Although I was only joking when I suggested that Steve Wynn‘s long-sought Cotai Strip land grant would come in on May Day, some Communist Party bureaucrat wasn’t. After many false alarms, the 51 acres were finally ‘gazetted’ on May 1. In lieu of Wynn brandishing a hammer and sickle, per S&G‘s suggestion, it would suffice were he to appear on a balcony overlooking Encore Beach Club and a wave aloft a copy of Mao Tse-Tung‘s infamous Little Red Book of cryptic aphorisms. (Given the inverse proportional relationship between affluence and brains among America’s youth, it’s doubtful any of the poolside sybarites at Wynncore have even heard of Chairman Mao.) Deutsche Bank analyst Carlo Santarelli summarized the news as “[providing] a much needed growth story and likely alleviates concerns over other popular WYNN related topics right now,” i.e., the slight unpleasantness involving Kazuo Okada and the $2 billion overhang that buying him out will create.
Santarelli pegs the Wynn Cotai cost at $2.7 billion and rising while his J.P. Morgan opposite number, Joseph Greff, already has it at $3 billion. Wynn, however, tripped up both of them, announcing a budget increase into $3.5 billion-$4 billion range. If Santarelli’s predictions of a 2016 opening and $675 million in cash flow bear out, Wynn’s budget escalation will drive ROI down from 25% to a still-enviable 19% or a worst-case 17%. Despite frequent rumblings of a Chinese economic slowdown, there’s no sign of it in Macao, where gambling revenues rose 22% last month, even in a month when luck favored the players. Analysts say Sands Cotai hasn’t made much of a dent, with one blaming “ongoing construction disruption” that will depress the property’s 2012 numbers. Sigh. Will Sheldon Adelson ever “open” a casino when it’s actually finished, instead of stumbling into a market with some half-assed version of the casino-to-be? Megaresort openings are simply not in Las Vegas Sands‘ skill set.
There’s sharp disagreement as to what the Wynn Cotai announcement means for non-Sands operators. With Galaxy Entertainment having announced a $2.1 billion mega-enlargement of its popular Galaxy Cotai resort (including the world’s biggest J.W. Marriott hotel) and Melco Crown Entertainment‘s already gazetted Studio City project ordered to proceed sans casino, there’s one land grant left this year. MGM Resorts International could be the odd man out. Santarelli is doubtful any additional land grants will be made, describing the prospects of MGM and market leader (up 4% last month) Sociedade de Jogos de Macau as “much more precarious” now. Given the more-advanced state of MGM’s designs, he favors its chances over SJM’s. However, his Deutsche Bank colleague, Karen Tang, expects favorite son Stanley Ho to get the nod instead.
This may not be the best moment to be modeling oneself on newly impoverished Sol Kerzner.
Overreaction? The “adaptive reuse of the famed Sahara” into something financially realistic now has at least $300 million with which to work, if not rising to the level of “a major milestone for Las Vegas,” as a recent orgy of self-congratulation claims. Considering how much the Tropicana Las Vegas managed to achieve on $145 million, there’s an awful lot that Sahara owner Sam Nazarian could do with 300 mil, including the sort of external makeover that the Trop eschewed. Both Sen. Harry Reid (D-NV) and Gov. Brian Sandoval (R) turned cartwheels at the announcement, hailing the “thousands of jobs” Nazarian is going to create (conveniently forgetting the many hundreds of jobs he eradicated as he nicked-and-dimed the Sahara into oblivion). Hotel blogger Barbara De Lollis treated it like the second coming of Christ (“Break out the champagne,”) she trilled.
Impressively, J.P. Morgan raised the money is less than a fortnight, which SBE disclosed in a press release that also spoke vaguely of “accessible luxury” — that’s code for “affordable.” (SBE’s press release says, “the influx of ultra-luxury brands to the Strip began to limit the general consumer’s accessibility to dining and entertainment diversions,” a historical conclusion with which few will argue.)
Good. Other than the redone Trop, SLS Las Vegas will be the closest thing the Strip has had to a new, mid-market-oriented resort since 1999. Shamelessly spinning for Sahara Sam (“SBE … has long planned to turn around the hotel”), De Lollis predicts the soon-to-be-ex-Sahara will morph into a near-knockoff of SBE’s SLS South Beach (pictured). If Nazarian has visions of $410/night price points dancing in his head he’s either been snorting coke is planning to (again) avoid applying for a gaming license, hoping to make his money back off of room revenues. If that’s indeed his business plan, severe disappointment will be The Naz’s fate.
However … Sahara Sam has tapped former Wynn Resorts exec Robert Oseland — recently ousted from Encore to make way for the infamous Marilyn (Winn) Spiegel — to be SLS Las Vegas’ president/COO. That moves the casino expertise in-house and is a significant improvement from farming out Sahara management to pinchpenny operators-for-hire. Most importantly, it’s the first concrete signal we’ve that SBE will actually get real and seek a casino license. It’s enough to make you forgive nutty Naz rhetoric like, “We see the northern end of the Strip as the future of Las Vegas, and we’re pleased to be positioned at the forefront of that growth.” You mean growth like Echelon, Fontainebleau and that North Strip clone of CityCenter that Nazarian role model Sol Kernzer was gonna build before he went bust?
And always remember … there’s never been a promise regarding the Sahara that Smilin’ Sammy Naz has actually kept.
Stupid computer tricks. Don’t expect your direct-mail-marketing operation to automatically distinguish between private and public information. When one casino merged its databases, customers learned with the marketing staff thought of them. “Won’t pay for porn” and “He’s an asshole” were among the unfortunate disclosures. That’s at least two customers who will be playing somewhere else now.