Learning From a Legend

The Many Makings of Sheldon Adelson

A decade ago, Sheldon Adelson faced the biggest challenge of his distinguished business life. Perhaps, this time Adelson’s absolute certainty in his convictions against conventional wisdom were a step too far. Shares in his company, Las Vegas Sands, had collapsed from $150 per share to under $1.50, and the doubters who had waited many years to prove Adelson wrong lined up to write his business obituary. Oliver Lovat explores the career of Sheldon Adelson and tries to understand what we can learn from the most unlikely titan of global gaming.

In 1933, in the shadow of Adolf Hitler’s rise to power in a fragmented and dysfunctional Europe, Sarah and Arthur Adelson, Lithuanian immigrants to the U.S., gave birth to Sheldon Gary Adelson. Like many on the tough streets of the East Coast, the early years of Adelson’s life were tough; the harsh living conditions of working-class neighborhoods were punctuated by the anti-Semitism of both the streets and the country clubs.

Many have sepia-tinged memories of a childhood in simpler times, but growing up in Boston was not an easy time for a Jewish boy with big ideas. Denied the educational opportunities that today’s children have and acutely aware of the fate of his people in Europe, Adelson knew from an early age that in this world that you had to either eat or be eaten.

In Adelson’s case, it was about financial security. With the awareness that he was undoubtedly smarter than the other kids on the block and with the strong work ethic and determination that was instilled by his family, desperate to succeed in the new world as the life that his family had known was gone, a young Sheldon went to work. With many of the established professions and businesses closed to Jews, Adelson turned to trading. He traded newspapers, candy and toiletries, his mind alive to trading anything where there was a demand for his goods.

After a short time at college, the army and as a court stenographer, he returned to business, selling more sophisticated products, including mortgages and financial services. Using his proceeds, he invested in companies, including the American International Travel Service, which proved to be a highly profitable venture.

However, due to circumstances out of his control, namely the economic crisis of the late 1960s, his fledgling empire collapsed, and Adelson was left to rebuild. He turned to real estate, brokering Bostonian real estate and developing condominiums. He diversified to publishing, and again, always looking for opportunities, and with the insights gained from his past experience, saw the synergy between the emerging convention industry, travel and other trading businesses, including the potential of technology.

At 40, an age when many of today’s businessmen are supposed to be settled in a career or are becoming risk-averse, Adelson made another bold change. He would go into the convention business.

Initially slow, the technology convention business grew steadily and in 1979, as technology advanced, his computer show, COMDEX, came to Las Vegas and quickly became the city’s largest and most successful trade show. Adelson grew the computer convention business almost single-handedly, acting as a conduit for cooperation and exposure for tech firms.

By the late 1980s, Adelson was not only wealthy in his own right, but sought to expand, acquiring the Las Vegas Sands hotel and surrounding land. Always looking forward, in 1995 Adelson sold COMDEX for $860 million and built the Sands Expo and Convention Center, a 1.2 million-square-foot convention center, the largest privately owned convention space in the U.S., which allowed him to operate his own conventions. He imploded the 715-room Sands hotel in 1996 and opened the $1.5 billion, 4,000-room all-suite Venetian hotel in 1999 to service his convention business.

Proven right again, Adelson could smile as he embarked a new journey, but not even he could have conceived where this road would end.

 

Las Vegas and the Venetian

It is difficult to recall how differently Las Vegas was perceived when Adelson acquired the Sands and the effect his influence has had in shaping modern Las Vegas. When writing the story of Las Vegas, it is easy to point to the radical legacy of Jay Sarno and Steve Wynn in casino design, the corporate influences of Howard Hughes and Kirk Kerkorian and innovative casino marketing strategies of Bill Bennett and Gary Loveman, but in many ways, the city’s legacy and resilience owes much to Sheldon Adelson’s vision and business acumen.

In 1995, when Adelson acquired the Sands, Las Vegas was still predominantly a gaming town, with cheap rooms, subsidized food and free drinks—with the casino being the primary income generator, providing nearly 58 percent of revenues.

Adelson wasn’t in the casino business. He was in the business business, and his Venetian took a very different business strategy than other properties.

In a 2014 interview, Adelson said, “If you do things differently, success will follow you like a shadow.” This was certainly true with the Venetian.

As he had proved throughout his career, Adelson knew his customer’s needs and would deliver on them in the way that he felt best. He and his team were the market leaders at convention sales and tourism, and knew their industries inside out. He knew that the conventioneers he catered to wanted nice rooms, and if they were prepared to pay $200 for a room in Orlando, Chicago or New York, why wouldn’t they pay the same in Las Vegas?

The conventional thinking in Las Vegas was to get the customers out of the rooms and into the casino. Adelson didn’t care about conventional thinking on room strategy, as his rooms were nearly double the size of the traditional Las Vegas room. Post-Venetian, resorts pay considerably more attention to the room product than before, and it is conceivable that by the close of this decade, room revenues will overtake casino as the primary revenue driver in Las Vegas.

The conventional thinking was to operate all the food and beverage internally as an amenity to guests. Adelson didn’t care about conventional thinking on food and beverage strategy, as he knew that if the offering was good enough, people would pay. When it came to food and beverage they were novices, so LVS took the radical step of outsourcing all aspects of their food and beverage program, with the exception of the casino bars. This had two effects.

First, there was a consistent revenue stream from the leases, and secondly, no operational headaches, especially from the trade unions which found the Adelson way of business not to their liking. The Venetian was the first integrated resort in Las Vegas not to have a buffet, which was deemed an essential component in casino resort development from the 1950s onwards. Even the 24-hour café, the Grand Lux, was an outsourced concept from the brains behind the Cheesecake Factory.

The conventional thinking was that casinos should be dark, where customers would not realize the time of day. Adelson didn’t care about conventional thinking on casino design; his were light and bright, whatever the time of day. Conventional thinking was that casino resorts shouldn’t operate shopping malls and should leave that to retail specialists. Again, Adelson didn’t care about conventional thinking when he built a shopping mall contiguous to his hotel. The Grand Canal Shoppes mall was ultimately sold to General Growth Properties, a retail REIT, for over $760 million in 2004.

Like Jay Sarno’s Caesars Palace in 1966, the Venetian had something bigger, something different in mind. Adelson sought to attract people to Las Vegas who had not been there before, catering to a different audience. He wanted conventioneers by week and tourists by weekend. Not just gamers, who sought to spend hours on slot machines, but real tourists, ones that would go to Las Vegas for the weekend instead of San Diego, Los Angeles or Dallas to go shopping, eat good food and see a show. If they gambled, great. If they didn’t gamble, also great.

Adelson’s effect on Las Vegas was profound. He had developed the first truly integrated resort, where non-gaming revenues were as important as gaming revenues, as the property gave customers everything that they could want under one roof. This was a convention and tourist resort with gaming, restaurants, retail, nightclubs, exhibitions, entertainment and a spa. Adelson foresaw what the Las Vegas Strip was to be, with gaming accounting for one third of revenues. As we know, all other revenues grew over the subsequent decades as visitors appreciated the quality amenities in the city and chose to spend their money on non-gaming activities which were on offer.

 

It Was the Best of Times, It Was the Worst of Times

Macau reverted to a special administrative region of China in 1999, and was a million miles from Las Vegas when in 2002, the Macau Government ended the SJM monopoly on gaming and opened the Chinese province’s market to external gaming companies.

Originally an outsider to the process, as MGM and Caesars appeared to be the leaders, the first of the Western companies to take advantage was Las Vegas Sands Corp., opening a casino designed and built in record time for $240 million. The casino opened prior to the completion of the hotel. It was a success, and the building’s construction debts were paid off in one year, as the Sands Macao shattered all gaming records for a property that size.

With such strong performance both in Las Vegas and Macau, Adelson not just doubled down, but quadrupled down. Sands was awarded a license and committed to build a casino in Bethlehem, Pennsylvania which was to open in 2008. His Venetian Macao, located in the reclaimed ground of Cotai, broke ground in 2004 with an opening in 2007. Sands was to build 3,000 rooms in the Palazzo, as part of the Venetian complex to open year-end 2007.

And most spectacularly, in 2006, Las Vegas Sands, originally perceived as an outsider to the process, won the right to build the Marina Bay Sands in Singapore and committed nearly $5 billion to the project. LVS was committed to over $10 billion of investment as the world’s debt markets collapsed, leaving it highly exposed.

In the U.S., the financial crisis was more pronounced than Asia, as households were directly affected in terms of discretionary spending. Adelson’s convention and tourism model was not helped by President Barack Obama’s advice to American businesses not to go to Las Vegas and spend money.

Competitors in Las Vegas filed for bankruptcy. Some managed to hold on for a couple of years before they succumbed. Others just survived, requiring emergency equity and investment to keep the doors open.

On November 6, 2008, LVS reported to investors, “There is substantial doubt about the company’s ability to continue as a going concern because of the company’s failure to maintain a certain ratio of debt to earnings as required by its lenders.”

Speculators eyed up Sands. Unfinished buildings, huge debt, declining market, bookings down. Adelson was toast.

For nearly all businesses, a public declaration like this would usually mean the end. However, when reflecting on this time, did Adelson himself have an outlook that almost every other CEO in his position would not have? Forty years ago, when many of his contemporaries were at college and those analysts forecasting a sale were not even born, Adelson had seen this storm before, and last time did not have the ability or wisdom to face it.

It’s likely he had long considered “what if” his 1960s business had not folded. Now he could prove himself and in his own decisions.

In the South China Post and regional media, there were frequent comment pieces challenging how a Las Vegas-based conventioneer could understand the Chinese customer, prophesizing failure. However, the failure was in not understanding the mechanics of Adelson’s decision-making. Adelson and his team knew the Chinese customer, because the Chinese customers were like him and his family. This was a nation of over 1 billion people benefiting from economic freedoms, the ability to start businesses, take risks and challenge luck.

Yes, there are cultural differences, but from a psychological point of view, people in China wanted the same as people all over the world—good amenities, nice rooms, good food, and in Asia, to gamble. Moreover, what Adelson saw that the analysts didn’t was the revenues that were beginning to come in from Macau—while all the U.S.-centric analysts wanted to look at was the Armageddon of the Las Vegas casino market and decline in convention bookings.

In what must have been his boldest decision in a 50-year career, Adelson personally recapitalized the company of which he was the largest shareholder. Had he failed, it may have wiped him out. However, he watched as Macau overtook Las Vegas to become the gaming capital of the world, peaking with revenues at $45 billion, and LVS was the biggest player in that market, generating nearly 50 percent of the market’s EBITDA.

For Las Vegas Sands, the period of 2007 to 2010 really was a tale of two cities.

Today, Las Vegas Sands, Adelson and the iconic properties in Macau, Singapore and Las Vegas are admired success stories. Adelson’s LVS is a front-runner for a casino license in Japan, in what promises to be one of the most lucrative opportunities in global gaming. Who now would bet against Sheldon Adelson?

 

Adelson’s Business Success

Many books have been published about the careers of the great innovators and marketers of the 20th and early 21st century. The technology entrepreneurs of the late 20th century are rightly lauded in developing and exploiting new technologies creating businesses that are essential for modern living. Investors and financiers used the power of global markets to uncover value and efficiently run businesses for maximum profit.

The role of marketers—from the technology-driven big data analysts to the bold showmen with big ideas and bigger personalities—is celebrated. Somehow, Adelson does not fit in the conventional stereotype. His is a story of shaping business to the evolving needs of the customer. He is an entrepreneur, yet of established and traditional businesses—moreover, businesses for people.

The lessons below have been adapted from work done by Peter Druker, the father of management theory, and Adelson’s own reflections. Let us call this program, “The Adelson Attribute Management Model.” Within this model, there are aspects to consider in personal training and development with the outputs being managerial competence, trust, efficiency and entrepreneurial thinking.


The Adelson Attribute Management Model

Be Effective
In his work, Druker is repeatedly concerned with managerial effectiveness, and the same is true for Sheldon Adelson. Effectiveness is the blend of insight and work ethic. It is the self-discipline required to turn intelligence to knowledge and to be able to operate within an organizational structure. Naively, the smartest person may not be the most effective, but the best executive or business person will almost always be, and these skills are proven within structures that are created around the individual to enable their abilities to excel.

Adelson’s breadth of career proves Druker’s hypothesis that those executives that specialize, for example in on single skill set, such as accounting, law or medicine, rarely have the breadth of insights to best handle the multi-variance of challenges that occur in business, as situations are fluid. Some believe that effectiveness is a gift that falls on some, but in truth with a range of exposure, focus, dedication and above all else, personal diligence, individuals can create their own structures and environments to maximize their personal effectiveness.

 

Have Values
As we know, Adelson’s upbringing was unlike many that exist today in terms of hardship and lack of opportunity. There was no silver spoon or personal safety net, yet he regularly talks of the most valuable gift bequeathed to him by his parents, those of values.

Values cost nothing, but are vital in understanding the sense of self and purpose. Outside of business, Adelson is one of the greatest philanthropists in the world, and he uses his wealth to help and inspire those both within his community and outside, as helping others, supporting America and the Jewish people which are part of his DNA.

As we note, leading a business involves making decisions, and without a manager directing you, the individual has choices to make. Personal insights and values have been at the core of Adelson’s business career.

 

What’s Next?
The late Israeli president Shimon Peres used to say that the Jewish people are never satisfied and will always do things better. Adelson’s career is illustrative of this. Many businesses are risk-averse and seek incremental growth. These are destined to failure unless the CEO is looking out and not in.

 

Trust Yourself
Executives form personal opinions, and in many cases these are subjugated by conventional wisdom, established norms and widespread market analysis. The lesson from Sheldon Adelson, like many entrepreneurs, is to trust your own judgment.

It is good, if not essential, to think differently at solving problems and analyzing challenges. Implementing free thinking is a high-risk strategy for many corporate businesses and consensus is always perceived to be a safer option, but Adelson has challenged this repeatedly, and this is the cornerstone of his success.

 

Understanding Your Market
All Adelson’s businesses have been customer-driven. He has a clear perspective on customer psychology and market function. He knows views on what people want and how they want it, and has a strong view on how to deliver it. This is part experience-driven, but also demonstrates a deeper insight into people.

He understands that while it is important to meet aspirational wants, Adelson’s businesses are all about functional needs of a particular market, and if he can supply these in a commercial environment, where a profit can be achieved, then there is business case to be met. If you cannot understand that market or that business, leave it to someone else and revert to what you know.

 

Implementation Challenges of the Adelson Business Model
It is relatively simple to codify the business attributes of Sheldon Adelson. It is hard to implement these in a commercial environment.

As indicated, Adelson’s businesses have followed a pattern of high growth, expansion and dominance of competition. This success has relied on a singular top-down management culture that is reliant on competent, confident management personnel that share the methodologies and adopt the vision as set out above.

His business structures are decidedly non-corporate, and great power is held by a few people.

Within corporate structures, it is nearly impossible to inculcate the culture and experiences required to broaden the thinking of management to be like Adelson, and corporations are reluctant to promote entrepreneurial minds that do not follow the prevailing organizational thinking—even when that thinking is validated by outside experiences.

Ironically, the outsider thinking of Gary Loveman and Harrah’s MBA invasion in the early 2000s (which had a very different vision than Adelson) had a similar transformative impact on gaming, but was heavily focused on internal reflection over looking at future challenges.

 

Hindsight
With the benefit of hindsight, the business world should have been more confident of the durability of Adelson a decade ago.

They should have known that unlike many competitors, Adelson had been there before, taking notes and looking forward. Today, even his most ardent of critics and detractors can only admire the business savvy and confidence of one of the world’s most unique and resilient businessmen, as he proved, yet again, that nobody should underestimate the instincts and decision-making of this most unorthodox business outsider.

We can only hope that others can look at and benefit from his strategic legacy and try to replicate much from Sheldon Adelson’s unique business career.

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Oliver Lovat FRICS is visiting faculty at Cass Business School in London. As CEO of Denstone, he advises customer-facing, asset-backed businesses on strategic competitive advantage and maximizing value. For a full version of this research, contact him at oliver@denstone-re.com.

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