EuroVegas in Madrid: just what is at stake

American multibillionaire Sheldon Adelson is the world's 14th wealthiest man, and the boss of casino multinational Las Vegas Sands (LVS). He is also about to close a deal to buy one third of the land in Alcorcón, a dormitory town of some 170,000 souls 13 kilometers southwest of Madrid where, after deciding against a site near Barcelona, he intends to build a huge complex of casinos and hotels that will make the Spanish capital a European outpost of Las Vegas.

The respective heads of the Madrid and Barcelona regional governments, Esperanza Aguirre and Artur Mas, both fought hard to bring EuroVegas home, trying to win skeptical voters over to the estimated 17-billion-euro project with the spectacular promise of more than a quarter of a million jobs. That said, Adelson's announcement has not been welcomed by Spain's opposition politicians, who charge that gambling attracts crime, and that jobs such as hotel attendants, waiters and blackjack dealers are low paying and a poor option for young, unemployed Spaniards.

LVS says it plans to build 12 hotel-resorts, each with 3,000 rooms, and nine of which will be five star, along with six casinos with more than 1,000 tables and 18,000 one-armed bandits, a 15,000-seater concert hall, nine other venues seating 1,800 each, along with seven 850-seat theaters, and restaurants, bars, and discos with room for 50,000 people, up to three golf courses, and parking space for 40,000 cars.

To put the project in perspective, Madrid City Hall says that the capital currently has 48,600 five-star hotel rooms within a 50-kilometer radius, along with 47 golf courses. There are also 83 concert halls, along with 52 theaters in the metropolitan area alone, that attract around 2.6 million people each year. The capital's largest venues for rock music are Real Madrid and Atlético Madrid's soccer stadiums: this spring, some 55,000 people attended a concert by US veteran rocker Bruce Springsteen. Madrid City Hall also has 12 parking lots with a total of 2,281 spaces, but Barajas airport has 6,000.

In October 2011, LVS unveiled a study carried out by the Boston Consulting Group on the economic impact of a EuroVegas on Madrid and Spain. The figures outlined in the report, which has not been made public, have been seen by EL PAÍS, and used by the regional government of Madrid to drum up support for the project.

But the consulting group makes clear in its study that the figures it uses are preliminary. To begin with, they reflect much more optimistic forecasts for Spain's growth than are currently in circulation. Since then, LVS has made substantial changes both to the estimated cost and scale of the project, and the time it would take to complete.

Right now, the biggest doubt hangs over just how much LVS is prepared to invest in EuroVegas. The Boston Group's study puts the figure at between 15 billion and 18 billion euros (equivalent to up to 80 percent of direct foreign investment in Spain in 2010).

Last year, EL PAÍS saw a financial study of the project in which it was anticipated that LVS planned to apply the same model in Spain as it has in the former Portuguese colony of Macao, which has become one of Asia's biggest gambling centers. LVS would first build a casino, investing between one and two billion dollars, and would then build further based on the profits. Michael Leven, LVS's director general, said during a recent visit to Spain that his initial intention was to build just four resorts, with 12,000 rooms in total, depending on financing.

Leven confirmed the financial study's assertion that LVS expected a 20-percent return on its investment, but that it would only be putting up a third of the money; the rest would be borrowed. The company has approached some 40 banks in the process. "The result has been better than we hoped under the circumstances," said Leven in June, one week after meeting in New York with several banks, among them some of Spain's biggest players.

Andrés Escarpenter, the CEO of consultants Jones Lang LaSalle, describes LVS's chances of borrowing the four billion dollars it needs to begin the first phase of the project as "viable," particularly if it is prepared to put up a third of the investment.

I wonder if they have taken into account the impact on the local market"

The company says that for Spanish banks to get involved they would have to find a way to describe the project as not being real estate, given that the Bank of Spain would not sanction it otherwise.

But Mikel Echavarren, CEO of Spanish real estate consultants Irea, sees no reason why banks, and much less Spanish banks, should finance a project in what he describes as "one of the countries with the worst perception internationally and in the midst of an unprecedented economic and financial crisis." He says that both Madrid and Barcelona should have demanded letters from LVS's financial backers. He adds: "I also wonder if they have taken into account the impact on the local hotel market of so many low-priced rooms in the planned casino complex."

Then there is the question of state funding. In October 2011, Adelson asked for a change in European law regarding state investment via the European Investment Banks to allow governments "to support a request for financing for amounts above 25 million euros. Adelson asked for the Spanish authorities to waive the rules regarding guarantees that he had secured financial backing, and - if that weren't possible - that the Spanish state act as guarantor. Over the course of the negotiations, this request, along with many others, has been dropped.

They want to protect clients' anonymity, also making it easier to launder money

According to the Boston Consulting Group's timeline, EuroVegas would be built between 2011 and 2022. In the first two years, some 158 million euros would be spent on legal and technical work. Between 2013 and 2015, the investment would increase to 5.7 billion euros to put in motion the first phase of the complex. Once the complex had been completed, by 2025 it would be providing 4.5 percent of the Madrid region's GDP (in 2010, tourism as a whole provided 5.3 percent), while attracting some 4.7 million tourists every year (in 2011, Madrid received 4.6 million), and would have created around 261,000 jobs.

This kind of performance would bring down the region's unemployment rate by a third. EuroVegas would supposedly generate more than 2,000 jobs as soon as work on the project began, half of them directly.

Some observers remain skeptical about such projections, however. "I have been involved in many studies on the economic impact of large-scale projects and have learnt that one has to be very cautious. It will be very difficult to generate the number of jobs that are being forecast. In these kind of cases, the number of direct jobs created is usually very small, although indirectly large numbers can be created. This is essentially a continuation of the sun and sand model of tourism in which we are specialists. Casinos attract the same kind of tourists that flock to our beaches. Convention centers? We'll have to see," says José García Montalvo of the Economics and Business Department at Barcelona's Pompeu Fabra University

LVS may follow Apple and Google's lead by operating out of Ireland

At present, LVS has casinos in Las Vegas, Singapore and Macao, with some 20,000 hotel rooms and a total of 40,000 employees. The company currently generates around 55 percent of its profits from Macao. Asia accounts for 83 percent of its business.

In 1995 Adelson invested 1.5 billion in his first casino, in Las Vegas, after selling Comdex - the planet's biggest computer trade fair, which he had created in 1979 - for 862 million dollars. In 2008, he was the third-wealthiest man in the United States, but the financial crisis hit his business hard, its stock market value falling from $52 billion to just $350 million. Adelson was forced to cut short his expansion into Asia, but continued building his business empire to the point that LVS is now worth more than $45 billion.

But the bulk of Adelson's business interests being based in Asia does expose him to some serious dangers. A report into global money laundering by the US government last year notes: "Macao is the biggest gaming market in the world... and there exists the risk of money laundering and financing of terrorist activities... drugs, organized crime, and illegal betting."

The alleged links between organized crime and gambling in this region of China (the only city where gambling is permitted) is the subject of several confidential US State Department reports seen by EL PAÍS. The United States is currently investigating LVS over allegations that it bribed Chinese government officials.

Legislators in Spain are worried about a typical business trait in Macao: junkets

Through its majority-owned subsidiary Sands China Ltd., Las Vegas Sands also owns the Venetian Macao and Sands Macao casino resorts, the Plaza Macao hotel, restaurant and shopping complex, and the Sands Cotai Central resort with three hotels and two casinos.

The company's entry into the casino market in the former Portuguese colony near Hong Kong spawned legal battles in Macao and Las Vegas. A Hong Kong businessman won a $43.8-million verdict in a civil lawsuit filed in Nevada in 2004 claiming he was denied a $5-million "success fee" and two percent of net casino profits for helping the company win its Macau gambling license.

The Nevada Supreme Court in 2010 ordered a retrial. That case is pending.

At the same time, a bruising lawsuit filed in 2010 by Sands Macao's former top executive, Steven Jacobs, has drawn interest in the company from US Justice Department and Securities and Exchange Commission investigators for possible violation of the Foreign Corrupt Practices Act.

The Socialists say they will investigate "secret conditions" to lure Adelson

The law bars US companies from paying foreign officials to "affect or influence any act or decision" for commercial benefit. Adelson and the company deny wrongdoing and are vigorously defending the case. No charges have been filed.

Legislators in Spain are also concerned about another worrying aspect of doing business in Macao: junkets, whereby individuals or businesses charge casinos to bring them VIP clients prepared to bet millions of dollars, and who make up more than 80 percent of the estimated $34 billion spent in Macao's casinos in 2010, a figure five times higher than that spent in Las Vegas.

LVS has asked the Spanish authorities to allow junkets that would bring the high rollers to Spain. And not just that, it also wants changes to the law that would allow bets to be made on credit, as well as speeding up the legal process to facilitate the recovery of gambling debts. It also wants the law changed so that gamblers' winnings would be taxed at the same rates as their country of residence. Similarly, Adelson wants to see an easing of Spanish law on financing terrorism so that customers would only have to identify themselves at the entrance to the complex or when buying chips worth more than 2,000 euros. This would mean that gamblers would not have to identify themselves when transferring sums to the casino to be used for betting, which is the usual way that high-stakes players operate. The idea is to protect their anonymity, but it also makes it a lot easier for someone to launder money.

Aguirre wants the government to grant LVS some of the concessions it seeks

The government has so far not said whether it is prepared to change Spanish legislation to meet Adelson's demands. It has said that it is not prepared to waive LVS's Social Security payments, along with the tax holiday he had asked for.

The result is that LVS is now considering following Apple and Google's lead by operating its finances out of Ireland, thus avoiding the Spanish tax department. But it had been insisting until the beginning of the summer that it needs a 10-year tax holiday on up to 90 percent of local taxes. The biggest saving would be made in the ICIO tax on construction, as well as the IBI assets tax.

Madrid premier Esperanza Aguirre has urged the national government to grant a number of the concessions requested by Adelson, including some tax exemptions and an easing of restrictions on smoking in public spaces. Tomás Gómez, the regional leader of the opposition Socialists, said his party would investigate whether Aguirre had agreed to any "secret conditions" to lure Adelson to Madrid.

LVS executives have visited two other locations around the capital region, which also have plots of land that have stood empty since the start of the world financial crisis and the collapse of Spain's property market. This game is far from over.