Inside Asian Gaming

inside asian gaming September 2015 22 If anyone these days can claim the status of second in command to Sheldon Adelson surely it’s Las Vegas Sands President and Chief Operating Officer Rob Goldstein. Since taking on responsibility for Sands China as interim president earlier this year, succeeding the able Edward Tracy, who retired as president and CEO in March, he’s done exactly what Mr Adelson expected he would, shoring up margins and keeping LVS’s principal earnings generator on an even keel in the face of the stiffest headwinds the Macau market has ever faced. The company hasn’t been immune to the downturn, but at a time when gaming revenues citywide have been falling by triple- digit percentages year on year, Sands China substantially improved its results in the second quarter (minus-25.6% year on year versus minus-34.9% in Q1) and actually raised its market-leading operating margin quarter-over-quarter by 150 basis points to 31.7% and bested consensus forecasts with a 6% increase in adjusted EBITDA. “We see Sands’ second-quarter margin resilience as truly remarkable, but company- specific,” Deutsche Bank analyst Karen Tang wrote in her Q2 analysis. Which is to say it derives from the strength of a business model designed by Mr Adelson around a portfolio of hotel rooms, retail shopping, MICE facilities and entertainment attractions surpassing in scale anything its peers can touch. “What you see in Macau very clearly, it’s a mass market, it’s premium mass,” Mr Goldstein noted on Sands China’s second- quarter earnings call. “I hope the junkets resurrect, but right now it doesn’t look promising.” By the end of the quarter, the company was able to claim 31.8% of the city’s mass-market gaming revenue. In August, the 15th straight month in which gaming overall has declined citywide, the company’s lead in total market share improved to 25.3%. The other key to that business model lies with the options it provides for rationalizing costs in a down market. It’s why the company’s share of market-wide EBITDA stands at an unassailable 34%. Robert Goldstein President and COO Las Vegas Sands President Sands China “Clearly the company has executed well on the cost-saves front,” Union Gaming Securities Asia said. “We believe a part of this is the transition of Macau residents to non-gaming roles, which allows for the elimination of some foreign labor and the associated expenses. At the same time, we believe general cost-savings initiatives similar to those put in place in Las Vegas [after the global financial crisis] are contributing. Looking ahead, we believe this will be a key component of keeping margins from deteriorating further, while also setting the foundation for positive operating leverage in a scenario where revenue growth returns.” Through the first half of 2015, Sands China has cut casino costs by 32% and trimmed 9.6% from its retail operations, 6.5% from food & beverage and 13.3% from its conventions and ferry operations. Across the board, more than 24% in savings have been realized. And there will be more “discipline,” as the company calls it, to come. As Mr Goldstein said on the earnings call, “We understand it’s a harsh new environment we’re operating in.” But staying ahead of the operational challenges is only part of his new responsibilities. He must continue to build on the ground laid by Mr Tracy to ensure the company is positioned for the next wave of expansion on Cotai, which means seeing the $2.7 billion Parisian Macao through to completion and getting the doors open. The company’s current inventory of 9,000-plus hotel rooms is already more than twice what its closest competitor can bring to bear. The Parisian’s debut in the second half of 2016 will find it in control of more than 12,000. “One of the most-respected and knowledgeable hospitality and gaming executives in the industry today”—that’s how Las Vegas Sands describes the 59-year-old, who joined the company at its inception in 1995 from Atlantic City, where he’d served as executive vice president of marketing at the Sands. He was in on the ground floor of the planning for the corporation’s flagship, The Venetian Las Vegas, and was its first President and Chief Operating Officer where, as LVS states it, “he helped shape the identity of the property and set the stage for its long-lasting success”. When the Palazzo opened in 2007, he took charge there, too, and with his promotion to president of Global Gaming Operations in January 2011, he became a guiding force in LVS’s growth into the industry’s largest multinational. The Macau appointment, announced in January, coincided with his elevation to president and COO of Las Vegas Sands, which came with a $1,750,000 bump in pay and 2,225,000 in additional share options. He is now one of only three executive directors of Sands China, and though the “interim” qualification remains attached to his title, Mr Adelson doesn’t appear in any hurry to name his replacement.