Executives at Apollo Global Management said they’ve learned their lesson from their previous ownership of Caesars Entertainment and aren’t making the same mistake with the pending deal to take over the operations of the Venetian, Palazzo, and the Venetian Convention and Expo Center on the Strip.
They said they bought at the bottom of the market rather than at the top and reduced their risk.
The Nevada Gaming Control Board on Wednesday recommended the Nevada Gaming Commission approve the Las Vegas Sands Corp. selling the resorts, convention center, and adjacent land for $6.25 billion. VICI Properties Inc. will own the land and Apollo will own the operations and lease the property from VICI starting at $250 million a year.
David Sambur, co-head of private equity at Apollo, told the Control Board that he’s hopeful the deal with Las Vegas Sands is “in every way the opposite” of what happened with Caesars Entertainment, which wound up in bankruptcy following the Great Recession. It is now owned by Eldorado Resorts.
“We brought at the top,” Sambur said. “We signed a deal over Christmas 2006 and closed in January 2008 and between the signing and the deal closing, the world effectively fell apart. We were digging a substantial hole from the start and did the best to support the business.”
Even with gaming revenue dropping during the recession, Caesars invested $2.4 billion in capital in Las Vegas and across the country, Sambur said. They renovated and expanded Caesars Palace, bought Planet Hollywood, and redid the former Barbary Coast and Imperial Palace into the Crowwell and Linq.
“We felt the only way out of the capital structure was to grow the earnings of the business,” Sambur said. “Ultimately, we didn’t succeed.”
Caesars went into bankruptcy and had to give up equity to emerge. That won’t happen with the Venetian acquisition, Sambur said.
Caesars had $2 billion in cash interest expense compared to $18 million for the Venetian. When the earnings fell for Caesars, the cash flow was negative, Sambur said. Gaming revenues fell 30% for three to four years, he added.
“We’ve learned a lot about how to structure deals,” Sambur said. “The severity of the downturn in Las Vegas and its duration were well beyond anything we had forecast at the time, because no recession like that in the U.S. had happened since the 1930s.”
Even with the pandemic and possible lockdowns in the future, Apollo has built in more flexibility. Sambur said they’ve undertaken conservative underwriting and structuring of the deal to take less risk and be in a better position if earnings decline.
“The big learning experience from that is be conservative and preserve the investors’ capital,” Sambur said. “That was the biggest and most visible error we made in our history in terms of a high-profile loss for our investors.”
Sambur told Board members they pride themselves on being contrarian investors.
“I think investing $6.25 billion dollars in a property in Las Vegas in the middle of a pandemic is really on strategy for us,” Sambur said. “The property at the time was losing $1 million a day. It was not a time for people to underwrite the future of Las Vegas but a fundamental building block of this was looking past the short term and seeing the long term. We were very comfortable that Las Vegas would come back. It did come back, and a lot more quickly than we would have expected, but we structured the transaction in the middle of the pandemic assuming it would take until 2024 to 2025 for the property to come back.”
The Venetian is a “fantastic asset” and Sambur said they will be “such good stewards.” He said they appreciate the legacy the Las Vegas Sands has created and “we do take it seriously and we intend to carry on their legacy.”
Apollo’s business model is to buy businesses, partner with management, grow the businesses, and sell them for a profit. The management of the properties will remain in place, Sambur said.
If all of its companies were combined, Apollo would be the 15th largest company in the U.S., Sambur said. In September, it acquired Yahoo. It owns Las Vegas slot maker PlayAGS and Great Canadian Gaming and has stakes in Ladbrokes Coral in the UK, Aliante Casino in Las Vegas, and others.
“Gaming has been quite a core strategy for years,” Sambur said. “Clearly, Caesars wasn’t our most successful investment, but everything else we’ve done in the gaming sector has been quite good – whether our new investment in Canada or PlayAGS in the heart of Las Vegas. We like the industry a lot. It’s a growth and cash-flow industry. As I looked out my window this morning, I saw all of the new construction. It’s a great reminder of how Las Vegas is continually reinventing itself.”
The Venetian/Palazzo/Expo has 7,000 rooms, 225,000 square feet of gaming space, and 2.3 million of meeting space. It’s also the site of the MSG Sphere under construction, which will open in 2023 with 17,500 seats as an entertainment venue.
“If there’s any asset that is an infrastructure asset, It’s the Venetian,” Sambur said. “It’s the fifth largest convention center in the U.S. It’s a special asset in its ability to service group meetings, large conventions, and gaming customers.”
Apollo is putting together a master plan for the property, looking for growth opportunities.
Sambur said it has significant revenue opportunities that require some capital. That includes entertainment and food and beverage offerings. There’s even the potential of online gaming, loyalty networks, and a hub-and-spoke model for the property as well.
With the economy recovering, Sambur is optimistic that business travel will pick up over time. He’s hopeful there could even be a long-term increase in business meetings, because so many employees are working remotely and need to get together for sales and organizational meetings.
The one issue that arose during the hearing concerned Leon Black, a founder of Apollo and former CEO and chairman who stepped down in March 2021. Black has been under the spotlight for his one-time business relationship with Jeffrey Epstein, the convicted sex offender who committed suicide in prison. Black’s former love interest accused him of sexual harassment and abuse; Black claimed that he was being extorted.
Board members were concerned that Black would have a role with Apollo with his 11.9% investment interest. Apollo executives maintained he would have no involvement.
Even though he recommended approval, Board member Philip Katsaros said having that level of investment raises eyebrows and they will be watching.
“We will keep a close eye on that,” Katsaros said. “I’m still not 100 percent comfortable in that regard.”
Board Chairman Brin Gibson, however, said he’s comfortable with the responses he’s received.
