How Dubai lost Billions betting on Las Vegas

While Las Vegas has largely turned around following a recession in the mid and late 2000s, there are still some major losers in the aftermath. The Dubai government and their investment arm, Dubai World, are definitely among the losers, having lost billions on their 2007 investment.

The Motley Fool recently covered this devastating investment while focusing on Dubai’s $2.96 billion stake in CityCenter and its $1.74 billion investment in MGM Resorts International. Beginning with the latter, Dubai World acquired MGM Resorts stock for more than quadruple what it was worth at the time. And over-paying for this stake certainly hasn’t proved fruitful since their combined MGM shares are worth just $520 million today – a $1.2 billion loss.

But as Motley Fool pointed out, this pales in comparison to how badly their CityCenter investment has panned out. At the time, this seemed like a cutting-edge deal since CityCenter was expected to be Vegas’ next mega-resort, with its many condominiums, nightclubs, restaurants, shopping and spa.

Fast-forward to today, and CityCenter has been a major failure when considering the lofty expectations put upon it. For starters, the $400 million Harmon Tower is being torn down without a single resident ever having lived there. And the resort itself has pulled in just $18.3 million in operating profit.

After pulling out MGM’s 50% investment in CityCenter and the resort’s $1.55 billion debt, Motley estimates that Dubai’s initial $2.96 billion investment is worth just $696 million today. Despite Dubai World’s struggles with the CityCenter, others from the United Arab Emirates continue to invest in Vegas. Here’s one excerpt about a wealthy investor who’s gambling that the Vegas nightclub scene will remain trending upward:

Despite Dubai’s losses, other of the UAE’s inner circle continue to bet on Las Vegas. Hakkasan Group, funded by Abu Dhabi’s Sheikh Mansour bin Zayed Al Nahyan, is taking over the Las Vegas restaurant and nightclub scene. It built the $100 million Hakkasan nightclub in the MGM Grand, bought Enlightened Hospitality Group this year, partnered with MGM to build nongaming resorts, and is rumored to be acquiring Morgans Hotel Group’s stake in Light Group.

Dubai World’s acquisition of MGM shares and half of CityCenter was made at the peak of the real estate boom, and I can’t help but wonder if Hakkasan is betting on Las Vegas at the peak of the party scene. At least this time around there aren’t billions of dollars at stake, just a couple hundred million. That’s a low-stakes gamble compared to Dubai World’s bet on Las Vegas.

Betting on Vegas these days certainly isn’t a bad investment. Perhaps this is why the wealthy and elite from UAE continue to do so. And these days, Hakkasan and others will be hoping that their investments turn out well.