EDITOR, The Tribune
DR MINNIS and the new ministers face a daunting task over the next number of years: living with the legacy of Baha Mar.
Because of the secret intertwining of Baha Mar and the government of the Bahamas, it is difficult for an objective and reasonably knowledgeable observer to see how Bahamians are going to profit from Baha Mar.
Putting aside, for the moment, the issue of not collecting the VAT on the sale (theoretically, some believe it should be collected on both the initial transfer to one Chinese entity by Deloitte & Touche, and then on the final sale to another Chinese entity, possibly on amounts as high as $4.2 billion), one question will loom large in the next ten years and beyond: can Baha Mar operate profitably?
As a close but informal observer of Baha Mar, I’ve yet to see a published operating plan leading to profitability for Baha Mar, using generally accepted resort/casino-business operating standards. Have basic assumptions been made, and the right questions asked?
• We must first assume the final Chinese entity owning Baha Mar must pay VAT of 7.5 per cent on roughly $4bn to the Bahamian government (side agreements made that do not comply with Constitutional requirements are not legal, and must be set aside, we presume?), meaning at least $300 million is due.
• The Chinese owners and its operators must then operate this massive project profitably, so they may pay back the construction debt owed, in an orderly manner. Assuming 30 year terms at perhaps 6.5 per cent interest, that means the Chinese must generate cash flows including at least $260 million in interest payments per year, plus some system to pay back the VAT, both costs over and above the cost to operate the resort in the first place.
• How do the Chinese owners anticipate attracting a totally new tourist flow of roughly 1,500 rooms per day (2,400 rooms x 65 per cent, an industry standard all hotels hope to meet to break even), meaning roughly 3,000 people housed every day, without reducing the occupancy of Atlantis and other surrounding hotels?
• Is the infrastructure in place to support 3,000 new tourists daily, meaning reliable municipal electricity, water supply, waste treatment, air conditioning (was the futuristic sea-water cooling system ever built?), refuse, roads, local transportation, health and safety, and finally, the needed near-continuous air-bridge to Miami and Fort Lauderdale and other major US and world cities?
Based on my 41 years living on Miami Beach, and visiting many casinos worldwide, I fear that there are simply not enough new tourists to meet that medium occupancy. I have seen casino after casino open to great fanfare, then slowly wither and die as global casino and resort interest changes. Tourists are increasingly fickle, as more and more interests are introduced around the world. You only have to look at Atlantic City in New Jersey: I was there the day Trump opened his Taj Mahal to great fanfare. But it eventually went bankrupt, finally selling for four cents on the dollar. That’s correct: For every $100 invested, investors and banks received only $4 in return.
Normally, having a huge project like Baha Mar (really suitable only at a major successful entertainment centre like Las Vegas or Macau) slowly moulder is hard enough on any municipality and country. But because of the Bahamian Government’s efforts to get Baha Mar open at any cost, the possible loss of hundreds of millions of dollars in VAT collection and the doubtful collection of profits from a never-quite profitable hotel and casino, Bahamians may realise soon enough they are looking at many years of struggle.
While some of Baha Mar’s operators are indeed experienced, overall, Baha Mar may prove to be too big to operate in the Bahamas, profitably. Ever.
If the Chinese owners and their experienced operators have meaningful and realistic plans for a profitable Baha Mar generating sustained revenue for the Bahamas, I’m sure the people would like to see it.
May 18, 2017