Macau mega-casino born of a broken marriage
Venetian Macao founder Sheldon Adelson's vision to convert a disused Macau landfill into Asia's version of the Las Vegas Strip has paid off in spades ... but it wasn't easy
Before they could change Macau’s casino landscape, Las Vegas Sands management first had to change the mind of LVS founder, chairman and chief executive officer Sheldon Adelson. Their persuasion produced Venetian Macao, which celebrated its tenth anniversary on August 28, a homage to Venice built on land taken from the sea and legal reasoning seemingly pulled from thin air.
As LVS president and chief operating officer William Weidner, executive vice president Brad Stone and Walt Power, later casino operations chief at Sands Macao, scouted Macau’s casinos on 2001, one number stood out: US$45,000. That was the average daily revenue on casino monopoly holder Stanley Ho’s mass market tables. Comparable Las Vegas Strip tables averaged US$2,500.
The LVS team’s enthusiasm led its alliance with Galaxy Entertainment Group as a management partner to win a gaming concession in February 2002. Galaxy signed the official concession agreement that June.
But the companies faced a government deadline to finalize partnership agreements. Under their preliminary deal, LVS would run the casino for a fee with an option to buy to 30% of the venture.
“Sheldon only wanted to manage the casino,” a Macau gaming executive requesting anonymity said. “Bill Weidner and Brad Stone had to convince Sheldon to put in equity. That’s when negotiations with Galaxy fell apart. If there was going to be so much money to be made, the kind of money that Bill and Brad convinced him there would be, then Sheldon wanted to get involved with real equity.”
At $45,000 per table per day, an option for 30% wasn’t enough.
In Richard Suen’s lawsuit against LVS for unpaid consulting fees, Adelson testified that Galaxy wanted to pursue VIP gambling, which LVS feared would create problems with Nevada regulators because of alleged underworld links. For its part, Galaxy quickly tired of Nevada’s disclosure requests.
Sources contend LVS and Galaxy also diverged over business philosophies, budgets and corporate styles. Weidner and Stone’s optimism led LVS to turn its original “temporary casino” into the world’s largest gaming floor, which is what US$265 million Sands Macao, Venetian’s predecessor, became.
Galaxy – the partner writing checks – balked at pouring more than a quarter billion dollars into a project three times as big as any previous Macau casino. Negotiations deadlocked.
Government gaming lawyer Jorge Oliveira tried to mediate, but found “the relationship was already bad, real bad,” testifying, “It was too late” to salvage the partnership.
The Tender Commission selected runners-up, MGM Mirage topping the list, to step in if a concession winner faltered. Macau could have turned to MGM, or at least used that stick to push for a resolution. LVS would have been particularly reluctant to forfeit its place in Macau to a major Las Vegas rival.
But Oliveira testified the runner-up options lapsed once concession contracts were signed, a debatable legal interpretation that destroyed Macau’s leverage. Oliveira also dismissed the idea of having just two concessionaires as “ridiculous,” though Singapore has two of the world’s most profitable casinos with a duopoly.
Macau’s government also rejected a new tender for the license. Oliveira said LVS – now ready for a solo bid – would have likely won a new tender and, asserted, again debatably, that would have created an image problem.
“What had been perceived and considered to be an open and fair international public tender would have been perceived as a legal expedient to allow Venetian to have a concession when they really didn’t come to the first tender at all, except as a management company.”
However, Oliveira added that Macau still desperately wanted LVS in Macau. Some suspect mainland influence, but there was a very local reason.
As Adelson saw Macau’s full potential, he envisioned Cotai, the disused landfill connecting Macau’s outlying islands Coloane and Taipa, becoming an Asian version of the Las Vegas Strip with Venetian Macao as the gateway.
Oliveira testified that he believed Adelson shared the concept with Macau chief executive Edmund Ho only after settling the partnership issue with Galaxy, and Weidner concurred. However, another knowledgeable source linked Cotai to the Galaxy dispute.
“When Sheldon said he would build Cotai, that was music to Edmund Ho’s ears. I think Sheldon was smart enough to sell Edmund Ho on the idea that if they somehow split the partnership, LVS would build Cotai.”
Whatever the order of events, Adelson’s interest in Cotai gave Macau authorities another strong motive to keep LVS. But Galaxy, not LVS, had been granted the gaming concession. Moreover, the government likely didn’t want to bounce the only new concessionaire with Chinese roots.
In court, Oliveira claimed he himself suggested the Solomonic sub-concession solution, effectively splitting the concession in two. Sub-concessions were used to give legal standing to concessionaires’ subcontractors, for example for a solar power company working under the electricity concessionaire.
However, the gaming sub-concession wasn’t a way for Galaxy and LVS to work together but a license for each to operate separately. The solution was “the best of two evils,” Oliveira testified.
Nine months later, the government decided the concessions of Stanley Ho’s SJM and Wynn Resorts also contained sub-concessions. SJM sold its sub-concession to a partnership between Stanley Ho’s daughter Pansy and MGM in June 2004 for US$200 million.
Wynn sold its sub-concession in March 2006 for US$900 million to a partnership between Stanley Ho’s son Lawrence and James Packer, son of renowned high roller and media mogul Kerry Packer of Australia’s Publishing and Broadcasting Limited.
To recap: with Galaxy and LVS deadlocked, Macau rejected a new bidding process for the concession because LVS might win and that could look suspicious. Instead, it twisted an obscure legal technicality to grant LVS and Galaxy separate licenses, and let the other two licensees sell their own sub-concessions for a US$1.1 billion windfall and doubling the number of casino operators from three to six.
At the government’s moment of maximum leverage, when it could have demanded LVS and Galaxy provide some benefit to Macau in exchange for resolving their self-inflicted dilemma, Macau officials rewarded the guilty and appeared consumed with saving face.
At least the motives of LVS and Adelson were transparent.
Muhammad Cohen is editor at large of Inside Asian Gaming and wrote ‘Hong Kong On Air’, a novel set during the 1997 handover about TV news, love, betrayal, high finance and cheap lingerie