Caesars Entertainment Misses a Put in Macau

Posted on: August 16, 2013, 05:30h. 

Last updated on: August 13, 2013, 10:05h.

Kevin Horridge Read More

In what may have seemed like an odd move for a huge casino conglomerate that is one of the few without presence in Macau – the most lucrative gaming destination in the world – Caesars Entertainment Inc. sold off its 175-acre golf course land that borders Macau’s chi-chi Cotai Strip last week. An Asian developer reportedly paid $438 million for the property, and it should officially change hands by the end of the year.

The big questions is, why?

No License to Deal

It appears it may revolve around Caesars’ ability to secure a gaming license; or lack thereof.

The casino giant purchased the golf course area back in 2007, for $578 million, then called the Macau Golf course, expecting to turn it into another casino-hotel complex like competitors Las Vegas Sands, Wynn Resorts Ltd., and MGM Resorts International have all done so successfully in the past decade.  However, it was not to be, and in retrospect, Caesars CEO Gary Loveman says it was a huge blunder, and one they are still paying for. Caesars was even offered a Wynn Resorts sub-concession back in 2006, but nixed the opportunity; a move that was obviously a bad one looking back, Loveman admits.

The problem lies in the reality that the Macau government has cut off issuing any additional gaming licenses beyond the existing six concessions and sub-concessions, so Caesars kind of shot themselves in the foot by not taking the Wynn deal when they could. Never having themselves submitted an application back in 2001 – following the lifting of a 40-year monopoly in Macau by billionaire businessman Stanley Ho – Caesars, still known as Harrah’s Entertainment at that time – has no second chance to get into the most profitable gambling region in the world now; an unfortunate reality for a company that carries the highest long-term debt load of any casino conglomerate out there: a whopping $23.7 billion.

Macau has held the #1 gambling revenue-producer spot for quite some time now; the Chinese Special Administrative District took in $38 billion in 2012, beating Las Vegas six times over. And just since the start of 2013, Macau has shown an increase of 16 percent over last year.

Internal Rebranding

Caesars has been busy doing some major internal business reorganization: it’s spinning off its Las Vegas Planet Hollywood casino, its interactive gaming business (the company’s WSOP-branded online poker is next in line to launch in Nevada) and a planned Baltimore casino into a separate company that will be majority-owned by the parent.

Clearly, buying and selling property for a profit is also not one of Caesars’ best decision-making skills either; the company took a $101 million write-down on the land, which they had named Caesars Golf, when they put it on the market last year, and even that leaves them $40 million in the red, by our calculations, after the sale. Caesars says they expect to use to the anticipated $420 million in proceeds from the sale to pay down their debt.

Good start; now they only have $23,280,000,000 to go.