Sand Storms

Sands China Ltd will be glad the see the back of July. In the course of just one month the casino operator found itself tangled up in no fewer than four separate controversies – and it has yet to extricate itself from at least two of them.
The controversy with the most potential to tarnish Sands China’s reputation was stirred up by the publication of several emails that purported to have been exchanged by lawyer and Sands China legal adviser, Leonel Alves, and Sands China’s chief executive at the time, Steve Jacobs. The Wall Street Journal carried the story first, in June, but the United States-based website ProPublica.org posted copies of the emails online only last month.
They include an email that Mr Alves allegedly sent Mr Jacobs in September 2009, saying an unnamed intermediary, “someone high-ranking in Beijing”, had offered to help Sands China get permission from the Macau government to sell flats in its Four Seasons apartment hotel in Cotai. In another email Mr Jacobs identifies this someone as Macau developer Ng Lap Seng, who is a member of the Chinese People’s Political Consultative Conference. The emails say the intermediary asked for a fee of US$300 million (MOP2.4 billion) for his services.
The emails go on to say that the deal offered by the intermediary was to include the settlement of litigation between Sands China and Taiwan businessman Marshall Hao’s Asian American Entertainment Corp Ltd. Mr Hao alleges he helped Sands China’s parent company Las Vegas Sands to get a Macau gaming licence back in 2002, but was not compensated as agreed.
Speaking on Radio Macau, Mr Alves confirmed that the intermediary had asked for US$300 million; but he didn’t say who the intermediary was. He said Mr Jacobs had ordered him to continue negotiating a deal that would allow the sale of the Four Seasons flats.
Mr Alves said Mr Jacobs had been willing to pay the intermediary up to US$500,000 for “consultancy services”. He said these services included assistance in publicly clarifying the concepts of integrated resorts and apartment hotels. But the intermediary had refused the offer and the negotiations ended, Mr Alves said.

Transient affair
Sands China internal emails and company documents posted on the ProPublica.org website say Sands China chairman Sheldon Adelson instructed Mr Jacobs to pay Mr Alves about US$700,000 in legal fees. But the company’s general counsel and an outside law firm opposed this payment, warning that it might violate the U.S. Foreign Corrupt Practices Act.
This was because Mr Alves was, and still is a member of Macau’s Legislative Assembly and its Executive Council, which advises the government, and is a member of the Chinese People’s Political Consultative Conference. The Foreign Corrupt Practices Act prohibits U.S. companies from bribing foreign officials.
Mr Alves said the legal fees were in line with what Sands China and his law firm had previously agreed. He also denied having used his political positions to benefit Sands China, and said all his dealings on Sands China’s behalf were legal.
The head of the Gaming Inspection and Coordination Bureau, Manuel Joaquim das Neves, played down the controversy. The Portuguese-language newspaper Hoje Macau quoted him as saying it was a “transient affair” and that it “will not tarnish Macau’s reputation in the long run”.
Sands China dismissed Mr Jacobs in July 2010. Mr Jacobs is now suing his former employer in the U.S. courts for wrongful dismissal.
The Macau Office for Personal Data Protection stirred up the second controversy by beginning an investigation of Sands China subsidiary Venetian Macau Ltd on suspicion that it allowed the transfer of personal data without permission.
The ProPublica.org website says Sands China and its parent company, Las Vegas Sands Corp, moved documents from Macau to the United States in 2010 without obtaining permission from the government here. The website says the documents were stored in computers in Mr Jacobs’s office in Macau and were moved to Las Vegas a few days after he was dismissed.

Tempest in a tea-break
A suspicious cardboard box left outside Sands China’s Venetian Macao was the cause of the third controversy. Suspecting it might be a bomb, the casino resort staff called the police. The police evacuated and sealed off part of the west wing lobby and car park, although the casino remained operational.
The box was later found to contain an unidentified gadget installed by a contractor hired by the resort.
Sands China said “internal miscommunication” had led to the bomb scare. But the police have passed the case to the Public Prosecutions Office for further investigation to determine whether anybody should be charged with raising a false alarm.
Typhoon Vicente whipped up the fourth controversy. About 200 workers at Sands China’s Sands Cotai Central engaged in a dispute with the management of the casino resort regarding overtime payments while storm warning Signal No 8 was hoisted.
The staff were initially asked to work overtime from 11 pm Monday to 5 am Tuesday. But as the typhoon warning Signal No 8 was still hoisted, they wanted to stay on the job so they would get a special payment for working continuously for 16 hours.
The company allegedly denied the request, although providing them a rest area while waiting for the lowering of the warning Signal No 8 prior to returning home. The argument was settled only after representatives of the Labour Affairs Bureau arrived on site.
Sands China reported last month that its net revenue in the second quarter of this year was US$1.48 billion, 22.3 percent more than a year before. But its net profit dropped by 40 percent from a year earlier to US$160.5 million. The fall was due in part to a non-cash impairment loss of US$100.8 million on Parcels Seven and Eight in Cotai.
Sands China started site preparation work on these lots before the government had decided whether to grant the company the land. But the government eventually decided against granting the gaming operator the parcels.
If Sands China was feeling gloomy, it will have been cheered by the government’s postponement of the deadline for the development of the company’s Parcel Three lot in Cotai, beside the Four Seasons hotel-casino. The deadline was put back to April 2016 from April 2013. But the company will have to pay a MOP900,000 penalty.
Mr Adelson said Sands China aimed to start construction work on Parcel Three in November.

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Momentum mounts

After a shaky start that disappointed analysts, the performance of Sands China Ltd’s Sands Cotai Central is improving. But Sheldon Adelson, the chairman of Sands China, has said the casino resort “won’t truly begin its ramp until early next year”. Mr Adelson said in a conference call last month that he expected Sands Cotai Central to widen its margins in the coming months as it becomes more efficient and the remaining phases of the development open.
The improvement in Sands Cotai Central’s performance helped Sands China to rake in the second-biggest share of gross gaming revenue last month, according to data gathered by English-language paper Business Daily. The company’s share rose to 22 percent from 18 percent the month before, surpassing Galaxy Entertainment Group Ltd.
Sands Cotai Central is building up its share of the mass market, Union Gaming Research Macau says. The casino resort had 5.4 percent of the mass market between the mid-June and mid-July, 1.5 percentage points more than when it opened in April. Union Gaming Research measures mass-market share by counting casino shuttle bus passengers.
Michael Leven, President and COO of Las Vegas Sands Corp, Sands China’s parent company, says the two hotels in Sands Cotai Central, Conrad and Holiday Inn, increased their occupancy rate to 85 percent in June from 61 percent in April. These rates are lower than those of hotels in other Sands China resorts, except for the Four Seasons Hotel Macao. But Mr Leven says many indicators of the Sands Cotai Central’s performance are better than those of Sands China’s Venetian Macao or Las Vegas Sands’s Marina Bay Sands in Singapore when they first opened.
The positives allowed the annual rate of growth in Sands China’s business in the second quarter of this year to exceed the growth of the market here in general. The company’s growth exceeded the market’s in VIP tables, mass-market tables and slots.
The Sands group admits to having made some mistakes. Robert Goldstein, Las Vegas Sands’ president for global gaming operations, says Sands China did not put enough electronic gaming machines on the casino floor at Sands Cotai Central.
The second phase of Sands Cotai Central will open on September 20. It is due to add a second casino with capacity for 200 mass-market tables and 1,300 slots. The company’s problem is where to get the tables.
The number of live gaming tables here had reached 5,498 by the end of June. The cap on the number of tables imposed by the government is 5,500.
“Our indication from the government has always been that we would get 400 new tables for Cotai Central. On September 20 we will not have all of those 400, but we will be getting them throughout the rest of the year,” Mr Adelson said last month. He said Sands China would have to shuffle tables around among its casinos.
The first phase of Sands Cotai Central opened in April. In its first 81 days it generated net revenue of US$265.6 million (MOP2.2 billion).

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