Adding Insult to Injury: Adelson Pulls Out of Spain

Casino project would have provided jobs and tax dollars, but ultimately demands were too heavy.

Las Vegas Sands owner Sheldon Adelson recently chose to abandon a $30 billion dollar project outside of Madrid. The press had dubbed it “EuroVegas” due to its immense size. It would have included 12 hotels and 6 casinos as well as countless other business and entertainment facilities. Adelson’s proposal received approval from the current Center-Right government early last year.

He ultimately pulled out of the project because the government refused to meet several of his demands. The most important of which was a guarantee of compensation in the event of future legislative changes which could jeopardize profits.

In addition, the project was opposed by many sectors of society including social conservatives and Catholic Church clergy who fear the location would become a center for crime and prostitution, as well as environmentalists and social liberals wary of allowing a massive foreign business interest into the country. The Bishop of Getafe weighed in: “The church supports initiatives that are designed to create wealth and employment, but not at any price.”

Battered economy in need of job growth

The depressed economic situation in Spain is well-documented as one of the worst in Europe. The announcement of the project made major economic as well as gambling news, with proponents touting its potential for job growth, both in terms of temporary construction jobs and permanent jobs in the new facilities. The Sands Corporation projected it would create 250,000 jobs in a country with unemployment hovering around 27 percent.

The Center-Right government of Prime Minister Mariano Rajoy was excited about the project’s potential to create jobs and provide tax revenue to the heavily-indebted government. The local governments of Madrid and Barcelona competed to host the project, with Madrid winning despite the lack of a seaside location.

While all agree that the country is in desperate need of economic growth, some felt that “EuroVegas” would not create much long-term improvement. Spain’s current economic crisis was caused by an economy over-dependent on credit, construction and tourism, with too little by way of manufacturing and high-productivity services.

The casino project would do nothing to fix those problems. Some economists also worried that the temporary construction jobs would simply dissolved after the project’s completion, putting those workers right back on the unemployment line. However, with millions out of work, a temporary job is better than no job at all.

Details on Adelson’s decision to exit

The official story is that after initial approval Adelson made specific, uncompromising demands which the government was unable to meet. Said Deputy Prime Minister Soraya Saenz de Santamaria: “New conditions were put forward concerning taxes and legal protection … which could not be taken on board by the administrations involved.”

These included the demand that the government legally guarantee compensation in the case of future legislation, such as changes to Spanish gambling laws, tax increases, or other changes which could hurt profitability. In addition, he asked that the government reduce existing taxes on gambling and grant a special exemption to the national ban on smoking in bars and restaurants.

Adelson thanked the government for attempting to work with him on the issue, but ultimately decided that if those demands were not met his company would not move forward with the project:

“While the government and many others have worked diligently on this effort, we do not see a path in which the criteria needed to move forward with this large-scale development can be reached…Developing integrated resorts in Europe has been a vision of mine for years, but there is a time and place for everything and right now our focus is on encouraging Asian countries, like Japan and Korea, to dramatically enhance their tourism offering through the development of integrated resorts there.”

It appears that while the Spanish government is desperate for tax revenue and job growth, it is not desperate enough to meet Adelson’s demands. They will seek other avenues to improve the economic situation, and Adelson will seek other opportunities in Asia. The Macau Sands arm of his empire has provided an increasingly large share of total profits in recent years.

The gambling market in Spain

• Unemployment in Spain is 27 percent

• 25 percent of gross gaming revenue goes to taxes

• Sportsbetting makes up roughly 48 percent of the Spanish gaming

While this massive initiative fell through, Spain has a large existing gaming market, with sports betting, poker, and casino games enjoying a lot of popularity. It is reported that there are over 40 full service land-based casinos spread throughout the country, providing an important part of the crucial tourism industry. The casino industry employs a lot of people and is an important source of public revenue.

While casinos are big, sports betting is much bigger. The activity makes up almost half of total gambling revenue in the country, with land-based casinos at only 18 percent. Despite the size of the market, betting shops and online sportsbooks in Spain have complained about the high taxes they are forced to pay. It is reported that 25 percent of gross revenue goes to the government.

With tax rates digging into profitability, unlicensed betting providers able to skirt them have become more popular. The creation of a large black market means no revenue at all for the government. Even if they won’t approve a large casino project like EuroVegas, would do well to cut taxes on gambling revenue, thereby giving licensed, tax-paying companies a bigger incentive to provide services.

What may the future bring?

Given the country’s current doldrums, it is crucially important to get people employed and reduce debt through collecting tax revenue. The status-quo is failing on both counts. Bringing more casino investment into the country won’t fix all of its economic problems, but it would help. Cutting tax rates on gambling revenues would reduce the size of the black market, and actually bring in more tax dollars. However, there is little indication that the Spanish government has the will or the inclination to make significant changes.