Inside Asian Gaming

September 2010 | INSIDE ASIAN GAMING 11 Asian Gaming 50 – 2010 Sheldon Adelson was never likely to take up a career in international diplomacy. His fans describe him as tenacious. His detractors describe himas difficult. Chances are he’s not too worried either way. He got where he is today by force of will and personality, not by hanging on the views of other people. A challenge in Asia is that when the unstoppableforceofMrAdelson’spersonality comes up against the immovable object of Chinese business and political etiquette, the outcome is likely to be stalemate. That’s exactly where Las Vegas Sands Corp seems to be in its dealings with the Macau government at the moment. An interesting question is whether Mr Adelson could have been making even more money out of his Macau operation if he had handled his relations with the government differently. Chances are, probably not. While most of his competitors have been chasing the high volume, low margin VIP baccarat trade in Macau, Mr Adelson has been going especially hard after the higher margin mass market business, while seeking to build up his VIP business in the lower tax, higher margin jurisdiction of Singapore, where the company opened its Marina Bay Sands integrated resort in April. Of all the Macau operators, Mr Adelson is best equipped to attack the mass market segment there. Sands Macao was designed as predominantly a mass property. That was revolutionary for the jurisdiction when the casino opened back in May 2004. And The Venetian Macao is virtually a love letter to mass market entertainment, though it also has significant VIP capacity, including the Paiza Club and at The Plaza casino in The Four Seasons Macao extension next door. In August, LVS’s Macau unit, Sands China, announced net profit for the first half of 2010 was up more than 300% from the equivalent period a year earlier. Sands China, which listed in Hong Kong in November 2009, made US$250.5million net profit—up from US$58.3 million in the first half of 2009. Revenue rose 32% to US$1.98 billion from US$1.50 billion. So far so good. The challenge is in sustaining the growth of that Macau 1 (2) Sheldon G. Adelson Chairman and CEO Las Vegas Sands Corp performance. The live baccarat trade in particular is likely to be constrained by a cap between now and the end of 2012 on the number of tables allowed in the city. The company’s Macau growth will depend, therefore, on how quickly it can open its US$4.2 billion Cotai 5 and 6 extension and how effectively it can stock the gaming floors—possibly with as many as 100 electronic table games. Building 5 and 6 in turn depends on how successful Sands China is in negotiating the minefield of Macau’s labour shortage. This process may be easier if Sands China can re-set the sometimes difficult relationship it has had with the Macau government. That was probably why Michael Leven, Sands China’s acting Chief Executive (following the dismissal of Steve Jacobs in July), said he was interested in hiring an ‘Asian’ as a replacement. A Chinese or other Asian face at the top of Sands China won’t, however, be an instant fix in that process of rapprochement. At the end of August, Mr Adelson openly stated what a number of industry analysts had been saying for weeks—that Cotai 5 and 6 would be delayed from its planned third quarter 2011 opening because of the labour issue. LVS continued to be upbeat about the project though, saying that an opening in the fourth quarter of 2011 is still achievable. That may be still optimistic, given the Macau government’s insistence on a ‘one for one’ policy (i.e. one local construction worker hired for every non-local brought on site) and the absence of any formal training system to convert local workers from other sectors into construction tradespeople. The only option available to LVS and its local unit Sands China, therefore, may be to throw money at the problem and offer wages that are so attractive that locals are tempted to switch from jobs in other sectors. An added complication is that if the usual protocols of project management are followed, most of the hiring will be done not directly by Sands China, but via contractors and sub-contractors. This means potentially that any financial incentives to encourage recruitment may have to come out of the contractors’ end, not out of Sands China’s end. Untangling those issues could make a challenging situation even more difficult. The mood music appears very different in LVS’s dealings with the Singapore authorities. At the initial opening of Marina Bay Sands (MBS) in April, Mr Adelson was fulsome in his praise for the Lion City, even suggesting at one point that he and his wife would be interested in moving there—an interesting counterpoint to Steve Wynn’s stated idea of moving his main corporate office from Las Vegas to Macau. MBS generated US$94.5 million of adjusted property EBITDA (earnings before interest, taxation, depreciation and amortisation) on an EBITDA margin of 43.7% in the stub quarter from 27th April