Inside Asian Gaming

INSIDE ASIAN GAMING | June 2008 Editorial Editor and Publisher Kareem Jalal Director João Costeira Varela Business Development Manager Matt Phillips Operations Manager José Abecasis Contributors Michael Grimes, Desmond Lam, Steve Karoul, Richard Marcus Graphic Designer Brenda Chao Photography Ike Inside Asian Gaming is published by Must Read Publications Ltd Suite 1907, AIA Tower, 215A-301 Av. Comercial de Macau - Macau Tel: (853) 6646 0795 For subscription enquiries, please email subs@asgam.com For advertising enquiries, please email ads@asgam.com or call: (853) 6646 0795 www.asgam.com Printed by Icicle Print Management (Macau) Ltd Tel: (853) 2871 2818 Fax: (853) 2871 2898 www.icicleprint.com Sheldon Adelson is probably rather glad he held on to a controlling stake in Las Vegas Sands Corp (LVS). Otherwise, he could have been one of the richest and most successful businessmen in history to face an institutional shareholder’s revolt. If that sounds far fetched, how many public company chairmen out there do you know who could preside over a first quarter loss; experience a multimillion dollar defeat in a civil lawsuit; admit to being too ill at one time to run their own business; have the company president admit on oath that he had failed in his fiduciary duty and still expect to see smiling faces at the next stock holders’meeting? Well it all happened to Mr Adelson in the space of just a few weeks, knocking some of the shine off his image as the man with the Macau Midas touch. At the end of April,LVS announced a GAAP net loss for the first quarter of 2008 of U$11.2million, despite a 71.8% jump in revenues to US$1.08 billion from US$628.2 million in the corresponding quarter of 2007. LVS said that on an adjusted basis, it would have reported a net profit of US$23.6 million. Nonetheless, the company appeared to be showing some of the classic symptoms often brought on by rapid corporate expansion—namely a surge in business costs (coinciding with global surges in commodity costs) without an immediate accompanying rise in profits. Depreciation and amortisation expenses amounted to US$113.4 million in the first quarter of 2008, compared to US$31.2 million in the first quarter last year.The company said the increase was mainly due to a rise in depreciation expenses related to the openings of The Venetian Macao and The Palazzo in Las Vegas. More bad news came in late May, when a Nevada jury ordered LVS to pay Hong Kong businessman Richard Suen US$43.8 million after deciding he had, as he claimed, played a vital role in helping LVS get its Macau gaming licence in 2002. Things could have been worse. Mr Suen was originally asking for a US$5 million success fee and 2% of LVS’s Macau gross over the lifetime of the Macau licence, which would have amounted to considerably more than US$43.8 million. It also looks as if Mr Suen will have to pay his own legal costs despite the win. Mr Adelson’s lawyers add that they plan to appeal against the verdict. Potentially more damaging in the long term for LVS than the first quarter loss or even the court payout was the drama inside the courtroom. Mr Adelson’s demeanour on the witness stand was similar to that of Clara Peggotty in David Copperfield.In Charles Dickens’novel,Mrs Peggotty is David’s nurse,a good and upstanding person, but one who is incapacitated just at the moment when some crucial decisions have to be made. So it was that Mr Adelson told the jury that at important times in the LVS dealings with Mr Suen during 2001, he was in too much pain from a rare neurological condition and too drowsy from properly prescribed medication to be fully focused on his business.The fact Mr Adelson didn’t disclose his temporary incapacity to the US Securities and Exchange Commission is subsequently being viewed as a faux pas, but not a serious regulatory lapse. Back to the courtroom and enter Mr Weidner, with some of the characteristics of Mr Barkis, Peggotty’s faithful companion. In Dickens’ story, Mr Barkis means well but sometimes gets hold of the wrong end of the stick. During his testimony, Mr Adelson said that Mr Weidner has been dealing with Mr Suen on the Macau issue, but that Mr Weidner had made a mistake in asking someone with Mr Suen’s lack of financial experience to find investors for a possible Macau project. Mr Weidner then admitted under cross-examination from one of Mr Suen’s American lawyers that he had failed in his fiduciary duty to LVS in his dealings with Mr Suen. In other words, Barkis was willing but had just fallen short. Later, inside the court and outside, Messrs Adelson and Weidner retracted their statements, hinting clever lawyers had tricked them. It was, though, an unfortunate turn of events. The jury found in Mr Suen’s favour, and now Mr Adelson and Mr Weidner’s aura of unparalleled competence and even invincibility has evaporated. If all this wasn’t enough,it appears that monetisation—the LVS magic bullet used so effectively to mitigate development costs in Las Vegas—may not be possible for the serviced apartment portion of LVS’s Cotai site. This scenario, which would apply equally to the residential portion of MPEL’s City of Dreams site, has come about because of question marks over the rules of domestic land title on Cotai. Sources explain to Inside Asian Gaming that this is because land on Cotai can only be legally offered on a 25-year lease, while title in the rest of Macau is either freehold or on a lease ranging from 75 to 100 years. And in case anyone had forgotten,project costs have also been rising pretty sharply in line with world commodity price rises at the Marina Bay Sands construction site in Singapore,while in the US there are signs the domestic economy is slowing. The year 2008 isn’t yet an Annus Horribilis for LVS, but nor is it a roaring success.The second half of the Year of the Rat will need to be a lot less twitchy if ‘Mr Midas’ is to win back his golden crown. Michael Grimes Courting Trouble Sheldon Adelson holding court with more conviction at Venetian Macao