Las Vegas Sands Corporation

History The Las Vegas Sands Corporation started in 1989 as “Las Vegas Sands Incorporated” with the purchase of the Sands hotel and casino by entrepreneur Sheldon Adelson and his partners. In 1995 Sheldon Adelson bought out his partners in The Interface Group (TIG), the group that made the initial purchase of the Sands, and began planning the Venetian. In 1996 the Sands was imploded and in 1999 the Venetian was opened. Five years later, in December of 2004, Adelson took the Las Vegas Sands Inc. group public and it has since been the Las Vegas Sands Corporation (LVSC).
Financial history The initial offering on December 14th, 2004 consisted of 23,809,524 shares at a price of $29 per share. From Bloomberg Business week, also shown in Appendix 1, we can see that since the first full month that LVSC has been traded on the NYSE its average record monthly high stock value was $103.05 and its average monthly record low stock trade value was $10.17. Within the last five years, the LVSC has suffered through the world’s economic downturn just like any other company. In Appenix 2 we can see that the early part of 2009 was the worst, in terms of stock prices, for the LVSC. We can also see that within the last two years, LVSC has also regained a lot of ground. There current share price is on the NYSE is at 51.50 and the performance of the Macau and Singapore markets continues to positively increasing the value of the overall company.
Political position history In my opinion, the political history and position of the LVSC is a direct reflection of Sheldon Adelson’s political views and standpoints and can therefore be correlated as such. Business and politics are very closely intertwined and I believe that Adelson’s actions within the political arena can also be seen as strategic business decisions that have both negatively and positively impacted the LVSC directly. I will explain a couple of these connections in the following paragraphs. Adelson was a key financial supporter of a group called “Freedom Watch,” whose purpose was to "protect America's interests at home and abroad, foster economic prosperity, and strengthen families.” This group consisted of major Republican party representatives and funded pro-Iraq war movements within the American political system. Though Adelson’s support of the war and the Republican Party stemmed mostly from his Pro-Israel sentiments, there are many other trickle down repercussions of his financial backing of this organization. Freedom Watch was criticized as a “White house PR machine” in which funds were used to fuel pro-war sentiment and support those in congress that were beginning to receive backlash from the American public on issues concerning the White Houses “failed war policy.” The initial $6 million ad campaign sponsored by Freedom Watch was evidence enough for reporters to support this accusation. This campaign targeted Republican Party members who publicly rejected the white-houses position on military spending and involvement in the war on Iraq. The amount of the GDP that was, and continues to be spent (some 895 billion in 2010), on the war and military funding abroad directly affects the American economic position and the ability for its citizens to feed money back into the system. There are questions surrounding whether the American government could or should be spending this budget on programs to further stimulate the economy. Is there a direct correlation between the LVSC almost 95% decrease in stock price to the non-stimulated American economy? Could Adelson have been making contributions towards efforts that negatively affected the LVSC in this instance? Perhaps Adelson’s passion for pro-Israel sentiment inadvertently got in the way of positively impacting his corporation in this instance.
On the other hand, there are more obvious republican party financial influences that are a clear benefit for the LVSC by Mr. Adelson. During the span of the LVSC existence, Adelson has contributed over $11 million dollars towards political candidates. Between 1984 and 2007 approximately 800,000 went directly to republican candidates. In the last 5 years, Adelson’s more notable contributions have been in support of Newt Gingrich, a republican presidential candidate for the 2012 election. Recently Adelson and his wife donated $10 million dollars towards “Winning Our Future,” a super PAC (political action committee) that supports Gingrich’s campaign. There is no other candidate that is so largely dependant on a single individual campaign contributor. This of course would not have been possible if the Supreme Court had not passed “Citizens United” last year which basically reshaped the “political landscape by stripping away restrictions on contributions and how outside groups can spend their money.” In this case, Citizens United vs. FEC was massively publically supported by the republican parties and politicians. Democratic representatives say that it gives way too much influential power to one individual. The following snippet is from an associate press article and best sums up my point. “When any candidate is beholden to a single donor for so much money, Wertheimer said, "it opens the door to corruption and influence peddling." Wertheimer said the infusion of cash would raise questions about any decision Gingrich would make that touches on gambling, for example. And similar questions could be raised about Gingrich's Mideast policies.””
Whether issues of legality, corruption, business strategy, or personal passion are in play, no one can really know. But one can argue that the LVSC can directly benefit from Adelson’s historic political views, standpoints, and contributions within the American bureaucratic arena.
Industry
According to yahoo finance, the LVSC operates within the “resorts and casinos” industry and more specifically in the services sector of that industry. The total revenue for the worlds top five casino markets total approximately 100,480 million dollars according to PricewaterhouseCooper’s most recently accessible report of the casino industry in 2009. In this same report PwC projected sales in Southeast Asia to be the most significantly impactful to the overall industry in the following 3 years. After searching for 2011 results, I found that the 2011 revenues from Southeast Asia casino’s did in fact increase by 47% from $23.5 billion USD in 2010 to $33.5 billion USD in 2011. The LVSC resorts and casino’s operating in Macau, The Sands Macao, The Venetian Macao-resort hotel, and the Four Season’s Hotel, show correlated increases in revenues for those years.
Competitors
The LVSC has several different competitors in the industry. The MGM Mirage (MGM), Harrah’s Entertainment (HET), Penn National Gaming (PENN), Wynn resorts (WYNN), and Centruy Casinos (CVTY) are just a few. In terms of market cap., total revenue, return on equity and quarterly revenue growth in Appendix 3 we can see that LVSC is consistently in the top eight in the industry. According to Appendix 4 LVSC is above the industry average in a number of categories. In the Nevada casino market LVSC is second in market share only to MGM, holding 3.4% of the overall gaming market in that area with $2.95 billion dollars of revenue. In the overall gaming market, last year LVS revenue was $8.9 billion of the worlds gaming market second only to the Carnival Corporation.
Markets of the LVSC The LVSC operates in several different markets. The first is the United States Nevada market. The Second is the Pennsylvania State market. The third is the Southeast Asia market with its three properties in Macau and one in Singapore. In 2008 the Macau gaming market surpassed the Nevada market in revenues totaling $13.6 billion USD. The most affected market, which LVSC does not operate in, would be that of Australia’s gaming market as the Southeast Asia market continues to grow and cannibalizes Australia’s market. The Nevada market, though impacted negatively by the worlds economic decline, will not be affected by the growth in the Southeast Asian market as destination travelers for the Macau and Singapore markets are a non-crossover demographic in relation to that of the Nevada gaming demographic.
Strategy
The strategy of the LVSC has been a direct reflection of Sheldon Adelson’s business initiatives throughout his life. A “high risk, high gain” strategy is what some reporters have called Adelson’s decisions over the history of the LVSC. He has gone against the traditional way things were done from the beginning. In an age where hotels and casino’s made their rooms small as to keep the occupants out in the rest of the facilities, Adelson built his hotel rooms in luxury and comfort. He revolutionized the casino and resort industry by adding theatres, shopping centers, and integrating convention centers. When he decided to implode the historic Sands casino to make room for the new Venetian, he came under great scrutiny by many. He charged forward against recommendations to the contrary. Before the Southeast Asia gaming market was tapped, Adelson saw the potential and moved into that market against large obstacles. He saw that more then four billion people lived within a five hour flight of Macau and instead of letting the restriction of 12 square miles of available land get in his way, he had the area between Coloane and Taipa islands filled to create the space needed for his vision of a strip that made Las Vegas look like child’s play. He called the area the Cotai strip and it can now house the 550,000 square foot casino, the largest in the world. Even when the economy took a downward spiral and the LVSC was in financial trouble, Adelson infused one billion of his own dollars to breathe life back into the company. I believe “high risk, high gain” is an understatement. But the LVSC has been hugely successful in using this strategy throughout its life.
Political
Issues Within the political realm, there is significant correlation between politics and gaming. We have seen how financial contributions from wealthy individuals can threaten industry stability. When corruption within the political arena can be directly associated with a business owners personal campaign contributions towards one political candidate or party, we can see the possible adverse affects not only on the political field but also within the industry the individual’s business operates in. We mentioned above the public criticism of the “Citizens United” case in the Supreme Court. How this could give a wealthy individual far too much political power. And in the case of Adelson’s contribution to the republican party and specifically Gingrih’s campaign, the cynicism about Gingrich’s future political decisions may reflect his campaign contributors best interests rather then the interests of the public majority. This is only one remarkable association between politics and gaming. Another political issue that surrounds the LVSC is that of the legalization of online gaming. The political debates surrounding online gambling are not currently an issue of cannibalization or a threat to the LVSC, as there is supporting evidence that the demographic of online gamblers is completely different from that of destination gamblers. But will that change? The problems that arise from this heated issue do reflect a potential loss for the LVSC if this platform is fully legalized and the crossover of destination and online gamblers begins to mesh together. It is a possibility and one that could be seriously detrimental to the future of the LVSC. In an economy where travel is less likely, online gambling may shift in a more popular direction. There are several articles in the Las Vegas Sun that describe Adelson’s opposition to online gaming. The CEO believes that there would be no real way to restrict or verify the age of an online gambler. There is now question, of whether or not Adelson’s, and inadvertently the LVSC’s, public opposition to online gaming will influence political strives towards its wider legalization. Adelson’s connections to Arizona’s Senetor John Kyl and American Gaming Association President Frank Fahrenkopf Jr. are no secret. Both Kyl and Fahrenkopf have been opposed to online gaming since the issue began more then a decade ago and though all three parties deny any sort of collaboration on the issue, there is major skepticism in the media as to what their next move will be. LVSC spokesperson Ron Reese claims that LVS has no official view on the matter as of yet, but when your business is run by a man as powerful as Adelson which chairperson do you think would oppose him?
Government Involvement There have been several stories in the media that reflect some of the above issues and illustrate the threats of mixing politics with gaming. Government involvement has been necessary in several cases involving the LVSC. The most prominent story in the recent past happened in March of 2011 when SEC officials subpoenaed files from the corporation in regards to violation of the Foreign Corrupt Practices Act. Allegations were made against the former Sands China CEO in regards to bribery of Macau officials. The investigation is still ongoing. The LVSC has seen a 7% drop in stock prices since allegations were publically released. The more basic government involvement with any company, LVSC included, is that of taxes. The United States tax system for casino’s is very similar to that of the countries in which LVSC operates abroad. Each casino is taxed based on the type of tables included within each different establishment. In the US there are federal, state, and local income taxes applied to casinos. This is also similar abroad. Because of the complexity of taxes applied to casino companies there is no set tax rate that could be reported here. This is an exert from the LVSC 2010 10K report in regards to taxes. “In particular, government agencies may make changes that could reduce the profits that we can effectively realize from our non-U.S. operations. Like most U.S. companies, our effective tax rate reflects the fact that income earned and reinvested outside the U.S. is taxed at local rates, which are often lower than U.S. tax rates. If changes in tax laws and regulations were to significantly increase the tax rates on non-U.S. income, these changes could increase our income tax expense and liability, and therefore, have an adverse effect on our effective tax rate, financial condition and results of operations.” I did find in that same 10k that the amount of deferred net income taxes reported in 2010 at 61,606 (in thousands). This was an almost a 75% increase from the year before in which the company paid 26,442 (in thousands) in deferred net income taxes. Majority of this tax increase was do to an exponential growth in gaming revenues in Macau this past year (an almost 39% increase). Now we must also take into consideration the basic taxes for LVSC other operations, such as restaurants and hotels. But for the scope of this paper I felt focus on the casino aspect of government involvement is most pertinent.
What the future holds for the LVSC The Las Vegas Sands Corporation is one of the leaders in its industry and I think that the future for this company is only going to get better. As of today, according to Yahoo Finance, the LVSC is second in reported total revenue and the leader in the industry in total market cap. It is also seventh in net profit margin and fifth in the return on equity category within the industry. The Southeast Asian gaming industry is on a massive increase in terms of revenues generated and all four of the properties in that region are reaping the benefits. As an agreement with the Macau government, the LVSC does not have to pay corporate income taxes until 2013, which gives the LVSC a huge advantage to maximize on the booming Macau sector this next year. The Wall street journal posted today (Feb. 12th, 2012) that the LVSC announced an $800 million dollar dividend payout throughout the course of this year. As “hot” of an issue as the increase in the number of states legalizing commercial gaming may be I think that with the poor economic conditions facing of so many of the states as well as the financial position of the country as a whole, that benefits of revenue generation are going to trump the issues of morality in the upcoming years. Just as an example we can look at the 2011 results of LVSC’s newest property in Bethlehem Pennsylvania. In the fourth quarter report of 2010, the property only brought in $59 million dollars in EBITDA and in 2011 reported $90.8 million in EBITDA. The increase of leagalized commercial gambling states in the US will alleviate barriers to entrance for the Las Vegas Sand Corporation and, if their other properties are any sign, add to their continued growth and dominance within the industry.

Appendix 1

Appendix 2

Appendix 3

Appendix 4

References
1. Adelson, Sheldon: http://rightweb.irc-online.org/profile/Adelson_Sheldon
2. Gingrich donor is casino mogul, Israeli hardliner, McCaffery, Shannon: http://www.tauntongazette.com/news/x364060105/Gingrich-donor-is-casino-mogul-Israeli-hardliner
3. Las Vegas Sands: http://www.fundinguniverse.com/company-histories/Las-Vegas-Sands-Inc-company-History.html
4. Las Vegas Sands Company Profile: http://gaming.unlv.edu/abstract/fin_lvs.html
5. Casino: http://en.wikipedia.org/wiki/Gaming_industry#By_markets
6. PwC’s Global Gaming Industry Outlook to 2014: http://www.casinoenterprisemanagement.com/articles/january-2011/pwc’s-global-gaming-industry-outlook-2014
7. Adelson puts damper on efforts to legalize Internet gambling, Las Vegas Sun: http://www.lasvegassun.com/news/2011/dec/11/adelson-puts-damper-efforts-legalize-internet-gamb/
8. Definition of Hypocrisy: Casino Mogul "Morally Opposed" to Online Gambling: http://www.opposingviews.com/i/politics/ceo-land-based-casino-morally-opposed-online-gambling
9. Macau casino revenue in 2011 surged to $33.5B, Tokyo Times: http://www.tokyotimes.co.jp/2012/macau-casino-revenue-in-2011-surged-to-33-5b/
10. Las Vegas Sands Plunging On News Of Government Investigation Into Alleged Macau Bribes, Meredith Lepore: http://articles.businessinsider.com/2011-03-01/markets/30070010_1_las-vegas-sands-investigation-properties
11. Las Vegas Sands to Make $800 Million Dividend Payment: http://online.wsj.com/article/SB10001424052970204652904577197960643782748.html
12. Sands Casino Resort Bethlehem finally making profit Las Vegas Sands wants: http://www.lehighvalleylive.com/bethlehem/index.ssf/2012/02/sands_casino_resort_bethlehem_74.html
13. Las Vegas Sands confident of bright future based on Singapore Macau ops: http://biz.thestar.com.my/news/story.asp?file=/2011/7/27/business/20110727090731&sec=business
14. Leaders and Laggards in resorts and casino’s: www.yahoofinance.com
15. Summary, Basic Charts: www.yahoofinance.com