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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Las Vegas Sands lands Pennsylvania slots license

21 December 2006

LAS VEGAS, Nevada -- Other than Las Vegas Sands Corp., Nevada casino operators were shut out in their attempts to win a license to operate a slot machine-only casino in Pennsylvania.

Las Vegas Sands was awarded one of two at-large casino licenses by the Pennsylvania Gaming Control Board Wednesday after a nearly two-year process. The company will spend $600 million to build a shopping, dining and entertainment complex on the site of the former Bethlehem Steel plant in Bethlehem, Pa., near the Lehigh Valley.

The initial phase of the complex could be open in 2008. The 126-acre development, known as Sands BethWorks, will feature a 300-room hotel, 200,000 square feet of retail space, 3,000 slot machines, and a variety of dining and entertainment options. Las Vegas Sands plans to integrate portions of the shuttered steel mill into the complex.

The property will also be home to the National Museum of Industrial History, an arts and cultural center, and the broadcast home of the local Public Broadcasting Service affiliate.

The development will mark Las Vegas Sands' first American venture outside Las Vegas, where it operates The Venetian and is building the $1.8 billion Palazzo next door on the Strip. Las Vegas Sands operates the Sands Macau in China and is spending almost $3 billion to build the Venetian Macau in China, which is slated to open next year. Las Vegas Sands is also developing 150 acres on the Cotai Strip of Macau.

In May, Las Vegas Sands was selected by the Singapore government to build the $3.6 billion Marina Bay Sands, the city-state's first integrated resort.

Las Vegas Sands Executive Vice President Brad Stone said Pennsylvania marked the first time the company tried for a casino license in the United States outside Las Vegas. Having worked in Atlantic City, Stone and other Sands executives were familiar with the location, which is about 60 miles north of Philadelphia along the Interstate 75 corridor.

"We're about an hour or so from downtown Manhattan and the affluent suburbs of New Jersey, so we believe (there's) enough critical mass (of potential customers) including those coming from the northern Pennsylvania market," Stone said.

Even though the site will not include convention space, Stone said the Bethlehem location fits into the company's overall development model.

"It fits into our vision. It's an historic location and it will become a meaningful component of our business," Stone said. He added that the site is about two-and-a-half hours away from the Atlantic City casinos, so there won't be any customer overlap.

Deutsche Bank gaming analyst Bill Lerner, in a note to investors, said the company another marketing vehicle.

"For Las Vegas Sands, while this win will not have a material earnings impact, it should help promote brand awareness in an under-penetrated geography," Lerner said.

The slot machine industry has viewed Pennsylvania as one of the largest domestic growth opportunities this decade. The state is expected to house five casinos and seven racinos with 65,000 slot machines by early 2009.

Meanwhile, casino operators viewed the opportunity with some trepidation. The casinos are slot machines only with a maximum of 5,000 games. Also, there is a 54 percent tax rate on the gross gaming revenues.

Companies such as Wynn Resorts Ltd., Station Casinos and MGM Mirage didn't bid. Boyd Gaming Corp. withdrew its plans for an at-large license earlier this year. Pinnacle Entertainment, Harrah's Entertainment, Aztar Corp., and Cannery Casino Resorts failed to gain licenses Wednesday.

Three of the companies do have some Las Vegas connections.

Billionaire developer Neil Bluhm, who won one of the Philadelphia sites, is part of Riv Acquisition Group, which attempted to buy the Riviera this year and owns about 20 percent of the company. The other Philadelphia license went to the Connecticut-based Mashantucket Pequot Tribal Nation, which recently signed a development agreement with MGM Mirage.

In Pittsburgh, the board awarded a license to Detroit-based casino developer Don Barden, who owns Fitzgeralds in downtown Las Vegas.