June 1, 2010
Macau — Studio City
Studio City: The Great Unraveling
What was to have been a $2.4 billion, 6-million-square-foot megaresort called Macao Studio City — originally set to open last autumn with a prime address on the Cotai Strip and Asia’s first Playboy Mansion — remains a vacant swathe of land and a major problem for the project’s backers and the Macau government.
The investors, which include U.S.-based Silver Point Capital and Oaktree Capital Management and eSun Holdings, a powerful Hong Kong-listed media company, have been locked in a bitter dispute that could wipe out much of the Americans’ $250 million investment in the project, according to a report in The Wall Street Journal.
The Macau government, its patience exhausted, issued a letter in April warning that Studio City’s land rights were in danger of being terminated and giving the parties until May 14 to respond with a satisfactory reason why the project is not moving forward.
“[Macau Chief Executive Fernando] Chui is serious about this, and land will undoubtedly be reallocated” if the situation isn’t resolved quickly, a local gaming industry observer told the Journal.
eSun Holdings, controlled by tycoon Peter Lam, says it acquired the Cotai site for about $25 million in 2001 to build a film studio. Plans later shifted to development of a gambling resort, and eSun sold 40 percent of the land and exclusive casino rights to a U.S. consortium led by former Las Vegas Sands executive David Friedman for $170 million. The consortium later invested another $80 million.
With gambling revenues soaring in Macau, the project quickly attracted Marriott, W and Ritz-Carlton hotels, a high-end shopping mall by Taubman Centers and the Playboy Mansion. Christie Hefner, then-chief executive of Playboy Enterprises, flew to the peninsula to make the announcement. Friedman signed a deal in 2007 with Lawrence Ho, son of Macau casino mogul Stanley Ho, to operate the casino under Lawrence’s Melco Crown Entertainment. The same year, eSun sold 20 percent of Studio City to Singapore’s CapitaLand, a major regional property player, for $85 million.
SANDS CHINA SECURES LOANS FOR COTAI 5 & 6
Sands China, Asia’s biggest casino operator by market value, has secured US$1.75 billion of debt financing from a group of banks to resume construction on Macau’s Cotai Strip.
A report by Bloomberg Businessweek said the company set last month to sign agreements with seven banks, including international and Chinese lenders. The company will also contribute about $500 million of its own money from the initial public offering floated on the Hong Kong stock exchange back in November.
“We will be fully financed,” CEO Steven Jacobs said. “We’re starting.”
The $2.24 billion project occupies two sites on the Cotai Strip known as Lot 5 & 6, opposite the company’s Venetian Macao on reclaimed land connecting the islands of Taipa and Coloane.
The project will add 6,000 rooms to the 3,600 Sands China has in the city and will be constructed in three phases: 1) Sheraton, Shangri-La and Traders hotels plus two casinos; 2) 800,000 square feet of retail, 800,000 square feet of meeting space and entertainment facilities; and 3) a St. Regis hotel and residences.
The company has paid the Macau government MOP1.87 billion for the land (US$234 million) with a stipulation that the project will be completed within 48 months. Jacobs said portions of the development will open toward the end of next year.
Parent company Las Vegas Sands stopped construction on Cotai in 2008 when credit markets froze and revenue growth slowed. Since then the Macau casino market has rebounded with a vengeance. Net income for Sands China in the first quarter more than quadrupled to $110.5 million, while revenues rose 24 percent to $944 million, the company said.
POKIE WEAKNESS TAKES A TOLL ON TABCORP REVENUES
Tabcorp said rising interest rates, new betting restrictions and the reduced wealth of retirees caused its gaming revenue to fall 1.8 percent in the financial year ended April 30.
The Australian operator grew overall revenue by 1.6 percent, driven by wagering and Sydney’s Star City Casino, where revenue rose 4.3 percent despite ongoing construction.
However, analysts from Royal Bank of Scotland have reduced their profit forecast for the company for the current financial year by 2 percent to A$457 million, citing weaker demand for gaming machines, or “pokies,” as they’re known.
Machine revenue was down in the company’s three Queensland casinos, although its market share in gaming had increased in Queensland, Victoria and New South Wales.
Official figures from the state of Victoria show machine revenues fell there also, by 6.4 percent to $210 million.
Under new rules introduced in January, gamblers in Victorian pubs and clubs can bet no more than $5 a time, down from $10. The restriction does not apply to Crown Casino in Melbourne.
Tabcorp has 13,369 gaming machines in Victoria, accounting for almost one-third of its earnings. But the company’s machine license in the state expires in 2012. Managing Director Elmer Kupper said that by that time the company will have reinvented itself as a gaming solutions service, buying, promoting and maintaining machines for Victorian venues for a fee.
In response to speculation that Tatts might be interested in acquiring Tabcorp, Kupper said, “I’m not surprised they’re interested because it’s clearly the better-performing business.”
NO BREAK ON TAXES, MACAU CASINOS TOLD
A recent push by Macau’s casinos for a break on taxes appears to have hit a dead end, at least for now.
Stanley Ho, who controls market share leader Sociedade de Jogos de Macao, together with other operators have been asking the government to consider rebating a portion of the gaming tax to enhance the industry’s competitiveness against rising competition elsewhere in East Asia.
The tax on gross gaming revenue currently stands at 35 percent and includes a contribution of up to 5 percent to support social services and building projects on the peninsula, the only place in China where casinos are legal.
The tax rate is high, admitted Luis Pessanha, legal adviser to the Legislative Assembly, but it is not likely to change any time soon.
“Figures suggest that the market is healthy and that gaming operators can live well with a high tax burden,” he said in a recent interview in the Macau Daily Times. “We have to wait and see if in the medium term Singapore will have an impact on our market or not.”
He went on, “It’s natural that operators, as an interested party, want a lower tax burden. He added, however, that “considering the public interest of the government, from my point of view it is not appropriate to reduce the gaming taxes yet.”
In the first quarter the direct tax contributed US$1.7 billion to the Macau treasury, accounting for more than 85 percent of all government revenues.
In April, gaming revenues in the largest casino market in the world hit a new record of more than $1.17 billion, a 70 percent increase year over year.
The tax haul represented a 58.6 percent increase over the first quarter of last year.
BETFAIR PROPOSES BETTING REGISTRY TO PROTECT SPORTS
In Australia, betting exchange giant Betfair has called for the introduction of a national betting register to help authorities better monitor wagers to prevent and detect illegal activity involving betting on football matches.
The proposal would require all bettors to gamble at TABs and with corporate bookmakers through traceable wagering accounts. Betfair chief Andrew Thwaites said it was the only way sports authorities can properly follow the money trail. “You know who’s betting and who’s winning the money,” he said. “You are never going to close all the doors, but if you can channel punters into a highly regulated environment it is the best way to protect the game.”
One banned bookie told the Herald Sun newspaper that no system will ever stop players and sports officials from betting on football.
But Australian Football League chief Andrew Demetriou defended the plan.
“The actual proposition that we shouldn’t outlaw betting on football by club officials, by players and by coaches has no currency whatsoever,” he said. “The rules are very, very clear and we have seen what betting and gambling can do, how it can destroy a sport.”
The AFL recently nabbed six people in an investigation involving 24 major betting agencies and bookmakers.
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