It’s no mistake that the two most successful gaming companies over the last decade have been Wynn Resorts and Las Vegas Sands. And it’s also no mistake that the leaders of those two companies have been frequently labeled as “visionaries.” Steve Wynn’s vision is legendary, starting back when he was a brash young businessman barging into Atlantic City, which at the time was the only legal gaming jurisdiction outside of Las Vegas—the “Macau” of its day.
So when Sheldon Adelson brought his version of vision to Macau in the early part of the 2000s, he proved that he is at least on the par with Wynn. But it was Adelson’s concept of a Cotai Strip in a waterlogged, desolate area of Macau—and his ability to communicate that idea to the leaders of Macau—that sets him apart from every other casino operator in the SAR.
And all this from a man who practically backed into the casino industry. Adelson has been successful at many businesses, but just prior to the casino industry, he ran one of the most successful trade shows in the world, Comdex, which displayed the latest consumer electronics devices. Held each year in Las Vegas, the exposition had outgrown the Las Vegas Convention Center to such an extent that it was being held at 10 separate locations around town.
“I decided that I had to consolidate those locations, and I would build my own convention center,” Adelson explains, “which is what I did; it’s now called the Sands Expo and Convention Center, and I built that in 1990.”
Adelson says he realized that it didn’t make sense to build the center next to an existing hotel.
“Entrepreneurs are not in the business of making other people successful,” he laughs.
So he settled on the Sands, which had endured hard times despite being located across the street from Las Vegas’ newest attraction, Steve Wynn’s Mirage. Adelson hired several executives to run the property for him, but 18 months later, he took it over himself.
“I thought the business was kind of interesting,” he says. “In the meantime, however, in addition to the Mirage, MGM (now Bally’s) and several other casinos put up 1,000-room-plus towers, and I realized that garden-style units, and small properties, couldn’t compete with those businesses.”
Different Profit Centers
The decision made to implode the Sands and build the 3,000-room Venetian (which is now 7,000 rooms with the addition of the Venezia tower and the Palazzo hotel), Adelson launched a new day for Las Vegas.
“I taught Las Vegas that money is fungible; that money can be made in non-gaming amenities, and still be the same as the money you make from gaming,” he says. “But I saw the handwriting on the wall, that gaming would play a lesser role, in terms of profitability, than it did previously. And although gaming revenue wasn’t declining at that time, I think gaming was absorbing a lot of the disposable income.”
With his extensive background in conventions, Adelson says he created a model that depended on meetings and conventions.
“It’s not just part of the plan,” he says. “It is the plan. If we have to build hotel rooms to accommodate players on the weekends, what am I going to do with the rooms mid-week? I always wanted to change the paradigm and bring the income and the room rates that we experience on the weekend to the weekday. And that’s what we do. That’s why we’re the most successful company in gaming.”
Adelson points out that Las Vegas Sands is not only successful in gaming; its revenues exceed that of the combined revenue of four of the biggest hotel chains: Marriott, InterContinental/Holiday Inn, Hyatt and Starwood.
“My business model, of building integrated resorts with casinos, is a far better business model than managing other people’s hotels,” he says. “I don’t understand why they’ve gone out of this business; I would never have done that. I mean, the guys who are making the money are the owners, not the managers.”
Making It In Macau
The opening of Macau following the handover from Portugal to China was a milestone in the corporate history of Las Vegas Sands. With three concessions and three sub-concessions, competition was fierce. LV Sands was not granted a concession but won a sub-concession through a deal with Galaxy Entertainment. But the company was the prime mover, getting Sands Macao open in a matter of months, and earning enough revenue that the property was paid for in less than three years.
But it was the concept of the “Cotai Strip”—which is a trademark that belongs to LV Sands—that brought the company success and renown in the gaming industry and with governments across Asia. One of the principal reasons the Chinese government decided to open up the gaming industry following the handover was to grow the city’s mass market—those visitors who did not arrive via a VIP operator. Throughout the 20th century, the vast majority of the gaming business in Macau was delivered via VIP operators. China wanted to change that, and Adelson’s idea to bring in visitors for shopping, dining, entertainment and the MICE business was just what the doctor ordered.
Progress toward that goal will be advanced when Cotai Central (sites 5 and 6) opens early this year.
“When we won the concession in 2002,” says Adelson, “the government wanted internationally known hotel brands to be included, and I knew that these companies wanted to be there. We started with the Four Seasons, adjacent to the Venetian, but we had plans to put in all known hotel brands on the other sites.”
LV Sands announced that Sheraton and St. Regis, along with Shangri-La and Traders, which are both owned by Shangri-La Hotels and Resorts, were slated for Cotai Central. When the project was put on hold, however, in 2009, Shangri-La announced it was leaving the partnership.
“We had Hilton and Conrad for lot 7,” explains Adelson. “Since we weren’t sure that we were going to be able to build lots 7 and 8, we added that brand to replace Shangri-La. The Holiday Inn brand, owned by InterContinental, which was scheduled for Lot 3, was brought in to replace Traders. It was an upgrade. Traders is a three-star hotel, and the Holiday Inn is a four-star hotel and well-known in China.”
And since LV Sands is operating the hotels, it is only responsible for a fee to license the brand, bringing more profits to the company’s bottom line.
Like its neighbors, the Venetian, Four Seasons and Melco Crown’s City of Dreams, Cotai Central will include all the amenities, including retail, dining of all sorts, spas, two large casinos and more. But Adelson knows he needs more than that.
“The Venetian Macao is already a must-see property,” he says, “and we know we need to make this a must-see attraction as well.”
To do that, LV Sands is borrowing another page from Las Vegas. The signature attraction of Cotai Central will be a conservatory, but larger than the ones offered at Bellagio and Wynn Las Vegas.
Cotai Central will be connected to the Four Seasons shopping area via an air-conditioned overhead walkway that will direct customers through all LV Sands properties without the need to go outside.
While the Macau developments of LV Sands have been impressive, it has really been the development of Marina Bay Sands in Singapore that has established the company’s reputation as the foremost gaming developer in Asia.
In a complicated—but transparent—bidding process, Las Vegas Sands and Genting won the two available licenses, beating out such industry powerhouses as Wynn Resorts, Caesars Entertainment and MGM Resorts.
While Genting’s Resorts World Sentosa opened a few months before Marina Bay Sands, the business at MBS has far surpassed the competitor. While it was always anticipated that MBS would be the more profitable location, being close to downtown Singapore, with a huge attached convention center, it’s the building itself that has attracted the most attention.
Three 55-story towers are topped with an eight-acre “Skypark” that includes an infinity pool, spas, restaurants, lounges and an observation platform. In addition, the property includes a million square feet of MICE space, a three-story shopping mall, complete with the Las Vegas Sands signature canals and gondolas, many kinds of restaurants and an Art-Science Museum designed as a giant lotus flower. The building is an iconic part of the Singapore skyline, and doesn’t disappoint upon closer inspection.
Asked if he is gratified at its success, Adelson says, “It’s more than gratifying to me; I’m really euphoric. Nothing could have come out better.”
One thing that could have come out better, says Adelson, is the cost of construction. MBS ran more than $2 billion over budget, when problems with the site were compounded by a shortage of cement early on. But despite that, MBS will still be an economic success for LV Sands.
“Based upon what we’re anticipating for 2012, we think we might be able to pay it off within three years,” says Adelson, which is two years sooner than he anticipated.
The convention business was good right from the start, says Adelson, but is even getting better.
“We have about 40 shows this year,” he says. “Next year we’ll have 50, and that will fill it. We have the ballrooms and the meeting room complex all full for the first six or eight months, and filling up for the rest of the year. They have shorter booking cycles in that part of the world, so everything is running on all cylinders.”
The restaurants, says Adelson, are also doing land-office business. The celebrity chefs in the hotel—Jason Tek, Daniel Bouland, Wolfgang Puck, Thomas Heller and others—are experiencing full bookings. An initial concern was about the property’s buffet, where they charge $50 for breakfast. But no one has batted an eye, he says.
“I thought people would think we were gouging them,” he says. “But then my people told me that all the other hotels in town charged around the same price, so as long as we’re within the market, it should work. And it has. We’re on track to do $38 million in that one restaurant, with 650 seats.”
Gaming has also been a huge success, with the casino full almost 24 hours a day. Unlike Macau, where more than 70 percent of the business comes from the VIP segment, Singapore gaming revenue is evenly split with the mass market.
A quirk in the Singapore casino regulations requires that VIP operators be licensed and approved by the Casino Control Authority. This has effectively prevented any of the VIP junket reps who operate in Macau from being licensed. Because gambling debts are not recognized in China, the Macau operators extend credit to the VIP reps, who in turn extend it to the players. Adelson says he didn’t really think it was a problem right from the start.
“I was the guy who said, don’t worry about it,” he explains. “I have reason to believe that the concept of ‘face’ in Asia will force the people to pay their debts. Because the consequences of failing to pay debts will be that they get embarrassed and lose face. Everybody told me that’s just an old wives’ tale. But today they’ve come back to me and said, ‘You were absolutely right.’ This was a major, major decision. And I felt completely confident making that choice.”
Adelson believes it was that decision that has given MBS the edge over Resorts World, which has been struggling to attract the VIPs.
“Look, at Genting Highlands, they depend on the VIP operators to be a success,” he says. “So when they discovered in Singapore that they wouldn’t have access to those operators, they didn’t know what to do. And they still don’t.”
The Singapore model has become the bellwether that has inspired other Asian countries to consider similar integrated resorts that would be tourism and business magnets. But not every country is right for Las Vegas Sands, says Adelson.
“We’re looking at four countries,” he points out. “We’re looking at Japan, Korea, Taiwan and Vietnam. But we have to get Korea and Vietnam to say the locals can participate.”
Each country has its advantages for LV Sands.
“Korea has one locals place,” he says. “It’s about a seven-hour drive from Seoul, and they’ve had a bad experience with it because they put a very tempting product in a very poor area. But they have about a dozen other casinos open only to foreigners. We have been doing a very extensive lobbying effort. We have people representing us in all these countries.”
Taiwan is attractive because its society is so prosperous.
“There are 26 million people in Taiwan, and they’re all middle class. So the mass market and the high-end market could be just out of sight.”
Taiwan’s model for integrated resorts—gaming on small islands around the main island of Taiwan—isn’t something Adelson likes, however.
“I would not go to the outlying islands,” says Adelson. “We went to Penghu, and there’s no infrastructure there to build our type of resort. There’s nothing to do. You have to stay in one hotel because there’s nothing better. It’s really just a fisherman’s village.”
With Penghu rejecting gaming in a referendum, the other islands available are even worse, according to Adelson.
“The only islands left that are interested in having gaming are Kinmen and Matsu,” he explains. “And they’re pretty small islands, well under a million people combined. There’s no infrastructure, but they’re only five miles from the mainland. That’s a risk I don’t think I want our company to take. We would be 100 percent dependant upon the mainland. So if the mainland at any time decided to reduce or even halt travel to one of these islands, we’d be out of business. But if we had a guarantee that they’d allow people to come forever, I’d go there in a heartbeat.”
While everyone believes that Japan is the crown jewel of Asia, Adelson isn’t so sure.
“The propensity to play isn’t so clear to me,” he says.
He cites the difficulty in traveling between the three main islands, and is concerned about mixed messages being sent by pachinko parlors, which are now dominated by pachislot machines.
“There’s nothing pachinko about the slots,” he says. “They’re exactly like our slot machines—just different characters, different bells ringing, and a different language on the face plate. But, they’re slots. A slot is a slot is a slot.”
He compares them to racinos or slot parlors in the U.S., and is concerned that an integrated resort which may be required to charge an entry fee to Japanese citizens might not be able to penetrate this market.
But whatever he decides, Adelson believes LV Sands will have the inside track.
“Our business model includes a convention-based marketing strategy,” he says. “My paradigm is to fill up the mid-week rooms at weekend prices. And the only way to do that is to do conventions, and we know conventions better than anybody. We created the concept of marrying all these amenities together: the shopping, the shows, the spas and the casino.
“There’s no government that doesn’t want conventions. And that puts us dramatically ahead at the starting line. It gives us the major advantage over our competitors. Nobody can compete with us.”
Even in the U.S., integrated resorts are starting to become the paradigm. In Florida, Adelson is interested, but only under the right conditions. He is critical of the groundwork that Genting has made in Miami.
“They’ve spent a lot,” he says. “They’ve got 65 lobbyists. We have two. And they make exaggerations that three properties will employ 100,000 people. They’re making exaggerations that we’re disowning. At the Venetian in Las Vegas, we have 7,100 rooms, the equivalent of two IRs. And we only employ 7,000 or 8,000 people. How are they going to add one more, half again, and employ 100,000 people?
“They’re losing credibility fast in Florida. And besides, the law says that if they do anything wrong and go back to Malaysia, they have to waive extradition defenses. So they can be called back if they break any laws. They’re not going to like that.”
If Florida is serious about IRs, Adelson says there’s one way it would work spectacularly. He suggests three resorts be approved around the Miami Beach Convention Center, all within walking distance, creating a small Las Vegas Strip.
“You then create the environment for critical mass,” he says.
In Massachusetts, Adelson’s birthplace, LV Sands would only be interested in one location.
“Knowing Massachusetts like I do, I believe the best location is at the junction of the MassPike and 495,” he says. “That way, I get people from the west, I get people from downtown Boston, who’d rather drive out to Marlborough than to go through the tunnel in rush hour to go to Suffolk Downs. It’s the only site with no risk.”
Adelson says he hasn’t decided whether to bid because the choice will be politically influenced. He believes the Suffolk Downs racetrack will get the Boston license because the owners are politically connected. Even though there’s a bidding process, Adelson believes the fix is in.
“It’s just rife with opportunity for corruption,” he says.
Adelson’s views about online gaming were unknown until this interview, when, in his own words, he came out of the closet.
“Officially, I’m neutral,” Adelson said in mid-November. “Unofficially, I am vehemently against it because I am convinced that the technology that would prevent kids from gambling isn’t enough. I see from my own young children, that they know how to get around all the restrictions that any techie is going to install to prevent kids from playing. I am not as concerned with young adults; I’m concerned about children, underaged children.”
Adelson is aware that many casino executives are pushing hard for online poker, but he doesn’t really understand it.
“PokerStars is the biggest and most successful online gaming entity in the world,” said Adelson, “and the most they made in a year was $440 million. Now, how is $440 million divided up among several other players going to make a difference? It ain’t going far.”
A chance meeting with European Casino Association Chairman Ron Goudsmit at G2E in October cemented Adelson’s view when Adelson asked how online gaming had affected the performance of European casinos.
“He told me that online gaming has had a significant impact on the brick-and-mortar casinos. I asked him if he could quantify it. He said he didn’t know exactly so I said, ‘Give me a guess. 5 percent? 10 percent?’ He said, ‘Yes,’” Adelson reported, indicating that he considers that range would have a substantial impact to the employees of the industry.
“How many people do we employ (in our industry)?” he asked. “Half a million people? If 10 percent of them lost their jobs, I think that would be terrible.”
Adelson also believes that it could lead to gambling problems for young adults.
“People who are young adults, who are of legal age, may get online and start getting addicted to playing poker, because they get a lot of peer pressure from their friends,” he said. “And whether they’re underage or not underage, I don’t think it’s good for our society.”
Adelson is also not buying the fact that online gaming would be limited to poker.
“Poker will absolutely lead to full casinos,” he said. “If it will be a full casino, the business as we know it today will gradually diminish, and get to the point where there’s a break-even, where you start losing money. And when you’re at that point, there are a lot of companies that will go out of business.”
Ron Reese, a spokesman for Las Vegas Sands, stressed that Adelson’s view was, at this time, strictly his own and not the official stance of the company board, which has been neutral for the past several years.
The impact of Adelson’s views will be wide ranging. Many observers considered Adelson the key to the legalization of online gaming in Congress. A longtime Republican supporter, Adelson could have used his goodwill with House Republicans to get them to agree to online gaming legalization. But he doesn’t agree with that assessment.
“Republicans fundamentally are against gambling,” says Adelson. “Why does everybody say that Sheldon Adelson has got the key?”
Nonetheless, Adelson stopped by the office of Republican Senator Jon Kyl of Arizona following his meeting with the AGA’s Frank Fahrenkopf. Kyl has reportedly been meeting with Democratic Majority Leader Harry Reid of Nevada on a bill that would approve online poker. Adelson doesn’t believe his influence is that important, however,
“I know a lot of those people, but there are a lot of other people,” he says. “Look, I know Harry Reid. And we’re very friendly. And we abide each other, even though we know we’re 180 degrees opposite each other on political issues. But I like him, and he likes me. And we have a 23-year history together. But I don’t control Harry Reid.”
Like at other crucial moments in his gaming career, Adelson is bucking the system when opposing online gaming.
“I’ve been a loner all my life in making decisions,” he says. “And because I am a strategic thinker, and I’m looking at the strategy of this, I just don’t get it.”
Adelson says he goes on instinct in making decisions, and therefore takes some big risks.
“If I change the status quo, by looking at it differently and doing what other people don’t do, that requires a lot of risk-taking,” he says. “So, what I see as risk-taking, a lot of corporate executives don’t have the feel, because they’re afraid that if they lose their stock options, the kids can’t go to college. But I’ve been taking risk all my life. I’ve won a lot of them. I’ve lost some. But I’m not afraid to fall down, knowing I can get back up again.”
Adelson has had success in several industries, but believes his gaming role has been his biggest accomplishment.
“I love this industry because I could see the results of the educated and experience-based risk-taking,” he says. “And I see the results. I’m not an entrepreneur to make money; I’m an entrepreneur to create accomplishments. That’s what all entrepreneurs are after; they’re not in it for the money. Money is just the measuring stick. It’s the report card. So this industry is always easier for me, because I look at what it takes, how people would do the industry again, if they had to design it from the beginning, knowing what they know. And that’s the way to get into an industry and change the paradigm.”
Even at 78, Adelson is looking to the future. He’s set some “reasonable” goals over the next five years.
“In the next five years I’d like to be in at least two more Asian countries. And I’d like to see our first phase within the next five years of a three-phased Europa Vegas in Spain, for the European market. For the dozens of countries and almost 800 million people at least, the market is underserved. We see the equivalent of half the Las Vegas Strip—12 3,000-room properties, integrated resorts with shopping, with second-home condos, entertainment and more. I think we could be triple the size we are today.”
Don’t bet against him.