While the Sands Cotai Central’s rebranding may be good for business eventually, construction work could hurt the property’s ability to draw gamblers in the meantime.
That’s the word from Japanese brokerage firm Nomura, which made the assessment based on plans announced by Las Vegas Sands last week.
As reported in October, Sands is looking to spend $1.1 billion in Macau in an effort to spruce up their offerings ahead of the expiration of their current casino license, which will expire in 2022. Most of that spending will be on the Sands Cotai Central, which will be rebranded as a UK-themed resort known as The Londoner by 2020.
Long-Term Rewards Require Short-Term Headaches
Ultimately, the goal of this work is to provide a more distinctive and attractive experience for tourists, who may see the current complex as somewhat bland compared to other properties in Macau.
But Nomura warns that the effort to refurbish the resort could lead to a short-term disruption that will drive customers away.
“The long-term strategy is sound, but Sands Cotai Central already has limited space and limited access so adding cranes, jackhammers, and scaffolding would not be great for the guest experience,” analysts for Nomura wrote. “If Las Vegas Sands Corp proceeds, then we see downside risk to 2018-19 consensus estimates in Macau.”
Basing an estimate on a comparable renovation of the Monte Carlo casino in Las Vegas, Nomura estimates that the Sands Cotai Central could lose as much as $100 million to $150 million in EBITDA (earnings before interest, taxes, depreciation and amortization) over the course of two years.
Renovations Necessary to Address ‘Competitive Shortfalls’
The analysts also noted that choosing not to go forward with the renovations was an option for Sands. However, while they would mean no adjustments were required for near-term forecasts, it would increase the likelihood that the Sands Cotai Central could become obsolete in the future.
“By proceeding, Las Vegas Sands addresses the competitive shortfalls of Sands Cotai Central sooner than later,” the brokerage stated.
Just last week, Las Vegas Sands CEO Sheldon Adelson announced the planned rebranding. The goal is to provide a UK-themed experience similar to Sands properties based on other European cities, including the Parisian and the Venetian.
“If you think about London, it’s iconic in so many ways, the buses to the Beefeaters,” Sands President and CEO Robert Goldstein told investors.
But Nomura said that it has concerns about how the property could fit all of these new attractions into its existing plot of land.
“Even the frontage, where Las Vegas Sands could erect a mini Big Ben and the Tower Bridge, is tight,” the analysts wrote.
The renovation plan is a part of a larger trend in which Macau-based operators are spending the bulk of their time and money on developments on the Cotai Strip. In August, consultant Andrew Klebanow predicted that the growth in Cotai mirrored the assent of the Las Vegas Strip, which would likely turn downtown Macau into the same type of second-tier destination as downtown Las Vegas.