Gaming:

Las Vegas Sands, Caesars singing different tunes at G2E

Gary Loveman, president, CEO and chairman of Harrah’s Entertainment, talks about bad press received by the gaming industry during the Global Gaming Expo (G2E) at the Las Vegas Convention Center Wednesday, November 17, 2010. Loveman’s keynote was titled “The Stockholm Syndrome: Why Addressing the Misinformation that Plagues Gaming is our Top Priority.”

Las Vegas-based casino operators Caesars Entertainment Corp. and Las Vegas Sands Corp. face remarkably different financial issues.

Las Vegas Sands executives, speaking this week at the Global Gaming Expo (G2E), said their problem is that the company is so profitable that it now must decide what to do with a growing stack of excess cash.

Caesars Entertainment, on the other hand, is weighed down by $19.9 billion in debt and hopes to turn around after losing $511 million during the first half of this year.

Kenneth Kay, executive vice president and chief financial officer at Las Vegas Sands, said the company continues to look at what to do with its $3.5 billion stockpile of cash — money accumulated thanks to strong profits in recent years. The profits piled up because of strong results in Macau and Singapore along with lower interest expenses and reduced preferred stock dividend payouts.

In comparison to Caesars’ half-billion-dollar loss during the first six months of this year, Las Vegas Sands posted a profit of $739 million during the same period.

Kay told analysts at G2E that the company’s $3.5 billion in cash is more than enough to finance the company’s contributions for planned and contemplated growth projects in coming years in Asia and Europe.

So the Las Vegas Sands board of directors in the coming months likely will consider boosting the company’s $1 annual common stock dividend, or perhaps using some cash to buy back shares, he said.

"We’re building cash faster than we need it for future opportunities," he said. "The balance sheet and financial position is really sensational given where the company has come over the last three or four years."

Sands executives said during the presentation that growth opportunities planned or contemplated are in Macau, where Las Vegas Sands is already a dominant force; in Singapore, where the company has one of two integrated gaming resorts; and in Japan, South Korea, Vietnam, Toronto and Spain.

Although Las Vegas Sands appears eager to expand in Asia once additional nations approve casino gambling, the proposed expansion into Europe still is dependent on a number of factors, including enabling legislation in Spain and improvements in the European economy, executives said.

Caesars Entertainment Chairman and CEO Gary Loveman, in the meantime, told analysts his company will work to deleverage itself from a capital structure that he said made sense when it was taken private in 2008 during the economic boom.

That was a $30.7 billion deal that initially left Caesars — then called Harrah’s Entertainment — encumbered by nearly $24 billion in debt.

Like all of the leveraged buyouts of that period, the Caesars buyout turned out to be "ill-timed," Loveman said.

"It left the company with a capital structure that was architected in a boom period that has to be managed in a much more difficult period," he said.

"This is a very sound, very profitable company with respect to its operations," Loveman said.

The deleveraging process could involve debt exchanges in which some debt is purchased at a discount and in which debt maturities are pushed back, as well as converting some debt to equity.

The Caesars turnaround story also involves potential growth and profits over the next few years from its $550 million Linq entertainment district under construction behind the Las Vegas Strip; improvements at Caesars Palace, including its new Octavius Tower and its refurbished and rebranded Nobu Tower; and possible improvements at Bill’s Gamblin’ Hall & Saloon, a small hotel-casino at Las Vegas Boulevard and Flamingo Road.

Also, there's development of Horseshoe casinos in Cincinnati (opening next year) and Cleveland (now open), the addition of video lottery terminals at the Cleveland-area Thistledown racetrack (next year), development of a Baltimore casino (2014) and potential development of a casino resort at Suffolk Downs in the Boston area (2014).

Caesars lately has been trying to profit by partnering with developers around the country in arrangements that minimize its capital contributions. The company touts its Total Rewards customer loyalty program, with some 40 million members, as a selling point that it says makes it the casino manager of choice in joint ventures.

Click to enlarge photo

Jim Murren, Chairman and CEO of MGM Resorts International, speaks Wednesday, Oct. 4, 2011, at G2E at The Venetian.

On top of that, the company is poised to profit from online poker and potentially other types of online gambling, should that spread in the United States.

Also presenting this week at G2E were MGM Resorts International executives, who said the company is benefiting from the small but steady increases in Las Vegas fundamentals, including a lack of new hotel rooms entering the market and improved statistics for visitor volumes, hotel room rates and Las Vegas Strip gaming revenue.

The financial fundamentals for MGM Resorts also have been improving thanks to strong results from its casino in Macau and a better performance by its CityCenter complex on the Strip. MGM Resorts also continues to press forward with planned or proposed expansion projects in Macau, Maryland and Massachusetts, and potentially in Toronto.

The company lost $362 million during the first half of this year but isn’t seen as facing financial stress like Caesars Entertainment. MGM Resorts’ "adjusted EBITDA" — a key financial measure covering operating results — was $932 million in the first half of 2012, up from $688 million in the year-ago period.

Caesars’ adjusted EBITDA grew just slightly in the same period, from $995 million to $1.035 billion. Of the $1.035 billion in Caesars’ adjusted EBITDA, $886 million was used to pay interest on its debt.

(EBITDA means earnings before interest, taxes, depreciation and amortization).

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