Asia casino jackpot
CAESARS Entertainment’s website describes “the world’s most geographically diversified casino-entertainment company”. But it doesn’t have any casinos in Asia, where gambling revenue has exploded in the past decade.
It has been this failure to get a foothold in markets like Macau and Singapore, alongside the 2008 leveraged buyout that crippled the Caesars’ balance sheet just as the financial crisis hit, that has put the casino company’s largest unit on the verge of bankruptcy. Caesars Entertainment Operating was preparing to file for Chapter 11 protection in Chicago overnight.
Caesars’ Asian woes began in 2001 when the business — then known as Harrah’s Entertainment — failed to bid on a licence in Macau, the only place in China where casino gambling is legal. A few years later, it passed on another opportunity, and no permits have been issued since. Chief executive Gary Loveman has said missing that second chance in Macau — where rivals Las Vegas Sands, Wynn Resorts and MGM Resorts International have flourished — was his biggest mistake.
In 2006, Caesars lost a bid for a casino licence in Singapore to Las Vegas Sands. “We’ve looked a lot at that. We had a fabulous bid, we just didn’t have the bid Singapore wanted,” said Jan Jones Blackhurst, executive vice-president of communications and government relations.
Macau is now the world’s biggest casino hub, with $US44 billion ($36bn) in gambling revenue last year. Singapore and the Las Vegas Strip each generated more than $US6bn in 2013. Those Asian markets could have been the lifeline for Caesars that they were for Las Vegas Sands, which had warned of bankruptcy risks during the financial crisis but has since become the world’s biggest gambling company.
Caesars has had to rely on Las Vegas, where gambling revenue has just started to recover after the financial crisis, and on a smattering of smaller properties across the US, including a hub in Atlantic City, where revenue has fallen 45 per cent from its peak in 2006.
The company’s $US22bn of debt after the 2008 leveraged buyout by Apollo Global Management and TPG quickly became a bigger burden than its buyers had anticipated.
Caesars could not keep pace with rivals’ capital spend, said Fitch Ratings’ Alex Bumazhny. He believes the trend will continue even after a restructuring.
Caesars is forecast to outlay $US350 million on capital expenditures annually to 2017, compared with about $US2.5bn it expects Sands and MGM to spend.
Caesars kept trying to find ways into the Chinese territory. In 2007, it spent $US578m on a golf course in Macau with hopes of some day building a casino. The strategy was to “win the ‘hearts and minds’ of the government,” according to a report by regulators in Massachusetts, where Caesars had bid for a casino licence. But it never did secure the partnerships and in 2013 sold the land for $US438m.
At one point, it proposed a line of credit with Macau operators Galaxy Entertainment to facilitate customer play at each other’s properties in Las Vegas and Macau. They also discussed linking customer loyalty programs and offering special privileges at the Caesars golf course in Macau. Another option was forming an alliance program with one of Galaxy’s VIP clubs in Macau. Caesars even spoke with Las Vegas Sands’ top Macau executive about co-operating on some of its projects. “People who were in Macau, they really didn’t need any partners,” Ms Jones Blackhurst said.
Meanwhile, the $US568m purchase of British casino operator London Clubs International in 2006 didn’t amount to much, either. An anticipated change in regulations didn’t go as planned. And at home in the US it failed to get licenses to build casinos in Massachusetts and New York, and it has had to shutter some operations in Atlantic City.
One piece of good news has been a recent casino deal in South Korea. Caesars will have a 40 per cent stake in a $US800m project it is building with a consortium including Indonesian conglomerate Lippo Group.
The resort, due to open in 2018, would not be like the multibillion-dollar projects in Macau or Singapore, but it was the first step in a plan to open a series of branded casinos across the continent, said Steve Tight, Caesars’ president of international development.