Happy holidays to all!
Jeff is back with a special column, and while prostitutes and lawsuits might not be traditional Christmas fodder, I recommend reading anyway. Come on, you know you're stuck with your relatives and probably bored out of your mind right about now, right?
Enjoy... and who doesn't want an Adelson voodoo doll? Last minute gift idea!
In this column I'm going to share my thoughts on Las Vegas Sands and its recent troubles in Macau, but first I want to get some background (actually, a lot of it) out of the way, what we in the journalism profession call "disclosure."
In 2003 and 2004, at the Las Vegas Review-Journal and then at the Las Vegas Sun, I reported on a Gaming Control Board investigation of a contest-rigging scheme and other regulatory violations at the Sands' Venetian casino. Control Board sources told me at the time that Sands lawyers were playing hardball with the board's lawyers from the state Attorney General's office, asserting that the regulators had no jurisdiction, claiming that the contest rigging was a marketing rather than a gaming activity and that the practice of rigging such contests was widespread on the Strip.
The contest provided drawing entries for Venetian gamblers based on their play, with those selected in a drawing winning a Mercedes, a $20,000 promotional gaming chip or a $10,000 promotional gaming chip. The marketing executive who conducted the contest rewarded preselected players by hiding their drawing tickets up his sleeve and then picking their names while he pretended to choose a random winner.
It took more than a year for the GCB to persuade the Venetian that regulators did, in fact, have authority over the matter and to accept a $1 million fine for a complaint that included those three contest-rigging counts as well as a handful of other violations that included cash transaction reporting failures and a counterfeit wine-selling scheme. The Nevada Gaming Commission, which acts as the judge (with the GCB as prosecutor) in casino disciplinary cases, accepted the settlement, but not before some scathing criticism of Venetian management, with Chairman Pete Bernhard calling the violations the most serious he had seen during his time on the NGC.
Two years later, when Singapore was considering which applicants to select to build two casino resorts, I wrote a column predicting that MGM Mirage and Harrah's had a better chance than Las Vegas Sands, citing Sands' "lawsuit-happy history" and "sorry regulatory record," two claims I knew to be true. I was wrong about Singapore's selection (it chose Sands for one of the licenses) and Sands lawyers followed up with a lawsuit against the Sun and me, claiming that my claim that Sands had a sorry regulatory record was "a mean-spirited and calculated fabrication, which is exceedingly harmful to the prestigious reputation of the Las Vegas Sands."
My excellent lawyers wasted little time getting the foolish lawsuit dismissed, with the judge saying that she thought I had gone easy on Sands, but Sands followed with an amended suit claiming "defamation by omission" because I hadn't cited regulatory troubles Harrah's and MGM had faced. That suit, too, was tossed, and Sands decided not to appeal to the Nevada Supreme Court.
So that's my disclosure about Sands and my history with the company. To be fair, before I get to the heart of this column I should note that the company has not had any more regulatory complaints after the 2004 complaint was settled. In terms of its performance, I have been mostly positive in my assessment of the company's strategy and operational execution. The company has rebounded nicely from its troubles that reached bottom about two years ago, and its Singapore and Macau results have easily trumped the impact of the Las Vegas slowdown on the Venetian LV and Palazzo.
In my Nov. 12 forecast column I wrote the following about Sands: "Its Singapore casino has been an apparent gold mine and, if LVS can avoid squabbles with the Macau government, its ambitious operations in the Chinese enclave should continue to grow and grab a sizeable chunk of the amazingly robust Macau market."
Since then it seems clear to me that my caveat "if LVS can avoid squabbles with the Macau government" was an important qualification to the company's Macau prospects. Within the past month Sands has been hit with a strong one-two punch from the Macau government. The Venetian Macau was earlier this month the site of a major prostitution sting, with more than 100 alleged prostitutes arrested. Most significantly, Macau also recently refused LVS' application to develop Cotai sites No. 7 and No. 8, a decision that Sands is allowed to appeal.
In September Sands executives said they had no indication that the Macau government would not award LVS the two sites, where the company has already invested more than $100 million in site preparations and other costs.
Sands is trying to spin the Macau decision not to award the two sites to LVS as being an example of the government's concern about the gaming market's rapid growth and not a reflection of any displeasure with Sands. "They're trying to manage growth in a healthy way," Sands Chief Operating Officer Mike Leven recently told Bloomberg. "They're probably not going to allow them all to be built at once. When one gets built and gets close to opening, they'll allow the next one to start construction, and it will open after the existing property ramps up." Maybe, we'll see, but sounds like spin to me.
The prostitution sting is significant in that the Venetian was the property targeted, as large prostitution operations clearly take place at other Macau casinos, most famously at Stanley Ho's Lisboa, where the parade of prostitutes around a circular walkway in the property is regularly cited as an example of widespread and relatively open prostitution on tourist sites and in print media.
I have no inside knowledge about the reasons behind the two recent events, but I can't help thinking that they don't bode well for the company's future relationship with the Macau government. The relationship has never seemed smooth. Right after LVS' initial joint casino concession bid with Galaxy was approved (along with Ho and Steve Wynn), Las Vegas Sands got off to a rocky start with the government of the Chinese enclave. Sands and Galaxy were unable to come to terms on how to jointly operate, forcing Macau to change its system, splitting the pair by awarding Galaxy the concession and awarding a subconcession to LVS, and giving Ho and Wynn the lucrative right to sell their own subconcessions (which they eventually did, to Pansy Ho/MGM Mirage and James Packer, respectively).
Sands also displeased Macau government officials, I've been told, by quickly building its Sands Macau casino (at a cost of less than $300 million). The speedy and relatively cheap turnaround on a site next to the ferry terminal allowed Sands to quickly grab a big chunk of the rapidly growing gaming market and the casino more than paid for itself in its first year of operation. Sands' get-rich-quick strategy stood in contrast to Steve Wynn, who waited for Macau to formulate suitable gaming regulations and for his team to design and build the market's first Las Vegas-style integrated resort, a much more time-consuming and expensive proposition than building Sands Macau had been. Wynn famously called Sands Macau "Sheldon's box of baccarat," and took pains to explain why the much superior Wynn Macau was a reflection of his belief in the market and his respect for Macau and then-Macau Chief Executive Edmund Ho. I was introduced to Edmund Ho at the Wynn Macau opening and he told me that the new property was what he had hoped for when the enclave decided to end Stanley Ho's casino monopoly.
But Sands wasn't content to see its share of Macau gambling win fall. Right before Wynn Macau opened, LVS (which was also at the same time building its much more expansive and expensive Venetian Macau) opened a major expansion of Sands Macau, adding hundreds of baccarat tables on multiple floors. From the beginning it has seemed like Sands intended to do what it took to expand its number of gaming positions as rapidly as possible, even if the supply outpaced the market's gaming win growth. The Sands expansion was quickly followed by a significant employee layoff after the property failed to capture as much new play as had been planned and staffed for. The Macau government publicly said it was unhappy about the layoffs.
The market gaming win continued to grow and more properties opened (including the Venetian and its sister Four Seasons, as well as the Grand Lisboa, MGM Grand and a handful of other billion-dollar-plus properties) but a slowdown hit in 2008 as a worldwide recession and real estate meltdown hurt the profitability of Macau's operators. Highly leveraged Las Vegas Sands was forced to delay its ambitious Cotai expansion plans and struggled to stay afloat, turns of events that may also have rubbed the Macau government the wrong way. Another irritant may have been the company's Singapore resort, the Marina Bay Sands, an iconic property that opened in April and has helped fuel Singapore's rocket-ship gaming market, a development that may pose competitive worries in Macau.
My suspicion is that, for some or all of the above reasons (and maybe others I'm unaware of), Macau government officials may enjoy sticking a pin in their Sheldon Adelson voodoo doll. The recent actions of Macau officials may just be the first two pins.
-- Jeff Simpson, December 2010