Inside Asian Gaming

April 2016 inside asian gaming 31 80%. That was its lowest level for 47 years and shaved US$29 billion off the company’s market capitalisation. Few outside that country are expecting Mr Shimizu to make it to his company retirement presentation and proverbial gold watch. The headache facing Sheldon Adelson, Chairman and CEO of Las Vegas Sands Corp, is arguably small stuff compared to the blinding migraines experienced by Messrs Hayward and Shimizu, even if it looks bad from the outside. Mr Adelson’s issue stems from the sacking of Steve Jacobs as CEO of Sands China—LVS’s Hong Kong-listed Macau unit—in July 2010. The company said Mr Jacobs was fired “for cause”—namely alleged unauthorised deals and violations of corporate policies. Mr Jacobs then filed a lawsuit in Nevada, alleging that Mr Adelson had ordered him to commit illegal acts in Macau and had also failed to grant him stock options that he was owed. LVS strongly denies the allegations. Mr Jacobs’ accusations did, however, catch the attention of the US Securities and Exchange Commission (SEC), the financial regulator for New York-listed LVS. The SEC launched an investigation into the Nevada suit claims, looking at possible violations of the Foreign Corrupt Practices Act, a US law prohibiting the bribery of foreign officials by a US company. The US Justice Department and the Nevada Gaming Control Board also began examining the matter and in the third week of March the Federal Bureau of Investigation (FBI) said it too was investigating. The Hong Kong Stock Exchange’s Securities and Futures Commission (SFC) rounded off a maddening March for LVS by announcing on the final day of the month it was launching its own inquiry into Sands China. According to data in the US business newspaper Investor’s Business Daily, from the time of 28th February—the day before LVS’s announcement to the market about the SEC investigation—and the close of business on 18th March, the company’s market capitalisation shrank by 22%. That’s US$7.48 billion in cash terms. The closing stock price on 28th February was US$46.64— market cap of just under US$33.9 billion. The closing price for LVS stock on 18th March was US$36.34—a market cap of just under US$26.4 billion. But by the time IAG went to press in early April, IBD was reporting that the company’s share price was back up to US$44.84—a recovery of 23.4% on the mid-March low. That seems to support Mr Adelson’s contention that his company’s involvement in Asian casino markets means he is participating in a tide that “carries all boats”—regardless of the fact some boats may experience choppier seas than others. On 31st March, shares in Sands China, the company’s Hong Kong-listed unit, experienced separately a 6% fall when the company announced Hong Kong’s SFC inquiry. But on 1st April—when Macau’s gaming regulator announced gross gaming revenue for March grew 48% year on year to 20.1 billion patacas (US$2.51 billion)— Sands China’s stock put on 6.1%. Barron’s magazine recently described Mr Adelson’s great Las Vegas rival Steve Blast from the Past Wynn as “an investor’s friend” when adding him to its list of the World’s Great CEOs. Long/short hedge funds could equally describe Mr Adelson as an investor’s friend. His willingness to spend a lot of money on infrastructure (up to US$6.8 billion) to capture Macau’s higher-margin mass market gaming customers rather than concentrating on the VIPs (like many of his Macau rivals) arguably offers investors a ‘go-long’ hedge against the uncertainties of the Macau high roller trade and its accompanying junkets. And just as importantly, any investor wishing to short LVS shares in relation to the current investigations by regulators and law enforcement bodies can do so with a clear conscience, knowing that even if the LVS stock takes a hit once the results of the investigations are revealed, it will probably bounce back anyway to the benefit of the entire investment community, carried up on the general tide of optimism surrounding the Macau casino market. But there are valuation opportunities and then there are risky behaviours—the sort pinned on BP in its management of oil rig safety prior to the Gulf of Mexico disaster. When BP had US$81 billion wiped off its share price, the market was reflecting its dissatisfaction with BP management’s performance, its alarm at the medium term implications for BP’s business prospects in the US market and further afield, and its concern at the cost of the clean-up operation and what that could do to shareholder profits. As of this month, the total compensation and clean-up bill faced by BP was estimated at US$30 billion. If BP and the oil rig owner Transocean had done as recommended by an outside contractor and replaced a faulty blowout preventer on the Deepwater Horizon platform, it could have cost them less than US$2 million, according to one piece of evidence put to a US Congressional inquiry. The recovery in LVS’s share price, post-SEC revelation supports Mr Adelson’s contention that involvement in Asian casino markets means participating in a tide that “carries all boats” April 2011 Steve Wynn —really more of an investor’s friend than Sheldon Adelson? Macau’s gaming regulator, the DICJ —legal power to sanction operators