Spanish casinos bet on rebirth through Eurovegas
By Emma Pinedo | October 16, 2012 3:42 AM EST
A U.S. tycoon's plan for a massive "Eurovegas" near Madrid might look like a terrifying prospect for Spain's existing casinos, but the struggling local industry hopes to benefit from the big new competitor.
Spain's casinos have seen revenue fall 40 percent since 2007, hit by a prolonged economic crisis that has put the country at the centre of the European debt crisis.
On top of high taxes, a 2011 smoking ban threatened to be the final blow to the struggling sector. Ironically, the arrival of a big competitor may help.
U.S. casino baron Sheldon Adelson aims to build a 15-billion-euro (12.10 billion pounds) resort with six casinos and a dozen hotels and to lure gamblers from across Europe - but his plan may hinge on changes to tax rates and smoking regulations.
Spanish media have reported that the government is considering tax breaks and some exemptions from smoking rules in order to bring tens of thousands of jobs to a country where one in four workers is unemployed.
If the reports are true, local casinos are ready to welcome Adelson's Las Vegas Sands.
"It's good news for the sector because these types of casinos use a high-investment, low-tax model to function. No one would invest this amount of money ... under the current tax regime," said Heliodoro Giner, secretary general of the Spanish Casino Association.
The hope is that any regulatory changes in Madrid would expand to other regions, where traditional casinos have also been hit this year by the legalisation of online gambling as the government chases new sources of tax income.
RULES OF THE GAME
The tax on gambling differs in each of Spain's 17 autonomous regions, with an average rate of 55 percent of gross revenues plus traditional corporate tax.
This leaves slim margins, according to sector players, who say even loss-making casinos are obliged to pay taxes - with some 75 percent of Spain's casinos in that situation.
When Madrid and Barcelona were competing for the Eurovegas project, the capital's regional president at the time said she was willing to modify laws to facilitate the project.
Provincial casinos hope that will spark a chain reaction beyond the capital.
"Madrid will announce a much lower tax rate and we'll see what happens in neighbouring regions. It doesn't make sense that a casino pays 10 percent in Madrid and 55 percent in Valencia. This is a great chance to boost the sector," Giner said.
However, any moves by the regions to ease taxes may be opposed by the central government as Prime Minister Mariano Rajoy - who is weighing when to seek a euro zone bailout - is under intense EU pressure to raise revenues and meet budget targets.
Lifting the smoking ban - which applies to all indoor public places - may also face opposition from the health ministry.
The Spanish Casino Association said between 15 percent and 18 percent of the gaming sector's revenue declines is due to the anti-smoking rules. "Gamblers are smokers," one analyst said.
It would not be the first time that Spain has relaxed rules to stimulate jobs and the economy.
During the construction and real estate boom that fuelled what was seen at the time as Spain's miracle growth between 1997 and 2007, residential and commercial complexes popped up along beaches and nature reserves once ruled off-limit.
Rajoy recently re-regulated, passing a new law to protect the coastline after what environmentalist say was a decade of destruction.
Legal problems for Las Vegas Sands in the United States have not dampened enthusiasm for the company in Madrid.
Adelson's company is under investigation by U.S. authorities for alleged violation of anti bribery laws in Macau. Adelson has not been accused of any crimes by state or federal investigators.
The Madrid region's new leader, Ignacio Gonzalez, said on Monday Eurovegas was a priority for his administration and for Rajoy.
Given Spain's economic uncertainty, there is a good deal of scepticism as to whether Eurovegas will ever become a reality.
But if it does, Madrid's two main casinos will face a massive new competitor.
They currently pay 45 percent tax and are pushing for a swift reduction that would give them a three or four year window of survival before the mega-resort opens.
"We'd like the cut to take place immediately," said Jose Maria Paredes, spokesman for Casino Gran Madrid.
"If the change comes once it opens, it would be too late."
(Writing By Tracy Rucinski; Editing by Fiona Ortiz and Robin Pomeroy)
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