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Pennsylvania's Sands Casino Resort Bethlehem Reportedly is for Sale

By Matt Assad and Nicole Radzievich, The Morning Call (Allentown, Pa.)McClatchy-Tribune Regional News

Jan. 18. 2013--Sands Casino Resort Bethlehem is on the selling block, a source familiar with company thinking told The Morning Call.

Las Vegas Sands, the world's largest casino company, is asking as much as $1 billion for the Bethlehem casino. But the source cautioned it's part of company policy to gauge outside interest on every company property in the United States.

In other words, while Las Vegas Sands' highly lucrative Macau properties are off-limits, every Sands casino in the U.S.-- even the Venetian -- theoretically could be had, for the right price.

Some analysts theorize that with Sands Bethlehem revenues riding high, and potential gambling competition brewing in New York state, the time is right for Las Vegas Sands to sell Bethlehem -- its only U.S. casino outside Las Vegas.

Ron Reese, Las Vegas Sands spokesman, said late Thursday the company has worked hard to build its Bethlehem gambling hall, but called talk of a sale nothing more than market speculation.

"We're very pleased with the financial performance of the Bethlehem property, and the role we have played as a partner in the community," Reese said. "But we do not comment on market speculation and rumor."

Citing unnamed sources, Bloomberg News first reported word of a potential sale of the casino in Bethlehem, where city officials have praised Las Vegas Sands for growing the local economy.

Since 2009, Sands has spent $800 million -- the most spent on any casino complex in Pennsylvania -- to build its casino, 302-room hotel, shopping mall and events center. It employs 2,500 people and pumps more than $9 million in host fees into the city's budget annually.

Most city officials consider Sands, with its global reach and upscale brand, a good neighbor that has been sensitive to the city's quest to preserve the legacy of Bethlehem Steel on the 126-acre South Side site that Sands now owns. The casino has a steel-making theme and several vacant buildings on the site remain standing, including the blast furnaces that tower as a 200-foot tall landmark along the Lehigh River.

Sands has also discussed plans to reuse other buildings on the site, including the massive No. 2 Machine Shop, the Hoover Mason Trestle and the former Steel General Office building.

"I have not heard a single word about the Sands being sold, so I have no comment on that," Mayor John Callahan said. "But you know we've had a great relationship with the Sands. When it comes to casinos, you can have a Walmart or you can have a Neiman Marcus. We've been fortunate to have the Neiman Marcus of casinos. What other casino company could have continued building the way they did right through the recession?"

Primarily on the strength of its massive casinos in Macau, China and Singapore, Las Vegas Sands is the largest casino company in the world, a $42.6 billion empire built by owner Sheldon Adelson.

Bloomberg News and analysts who spoke with The Morning Call pointed out that several obstacles stand in the way of any sale, even if Sands' flirtation becomes a more serious courtship.

Complicating matters is a selling price that would have to be high, and the fact that potential buyers are wrapped up in other deals, said Larry Klatzkin, a 25-year Wall Street gambling industry analyst and owner of Klatzkin Advisors.

Penn National Gaming Inc., which bought a St. Louis casino from Caesars Entertainment Corp. in May for $610 million, said in November it is splitting in two, a process that will take effect in the second half of this year, Bloomberg News reported. Pinnacle Entertainment announced plans to buy Ameristar Casinos Inc. last month for about $900 million.

In addition, Casinos outside of Las Vegas have sold recently for about 7.5 times earnings before interest, taxes, depreciation and amortization, according to Bloomberg Industries research.

In the 12 months to Sept. 30, Sands Bethlehem earned $109 million on that basis, according to company filings with the U.S. Securities and Exchange Commission, suggesting a value of about $817 million. But a more forward-looking estimate, based on its most recent quarter, suggests that its EBITDA for 2013 should be closer to $125 million. That would translate to a value of $937 million. The property is carried on the books of Las Vegas Sands at $944 million.

All of those numbers are a pretty price to pay for a casino that pays a 55 percent tax rate on its slot machine revenue, as all Pennsylvania casinos do.

Still, analysts and even some city officials for months have wondered whether the casino could be sold, simply because the timing seems right. Two years ago Adelson expressed regret for having spent $800 million in Bethlehem, and Las Vegas Sands President Michael Leven questioned if the company would ever be able to make the roughly $80 million a year in EBITDA needed just to pay off the debt.

But now its slot revenues are the second highest in Pennsylvania. And its table games revenues, at $146 million in 2012, not only easily make it the top table games casino in the state, but one of the busiest halls in the nation, outside of Las Vegas, for games like blackjack, craps and roulette.

Much of that table games dominance comes from the stream of buses from New York and northern New Jersey.

The potential problem is that New York Gov. Andrew Cuomo is making a hard push to expand the state's limited slot machine casinos at race tracks to add several full-fledged casinos that could be built across the state.

The theory among those who believe the timing may be right to sell say the casino will never be worth more because its revenues are peaking and could be in for a steep fall if New York builds full-service casinos.

"If the story is true, it doesn't surprise me," Bethlehem Councilman David DiGiacinto said. "When you're talking about an operation performing as well as this is, and if a corporation is looking to divest itself of it, it is an opportune time."

The source familiar with Sands company thinking pointed out New York's casinos would not likely be built for five years, and a potential subsequent expansion into New York City would take years more.

"I don't think Las Vegas Sands is too worried about what may or may not happen a decade down the road," the source said.

Still, the mere talk is enough to worry some Bethlehem officials.

Roger Hudak, chairman of the Mayor's South Side Task Force, an early champion of the Sands coming to Bethlehem, said he hopes any future owner would continue Sands' commitment to redevelop old Steel land between the Minsi Trail and Fahy bridges.

"Everything they promised, they delivered," Hudak said. "And what they delivered was beyond what they promised."

matthew.assad@mcall.com

610-820-6691

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(c)2013 The Morning Call (Allentown, Pa.)

Visit The Morning Call (Allentown, Pa.) at www.mcall.com

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