Two Way Hard Three | Las Vegas Casino & Design Blog

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


Read archived comments (10 so far)
December 25, 2010 7:29 PM Posted by Jeff in OKC

I am thankful for each of your columns, sir. They never fail to be intelligent and insightful Personally, I don't want to do business with LV Sands because of how they treated their subcontractors when they built the Venetian. My understanding is that they refused to pay subcontractors such as carpet layers and carpenters when the resort was finished in such a fashion that the subs had to file bankruptcy, and the State of Nevada changed their laws to prevent this type of payment avoidance. The only money I have spent with them is to see Jersey Boys. I knew that their stock was a great buy 18-24 months ago, when they were teetering on the edge of bankruptcy, but I wouldn't buy their stock because I felt that would be profiting on the abuse of innocent subs.
That might be crazy, but it's how I feel, and spend.

December 26, 2010 5:05 AM Posted by detroit1051

Fascinating. Btw, Howard Stutz followed your lead with his column in the 12/26 RJ.

December 26, 2010 9:38 AM Posted by Jeff Simpson

Thank you, gentlemen.
First, I'd like to wish everyone a wonderful holiday season and a healthy, happy and prosperous New Year. Thank you for reading my columns and Hunter's blog. And thanks to Hunter, as well, for hosting my column.
Jeff in OKC makes a great point about the LVS record here in Las Vegas and it alludes to something we discussed on the last Vegas Gang episode (the Cosmo opening edition).
On that episode we discussed my observation that maybe we should re-evaluate our habitual criticism (dating back to 1999) of LVS' pattern of opening properties in a haphazard way (blowing past announced opening dates, using soft and partial openings and in general refusing to follow Steve Wynn's heavily promoted, all-at-once, grand opening method). Maybe, I observed, Adelson's method -- even if it sacrifices some of the PR value of a total grand opening -- has some merit. (I still like Wynn's method better, but am considering whether I perhaps should dial down criticism of Adelson and others who follow the LVS "method").
Jeff in OKC brings up another matter where LVS broke from the traditional pattern, in its dealings with Venetian LV contractors, a tangled mess of suits and countersuits in which the Venetian ultimately ended up the bigger loser, but the biggest losers were, as Jeff in OKC noted, subcontractors who were unpaid by the contractors while waiting for payment from LVS/Venetian. Despite a lot of criticism in the community and from subcontractors, LVS broke with Strip norms and took their disagreements about project delays/costs to court. (MGM Resorts has a battle going against Perini over the Harmon, but MGM has made and is making a considerable effort to pay subcontractors so the dispute can be confined to MGM and Perini, the general contractor.)
And there are other examples of Adelson and his executive team ignoring Strip standards. They seemed to relish their fight against the Culinary Workers union, refusing to go along with the union's demand for a card-check neutrality agreement. They've fought against the Las Vegas Convention and Visitors Authority (which operates the Las Vegas Convention Center, and the LVS folks don't like a public entity competing against their Sands Expo Center) even though other operators with major convention centers (MGM Resorts) and substantial convention space (almost every casino operator) view the LVCVA as a partner rather than as a competitor.
Even when Republican-leaning companies like Wynn Resorts and MGM Resorts backed the reelection bid of Senate Majority Leader Harry Reid, LVS and Adelson backed Sharron Angle -- a very poor candidate who would have had almost zero power in Washington.
For some or all of the above reasons there are still some folks who, like Jeff in OKC, refuse to patronize the Venetian and/or Palazzo. There are a few other properties that have generated some amount of consumer animosity that generated calls for a boycott (Wynn with his dealer tip-sharing controversy and Tropicana during the abysmal Yung-owned years spring to mind) but none of those boycott efforts, including the Venetian boycott, have had much of an impact.
Adelson and LVS clearly don't mind breaking with the pack. In all of the cases I cited I've disagreed with the LVS decision, but, as I noted on the podcast, I'm considering whether I should dial down my criticism of the company's property-opening method.

December 27, 2010 3:25 AM Posted by motoman

I will say that as a newbie Vegas tourist, I never realized (or thought about or even cared) that Venetian was at the time undergoing a "soft" opening and was engaged in legal entanglements. Those things just weren't on the radar.

Since then, and thanks to the years of reading this blog, I am just like Jeff in OKC in regards to this company. (Our local professional sports franchise lost me as a fan for similar reasons.) I would, however, have liked very much to have gobbled up some LVS stock back when. I never considered them on the brink, having been the strongest play in Asia and IMHO undeservedly knocked down 99% from their peak in value. Any profits wouldn't be on the backs of those subs, but merely very fortunate happenstance for anyone lucky enough to have held on even until this summer (after which LVS has nearly doubled again).

Mr. Simpson, if you do adopt a new attitude towards the LVS "method," as I indicated above it's true that most tourists and even analysts and investors would probably agree. Or not even notice or care about such things, just the end results. It'd be hard to dispute that many find the properties to be much to their liking, and Travel & Leisure has just anointed the LVS properties among the "world's best" for Nevada along with Wynncore and Bellagio.

Oh, and thanks again for this informative column.

December 27, 2010 6:55 AM Posted by socalduck

Great installment, Jeff. Given the timing of the recent moves by the Macau government against LVS, I tend to think, above all else, it was the decision by LVS to focus on Singapore at the expense of the Cotai strip that has really irked the Chinese.

Singapore was clearly a smart move by LVS, but the company seems to have a tin ear when it comes to dealing with its regulators. You have to wonder how long it will be before the relationship between LVS and the Singapore authorities begins to show the strain we are now seeing between LVS and Macau.

December 27, 2010 8:31 AM Posted by parchedearth

I generally agree with your assesment of the Macau situation; however without knowing more I think there are alternative explanations that don't sound so dire for LVS. It is plausible that the Venetian had more than they could handle with all the prostitutes and pimps in the casino and asked the police to step in even though it would mean bad PR. Perhaps a major convention client complained, too many customers were getting rolled, gangs/triads were moving in, or they brought the drug trade with them. Also, the original plans for Cotai sites 7 and 8 indicate a large stadium and a park (which I viewed as just placeholders to justify the parcels or to appease the government and that probably would never have been built). Regardless, it will likely be several more years before LVS finishes construction of the hotels on sites 4-6, so nothing would begin on 7 and 8 for some time.

Also, I am sure that LVS' constant complaining about construction worker visas didn't help their cause.

December 27, 2010 9:20 AM Posted by Jeff Simpson

Thank you, folks, for the great comments. I've said this before but I really appreciate the feedback and intelligent conversation we have here on Hunter's blog.
Motoman, you make an excellent observation about how insignificant the LVS-style openings have been to consumers and to the properties eventual performance. And you're right about the two year rebound in LVS shares -- anyone who bought near the low and held made a pretty spectacular multiple.
socalduck, you may be right about Macau's prespective on LVS in Singapore. I just don't know -- I'm making a partially educated guess.
parchedearth, as usual I think you make an excellent point. You clearly are right that there may be a more benign explanation for the recent actions by the Macau government. While the change in spin by LVS about sites 7 & 8 reflects surprise (and internal disappointment) for the company, the government's motive could be exactly what LVS is now saying it is, and that would be much less worrisome for the company than if the government has a problem with LVS. I certainly may be guessing wrong; it will be interesting to see where things go from here.

December 27, 2010 7:13 PM Posted by mike_ch

Having seen enough opening nights now, I think I prefer the LVS method if it was more... Refined.

Make sure everything in the ground floor facilities is working, and then open it up. If it takes a week for the hotel rooms looming overhead to be ready, then run without hotel revenue for that week and treat your hotel's very first guests with the full respect they deserve.

It also let's the "just gotta see the new thing" throngs have their fun and then get out of the way for hotel guests, who can enjoy their stay without a stream of lookie-loos from other properties who probably aren't spending as much there.

Kicking the tires on a brand new casino only hours after handing over your first room registration keys is very difficult and stretches service so many different ways that some set of guests will end up disappointed. It can only really be done by hiring way too many people than are necessary to operate and then laying many off a few weeks later.

December 28, 2010 1:11 PM Posted by detroit1051

I agree that most tourists don't care about the way LVS opens its properties, and most don't know about Adelson and labor issues, sub-contractors being stiffed, etc. I got on Venetian's mailing list pre-construction when there was a model room and preview center on the Strip. The room size was impressive, and I thought Venetian would become the quality leader in Las Vegas. I realized how wrong I was when I received an expensive, glossy marketing piece not long before the opening. The centerpiece was a photo of the Grand Hall. While admiring the photo, I noticed a construction electrical extension cord running across the floor, and some missing baseboard moldings. That photo summed up Venetian for me. Long on fluff, short on substance. That image was reinforced on my first (and only) stay. The detail one finds at a Wynn-built property was lacking from the quality of slot machine stands to carpet quality. But, you know what? I enjoyed a lot of things at Venetian. The standard room was far superior to the one at The Mirage where I had stayed prior to Venetian opening; a much larger bath, a comfortable sitting area and a suite-like feel. The restaurants were good, and Aquaknox quickly became a favorite. Yes, it's a big convention hotel, but it can be fun. I thought about Venetian's opening when I read about the misses during the opening of Marina Bay Sands. I don't like the way Sheldon Adelson operates, but he doesn't care what I think. He knows the opening problems will become a distant memory in time, and that he will be making truckloads of money in the meantime.
Jeff, your comments on Macau were very interesting. We'll see how well Adelson comes through his current challenges there. My bet is he'll be fine.

December 29, 2010 11:11 AM Posted by David McKee

Ex-Sands China CEO Steve Jacobs, in his lawsuit against Adelson, accuses the company of siphoning off players from Macao to help pump up Singapore business. That wouldn't play well down at City Hall.

As far as going easy on LVS' property-opening methods, let's not forget the endlessly protracted agony of Sands Bethlehem, still without the hotel, shopping mall, event center and museum that Adelson promised several years ago. I expect Sands will try to fob off the unfinished Bethlehem project onto another company once Genting's Aqueduct racino opens and starts cutting into the NYC player traffic.