By Muhammad Cohen
With customers literally breaking down the doors at its May 2004 opening, Sands Macao demonstrated Macau’s untapped mass market potential. Thirty-eight months later, the Venetian Macao tapped that potential – and it was a gusher. The success of the Venetian, which instantly became the city’s most popular modern tourist attraction and earned back its US$2.7 billion development cost within four years, makes it easy to overlook the enormous odds the world’s largest Integrated Resort faced.
Celebrating its 10th anniversary on 28 August, the Venetian Macao introduced the Integrated Resort concept to Asia – creating the template for Macau’s ongoing transition to mass market tourism – and pioneered Cotai, the disused, partially submerged landfill measuring 6.7 square kilometres (2.6 square miles) that’s grown into Macau’s version of the Las Vegas Strip.
The IR’s opening also set the stage for Las Vegas Sands Corporation to list its Macau holdings on the Hong Kong stock market as Sands China Limited. LVS still holds the majority stake in Sands China and Sheldon Adelson, widely considered the visionary father of Cotai, remains Chairman, CEO and controlling shareholder of both companies.
“Adelson had three things that nobody else had: the vision, the money and most importantly, the guts to spend money on land that was literally under water,” says Alidad Tash, LVS Director of Strategic Marketing during the development of the Venetian.
BIGGEST BIG BOX
A scaled-up version of its Las Vegas Strip namesake modeled on medieval Venice, the Venetian Macao opened with 3,000 guest rooms, the 15,000 seat Cotai Arena, 111,500 square meters (1.2 million square feet) of MICE space, a purpose-built theater for Cirque du Soleil’s “Zaia” that’s now the Venetian Theatre, a shopping mall with over 350 units and the world’s largest casino, initially with 878 gaming tables and 3,300 machine places.
“We were the first to have all those tourism drivers under one roof,” former LVS President and COO William Weidner, who spearheaded its Macau license bid promising a small casino on the peninsula and a larger resort, recalls. “Venetian Macao was the first of its size and scale anywhere. That was the pledge to the government: the world’s first truly Integrated Resort.”
The Macau peninsula had no land for such a grand project, so LVS looked elsewhere. Years earlier, the Macau government had reclaimed land around the causeway linking the outer islands of Coloane and Taipa, first aiming to create a local version of Silicon Valley. When that failed, officials floated plans to build a residential new town there, but boom and bust in the early 1990s left Macau with 60,000 vacant units and little appetite for housing investment. The reclamation area was an unwanted mud flat that flooded at high tide. The Macau government suggested Cotai to LVS as a potential resort site.
“When they brought me out to see the land, I asked them, ‘Where is it?’ This place was all under water,” Mr Adelson said at the grand opening of Parisian Macao last September. But given the lack of alternatives, LVS agreed to build the Venetian in Cotai.
Construction crews completed the reclamation and drove thousands of piles to build Venetian Macao. LVS also drove a deal with the Macau government to develop additional IRs in Cotai.
“If we were going to build the Venetian, to make it successful, we didn’t want to be stranded out there by ourselves,” Mr Weidner says. he denies that the agreement to develop Cotai was tied to the split between LVS and Galaxy entertainment, initially granted a gaming concession as partners. In the break-up, Galaxy kept the original gaming concession and the government awarded LVS a sub-concession indistinguishable from the original concession. (Government o cials also deny any link between Cotai and the sub-concession grant). As part of the split, LVS kept the Venetian site and Galaxy took the site just to the west, where Galaxy Macau is located.
In a presentation to Macau’s executive Council, LVS proposed developing the rest of what’s now the Cotai Strip along estrado do Istmo, the causeway connecting the two islands. The government agreed in principle but said it would have to o er land there to other casino operators, according to Mr Weidner.
“The only one that showed any interest was Lawrence Ho,” who then headed Melco International Development and hadn’t yet formed a joint venture with James Packer’s Crown Resorts. “Nobody else wanted it, so we were granted the other parcels on the strip.”
Thus, Sands China holds virtually every prime spot in Cotai. (Hong Kong conglomerate Lai Sun purchased the site of what’s now Studio City for a media training and production center in 2001 and the government rescinded its conditional grant to LVS of Lots 7 and 8, opposite Studio City).
“This whole Coati strip was essentially water,” LVS Managing Director for Global Development George Tanasijevich, who began in Macau in 2004, says. “We used to take people up to the top of a mountainside, investors and others, and look down from the top at the machinery that was in place to reclaim the land.”
Mr Tanasijevich relocated to Singapore in 2005 to work on the successful license bid for what’s now Marina Bay Sands, where he now serves as president and CeO, but he still remembers Cotai.
“Looking back, it is astounding to me how fast that area has developed,” he continues. “The last time I was in Macau, I was looking out my hotel room on the Cotai Strip and what struck me was that the artist rendering that we created at the very beginning when Sheldon Adelson came up with the idea of the Cotai Strip, it’s actually reality now – the big buildings on both sides of the Strip, the thousands of hotel rooms, the expansion of non-gaming aspects of Macau. It’s all really happening and it’s exciting to see. It’s come a long way.”
Cotai now houses seven IRs – Sands China’s Venetian Macao, Sands Cotai Central and Parisian Macao, Galaxy Macau, Melco Resorts’ City of Dreams and Studio City and Wynn Macau’s Wynn Palace – that Morgan Stanley estimates will produce some US$5 billion in EBITDA this year, two-thirds of Macau casino operators’ combined total.
Yet funding the Venetian and Cotai required “a lot of work with banks and investment banks,” Mr Weidner, now chairman and CEO of Global Gaming Asset Management, says. “It was not a slam dunk to put together financing.”
The investment community remembered the Macau of the pre- handover late 1990s, with shootings on downtown streets in broad daylight and law enforcement targeted with bullets, blackmail and bombs. The success of Sands Macao, which earned back its US$265 million initial cost within a year, began to convince bankers, but the Venetian would cost 10 times as much and completing Cotai several multiples more.
“It felt like 99% of people thought the Venetian was too big for the market,” Ossolinski holdings Chairman Matthew Ossolinski says of the Macau he arrived in on an investment consulting assignment in 2005. “It would flop, they said. You heard the word ‘crazy’ batted around a lot. From Macau’s old guard to the ordinary Macau citizen, few understood how the existing market could support such a gargantuan structure. even fewer had the imagination to envision the size of the future market.”
In 2005, Mr Ossolinski asked then-SJM Chairman Stanley ho “about the Venetian and SJM’s reluctance to invest in Cotai. With a glint in his eye, he smiled and replied diplomatically, ‘We believe we know our customers’.” SJM’s US$3.9 billion Grand Lisboa Palace, its first Cotai IR, is expected to open late next year.
“Venetian was a well-conceived risk that really understood the Macau market better than any other project,” Innovation Group founder Steve Rittvo, a consultant to LVS on the Venetian Macao, says. “Watching the thoughts form in Sheldon [Adelson] and Bill’s [Weidner] minds left me no doubt this would be a home run. Things they thought about early on were the mix of amenities to attract and entertain a broad set of market segments, providing easy access to the site when there was really nothing else on Cotai, understanding the growing Chinese money class and its potential and aspirational desires.”
Understanding the market was one thing. Building nearly 1 million square meters and filling it up was another.
“The first time I went to the site there was nothing there,” Wimberly Interiors Associate Vice President and Creative Director Hussain Kamal, who worked on outfitting the Venetian, says. “I could not imagine that it would turn into the amazing built environment it is today with all of the gaming resorts and in the short time frame it was built in.”
“We were developing and operating at breakneck speed,” Mr Weidner, who spent about a week a month in Asia during the initial Macau developments plus the LVS Singapore e ort, says. “We wanted to have a huge footprint in Macau. Sands was built in less than a year, Venetian in about two and a half years.”
“The months before and immediately after the Venetian opening were magical,” Mr Tash, now Senior Vice President of Gaming and Strategy at Benchmark Solutions, says. Ahead of the ribbon cutting, junior executives considered four hours of sleep a luxury, learned to touch type on their Blackberrys, got blisters from walking around the enormous property and, during hotel stays for training staff, went full weeks without being outdoors during daylight.
“Vivid memories of my first visit to the Venetian Macao were its mass non-gaming facilities like food court, restaurants, related retail and internal decorations for tourists. And what impressed me most was, of course, the MICE facilities,” says Ricardo Siu, University of Macau Associate Professor of Business economics.
“To this Macau native, the Venetian’s contributions to the city go far beyond its core business.”
Adds Andy Nazarechuk, former Dean of the University of Nevada-Las Vegas campus in Singapore, “Venetian Macao represented something the market had never seen before – a beautiful, massive resort offering quality hotel rooms, a large open bright and clean casino and retail shopping that provided real brands to high wealth players.
“Most people in the region have never been to Vegas and probably never will visit. The Venetian Macao was a Las Vegas property in their neighborhood.”
“There was so much uncertainty and excitement about whether or not the gamble would pay off,” Mr Tash, who oversaw LVS gaming and marketing analysis and research, says. “It eventually did, to the surprise of many, but not to Adelson. he somehow knew it would be successful.
“As for Macau itself, and how its casinos went from winning half of what the Las Vegas Strip did in the early 2000s to four times the Strip last year – I doubt that even Adelson imagined it to be this successful, this fast.”