Looking in on: Gaming

LAS VEGAS, Nevada -- Ten to 20 percent profits at Las Vegas casinos have nothing on Macau, where Las Vegas Sands has come to expect 100 percent returns. The gravy train is fueling the company's quest to spend up to $11 billion creating the Asian equivalent of the Las Vegas Strip.

That doesn't come without some aggressive wheeling and dealing on the front end.

By selling off retail malls the company builds on the "Cotai Strip" like it did with the Venetian resort's Grand Canal Shops, Las Vegas Sands hopes to recover at least $7 billion of that cost, Senior Vice President of Finance Scott Henry said at an investment banking conference last week in New York.

The company will open its Venetian Macau casino resort this summer and will build other name-brand hotels with partners, including Sheraton, St. Regis, Shangri-La, Traders and Four Seasons. Discussions are under way for Inter continental and Holiday Inn properties. Including $3 billion in advance sales of luxury condos on Cotai, the company will have nearly paid for its Las Vegas-sized extravaganza, Henry said.

Sands Macau essentially paid for itself within a year of its May 2004 opening. And by adding 340 hotel rooms to the property this summer, the company has generated nearly $1 billion in earnings on an initial investment of less than $400 million.

Even $11 billion will be small potatoes next to Las Vegas Sands' vision for a "Chinese Riviera" on Hengqin Island, about five square miles of land within a mile of Cotai. The company hopes to build about 80 million square feet of resort-style developments there with the blessing of the Chinese government - a speculative 10-year project that could generate between $23 billion and $65 billion in real estate value for the company, Henry said. Better yet, golf course residences would be "within a stone's throw or a 9-iron" of the casinos, he said.

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In a sign of the times, Harrah's Entertainment and Station Casinos - both going private in deals recently approved by their respective boards - this week held quarterly conference calls that were noticeably short and didn't take questions from investors.

Harrah's Chief Executive Gary Loveman spent less than 20 minutes running through his company's fourth-quarter results. Station's chief financial officer spent less than 10 minutes breezing through facts and figures.

Both companies have big expansion plans but have been mum on whether the takeovers will stall or slow specific projects, as some investors believe.

Loveman offered a bit more information, noting that the company's previously discussed master plan to revamp its Las Vegas casinos continues at a rate that's "equal than or greater" than the progress made at the time of the company's last quarterly report.

He also referenced the recent departure of several executives, including Senior Vice President of Development Richard Mirman.

Much more went unsaid, including the departure of most of Harrah's development team, which is being phased out in advance of the takeover. The company has laid off more than 100 corporate-level employees over the past few months, although insiders say select development plans, including potential casinos in the United Kingdom, Spain and Slovenia, continue to be considered under the tighter oversight of Chief Financial Officer Chuck Atwood.

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Regulations proposed by the Southern Nevada Health District to enforce Nevada's new smoking ban include socking violators with administrative penalties of between $500 and $5,000, giving reluctant slot bar owners more reason to vent.

But the big casino operators - their gambling areas exempt from the ban - are making distress calls to their lawyers for a different reason.

They're concerned with a potential change to state law that would designate second-hand smoke as a "substantial health hazard" and obligate food-serving holders of health permits "to take action necessary to prevent or eliminate the presence of any substantial health hazard."

Under the law, casino restaurants must be smoke-free, but folks who are gambling are still able to puff away - to the consternation of nonsmoking customers and employees. Some casinos worry the changes will blur that distinction, opening them up to lawsuits.

Copyright © Las Vegas Sun. Inc. Republished with permission.