In the first of IAG’s new series of video interviews with leading members of the Asian gaming community, Las Vegas Sands Corp President and Chief Operating Officer Michael A. Leven shares his thoughts on growth in Macau and Singapore and the company’s plans for regional expansion. INSIGHTS can be viewed online at the IAG website, staging.staging.asgam.com, and below is a transcript of the interview
In September last year, Las Vegas Sands Corp (LVS) Chairman Sheldon Adelson floated the idea of dropping the ‘Las Vegas’ from his company name in favour of the all-encompassing ‘international.’ Although no progress has been made on the proposed name change, such a move would reflect the company’s ambitions to develop sprawling mega resorts in several new jurisdictions.
LVS already derives over 80% of its annual revenues from Asia (namely, Macau and Singapore), and it’s been eyeing markets including Japan and Vietnam for possible further expansion in the region.
18th May was a significant day for LVS, as it marks the seventh anniversary of its initial foray into Asia, with the opening of Sands Macao—the property that officially ended Stanley Ho’s 42-year operating monopoly in Macau. Inside Asian Gaming publisher Kareem Jalal caught up with LVS 2IC [second in command] Michael A. Leven on the 18th for the first in IAG’s INSIGHTS interview series, produced in collaboration with Aomen TV.
Kareem Jalal: Today marks seven years to the day since Sands Macau opened; your first property in Macau. Has the market here shaped up the way you’ve expected?
Michael Leven: If you look at the numbers here, Macau is now five times the size of the gaming market of Las Vegas. I don’t think anyone would have predicted that seven years ago when we got here the first time, Macau would generate such a massive amount of gaming revenue compared to Las Vegas, which was the leading revenue in the world. I know our founder, Mr. Sheldon Adelson’s vision for Cotai strip and for what could happen here was very significant. But even he was surprised by the size of the numbers.
Do you have a timeframe for when the mass market might catch up to the VIP market in Macau?
I think in terms of number, VIP is always going to be pretty significant here because of the size of the wagers and the amount being wagered on the table on a per person basis is very significant. But I think the key to Macau’s future is still going to be the mass market, because that’s what’s going to stay no matter what. In the VIP area, there is considerable amount of times that you watch credit, it will vary with the size of the growth of the very large players. You don’t know when that’s going to get topped out. But I think in the mass market is nowhere near being topped out over the years. So I think you’re going to see the mass market get closer to VIP. It won’t pass it, but it will get closer in terms of percentage.
Has anything held it back do you think? Do you think perhaps infrastructure or even because the VIP is so dominant the operators haven’t been focused enough on it, especially the other operators?
I think the infrastructure hasn’t been here so much for the mass market. We didn’t have enough hotel rooms. We’re getting more now. With the opening of Sands Cotai properties 5 and 6, there’ll be more hotel rooms, more popularly priced rooms that will drive people in. I think where so much of the business has come from contiguous areas in China, as opposed to further away in China, that market’s going to continue to grow. And the bridge, more runways, more planes, more international visitors, more MICE business, everything points to the fact that over the years, the Macau mass market is just going to continue blossom.
Do you feel that perhaps there is a bottleneck coming soon following the Galaxy Macau opening, especially the big queues at the ferry to get in? Do you think there might be some issues in the next couple of years?
There are those bottlenecks but if you look at Golden Week or Chinese New Year where the bottlenecks have been, if there can be a spread over time, there is still an awful lot more visitors that could come in under the same infrastructure. You can still handle millions more people. But that infrastructure thing will improve. The light rail is going to improve it and more and more immigration situations. I think Macau has yet to find how significant it’s really going to be. It is the largest gaming destination in the world already, but it’s got a long way to go to use the capacity that’s nearby.
Singapore is now on its way to becoming number two possibly. And Marina Bay Sands, your property there’s been running for just over a year now. Is that on track to achieve your expectations there, to achieve ROI within the timeframe you’ve expected it?
I think our investment there is close to US$6 billion. We expect to do – we did over a billion dollar in our first year in EBITA. We expect that to grow. I think a four or five year payback in that situation, anybody would be happy with that return on investment. We should do that very easily without even selling an asset like our mall, which we expect to sell maybe in 2013 or 2014, which can provide as much as US$4 billion back for our US$6 billion investment just on the mall alone. I think Singapore is sort of in some way an anomaly. There’s only one competitor. There won’t be any more than one for a considerable time, if ever. The market is very, very vibrant in all areas. So it was a great decision to go for it, get it and build it. I’d like to have two or three, I wouldn’t have to do very much.
You speak of your one competitor in Singapore, that’s Genting of course. People actually expected Marina Bay Sands to take the lion’s share of the market very quickly, but Genting has somehow managed to hold on to the lead. Why do you think that is? What have you learned from Genting over the past year?
Well, in the early days, Genting won both the market share game in VIP gaming as well as mass market. We are now winning the mass market game and they continue to lead in the VIP game for a variety of reasons. We think over time, there is a significant product differentiation between us and Genting and a location differentiation. They are in more of a family area, more in a resort area, it’s a little off the beaten path, and we are very close to where the city is, so basically we’re advantaged on the mass market. On the VIP end, they’ve more aggressive than we’ve been and doing a better job. But they had a head start on us because of all their contacts in Malaysia. And we’ll eventually catch up and probably that market will be split, but I think we’ll continue to dominate the mass market.
There are a few things you changed in terms of your strategy in Singapore. It started, you were going for a very baccarat mix with the tables, and now you realised that roulette is more important, things like that. What have you changed in Singapore in terms of your strategy?
The mass market floor in Singapore constantly changes. One of the things we learned from Genting was the electronic table games, which they put, and the stadium table games. We didn’t know about that. We saw that there and we immediately ordered them and put them in. They’ve been very good. But we’ve made over two thousand changes in the last six months on our floor—changing machines, changing different slot machines, changing tables, putting new games in. Most people don’t realize that there is both an art and science to the gaming business. Not just getting people in there to play, you have to put the right game in the right place so that revenue per square foot is maximised . And we have some very, very good people in Singapore that do that.
Of course, you are very willing to learn and adapt.
Well, I hope so. If we don’t learn, we don’t adapt and we don’t continually improve, you end up in a status quo environment. When you’re in the kind of business we’re in and we’re a public company, we can’t be in status quo. Status quo is the prescription for failure. We have to continually grow and change.
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In Singapore because of the entry levy , which is S$100 a day, that was something that people thought would dissuade locals from coming, but it doesn’t seem to have deterred them at all really.
We didn’t concern ourselves with the entry fees and I don’t think anyone else did either. The entry fee does prevent the very low income person from coming in. and I think that’s very important. I think casinos need to be careful not to attract the kind of people that can’t afford to come in. The people who would normally play a lottery for instance, where they can play pennies or dollars, can take chances on a lottery. But I think when you come into a large casino like ours or Genting, their Resort World, the fee structure only inhibits those low end people. It doesn’t inhibit people from coming in for an evening of entertainment. So I like it. Frankly, I would be surprised if when we expand in other countries in Asia that we don’t have an entry fee in almost every country, if not every country.
There is some speculation that the Singapore government might crack down a bit more and maybe try more to limit locals’ access to the casinos. One thing was they stopped the bussing of people from the so called ‘Heartland, which is, obviously, again it’s more lower income people. Do you think they are mainly interested in preventing lower income people from coming or do you think they might also try to have more blanket measures to prevent all Singaporeans from coming?
We are basically told that as long as only about 30% of the people coming in are Singaporean, then it shouldn’t be a problem. If the amount of Singaporean attendance gets much higher than that, there may be some cause for concern. But to this day, only about three percent of the population of Singapore has ever played in a casino.
Is that 30% thing unspoken?
It’s not published but it has been talked about. That’s what our numbers have been roughly 30% Singaporean. That doesn’t seem to cause any problem. You are always going to have in the casino business some people who over-play. That’s part of the business, but the great majority of people can control themselves and I don’t think we’re creating more poverty in Singapore because of our presence. But if that were to happen, the government would have every right and every reason to come in and try to restrict play.
Governments across Asia do not like their locals playing as a rule. So there are casinos in Vietnam and South Korea, but in general they’re off limits to locals. You’ve said that you’d be interested in expanding into those markets, but only if the governments reserve that policy and allow locals to play. Do you see that happening anytime soon?
It is true that we said that. In South Korea, there is one casino that gets local business. That casino does 90%t of the revenue of all the casinos in Korea.
One of seventeen.
Yes, one of seventeen casinos. In Vietnam locals don’t play. Our conversations with the governments both in Vietnam and Korea have been about restricting locals with a payment, or restricting locals with a certain amount of payment that they can enter in the course of a year or the course of month, to be able to prevent them from coming too frequently or not being able to afford it. But we must have the support for the kind of infrastructure that we put in, in terms of an integrated resort, we have to have some local play in order to be consistent when we don’t have convention and we don’t have tourists. Otherwise, you’ve got an awful lot of overhead sitting there not generating any revenue.
Do you find those government attitudes somewhat irrational because there’s nothing to stop these people from going overseas and playing?
I wouldn’t call it irrational. Governments are governments. Depending on where you come from, you can say whether they are irrational or not. My sense is that in our discussions with Japan, with Korea, with Vietnam, that in these particular countries, they have political reasons why certain constituencies have concerns about local gaming even though they have betting in all these countries—boat races, horse races and a lot of things like that. So they begin to see the virtue of our system because our system drives tourists and drives conventions and meetings and entertainment and builds an enormous amount of jobs. I think Macau’s an interesting example. If you look at City of Dreams, if you look at Galaxy, you are seeing other operators coming in who are sort of attempting to follow a somewhat integrated resort pattern. And that’s going to drive tourism, other types of visitations, other than gaming. Although in an Asian market, gaming is always going to be very important, compared to a US market or European market. But still for a destination to maximize the contribution, our type of facility does that.
Taiwan is another one that could be happening now that the government is increasing its effort to lobby there. There was a ‘no’ vote on the Penghu referendum but now it seems the government is doing more to lobby there. Do you have any thoughts on whether the next referendum in Taiwan might be successful?
Well, I think the referendum is coming in another island. I think it is a 5km bridge from the mainland. The government would like to have it because they are losing traffic coming out to play here and other places. But I am not positive about that passing. We would be not interested in having a 5km bridge to get to us. If we could be on the mainland near Taipei, we would be interested because there are 28 million people in Taiwan. For the same reasons that we’d be interested in Korea, or Japan or any of these countries because we can do convention, meetings, MICE and entertainment business as well as gaming for the population as well as foreigners. So getting to the island, the infrastructure would be difficult for us and would be difficult for employees. We need a big employee base to run one of these places. There are 15 thousand people in the building we’re in right now.
India is often discussed but doesn’t seem to be going anywhere right now. There have been quite a lot of Indians coming to Macau and specifically to Venetian. But do you see them gambling?
Oh yeah, Indians play. There are very few countries in the world where people don’t gamble. It’s just a question of how often and how much. But they play. They play during certain times of the year; Diwali time, special times for Indians. There are casinos in Goa in India. I don’t know how successful or unsuccessful they are. India lacks a really good trade show and exhibition centre as well big conventions in order to compete in the Asian circular convention market. They don’t have that. There is some small place in Delhi but it’s not nearly big enough. And I think outside of Mumbai or in Delhi would be an ideal position for one of our kind of integrated resort. Once again, I wouldn’t expect the play level to be the same as this part of Asia. But there’d be significant other business that could make it attractive. But getting anything done in India is not easy.
One of the things that you mentioned is that you might be looking for someone to manage your relation with the government in Macau. Is that going anywhere? Can you shed some light on that?
We have an arrangement with a gentleman by the name of Bowen Leung, who originally worked for the Hong Kong government and spent many years in Beijing, who’s now affiliated with us. He works for us a few weeks a month. He just joined us a few weeks ago to help us in our relationships with Beijing and Macau in particular.
Is political risk something you’re conscious of in Macau and in your dealings with China?
Frankly, I don’t spend a lot of time worrying about political risk. I think if you play by the rules and you act accordingly when you’re in someone else’s country, I don’t think there’s anything more to fear about it. We are a big producer for the economy in Macau. We represent, I think, 25-30% of the employees in Macau—a big number. And the trickle down for the economic benefit of the community from us is very significant. So we don’t want to throw our weight around—we don’t. But I think we want to be cooperative and help them. I think if you look at Macau going back to 2004, seven years ago when we opened Sands, and you look at it now, a lot of what you see, we have been somewhat responsible for. Not entirely, but somewhat. So we hope that continues over the years.
Over those seven years, what is the greatest lesson you’ve learnt from operating here?
That’s a very good question. We learn lessons everyday operating anywhere actually. There’s an old statement, ‘when in Rome,’ that they say in our country, ‘when in Rome, do as the Romans do.’ I think basically the best thing here, like in any place, is that you follow the rules, you pay attention to what’s important to the government and the people, and you can be successful.
You have an immense responsibility overseeing so many properties in so many jurisdictions. What is the biggest challenge to that? Is it even difficult to keep track of what is going on in each jurisdiction?
Listen. I have a wife. I have three children. I have five grandchildren. That’s a bigger challenge than what I do for my own living.
Your Asian operations, are they supporting your operation in Las Vegas?
No. Vegas is self-supporting, but I would say our Asian operations are 88% of our profitability as a company. But none of our units in Las Vegas, Bethlehem nor Pennsylvania are non-self-supporting for themselves. But our profits are overwhelmingly coming from Asia.
Vegas has been in decline for the past couple of years. But have your properties, do you think, fared better than the others because of your Asian connection?
In the VIP Asian gaming area, I think our property does a little better because of our Asian connections. Vegas, at its height, did about US$75 million dollars more a year than it does today. It’s a lot of money, but it is not really significant. That would be, let’s say, about 25% off the high of 2007.
When do you think the real Vegas recovery will happen? There seemed to be one last year, but it turned out to be premature.
That depends a lot on what you called a recovery. If it’s purely on a money basis, it’s going to be a while because room rates have not yet recovered, and it will take four or five years for that to happen. Although most of the properties in Vegas have reduced their staffs and their costs, it’s still very difficult to obtain 2007 profitabilities. So I would say it’s at least five years before you see Vegas get to those levels of income that they were. In terms of visitation, Vegas this year will do about 37 million people. At the height, I believe it was 39 million or so. So it’s about roughly 10% off the top, the visitation.
We see some properties being imploded in Vegas right now. Is Vegas overbuilt—especially for right now?
I think in some areas it’s overbuilt. It’s overbuilt at the middle and low end. A lot of that is product obsolescence. We just closed the Sahara hotel, it’s been there since 1952. There aren’t too many hotels that have been around since 1952, and if there are, you probably wouldn’t stay in them. So some of those are just natural a natural attrition of things. At the high end of the market in Vegas, it is somewhat overbuilt which, keeps a little bit of a cap on the rate structure.
While Mr. Adelson is known as the visionary of the company, you are often referred to as the man who gets things done. What do you think has earned you that reputation?
I suppose you get a reputation like that when you do things. I have been doing this for nearly fifty and half years now, and a good part of that was as a chief operating officer—maybe 30 years as a chief operating officer, and I’ve been a chief executive officer for ten years as well. But I think when you’re a chief operating officer, the job is getting things done. You can do some strategy, but you better make sure it gets executed, so I’m the one that has to take Mr. Adelson’s vision and make sure it happens.
And is one of the things you’re on the lookout for someone to fill your shoes one day?
I certainly am. I’m on my second contract with Las Vegas Sands, and when this one ends, part of my job is to make sure I get somebody to replace me. We have people in the pen waiting patiently, and at some point in time, we’ll turn the reins over to them.
