Adelson mum on financial situation, acknowledges resort’s ‘rocky start’

Christina Binkley

Wednesday, Aug. 4, 1999 | 11:18 a.m.

There's a saying around Las Vegas that you have only one chance to make a first impression. The newest megaresort to open here, the 3,036-room Venetian, wants three chances.

Since its official opening on May 3, the resort has left thousands of travelers without rooms in its hotel, stranded retailers without shops and marooned its singing gondoliers without a canal. It couldn't even accommodate Sophia Loren, the guest of honor. She had to spend the night at a neighboring casino for lack of a finished suite.

Hoping for happier results, the Venetian staged a second official opening in June. It wasn't much more successful. "It was the only opening in Vegas that didn't open," says William Weidner, president of the Venetian's parent company, Las Vegas Sands Inc., quoting a crack he recently heard.

Tourists routinely describe the Venetian as lovely, from its lavish rooms to its painstakingly reproduced palace facades. The property is one of the most architecturally detailed in Las Vegas. But when Joanne and Peter Romero checked in for their first anniversary over the July Fourth weekend, their room at the Venetian lacked a toilet-paper spindle, the parking valets lost their car and half the restaurants they'd looked forward to sampling were still under construction. "I've told everyone -- don't stay at the Venetian," Joanne Romero, a Los Angeles attorney, says. Even now, much of the property is a construction site.

The Venetian could well recover, but this all amounts to difficult times for Sheldon Adelson, the trade-show mogul who is chairman of Las Vegas Sands and has bet heavily on the Venetian's success. Already more than $100 million over his budget and brawling with construction contractors, Adelson has been writing checks and making concessions to compensate angry conventioneers and businesses. He has also had to delay plans to double the size of the opulent property and is widely expected to report an operating loss for the property's first two months.

Adelson admits there have been problems. "We had a little rocky start," he says. But he remains optimistic and says investors should be patient. Reservations are picking up substantially, he says. As for the early financial results, he says, "we're not saying we're having operating losses. But if we did report an operating loss, to whom would it be disappointing? It certainly wouldn't be disappointing to me."

Observers, however, believe it may get worse. Some bond analysts are now warning of cash-flow problems at the $1 billion, closely held Venetian, which was financed last year with expensive junk bonds and bank debt. Steve Patricola, an analyst with Credit Suisse First Boston Corp., estimates that the resort will generate about $19.4 million in earnings before interest, taxes, dividends and amortization during its first five months -- or roughly one-quarter of the cash flow predicted when its bonds were sold. "The problem is they spent too much to build the building," Patricola says. "And they accelerated the opening."

The company has a $31.9 million bond payment coming due in November. Adelson says he is confident the property will recover in time to cover all its financial obligations.

With the Venetian, Adelson aims to remake the way casinos operate in Las Vegas. Rather than focusing on gamblers, his strategy involves filling the resort's deluxe hotel rooms with conventioneers attending the adjacent Sands Expo convention center that he also owns.

That strategy is coming into question because, so far at least, the Venetian hasn't been able to charge the $167 average room rate that Adelson had been counting on. For May and June the Venetian's average room price was about $135 a night, Adelson says, and less than two-thirds of its rooms were occupied -- at a time when competitors up and down the Las Vegas Strip were bursting at the seams. (One competitor, the MGM Grand, even reported 100 percent occupancy for the second quarter.)

This month, the Venetian property is garnering higher room prices -- about $154 per night, Adelson says, adding: "And we hope never to look back." Still, his plans may be threatened by a proposal to double the size of the Las Vegas Convention & Visitors Authority's Las Vegas Convention Center, which competes with Sands Expo. Fearing that it could wipe out 60 percent to 70 percent of the Expo's business, Adelson in July filed suit in Clark County District Court in Las Vegas to prevent the project's financing. A convention-authority spokesman says there is no merit to the suit.

Adelson also filed suit in federal court in Las Vegas last week against Lehrer McGovern Bovis, the Venetian's construction manager, citing its alleged failure to pay subcontractors or cover spending overages. Sam Singer, a Bovis spokesman, calls the suit "malarkey" and notes that Bovis this week filed a $147 million lien against the Venetian for budget overruns.

This afternoon, a number of union subcontractors on the project are meeting in Las Vegas to discuss possible foreclosure proceedings, according to Chris Magoulas, a researcher for the local Culinary Union. That union is currently battling with the Venetian over organizing its hotel workers.

The Venetian is in stellar company when it comes to Las Vegas opening debacles. When Bugsy Siegel opened the Flamingo in 1946, almost no one came -- which is said to have led to his later assassination. In 1993 the MGM Grand opened in such poor shape that guests couldn't get into their rooms because of keys that malfunctioned.

"People still talk to me about what a disaster the MGM opening was," Alex Yemenidjian, MGM Grand Inc.'s president, says. In 1996, gun-shy MGM executives postponed the opening of their New York New York casino by two weeks -- missing the New Year's holiday -- to test everything from showers to room service.

When the Venetian's doors first opened in May, its plush hotel rooms were the biggest in Las Vegas, at 700 square feet. But the casino couldn't put guests in them because its fire-control system was malfunctioning. Initially, only three of the Venetian's 15 restaurants were open for business. A few are still unopened. A Sephora boutique was forced to rescind invitations to its opening when its space wasn't complete. The resort's Canyon Ranch spa was a construction zone for weeks and has cut its day-pass price in half, to $25, to attract customers.

Las Vegas blames Adelson. He had insisted for more than a year that the Venetian would open "on budget and on time" in April. He made trips to Italy to buy marble, hired artists to render replicas of famous Venetian paintings and boasted of artistic detail so fine that tiny cherubs near the ceilings have toenails.

Most developers build delays into their plans. But Adelson had long ago booked conventions into the Venetian in April, giving himself no room for error. When April arrived, Adelson was forced to send 500 attendees of the National Association of Broadcasters convention to other hotels. With the arrival of 2,600 Blockbuster video conventioneers looming on May 4, he threw open his doors without government approvals to rent his rooms.

"We were told by the builders that we'd be ready, and we had commitments to conventions," Adelson says. "Otherwise, we would have waited 30 to 45 days."

Thus, a few surprises awaited guests attending the opening-night gala. Laden with luggage, invitees were sent off to spend the night at neighboring casinos. Some walked to the nearby Desert Inn, changed into tuxedos and trudged back for the party. Loren stayed across the street at Caesars' Palace.

Hoping to recover from his opening blunder, Adelson booked Cher to entertain in June, calling the previous event a "soft opening." But even in June, much of the property remained incomplete, including half of the restaurants, much of the shopping mall, many high-roller suites on the hotel's top floor and Madame Tussaud's wax museum.

Today parts of the Venetian remain in scaffolding, and stores and restaurants are cloaked with "Coming Soon" signs. "It looks to me like they ran out of money," says Jill Franklin, a Los Angeles attorney who visited the Venetian in mid-July. "It's still not ready."