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MOVING IN MACAU

As construction resumes on Parcels 5 & 6, Sands China sees improvement

BY ROGER GROS

I

t was a clearly a gamble, the move into Macau made by Las Vegas Sands. The company made an initial wager with the Sands Macao and then dou-

ble- and tripled-down on the Cotai Strip. The future of the entire company was at stake. It quickly paid off, however, when Sands Macao opened next to the ferry

terminal and was inundated by business. The construction costs were paid off in less than a year, and planning was under way for the Venetian, the first development of the company’s extensive Cotai Strip footprint. When completed, the Venetian took time to ramp up. The property was

built for the mass market, and even though it controlled a sizable portion of the all-important VIP groups, the mass market was growing too slowly to immediately call the Venetian an unqualified success. And the global economic downturn hit and the Chinese government

imposed regulations to slow the growth of the casino industry in Macau. While recent relaxations of those restrictions have helped to revive the Macau market, the future is uncertain.

BETTING THE FARM

Las Vegas Sands COO Michael Leven says that the initial wager was bold, so it’s not surprising that there have been bumps in the road. “The bet we made in Macau, to use gambling terms, was that we could

change Macau from a strictly gambling town to a place where you could go for leisure tourism and MICE business, as well as gaming,” said Leven. “And Macau has made some progress and made some of the commitments to change, as has Beijing. “Our investments in Macau in Parcels 5 and 6 and beyond, are all

designed to maximize that. But we need cooperation from the government. Now we’re dealing with restricted tables and things like that which may change the nature of our growth patterns. It’s not as predictable as other places. We are very profitable, but it’s not easy. You’re not in control of the long-term growth the same way you are in control of it somewhere else.” Steve Jacobs, the president of Sands China, was brought in last year to

restructure the business in Macau so it runs more efficiently and effectively. He says the growth of the mass market has been encouraging. “It’s paying off,” he says. “Each year we do slightly better. To us, the tip-

ping point comes when you can actually get the mass market that’s coming in on day trips and give them a place to stay. Right now the marketplace runs almost at capacity during the weekdays, and absolutely at capacity at the weekends. So there isn’t the ability right now to have that mass market player come in and actually take a one-time trip and make it a four-day stay as opposed to an in-and-out, same-day. I think it does a couple of things: It enables the mass market that comes to game for the entertainment. It also allows you to pull more families and a larger, diversified segment in to enjoy what Macau has to offer.” Maybe the most significant—but little known—initiative instituted by

Jacobs is a leveling of the VIP commission rate with Melco Crown, which owns City of Dreams, across the street from the Venetian. The move allows the two integrated resorts to compete on a level playing field. “The market when I came aboard was about 1.35 percent,” says Jacobs.

“We lowered it to 1.25 and agreed that on Cotai, that would be the rate. We lost a couple of junkets, but in about 60 to 90 days, they came back.

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The unfinished Parcels 5 & 6 of the Las Vegas Sands Cotai Strip project, which will soon resume construction.

What we found and what we proved through this experiment is if the brand is strong enough—if there’s enough adhesion between the products and the services—the guests and the high-rolling VIPs like to play where they feel lucky and where they call home. It certainly benefitted us and City of Dreams. We continue to hold at that rate, even though the rates downtown now are at 1.4, 1.45, 1.5—which makes no sense to me at all. None. That being said, I think as long as we continue to develop product and experience ahead of just pure commission, we’ll be fine.”

VIP VERSION

The VIP operators have been under greater scrutiny in the past few months for a variety of reasons. Allegations of connections with organized crime have increased and some U.S. jurisdictions are taking a closer look at the arrange- ments. Leven says the company has always been careful about their business partners. “When it comes to the junket business around the world, Macau is a dif-

ferent kind of place,” Leven admits. “Even when you investigate, it’s difficult to discover everything that is there. But we’ve never had any problems that we can identify with any of the operators we are currently working with.” Leven says that the company takes its lead from Chairman Sheldon

Adelson in this regard. “This is a company that values integrity first and foremost,” he says.

“Sheldon is the best. This is my 50th year of work. I have never worked for an individual that has his ethical standards. He will not cross the line. He will not even come close to the line. If he makes a mistake—like any of us can—it’s certainly not by intent. We want to run a compliant operation and will do everything in our control to do that.” The launch of Sands China as a publicly traded company featuring a

minority percentage of the Macau operations of Las Vegas Sands was a mile- stone for the company, and Jacobs explains how it impacted his operations. “It’s changed everything and it’s changed nothing,” he says. “Clearly as a

stand-alone public entity we have certain rules of governance and certain ways that we have to run the business per the Hong Kong stock exchange. In terms of day in and day out: No. We locked the strategy in place back in the June/July timeframe, and now we’re executing. In terms of the board, we were very fortunate to get three very qualified independent directors that have been very helpful and helping us expand our understanding of markets in which we play and how we might want to go about some different strategies. But it’s not a material change.”

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