Las Vegas Sands sold its property in Pennsylvania to an Indian tribe from Alabama. On the surface the story is pretty straightforward, but it does have some interesting twists and turns. The Poarch Band of Creek Indians through its affiliate, Wind Creek Hospitality, has agreed to buy Sands Bethlehem for $1.3 billion. A year ago, MGM and Sands came to that same agreement, but MGM decided with a dramatic expansion of gaming about to begin, it probably wasn’t a good idea.
Actually, the expansion is why the Sands wants to unload the property, even though it is the best property in the state. Last year the net revenue was $579 million and because it has a hotel, Sands has been really good at marketing table games, much better than its competitors. In the fiscal year 2016-2017, the Sands generated 27 percent of the total table game revenue in Pennsylvania with only 19 percent of the tables. In 2016, the management was so excited about its prospects that it planned a $90 million expansion. The press releases described in glowing terms the great things that would come with the new addition. It was to add 35,000 square feet of gaming, an additional restaurant and a separate poker room. The expansion would have made it the largest casino in the state. However, the expansion did not happen, even though the company broke ground on the project before declaring it dead in the water. Why the drastic change? The same reason MGM backed out of the deal. Pennsylvania is in the process of its largest expansion of gaming since slot machines were first authorized in 2004.
The Poarch Band of Creek Indians apparently did not get the memo about the risk. Or maybe it did, and it’s not worried. The tribe operates three Class II casinos in Alabama. It has tried numerous times to convince the state to authorize casinos so the tribe could add class III gaming with real slot machines and table games. During one of the discussions the tribe offered the state over $200 million for Class III legislation, but all to no avail. Without any success in expanding in Alabama, but with plenty of money in hand, the tribe has branched out to Florida, Nevada and the Caribbean. The tribe also bought land in Mississippi for a casino and in 2016 sought to purchase the Margaritaville Resort Casino in Bossier City, Louisiana. The sale was canceled because of a dispute over licensing payments for the Margaritaville name.
So while some observers think ‘the Indians’ are biting off more than they can chew, those opinions are likely to be based on a lack of understanding of the tribe’s management abilities and resources. Regardless of the tribe’s skills and financing, Pennsylvania is going to be a challenge, as it will be for every operator in the state. The legislation that authorized expansion was passed in October, 2017. The process is only beginning; a series of auctions is being conducted for one of ten mini-casino sites and licenses. Ten more casinos in the state with an additional 7,000 slot machines is going to make the Pennsylvania market quite crowded. However, that may not be the worst thing coming down the track. The state has also authorized online gambling, including online lottery games, and the legislation includes slot machines in truck stops and airports. No one is quite sure what any of those will mean to the existing casino industry, or when they might begin. The mini-casinos are first in line and when the bidding is finished it will still probably take a year and maybe two before the first mini-casino opens. In a heavily regulated industry like gaming, everything takes time. It will take a year, for the Poarch Band of Creek Indians to be approved by Pennsylvania and complete their financing. That will still leave them a little window to learn the lay of the land before the new gaming options get started. In the meantime, the Sands hopes it is free of the stress of the increased competition in Pennsylvania. And once it has the billion dollars in hand it can invest it more profitably. As good as the Sands Bethlehem is, it only represents about 6 percent of the total revenue that Las Vegas generates in Las Vegas, Singapore and Macau. If the Sands is lucky, the second time will be the charm. If not, it is difficult to imagine where another buyer willing and able to pay $1.3 billion for the Sands Bethlehem might be found.
