The price of doing business
Yet those positive fundamentals only tell half the story. Las Vegas Sands is currently under investigation by the SEC regarding a possible violation of the Foreign Corrupt Practices Act. The company is being investigated regarding the possible bribery of foreign officials in Macau, as well as money-laundering allegations regarding two of its VIP high-rollers. These allegations originated from Steve Jacobs, the former CEO of Sands China, who filed a wrongful termination suit against CEO Sheldon Adelson after he was dismissed in 2010.
Las Vegas Sands is not the first company to come under SEC scrutiny. Last year, Wynn Resorts was probed regarding large donations to the University of Macau to support its new Asia-Pacific Academy of Economics and Management. Wynn made an initial donation of $25 million to the school, with a promise to donate $10 million annually between 2012 and 2022. Critics have claimed that those donations, aimed at currying the favor of the casino-license granting Macau government, constitute a violation of the Foreign Corrupt Practices Act.
Meanwhile, MGM was banned from expanding into Atlantic City after state regulators accused it of cultivating ties to Asian organized crime. New Jersey state regulators questioned MGM’s partnership with Pansy Ho, the daughter of Chinese-Canadian casino tycoon Stanley Ho, who has been rumored to have ties to the Hong Kong triads. Ho has denied these allegations. Casino operators have long dealt with the grayer areas of society, whether in Las Vegas or Macau. Wining and dining VIP high rollers with posh junkets and cozying up to local officials has long been “the price of doing business” for casinos. However, investors should be aware that the SEC is sending out a clear warning that these casino companies can’t carry on in Macau like its Las Vegas circa 1970.
The Foolish Bottom Line
In the end, investing in Las Vegas Sands is a bit of a gamble. On one hand, it is a rapidly growing company that is entrenched in two of the most lucrative gambling hotspots in the world – Macau and Singapore. On the other hand, it has raised the ire of aggressive SEC regulators and faces a possible credit crunch in China.
Investors should recall what happened to casino operators during the last credit crunch in the United States to get a grim picture of what could happen to Las Vegas Sands, Wynn and MGM in a worst-case scenario. However, patient investors who believe that Macau’s growth will continue despite macro challenges should consider investing in Las Vegas Sands, since it is much better positioned for long-term growth than its rivals.
The article Is This Casino Stock Worth the Gamble? originally appeared on Fool.com and is written by Leo Sun.
Leo Sun has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Leo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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