Sheldon Adelson’s Las Vegas Sands Corp. announced last week that his company will pass on a planned bid for an integrated resort with casino in Japan. Adelson declared the decision was not based on fears about the coronavirus or the current economic downturn, but on rules and regulations that may hamper profitability.
In a statement issued last Tuesday, May 13, Adelson said his “fondness for the Japanese culture and admiration for the country’s strength as a tourism destination” goes back more than 30 years, to when he staged Comdex computer tradeshows in Japan.
“While my positive feelings for Japan are undiminished, and I believe the country would benefit from the business and leisure tourism generated by an integrated resort, the framework around the development of an IR has made our goals there unreachable,” Adelson continued. “We are grateful for all of the friendships we have formed and the strong relationships we have in Japan, but it is time for our company to focus our energy on other opportunities.”
Other operators as well as analysts have voiced concerns about potentially onerous restrictions, especially limits on the size of gaming floors at Japan IRs, which could also limit returns on investment. Then there’s the so-called “10-year problem.” With license terms of just 10 years, operators could be hard-pressed to secure bank financing.
Sands once planned to invest up to $10 billion to break into Japan’s gaming market, and according to the Financial Times, its exit “throws more doubt on the Japanese government’s vision for a thriving casino industry involving multiple integrated resorts.” Market analysts once projected that Japan’s IR industry could be second only to Macau, and early estimates set the value at up to $40 billion per year—more than Macau—though those estimates were quickly scaled back to $25 billion, then $8 billion to $10 billion.
Sands was interested in Japan years before Prime Minister Shinzo Abe came on the scene; it was his advocacy for casinos as a way to boost tourism that propelled IR legislation to victory in 2016.
In 2018, according to CDC Gaming Reports, Adelson boasted that Las Vegas Sands had “the leading position” in Japan, and Pro Publica reported that President Donald Trump had personally lobbied Abe to “strongly consider” Las Vegas Sands for one of the licenses.
But last fall, comments by Sands China President and COO Rob Goldstein reflected Sands’ growing disillusionment about Japan, especially the potential cost of doing business.
“We’re used to writing big checks,” Goldstein said during the company’s third-quarter earnings call in November, “but all that money on one IR does make you stop and pinch yourself and ask whether you can get the returns that your shareholders deserve. … It’s going to be a big number to make it work.”
LVS declined to comment on the possibility it could reconsider its decision if the regulations are more business-friendly. Bernstein analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu think not.
As reported by Inside Asian Gaming, the analysts said Sands had always been “most excited by Tokyo,” population 36 million, as a prime destination, but the current economic crisis has dimmed even Tokyo’s appeal.
“Tokyo is now faced with an Olympics that is delayed to 2021. The Japan process is also likely to see delays due to the coronavirus epidemic. The plan to award winning RFPs at the prefecture level during 2020 and early 2021, followed by the federal government awarding up to three licenses in 2H21 is most certainly going to be pushed back.
“The situation could change materially between now and then … Tokyo may re-enter the mix, however the likelihood of Sands coming back (unless there was a clear winning Tokyo opportunity) is remote due to the same reasons it pulled out in the first place,” the analysts wrote.
In the meantime, Sands will focus on its resorts in Macau and Singapore, which deliver some 85 percent of its total quarterly revenue stream.
“I remain extremely bullish about the future of our company and its growth prospects,” Adelson said. “We are currently executing significant investment programs in both Macau and Singapore to create meaningful new growth from our existing portfolio.”
Last year, Caesars Entertainment withdrew from the Japanese process entirely due to the company’s $17.3 billion merger with Eldorado Resorts.
