Scientific Game

Counter Measures

The battle between Steve Jacobs and his former employer LVS looks set to run and run

Sunday, 01 May 2011 16:49
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What sort of valuation headwinds could Las Vegas Sands Corp (LVS) face from the many legal actions and counter actions stemming from Steve Jacobs’ dismissal as CEO of Sands China last year?

The ‘main show’ so to speak is the various investigations by US federal authorities against LVS. That’s where the bulk of the regulatory and balance sheet risk lies. The ‘side show’ is the smaller-scale but at times highly personal fight directly between Mr Jacobs and his ex-employer. But given that mud slung in the side show act has been credited with sparking the feds’ inquiry, the two things have become inextricably linked. If the federal investigations come to nothing, then that will arguably strengthen LVS’s hand in its litigation with Mr Jacobs. One thing seems clear. With each week that passes, the waters seem to be getting increasingly muddied with suit and counter suit between Mr Jacobs’ side and LVS. The grounds on which the sides are fighting have also been modified over time.

Back in March at the J.P. Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum in Las Vegas, Sheldon Adelson, chairman and chief executive of LVS, said one of the ‘reasonable cause’ justifications for firing Mr Jacobs was that he had pursued direct premium business in Macau (i.e. VIP play without the middle man). Mr Adelson said this was against management instructions and at the cost of damaging relations with Macau junket operators.

“One of the reasons why we fired him [was because] we told him not to get involved with direct premium players the way he wanted to,” Mr Adelson said.

“He kicked off all the junket reps. Now, we have to build back the relationship,” he added.

Then in April, LVS issued a counter suit against Mr Jacobs in which the company claimed Mr Jacobs had been too lenient with a junket, refusing to bar it from doing business in the company’s Macau properties even though a Reuters investigation had linked it with a triad boss.

“Jacobs claimed (in June 2010) that the revenue associated with those junkets was substantial and that he owed the shareholders of Sands China a fiduciary duty, the performance of which would be placed in question if the agreements were terminated,” the counterclaim says.

In an 8K filing to the US Securities and Exchange Commission in May 2010, LVS gave another perspective on the Macau VIP market. In a section titled ‘Business Overview’, the company said: “At the same time, we are focused on growing our share of the premium players segment via direct marketing efforts and by leveraging our Paiza brand and luxury amenities that enable us to differentiate our properties from those of our competitors, who typically rely more on Gaming Promoters for their VIP players. To attract premium players, we offer them accommodations in our exclusive Paiza suites and Paiza Mansions, complete with private gaming and concierge services. Our management estimates that our premium player table revenues generate a gross margin that is approximately 1.0 to 1.5 times higher than our typical VIP player table revenues.”

While companies reserve the right to adapt business strategies to market conditions, the above statements do indicate the ebb and flow in the debate between Steve Jacobs and his ex-employer about who did what and when. Attorneys for both sides recently filed a status report with the Clark County District Court in Las Vegas where Mr Jacobs’ suit and LVS’s counter suit are due to be heard. The lawyers indicated they’re moving toward a June 2012 trial on Mr Jacobs’ claims. Don’t expect an early resolution.

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