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“I don’t want to fight the government"
Las Vegas Sands Corp. and Sands China Ltd. chairman Sheldon Adelson wants to cooperate with the government to solve the dispute over Cotai parcels seven and eight. In an exclusive interview with Macau Business, he also unveils his next investment targets and what he would have done differently in Singapore and Macau
Is the Cotai Strip becoming what you thought it could be, now that Lawrence Ho has opened City of Dreams, Francis Lui has inaugurated Galaxy Macau and with Sands Cotai Central opening next year?
Sheldon Adelson: My original plan called for 20 lots on a U-shaped strip, coming down the strip to the roundabout and then going right at the road that takes you to the power plant, then coming back up by the Macau Dome.
My idea was to rebuild half or more of the Las Vegas strip, to create the critical mass. I do not mind that other people are coming. I want other people to come because it validates the critical mass nature of the development.
Look, nobody wanted the land before. It was sitting there for a long time.
You can take that as a compliment.
There is another compliment. Secretary [for economy and finance Francis] Tam is now saying that in order for developers to get their new casinos approved - presumably that means whatever the amount of casinos they can build, including the number of tables they can get - they need to bring directly proportional non-gaming amenities. This has been the matrix for me since I came to Macau.
Are you surprised with the 3-percent cap on gaming tables announced by the government for the next 10 years starting in 2013?
I am surprised because it is not the cap on tables that really makes the difference. What makes the difference is the number of places that are competing for the customer.
When a customer comes to Macau, different operators approach him. What counts is how many approaches he gets and how much marketing and promotion each property does to bring people to Macau.
No customer knows how many tables are in each property and none of the customers care. Putting a cap on the tables may have the desired effect of limiting the number of places to bet but all the government really has to do is to limit the number of sublicenses [operations run by third-parties under the gaming license of one of the city’s six concessionaires, which in return is entitled to a fixed cut].
That is the problem. They don’t limit the number of sublicenses. Stanley [Ho Hung Sun] has 60 VIP rooms and close to 20 sublicensed casinos. A casino by any other name is still a casino.
I am very glad to see that the government has finally said there is a matrix of non-gaming amenities that you have to provide in order to get the “golden ring”.
And you are bringing more non-gaming facilities?
More than anybody, by far.
Enough tables
With parcels five and six, (now re-branded as Sands Cotai Central, a better name, by the way) opening next year, you need more gaming tables. How does the 3-percent cap impact Cotai Central?
We have the tables. We grandfathered in because we started the project several years ago before they came up with this limitation.
I believe the government has already allowed you 400 tables for Cotai Central. Was it less than an operator with this size of investment would expect?
This is going to be the largest building ever built in the world, almost 1.3 million square metres.
I respect the fact they want to limit development. We just disagree [on the method]. There is more than one way to do it, rather than putting a limit on the number of tables.
If they are trying to discourage people from developing new properties, they could simply say “You cannot develop new properties”. That is all there is to do.
We are correct in following the integrated resort model with all the non-gaming amenities connected.
I am going to write a letter to the government suggesting there ought to be something like 30 percent of the space in hotel rooms, 15 percent of the space should be for MICE [meetings and conventions] and of that, 10 percent should be exhibitions space and 5 percent congress space. Maybe 15 percent for retail, spas and showrooms etc. I am going to prepare a matrix that will show what percentage of space should be devoted to each separate amenity.
That comes to 60 percent. What about the other 40 percent?
For other things. But the casino should be no more than 5 or 10 percent of the total amount of space. Whatever number they come up and think is optimum. I do not think we need more than 5 percent. The developer that does not want to put up the [non-gaming] amenities, should be penalised by having the percentage of the casino in relation to the total amount of space reduced.
Fortunately, the government announced the table cap after Sands China Ltd. secured a US$3.7 billion (MOP29.6 billion) loan agreement. Do you think operators that wish to develop in Cotai might face difficulties in getting bank financing due to the new rules?
Banks will not loan money without assurances from the government that there will be sufficient equipment, approvals and labour to both construct and operate the resorts so that they have the best chance of getting the money back.
At the last minute, there was enough demand [for the Sands’ loan agreement] and we took another few million dollars [US$200 million] just to have extra cash and consider paying dividends.
We did not absorb all the available cash in the market by far. There is plenty of cash in the market and it is up to the credit worthiness of the applicants. But I talked to many banks and they say that without assurances that the operator will have sufficient equipment and labour, they are not going to loan any money.
Let’s sit and talk
On parcels seven and eight, Sands China Ltd. took the case to court after the government did a U-turn and decided not to grant you the plots anymore. Do you really think you can get them back?
We have an obligation to our shareholders. We are a public company and we have to pursue all the available avenues of appeal. If, in the final accounting, all the appeals are rejected, then we will be rejected. We have an obligation to protect the interest of the company.
We obviously disagree with the government. There is no reason to take it back but I understand what the government is trying to do. If we could sit down and have a discussion about how to resolve the matter, we would welcome that opportunity.
If the government doesn’t grant you the sites, will you sue to try to get back the US$100 million-plus that Sands has already invested in them?
I do not want to sue the government. I would much rather sit down and amicably negotiate out a solution.
Have you already suggested that to the government?
Yes. I have given instructions for that to happen. I do not know exactly what happened.
We are there together. I have changed the face of Macau for the positive. I do not want to fight with the government.
This is their country but I think there are certain things that should occur. We call it grandfathering, meaning when you change a law, whoever is in the midst of taking certain steps, should be allowed to continue to complete whatever they are doing. Apparently not.
To finish on the sites, there is one parcel left, number three. Any concrete plans?
We are ready to start it. There are some answers that we need from the government before we could start it.
So the ball is in the government’s court?
Yes.
Could the government say it is going to take that site as well because you are not developing it?
We own the site. We paid for it. It is a lot different from seven and eight.
[According to the land grant contract, Sands China Ltd. is required to complete the development of parcel three by April 2013].
Paying a dividend
You said recently that Las Vegas Sands Corp. might pay dividends to shareholders next year. Will Sands China Ltd. follow?
Yes.
Stock market volatility has been huge and gaming stocks are no exception. Does it keep you up at night?
No. I do not worry about that because I know that over the long term this is like gaming. Over time, the live averages change in the house advantage. It all leverages itself. I know over so many years of doing business that everything is in cycles. It goes up and down. Everything is volatile.
I don’t understand why rumours are enough to have such a strong impact on stock prices. Look at Macau, look at Singapore, and the numbers have been nothing but amazing every single month. Where are these panic attacks coming from?
It’s hedge funds and day-traders, which are opportunists, not long-term investors. If the bad news gets around, the stock will go down so let’s spread the bad news. When the good news comes, lets help spread the good news and the stock will go up. They could be in and out in an hour to make money. In a minute, sometimes.
These issues do not affect the fundamentals of any commercial enterprise.
People have not sufficiently studied in order to talk about the slowdown in China. Over 90 percent of the Chinese visitors to Macau come from Guangdong province. There is plenty more people from adjacent provinces like Fujian and other places where visitors could come from.
They are saying it is going to affect the liquidity of the junket representatives. We have talked at length with them and they are saying there is plenty of money. It is not an issue. People are throwing money out at them.
Macau is a success story. Singapore too is a success story, but surely even you must be surprised with the numbers. Did you expect the results would be like this?
No. I knew that there was an explosive opportunity and that if the market was correctly approached it would be big, but I never knew how big.
Macau brought in US$24 billion last year in gross gaming income and this year it is bringing over US$30 billion. I never thought that we would get to that so fast.
When we first came to Macau, there was only about US$2.5 billion of business. Within two years, without adding a table, without adding a chair for somebody to sit at, it doubled to US$5.5 billion.
Everybody laughed at that and said that it was due to the excitement of the Sands Macao effect creating a lot more business. It was not that.
More and more
How happy are you to have a foot in both Singapore and Macau?
Very, very happy.
I believe Asia has the potential for many more properties and we hope to be able to set up a network of properties that help to feed each other.
For instance, if we are going to Korea, a lot of the very big Korean players are not going to play in their country because they want neither their social circles nor the government to see them. So, they will leave Korea and go somewhere else to play.
Let’s say I am also going to Japan. The same thing with the Japanese. What will happen is the Japanese will go to Korea and the Koreans will go to Japan. The high rollers will come from other countries.
Everybody is talking about your plans for Spain. Are they still on track?
Yes.
What is the situation with the project?
We are in constant discussion with the government about the local legislation and what kind of grants and incentives they will give to us. Under the present legislation in Spain, it is not conducive to develop a strip of integrated resorts like the original plan we have proposed. We are talking about 12 hotels with 3,000 rooms each.
For instance, the government requires everybody who comes in to show his or her passport but they do not know why. When you get down to some of the bureaucratic explanations, they say the European Union wants to prevent money laundering.
We have to change the law. [It is understandable] that when you go to the cashiers’ cage and you put out your cash to buy the chips or the tokens, you have to show your passport, rather than show it when you come in.
We cannot have 70,000 to 80,000 people a day coming to each property and showing their passport. It is ridiculous.
You are telling them to bring whatever regulations they have, bring them now and not in the middle of an investment like happened in Macau?
Right. We are anticipating everything that can go wrong and we are discussing with the government. The government is very supportive. They want this development because it could be over US$30 billion.
In Madrid?
Either on the city limits of Madrid or the suburbs of Barcelona. We probably have 1,000 pages of research provided by different consulting firms to each aspect of the gaming and non-gaming amenities to see how that will work out.
Let me provoke you. Given the experiences you had in Macau and Singapore, what will you try to avoid in Spain?
You just put the finger on it. [We are trying] to anticipate all the issues that can arise during the course of the development and try to resolve them upfront so there are no surprises and no changes.
For instance, everything to do with labour: the availability of labour, our ability to bring in if there is not enough Spanish labour – but our policy has always been local labour first –, the ability to deal with the unions, the ability to train the labour, things like that.
Also, the moving around of tables. What difference does it make if I take this table that is sitting here and move it over there?
Currently, the government needs to approve it. We are trying to convince the bureaucrats that there is no fundamental need or desire to wait two or three months to [get the approval to] move a table from this location to two metres away.
Aside from Spain, do you see any other place that you would like to invest?
Yes. Japan, Korea, Taiwan, Vietnam, Thailand. I do not know about Thailand because the subject of legalisation goes off and on. There are rumours they will do it and there are rumours they won’t.
I think it is much more serious in Korea, Japan, Vietnam. I do not know about Taiwan. Taiwan has been talking about the islands but nothing substantial regarding operators opening in Kinmen or Matsu.
Japan and Korea: would you enter alone or would you like a local partner to go with?
We like to invest alone unless we are required to invest with local partners.
Learning curve
One and a half years after the opening of Marina Bay Sands, what would you do differently if you could?
I would build more MICE space, more exhibition space, more hotel rooms and more casino space.
Do you feel you are running out of space?
That is correct. We are running almost 99 percent occupancy [rates] in the hotel.
More than seven years after the opening of Sands Macao, what would you do differently in Macau?
I would do exactly what I have done. There is not much I would do different. I mean, business wise.
I might have built several places at once but we were doing other properties: we were building Singapore, we were building the Palazzo [Las Vegas]. We were building too much.
Yes, I would have done several places simultaneously [in Macau]. I would have gone ahead and done [parcels] five and six, then I would have started seven and eight and have [site] three finished.
[Originally] I was going to do them in sequence. For instance, I would finish the pilings in one property and then I would move the equipment and the crew to the next lot and so on. But with the recession, my crew could not handle it. It was too much for us to build.
Jacobs caused ‘hurt’
The judicial saga with former Sands China Ltd. chief executive officer Steve Jacobs created a lot of noise around the company in Macau. Is it possible for you to measure the negative impact created by the case?
I am too trusting of people and I did not think somebody was that malicious to go out of his way to do criminal things. I cannot measure it but it certainly caused us a lot of hurt.
When the people went to make a settlement with him and to fire him, the first thing he did was to threaten us. Once threatened, we could not make any deal.
These were very honest members, very outstanding members of the board. Once he threatened that he was going to make up stories and he had evidence, they could not capitulate to his demands. He made a bed for himself.
The image I have of you is that you are always ready for a fight…
I am not ready for a fight. I do not want to fight but we are ready to defend ourselves against improper and untruthful allegations.
He did it very cleverly. He went to court. In the United States, anything that is said in court is protected from liable or slander or any claim against untruth. In Macau it is not. In the rest of the world it is not. So he brought in the press to watch what he filed. I am sure he gave them copies.
When we win the case, we will go after him in a way that he won’t forget because none of what he says is true and he can’t prove it.
You were one of the first people to think of a way to expand into Hengqin Island, next to Macau, to host some of your non-gaming projects. Years later, the island will be developed by the Macau and Zhuhai governments, and some private businesses. You are not there. What went wrong?
I do not think it went wrong.
My former management was enthused about it and I was not that enthused because we were a simple real estate development.
From my point of view, they needed my convention expertise to develop and operate a big convention centre. We were discouraged because we were told that the central government did not want any casino operators operating on Hengqin Island, even if it was non-gaming. As it turned out, that was not the case. But that was not what we understood at the time, so we passed.
Still, it is just the beginning and the island is six times bigger than Macau. If the opportunity comes, would you think about it?
We are only in the business of doing integrated resorts. We are not going to get into any other business.
Business aside, here you are now, among the wealthiest people in the world. I am sure many are asking themselves: “With all these billions, why doesn’t he stop? How much is enough?” It is not just an issue of money, is it? What drives you?
Accomplishment. To accomplish things that other people cannot do and to change the way other people do things.
Looking back, what makes your heart beat faster with pride and what saddens you?
This morning we were talking about the joblessness [in the U.S.] and the sad part of people who are out of work. One of my colleagues said he got 17 calls in one day from people looking for jobs.
That really makes me feel sad because I remember my parents who were both uneducated and my father had a lot of difficulties in getting a good job. I remember the sad times when there was no money. They had to borrow money from moneylenders, from shylocks, to put food on the table.
What makes me proud are all the accomplishments.
The biggest accomplishment that I have and that makes me the proudest has to do with medical research.
I have changed the status quo of medical research because of my new “business model”. It is not business. It is a research model of conducting collaborative medical research [through the Dr Miriam and Sheldon G. Adelson Medical Research Foundation].
Did you know that we opened a drug treatment centre in Macau? We have a clinic there. It is a labour of love from my wife. She is a doctor of internal medicine and she developed a subspecialty in treating drug addicts. We have one in Israel, in Tel Aviv, where my wife comes from, and we have one here in Las Vegas.
My wife has sent, many times, doctors, nurses and medical people from both clinics over to Macau. Now they have a couple of hundred patients and they are doing an excellent job and sharing treatment research, which is published in medical publications.
