More evidence that gambling isn’t the recession-proof haven that its promoters, including James Packer, had thought.

In fact, it’s going through the same sort of “de-leveraging” that banking and finance, the car industry, the media and a growing number of other industries are now encountering after getting too highly geared on cheap and easy credit.

It’s somewhat ironic that the outlook for gaming is as poor as that for the media. We have to remember James Packer bailed out of the media for the supposedly high and more sustainable returns from gambling, but that’s no longer the case.

Shares in Las Vegas Sands Corporation, controlled by 75-year-old American billionaire, Sheldon Adelson, fell more than 40% after it warned it could go bankrupt if it can’t refinance its big debts.

The news hit gaming stocks hard, with Melco, the Macau casino company 37% owned by James Packer’s Crown, suffering a drop of more than 17%, or 70 cents to $US3.26 on Nasdaq.

The stark warning from the Adelson company, the second in a month, tells us that the economic downturn is hitting gaming industry hard because of falling spending at its two main centres, Las Vegas and Macau.

The Chinese Government has imposed increasingly tough restrictions on mainlanders visiting the gaming enclave, high rollers are not spending as much, while in Nevada gaming revenues are off thanks to lower visitor numbers and a drop off in local spending.

High petrol prices, the impending recession, job cuts, falling house prices and foreclosures are all hitting gambling revenues in Nevada, both along the Las Vegas strip and in other casinos. Revenues have fallen for most of this year.

Nevada is also home to some of the highest levels of subprime mortgage collapses in America, which have driven house prices down 30%, sent unemployment up and forced thousands of people to leave the state.

That subprime crisis has helped create the credit crunch and freeze and that’s what’s bit the Adelson empire.

Las Vegas Sands’ filing could be part of a battle with its banks to try and bluff them into renewing credit lines, but should that not happen, there’s a very real chance Las Vegas Sands won’t finish Singapore’s first casino or a 20,000-room complex of hotels and casinos in Macau.

Should Sands fail to raise capital “we would need to immediately suspend portions, if not all, of our ongoing global development projects and consider other alternatives,” the company said in the filing.

It’s not a collapse that would be greeted warmly by competitors, such as Crown. The projects are underway and the various governments would make sure they were completed; but they could become disruptive influences as the new managers were forced to cut prices and run at lower margins to generate business to repay debts etc still left after any failure by Las Vegas Sands.

If Crown didn’t have $2.2 billion in debt of its own, it might have been able to position itself to help bailout Adelson and expand its gaming interest cheaply. Crown shares traded down to $6.99 yesterday, still above the all time low of $5.85 hit last month.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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