona created more competition, but Las Vegas had locked in its position as a special destination and has hummed along. Ditto Macau. No new resort in Vietnam or South Korea is going to change that.
Now, how individual companies fare is a separate matter. The process and terms of granting new gaming concessions will tell that story.
- Japan. It has long been thought that Las Vegas Sands is a favorite for one of Japan’s three casino licenses because its Singapore property is the ultimate model for the integrated resort.
On the other hand, the Japanese aren’t likely to just hand over a lucrative new industry to outsiders. The thinking has been that they will at least be required to have local partners, and that doesn’t play well with the image of Las Vegas Sands CEO Sheldon Adelson as an imperious tycoon.
Thus, it was interesting to learn that Las Vegas Sands is already in talks with prospective local partners. Putting together a strong Japanese-centric team could be a clincher for LVS.
The size of the prize is worth sharing with partners.
The Osaka government projects overall casino resort revenues in its city of $4.4 billion, and gaming revenues of $3.5 billion. Assuming an overall EBITDA margin of 40 percent that would generate nearly $1.8 billion in EBITDA on what might be a $10 billion investment. By way of comparison, LVS’ Marina Bay Sands in Singapore achieved 55 percent margins on $3.069 billion in revenues last year with gaming win taxed around 12 percent. Macau properties achieved a 35.5 percent margin on revenues of $8.689 billion of revenues, with gaming taxed around 40 percent.
- United Kingdom, and beyond. As has been mentioned in this space numerous times, risk to gaming investments from governmental action isn’t limited to the state capitals of the United States.
The UK has proven that with point-of-consumption taxes for foreign-based online operators and the soon-to-be-imposed £2 maximum wager on betting machines in sports betting shops. Likewise, Italy’s recent higher taxes.
Now, UK online gaming operators are considering banning the use of credit cards to gamble. If that takes hold, it could throw a monkey wrench into iGaming, and perhaps be a model for other countries to follow.
