Venetian Macao founder Sheldon Adelson. Photo: Wikimedia Commons/BecTrigger

Ten years of success and transformational growth obscure what an extraordinary gamble Las Vegas Sands (LVS) founder Sheldon Adelson took on his US$2.7 billion Venetian Macao gaming complex.

Opened on August 28, 2007, Macau’s first modern integrated resort cost more than double any previous casino project in town, was built in a previously shunned location, and enormously expanded the supply of products for which at the time there was little to no evidence of demand in Macau.

Venetian Macao welcomes 75,000 visitors a day on average, including half of all tourists arriving in the city. Macau now generates more than four times the amount of gaming revenue of Las Vegas, in large part due to Venetian Macao’s pull. It averaged nearly US$1 billion in EBITDA (earnings before interest, tax, depreciation and amortization) over its first decade and earned back its cost for LVS within four years.

“When the Venetian opened, think of how it looked to the casual observer: Here was this flashy, mammoth structure, one of the world’s largest buildings, and it was in the middle of nowhere, surrounded by dirt,” says Matthew Ossolinski, chairman of Osslinski Holdings, a global fund that invests in casinos and other gambling related companies. In Macau on an investment consulting assignment back in 2005, he recalls often hearing the words “crazy” and “flop” associated with Venetian Macao.

Located on disused landfill dubbed ‘Cotai’ between Macau’s outer islands of Coloane and Taipa, Venetian Macao represented a quantum leap for the island city on multiple levels. When LVS got its solo casino license through a sub-concession in December 2002, Macau had US$2.7 billion in casino revenue, about 8,600 hotel rooms, 11.6 million visitor arrivals and one department store.

At completion, resting on thousands of pilings, Venetian Macao would be the world’s third largest building at 10.5 million square feet (980,000 square meters), featuring the world’s largest casino floor at more than 370,000 square feet, with nearly 900 tables and 3,300 gaming machines. But the government gave Adelson and LVS a chance because it wanted more than just another casino – and Venetian Macao took the integrated resort concept to the next level.

The Venetian Macao’s ‘Great Hall’ in a 2008 file photo. Picture: Wikimedia Commons

This Macau and global groundbreaker had 3,000 rooms, increasing the city’s total supply by one-third, even though three-quarters of Macau visitors didn’t stay overnight, and an 850,000 square feet shopping mall, more than three times Macau’s total retail space at the time. Venetian Macao also added the biggest theater in town, and, in a first for any casino resort, a 15,000-seat arena, albeit in a market where touring entertainers and shows rarely stopped.

Crucially, Venetian Macao included one million square feet for MICE – meetings, incentives, convention and exhibition. Adelson, who first came to Las Vegas running a trade show, pioneered using conventions to fill hotel rooms on weekdays and tapping corporate funds to pay for celebrity chef meals and show tickets. With the government’s enthusiastic endorsement, LVS aimed to do the same in Macau, which lacked both a large, modern MICE facility and a track record in the field.

Located on disused landfill dubbed ‘Cotai’ between Macau’s outer islands of Coloane and Taipa, Venetian Macao represented a quantum leap for the island city on multiple levels

“It was not a slam dunk to put together financing” for Venetian Macao, ten times more expensive than Sands Macao, former LVS president and chief operating officer William Weidner understated. Adding so much capacity to the market was a very risky move, the perils exacerbated as Macau’s original three gaming operators expanded to six because of sub-concessions created to accommodate LVS.

Then two things changed the picture. As LVS signed its sub-concession agreement in December 2002, SARS – severe acute respiratory syndrome – was spreading across southern China. Although Macau had just one reported case, the outbreak of the fatal respiratory disease in neighboring Guangdong province, Hong Kong and beyond left more than 800 dead and devastated regional tourism.

Subsequent reports of a cover-up by Guangdong health officials that allowed the virus to spread spurred Beijing to try to make amends by loosening trade and tourism barriers with its two returned foreign colonies. The Facilitated Individual Travel Scheme (FITS) allows mainland travelers from selected cities to visit Macau without joining a group tour. In FITS’ first full year, Macau’s visitor arrivals jumped 40%, and the policy remains a crucial driver of Macau tourism.

Macau’s Cotai Strip at night in a December 2016 file photo: Photo: iStock/Getty Images

Sands Macao’s opening in May 2004, with customers literally breaking down its doors and the casino earning back its US$265 million initial cost within nine months, established that foreign casinos could succeed in Macau. Wall Street became a believer, backing the IPO of LVS in December 2004 that triggered the growth of Adelson’s wealth by nearly US$1 million an hour over the next two years, the fastest sustained rise in history.

Adelson’s current wealth of US$34 billion puts him 20th on Forbes’ global list of billionaires. That bankroll has allowed him to more generally emerge as a major donor to the US Republican Party, committing US$100 million in hopes of defeating Barack Obama in the 2012 and contributing heavily to Donald Trump’s 2016 victory.

Adelson’s influence is even greater in Israel, his wife’s homeland, where he finances a free newspaper to support Prime Minister Benyamin Netanyahu.

Despite the instant success of Sands Macao, doubts about Venetian persisted, largely due to its scale and location. Adelson’s decision to double down, announcing a US$10 billion plan to create additional resorts in Cotai, with thousands more rooms and more non-gaming elements that were never relevant in Macau, deepened the doubts.

Ossolinski, who now focuses on Hengqin, the mainland island directly across from Cotai in the midst of a multibillion dollar development plan, recalls meetings with the six casino operators in 2005. “My takeaway from those meetings was that only three of the six operators truly believed in Cotai: Sands, Melco and Galaxy.”

Gaming tables in Macau’s Cotai Strip. Photo: Wikimedia Commons/Niels Elgaard Larsen

Those three got at least a five-year head start on their Macau rivals in Cotai. Wynn Resorts finally opened its Cotai property in August last year. MGM and SJM are still building, all three off the main strip, since they passed on the prime Cotai sites when the government initially offered them. Total investment in Cotai will surpass US$25 billion.

Again, it was the promise of bringing Venetian to Macau that began this process, starting with a license for LVS. Regional consultant Spectrum Asia chief executive officer Paul Bromberg suggests assessing the value of a Macau license by surveying the gaming landscape of 2001 and what happened to the companies that missed out on Macau.

Harrah’s, which merged with Caesars and took its name, is working its way out of bankruptcy. MGM, with a bad deal in Macau and still building on Cotai, barely avoided a similar path. Trump – whatever happened to that guy? – and the rest of Atlantic City have faded into irrelevance. Tapping into Asia via Macau has been the key to success in gaming, and for LVS Venetian Macao opened the door.

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

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