When Las Vegas Sands was in serious financial trouble earlier this year, Chairman Sheldon Adelson turned to an old friend to take over the position that had been vacated by Bill Weidner, LVS board member Michael Leven. A longtime “hotel man,” Leven was headed US Franchise Systems, Inc., the company he founded in 1995, which developed and franchised the Microtel Inns & Suites and Hawthorn Suites hotel brands. He was previously the president and COO of Holiday Inn Worldwide, president of Days Inn of America, and president of Americana Hotels. He has also served on the board of directors of Starwood Hotels and Resorts and Hersha Hospitality Trust. With LV Sands for six months, Lewen entered a company in financial, operational and developmental distress. He spoke with Global Gaming Business Publisher Roger Gros at his office at the Venetian in Las Vegas in October. The full version of this interview, which includes Leven’s comments on Sands Bethlehem, the Las Vegas market, the Macau situation and his relationship with Adelson, is located at www.ggbmagazine.com as well as a recorded podcast at www.ggbnews.com/podcasts.
GGB: You took over about six months ago, and it’s certainly been a tumultuous six months. What was the first task you focused on when you came on board?
Levin: The first was that the company was embarking on a major cost-reduction program and a right-sizing program that we had to complete. As part of that situation, I had to make sure that we had the right people in place, particularly in Asia, to execute those programs, to execute that right-sizing, and to steer those operations-the existing operations in Macau and the future operations in Singapore-in an appropriate direction. We had appropriate management in Las Vegas. My concentration in Las Vegas was to provide assistance in the right-sizing efforts here, but in Asia, we had some difficulties that had to be corrected. So the first was the right-sizing; the second was hiring the right people; third was the balance sheet.
Was the survivability of the company a focus at that point?
I think the reason the stock price was what it was is that people didn’t really understand the basics of the company, other than looking at debt covenants and the financial situation, and as a consequence, people attributed a significant amount of risk. Sheldon (Adelson) never believed that the company was really in dire straits, from the point of view of bankruptcy or any of that, and having been on the board for four and a half years, when I came in I really felt that the company was very salvageable, because we had great assets and a cadre of very good people. I just think we lost our way a bit over the last couple of years and made a few mistakes. It happens at every company, and we’re not impervious to making mistakes either, but they had to be corrected. We had to right the ship and get on a different course. I think survivability was never really a real concern of mine, it was how we were going to survive.
Are you comfortable now with the debt load the company holds, or are you still working to rectify some of that?
We developed a five-step process to get our company back into a situation where we would be in compliance with our debt covenants, and eventually we’ll begin to pay down debt. We have to pay $500 million down in the Macau situation, assuming the IPO does well and gets done. With Singapore opening as well as the future of Macau and when Vegas turns, we’ll have appropriate facilities to pay down debt. Also, Sheldon’s basic theory of selling the non-core assets-malls, apartments, things like that-will come back into play as the economy turns around. We’re in a very good position from a cash flow standpoint going forward. We think we can certainly pay all the interest, but paying it down is going to be a matter of producing more cash than we have.
How is Sands Bethlehem performing? Can you give us a timetable on the hotel and later build-out?
I think, very candidly, the property is not meeting our expectations at the moment. It’s generating less EBIDTA than we thought would come out of it at this time. Some of that, actually, is our own fault, because not having the hotel, not having the retail facilities or the conference center, has affected that. It still produces very strong business on weekends; midweek is a problem there. It continues to be a problem. We’re adding two more restaurants, opening in November, and we expect now with the new legislation coming in with Pennsylvania and table games, that that will significantly give us more revenue and allow us to really dig down deep to see whether in fact we should finish the hotel and other facilities. I’d say the timetable for that is a little bit away in front of us at the moment.
But obviously that facility was designed for the hotel, for the meeting space and the retail as well.
Once again, candidly-we overbuilt the facility. It’s not a slot parlor, per se, it’s a lot more. It’s a slot parlor as part of a larger complex. The fact that we had to stop that expansion last year I think has hurt Bethlehem’s numbers, and we’re hoping that with table games coming in that we’ll be able to generate enough to regenerate those products.
Let’s talk about Las Vegas. Every property here has been feeling the pinch; it’s been a brutal year. Room rates and occupancy rates are down; of course, gaming revenue is down. How has the economy been impacting the operations here at the Venetian and Palazzo?
People coming into the hotel is not our problem. We’ve had three or four very unlucky months in the casino. We’ve had the play, and our win percentage has not been on a theoretical basis, and as a consequence, it’s hurt our results in the last four months. Everybody tells me-I’m only in the business six months-“Eventually you start getting what you’re supposed to get. Otherwise, you shouldn’t be in this business.”
I think generally retail business is obviously pretty poor, and it’s been poor everywhere. Our group business was not up to expectations, but our future bookings-our July, our August and our September bookings for the future-exceeded last year dramatically. So we think groups are coming back, but the price still isn’t there. We took a lot of costs out of Las Vegas, so as long as we keep our occupancy up and get reasonably lucky on the tables, we’re going to be OK. We can wait it out.
What CityCenter is going to do I think is going to prevent rates from accelerating, particularly on the FIT and wholesale sides of our business, because they’re just more rooms on the marketplace. So that’s going to prevent rates going up a lot. But I think we’re positioned, the way we operate and the nature of our products, that we’ll do enough business to still generate appropriate returns.
How about the meeting and convention business? Has that been down as much as room rates and the gaming revenues?
The convention business is down this year. Next year, it looks better. Rates are still not there. Our gaming business is really not down; it’s down in terms of our win, but it’s not down in terms of our play significantly. In fact, as I said, if we had won just the theoretical number in the last four months, we would be OK. Not spectacular, but certainly no one would be worried about us. I can’t speak for the other hotels because I don’t track them really as much as some of the other people in the business do, because I really focus here, but our EBITDA results for the entire company as a whole in the last couple of months have been relatively good compared to last year, in spite of the economic environment. But we need to get luckier.
You mentioned CityCenter-just your gut feeling, do you think it’s going to be accretive or dilutive in the short-term?
I think clearly it’s going to be dilutive in the short-term. I think also it’s going to be creative in the long-term. I’ve been in the hospitality business for 50 years. I’ve seen different situations and different cycles, not only in other cities but in Las Vegas as well, when supply comes in and supply goes up, you always have some kind of downdraft, since supply seems to always increase during times when the recession hits. Eventually it’ll be absorbed. I think CityCenter will more than likely contribute some very high-quality facilities to the city, and I think some of, the lesser players are going to get hurt pretty badly. And MGM, they may do some cannibalization of some of their own properties. But more so on the macro basis, it’s going to hurt room rates in the city. It’ll be a year or so, maybe more, before we have some semblance of real improvement, rate-wise. But I do think CityCenter will attract, hopefully, as Jim Murren has said, more travelers to Las Vegas, and maybe some different travelers because of the upscale nature of those properties.
Have you been able to attract some of your Asian players to Las Vegas, because you have such big operations in Macau now and Singapore-have they been coming to Las Vegas in any great numbers?
We’ve had Asian players here prior to Macau. I don’t know if we’re getting more players, but I mean, our top players are pretty much all Asian. That’s run by our casino marketing department. We’ve generated a significant amount of players this year, as we did last year. They’ve been luckier than we’ve been in the last couple of months. But that will turn too.
Let’s turn to Singapore. You’re building a project there, and, last time I looked, it’s estimated to be about $5.6 billion. When you came in, the bid was $3.5 billion. What were the chief reasons that the price has almost doubled on that facility?
I think the chief reason for the real expansiveness was that 40 percent of that building and that whole facility’s underwater. I don’t mean underwater financially, I mean literally under real water. Going down deep and building the foundations of that facility first of all took considerably longer than we thought it would take, and it was considerably more expensive. I would guess to say that at least half of the overrun is in that particular area.
The other thing that we found is when we made the presentation to Singapore, we presented a spectacular building with unique engineering situations and things that people have never seen before in a hospitality or gaming complex. I think we underestimated the cost of construction, the cost of design and the cost of completion.
We’re still finding things we didn’t think were there. We have a pretty big contingency there, and we haven’t gotten any indication that we’ll be over the $5.6 billion, but that $2 billion was basically half in getting the foundation in and half in the nature of what’s being built. It is nothing short of spectacular.
As we’re speaking now, we’re beginning the lifting of the skypark. Everybody is saying their prayers that the first piece, which I believe is the heaviest piece, is supposed to go up in the next 24 to 48 hours. It’s a major engineering feat to get 700 tons of concrete in one slab up in one area 56 stories in the air when wind over five miles can hurt it, rain can hurt it, and if it slides the wrong way and hits the building, you’ve got real problems. It could crush a floor, do things like that. It’s an amazing thing. I think, assuming that that gets done well, which it has to be, you’re going to see a place that no one’s ever seen before. Not only the skypark, but the theaters, the museum, the nice facility and all the rest. It’s just out of this world.
That overrun is pretty big. Are you confident that you’re going to be able to increase the revenues enough to make up for that?
We’re projecting some pretty significant numbers in Singapore. We certainly should get 20 percent or so returns on our investments, maybe more if you take the debt out and just on equity. On equity it’ll be more than 20 percent. We expect by the second year in Singapore we’ll mature, and then start paying down some of the debt. In reality, nobody really knows what’s going to happen in Singapore. I can tell you what I do think I know. I do think it’s going to be a spectacular convention and meeting and social facility, and from a hospitality standpoint. What we really don’t know is how good that Singapore gaming market really is. Most of the investment banks and others have put out reports indicating what the value of the gaming market is for Singapore. If they’re anywhere close-because of the tax structure and what-have-you-we’ll have a real homerun there. But we don’t know for sure.
Are you comfortable with the regulatory scheme there and how they plan to operate the VIP junkets?
I met with the CRA when I was in Singapore a few weeks ago, and told him, “Look, we’re prepared to go either way. We’re prepared to do it on the junket basis and VIP and the Macau way, or we’re prepared to do it the Las Vegas way, which is a very moderate amount of that, very small amount of that, and more on premium players.” As of last week, it looked like they were turning towards the premium player situation because the junket situation really wasn’t going to work for them. We’re fully prepared to do that. We’re working on credit situations; how we handle the premium players ourselves. It’s probably harder to do it that way, but it’s more profitable if it works. I think it’s not quite clear what’ll happen. Some people predict they’ll start that way and then loosen up as they go. I can’t speak to Genting, but I think that they would have more difficulty-since they run VIP stuff and they’re more experienced at it-that they would prefer it to be a little looser on the junket side. I think some of our casino people probably would too. From our point of view, both Sheldon and my own, whatever way it is, just define it for us, and we’ll make it work.
It looks like the regulatory system as it’s written is well done, taking the best from the U.S. and Australia and some of the other jurisdictions. There’s apparently a cash-reporting issue that the casino has to track all the players so that they don’t spend an excessive amount. I’m not really sure how that runs.
I’m not really sure either, except there’s deposits that VIP players have to make that are pretty significant. I think Singapore really wants to be careful, and to build a system that is world-class in terms of quality, lack of potential for anything that might happen improperly, and that’s why they forced-I think rightly so-integrated resorts and not just casinos, per say. I think it’s a work in progress. I think it’s going to start some way and then be modified along the way.
How about access to the site? I understand there’s a subway station that is supposed to be completed around the same time the building is completed that now is completely behind schedule. Are you a little nervous about that, or do you have enough parking contingency that you’ll be able to bring people there anyway?
I think that although a lot of people in Singapore use cars, we think a lot of people will come by public transportation to a place where they can get off. But most will come by taxi. A subway would’ve brought a lot more local people there. Taxis are relatively inexpensive in Singapore, and we do have parking. If the subway were there, we certainly would be happier about it, but I think it may impact perhaps retail and some of the other things more than the casino. Casino players are going to find a way. People who would shop, go to Orchard Row or whatever, who could conveniently come by subway, it might be tougher for them. But we’re pretty much dependant on taxis. There is a bus line that people will come by. It’s a question of what the quality is of the people who are coming. The resort is going to have so many things going on in it: skating rink, restaurants, shows, Lion King, and all this kind of stuff. They’ll find a way to get there. Clearly it would’ve been better if the subway were there because it would have dropped people right off at the casino door practically. It’ll make it a bit more uncomfortable, but I think in the early going, it might be a blessing in disguise, because getting used to handling the volumes of those people with everything working at the same time, it might be too much for us.
What about the locals? That’s an interesting component they’ve had by charging them an entry fee to get in or an annual entry fee. Is that a concern of yours? Have you done research on how many locals have indicated they would sign up for it?
Yes, we have some research that indicates that the $100Sing fee is not going to be in the way at all, but the research on the annual payment came back with significantly less people would buy the annual. I think you have to go 20 times to make up for the annual pass or something like that, which means you’d have to go almost every other week. In the early going there was some concern about the fee, but what we’re told by local people there and people who know the indigenous population, if they’re going to play, they’re going to play. It’s US$60 I guess, and it’s only for locals, so it won’t bother anybody else?
Are there ways you can return that fee in terms of cash back?
We can’t. The rules do not allow any of that kind of situation. When somebody told me about it first, that was the first question I asked, “Can you return it?” But it’s not allowed.
It’s a level playing field for Genting as well.
We hope so, although we don’t know whether Genting might be smarter at finding ways around it than we would be. I don’t think anybody wants to fool around with that situation.
This facility was proposed by the Singapore government to draw more meetings and conventions, as well as tourism. What kind of presales are you getting in terms of those sectors of the revenue stream?
We’re getting a lot of inquiries in the last six months as the product finally came out of the water and was on the ground. We’re somewhat light in our bookings for ’10. We don’t start taking anything til April anyway, but for ’11 we’re looking at somewhere around 100,000 rooms or so on the books, and we’re getting better every day. We’re beefing up our sales operations now. Everybody knows that Singapore is a very good solid MICE destination. Between us and the Suntech Center and Genting themselves, there are three actual MICE venues now in Singapore, plus a great airport. I expect that by the end of ’11 and into ’12, you’re going to see really, really significant MICE business. We’re not worried about that at all.
The performance of this property is important to the company, but is it kind of a make or break element here?
If Singapore fails, then I think it would be a major problem for the company, but I think that if it doesn’t reach expectations, the company’s going to be fine. It’s not a boom or bust scenario. I think it’s going to be either a moderate success or a fabulous success. I can’t see it failing. Obviously, our ability to pay down debt and to do what we have to do depends a lot upon what Singapore’s EBIDTA is, and if it’s half what we expect it to be, we’ll pay less down. It’ll put other pressures on, but certainly not make or break in terms of the company’s survival. I think, without trying to predict anything, I think if Singapore does not perform very well, it’ll be hard to have a very high-performing stock. But that doesn’t mean the company’s going to be having problems.
Give me your vision for Macau. When the IPO comes out, what have you projected to be the future for Macau in the short-term and in the long-term?
I think short-term, when the IPO gets done, $500 million of debt will be paid down and we’ll be sitting with $2.8 billion of debt. The Macau predictions in terms of income from the present operations are all in the public documents and they’re all in the analysts’ reports; you’ll be able to see them. I can’t really talk about them. We’re in pretty good shape there. The hope is that with the Macau IPO, we will restart five and six, which will put an additional 6,000 to 6,500 rooms in the marketplace, which will take a couple years to grow out, but another very significant casino, entertainment space, etc. We believe that five and six is a game-changer for the Cotai Strip. It’s always been Sheldon’s vision to have Las Vegas East, and we think it will generate a lot more activity. Steve Wynn is talking about doing his product there; we have sites seven and eight, site three, so eventually the long-term vision is by Sheldon’s 80th birthday, which is four years from now, we should have five and six and maybe seven and eight or something like that done so he can have his 80th birthday party and see his vision for the Cotai Strip done.
Five and six is going to be a game-changer because for the first time we’re going to see, although Hyatt is there now, we’re going to see some major international brands like Sheraton and Shangri-La or whatever come to the Strip, and see what they actually do in terms of generating the kind of mass-market tourist and tour and MICE business that really isn’t there quite yet. We do some of it at the Venetian; we’d like to do more, but for the Cotai Strip to really be what Sheldon believes it should be, you need to have all those segments working. I think the IPO is critical, because it will help us do our project financing for five and six, and we will more than likely put more equity into five and six, and that will stimulate other situations. I think, unlike Steve Wynn, we intend to put more money into Macau; he’s taking money out of Macau. I hope we get credit for it.
You also have Galaxy, which they say they’re going to restart next year as well, so they’ll be another major project along the Strip there. Obviously the more critical mass you get there, the more people are going to visit.
It’s always been Sheldon’s theory that the more you have, the more people will come. I agree with that 100 percent. There is a ramp-up period, and once you get built-like with Singapore’s MICE space, people don’t book it until they see it; they don’t book it until they believe it. Since most of this stuff is booked a year, two years, three years, four years out, you don’t always see right away the thing filled. I think over time-everybody knows that Asia, China, Singapore, all these countries are where the big growth in the world is, the big middle class growth in the world is today. It’s certainly not here and it’s certainly not in Europe. We predict that perhaps 80 to 85 percent of our EBITDA will be coming from Asia as a company, which I think is a very significant competitive advantage.
Let’s talk about the executives you’ve appointed both in Macau and in Singapore. These are people with hotel experience and not much gaming experience. Is this an indication that the company is looking more toward the hospitality side, or is it just that you’re more comfortable with people with hotel experience?
No, I’m not more comfortable with people with hotel experience than gaming experience. I think the facilities in Macau and the facilities in Hong Kong and in Singapore at the chief executive level require somebody with broad business background. I looked at people who were not hotel people either.
You can always hire hotel people and you can always hire casino people. I think we have enough people who understand the business to be able to drive strategies to these people, but I needed professional management people-people who could manage a diversified product line and balance it out. I happened to find two extraordinary people, both of whom were very different in many ways who bring something to the table. Steve Jacobs in Macau is an extraordinary executive who I’ve known for many years and worked with for many years. Tom Arrassi in Singapore I’ve known but never worked with, but I’ve known him through the business for many years. They bring different skill sets in terms of their management style and what-have-you. I don’t think there was any prejudice for a “hotel person” or for a gaming person.
The gaming industry-you look at some of the people who run gaming operations, and I’m not sure the CEO of some of the companies we have here, at Harrah’s and MGM, I don’t know that they came from the gaming business. I think the technology in a particular field-you can always hire a chef to cook, you can always hire a salesman to sell, you can always find the technological experts, but what you can’t find is the generalist who can put all these things together in an appropriate way to maximize the results. First and foremost you need very, very good management. In Macau previously, we had a guy who was a casino-based guy, and basically he spent his time with the VIP people, and the casino was very profitable, and the rest of the place was left by itself. He would’ve been a decent guy to leave there running the casino operations, but he couldn’t do the whole thing.
In Singapore, we have very good, solid casino people, and now we’ve rejiggered that team a little bit to bring in…hotel people were there before; we’re putting some different people. I’ve had Asian experience in my own career, and I found that you have to be very careful when you go into an expatriate environment. You have to have the right sense of urgency. You can get loads of sleep by living and working in Asia for many years, believe me. It’s a wonderful place, and it’s a great place to get loads of sleep in, but when you’re opening a $5.5 billion situation, or a Macau facility, with all those facilities it could $20 billion worth of stuff, you’ve got to have a sense of urgency.
How about your bench strength in terms of executives in the company? We’ve seen some executives leave in the last few months or so. Are you comfortable that you have people in place in the corporate level of the company that can drive the company where it needs to go?
I think when I took this job, one of the things that Sheldon Adelson said to me was, “I’m going to give you a contract for two years and I expect you to find a replacement.” I don’t know if he’d say that to me right now, but maybe he’d say maybe three years, maybe four years. I’m always looking for people who can replace me or be in the top, and I’m still searching for a number of executives. I brought in four or five people. I have a couple of empty slots that I’m still looking for now in different specialties. But I also try to upgrade internally, at the lower levels as well. I try to find bright people, good people. There are some barriers to that that I find along the way because we have some entrenched ways of doing business here, which I’m trying to change and occasionally gets me upset about, but I think at the end of the day, it starts at the top by having good-quality people. I think that we have to look at the company as a business now, not just as the gaming industry. It’s not just about big-time Asian players; it’s not just about conventions. It’s about making sure we have the right customers for our retail shops and everything else. On the human resource side, I’d say the human resource side-if you can divide my job into threes, one-third is the human resource side, one-third is the strategic side and one-third is managing the CEO.
Why did you take on this challenge? You grew an incredible hotel company through your early career and you were kind of relaxing being on the board of directors, and suddenly you’re running the whole thing. Why did you take up that challenge?
I was running the Georgia Aquarium for a very dear friend of mine, Bernie Marcus, who was similar to Sheldon. He was a billionaire-he founded Home Depot-who grew up without a dime in Newark, New Jersey. Sheldon grew up in Boston and was a poor person as well. Neither one of them I think had to have soup every day or something. I was really friendly with Bernie; I worked with his foundation after I sort of got out of the hotel business, and then I ran his aquarium, which was his biggest gift. When Sheldon called me in to say he’d like me to do this work, I turned him down, actually. I said, “I’m too old. I have a great job that Bernie Marcus said I could have for the rest of my life. I could play golf on the weekends; I could go away on vacation; I could work a normal day’s work. I love the fish and the people; it’s a fun place to be.” So Sheldon and his wife, Dr. Adelson, said, “We want you to go home and think about it, and before you turn me down, think about it a second time.” So I had two people to talk to, Bernie Marcus and my wife, because I didn’t want to uproot myself from Atlanta after 22 years. The first one was my wife; I talked to her, and she was in a state of shock. We didn’t make any conclusion. That night, we were sleeping, and at 3 a.m. I was sort of up, looking at the ceiling, and I said, “Are you up?” She said, “Yeah, I’m up.” I said, “Well, what do you want me to do? I’m not going to do if you don’t come with me.” Sheldon had offered me the ability to commute for a few years, and I said, “I can’t do that. I can commute for awhile, but not for a few years. I’m married 48 years; I don’t want to spend this time in my life away from my wife.” So I said, “What do you want me to do?” She thought for a minute, and said, “Go for it.” I said, “OK, then I want to talk to Bernie.” So I went to see Bernie Marcus down in Florida-he was in Florida at the time-and we had the conversation that I would leave the aquarium and go and do this. I wanted his advice. Should I do it? Should I not do it? He said, “You should do it, because it’ll be good for the United States of America and for the state of Israel if you help Sheldon’s company to be where it should be.” He said, “You may make some money, but you know, it may not make a difference. It’ll be good for the country and it’ll be good for Israel, so go do it.” So I did it.
It didn’t even compute that that would be part of the equation.
I didn’t either. People ask me, and I told Sheldon. What people don’t realize about Sheldon is that he’s got enough money, and he self-actualizes on the company obviously, because it’s his vision. But almost every dime, every nickel, every penny if that stock goes up is going to be a gift, is going to be given away to