Earlier this week, the Lim-controlled Genting Group and the Nevada governor held a press conference to announce that:
–Genting has agreed to pay $350 million to the Boyd Gaming Group for an 87-acre site which contains the skeleton of a partially completed casino resort, and
–Genting will build a large Chinese-themed casino/hotel complex there under its Resorts World brand, eventually spending up to $7 billion on the project. Construction will begin next year, with the first stage possibly to open in 2016.
1. Las Vegas doesn’t appear to have been the Lims’ first choice. Over the past couple of years, Genting has been very active in lobbying, without success so far, to build similar projects in Florida and New York City.
2. Reinvesting in Genting’s home country, Malaysia, is not a prudent option, in my view. For example, Malaysia’s bumiputra program set up in the 1970s required, among other things, that ethnic Chinese-controlled companies like Genting sell large minority stakes at bargain-basement prices to ethnic Malays. Also, the country froze foreigners’ assets for an extended period during Asian financial crisis of the late 1990s.
To be clear, I don’t know Malaysia well any more. And I haven’t studied Genting closely for a long time. But it strikes me that Genting may well be willing to accept lower returns on investments in the US in order to have assets located in an area where they may be more secure.
3. I think the new casino complex will change the dynamics of the Las Vegas gambling market in a number of ways:
–the new complex will enhance Las Vegas as a tourist destination, create jobs and remove an eyesore (one reason WYNN built its Beach Club the way it did was to obscure the view of the (really ugly) Boyd site).
–it will shift the center of mass of the Las Vegas Strip north, toward WYNN and LVS properties and away from MGM’s.
–when it opens, Resorts World-LV will set a cap on hotel room rates in the market. That will only happen three years from now, however, when rates could be, say, 20% higher than they are today.
–it’s possible that Genting will create some first-time business for Las Vegas from Asia. But I think the lion’s share of its revenues will come from people who now patronize existing casinos. As such, it won’t be great for any of the incumbent operators. Worst hurt will be those catering to the mid-market, Resort World’s niche. I think this will be especially true for non-branded casinos, and those in downtown, the southern part of the Strip or off the Strip on parallel streets.
4. I haven’t analysed Genting’s Singapore casino. My impression is, though, that the company is a very astute operator of family-oriented entertainment, but only an average casino owner. Its Las Vegas project will be interesting to watch.