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EuroVegas: Adelson's Bet To Keep Las Vegas Sands Shares Outperforming Even Apple

It’s strange to say that there are stocks that have outperformed Apple over the last three years, but it’s true. Among these freaks of nature stands Las Vegas Sands, majority owned and operated by billionaire Sheldon Adelson who over the last five years has seen his fortune drop from to $28 to $3 billion, and now back up to $25 billion. Las Vegas Sands has thrived as it became a “growth stock” on the back of its operations in Asia, but Adelson now has a new target: Spain.

Las Vegas Sands has made clear its intention to develop what has come to be known as EuroVegas, a project about half the size of the Las Vegas Strip that seeks to capitalize on substantial business that is tourism in Europe. As Forbes’ Steve Bertoni reported, the casino-mogul is looking to continue expanding his gambling empire after his successful stint in Macao and Singapore.

Adelson is negotiating with Spain’s two largest and most important cities, Madrid and Barcelona, for a territory of 800 to 1,000 acres to develop the 12 resort-project (36,000 rooms). The project includes 6 casinos (with 1,065 tables and 18,000 slot machines), 9 theaters and a larger “stage” with seating capacity of 15,000, and up to 3 golf courses, according to a study by the Boston Consulting Group, quoted by Spanish Daily El Pais.

Only a few weeks ago, Adelson raised his total estimate for the project to €26.7 billion ($35.3 billion); Las Vegas Sands would incur equity risk for only $4 billion, though. Analysts at UBS noted the casino-mogul and his management team avoided talking about the potential size of the Spanish (and European market) in their latest earnings call, but noted the project would cost LVS $8 to $12 billion (“spread over 9 years [while] each phase would generate cash flow to fund the next phase”).

Each of the three phases would see 4 resorts and 2 casinos being built (every 2 years), with each resort costing between €1.9 and €2.9 billion ($2.5 to $3.8 billion), according to El Pais. This would create 164,000 jobs directly and 97,000 indirectly, the company said during negotiations, figures disputed by the Spanish government.

Negotiations are ongoing, and the company hasn’t announced where EuroVegas will be built. Adelson came in with a big list of conditions he sought to impose including labor market reform, preferential tax treatment, and the lifting of a ban on smoking tobacco in closed areas to allow for smoking lounges. While political resistance exists, it has eased as the crisis in Spain has intensified, with the Socialist Party (of former Prime Minister Jose Luis Rodriguez Zapatero) looking upon EuroVegas with more favorable eyes.

Initially, Adelson didn’t want to pay state, regional, and municipal taxes. He also wanted to be taxed like other international companies in Spain. El Pais reports that Apple takes 99% of its Spain profits from its European HQs in Ireland (as does Google, which actually reported an operating loss in 2010), while Amazon’s profits are debited in Luxembourg, where tax rates are lower. Las Vegas Sands is seeking these advantages, but won’t be able to avoid municipal taxes (which include real estate, construction, and income taxes), according to El Pais.

Analysts at Nomura note that markets hate uncertainty, and that the lack of an announced decision on the project could weigh on the stock. Management appeared unjustifiably defensive on the earnings call, the analysts say despite a good quarter and the positive prospects of a combination of potential growth projects. Nomura remain bullish on the stock, as earnings power hasn’t changed meaningfully and downside appears limited.

With the decline of Las Vegas over the last decade, the hotel and casino business moved to Asia. Macao is now the world’s largest gambling hub, while Singapore continues growing fast. Beyond Las Vegas Sands, other major players in the sector like Wynn Resorts, Melco Crown, MGM, and Stanley Ho’s SJM Holdings have important properties in Macao and around Asia.

Adelson is moving one step ahead. The billionaire is placing a bet on Europe, despite the current dire state of the EU. Adelson knows a thing or two about risky bets, having seen his fortune rollercoaster up and down over the years. Now that he’s back on top, he’s trying to keep the momentum going.

See this and more similar articles at forbes.com

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