Adelson: Venetian will beat union, financial challenges

John Wilen

Monday, Feb. 8, 1999 | 10:38 a.m.

The Venetian hotel-casino may be making aggressive financial projections, and it may open under a cloud of union protest, but it will surmount the obstacles facing it and confound its critics.

So says Sheldon Adelson, chairman, chief executive and sole shareholder of Venetian owner Las Vegas Sands Inc. and visionary behind the monolithic tribute to Venice that is rising on the Strip.

During a tour of the Venetian last week, Adelson said the resort will have no problem commanding room rates and per-unit gaming revenues far above any now being generated on the Strip. He said expected union protests won't affect the Venetian's opening or operation. And he said Las Vegas Sands may go public -- if it needs money to acquire or build another property.

The insights came during a rare day of unlimited access to Adelson, who led reporters on a two-hour tour of the Venetian construction site and sat for a lengthy interview in a Venetian preview suite at the Sands Expo Center.

The $1.5 billion Venetian will feature 3,036 rooms, a 116,000-square-foot casino, 1.65 million square feet of meeting and convention space (a figure that includes the connected Sands Expo Center), a slew of eateries and shops, and replicas of Venice monuments like the Doge's Palace, the Campanile Tower and the famed Venetian canals.

The resort is scheduled to open April 14, and construction on a second 3,000-room hotel tower is slated to start soon after.

While its scope is impressive, doubts have been raised in recent months about the Venetian's ability to meet aggressive financial projections and withstand an expected union assault.

The Venetian's $1.2 billion construction cost is being funded with $930.2 million in debt and $320.5 million contributed by Adelson in cash and land. An additional $300 million is being invested by retailers and restaurants.

To service annual interest payments of $103.2 million and operating expenses of $346.7 million, the Venetian will have to generate $1.2 million in net revenue each day just to break even.

In a debt offering circular filed with the Securities and Exchange Commission last year, Las Vegas Sands projected first year net revenue of $527.8 million. That is based in large part on a projected hotel occupancy rate of 93 percent and an average daily room rate of $167.

Compared to current figures, those projections are high. According to statistics compiled by Bear, Stearns & Co., the highest third quarter 1998 average daily room rate (ADR) on the Strip was $94 at the MGM Grand. The Rio was not far behind with an ADR of $88, and Bally's commanded an ADR of $81.

Adelson conceded the Venetian's projections are high, but argued that the Venetian's competition is not other Las Vegas resorts.

"I know that for Las Vegas that's high," Adelson said. "But we're not competing with Las Vegas, necessarily, we're competing with the rest of the country."

Adelson noted that high-end hotels in cities like New York and Los Angeles regularly charge $500 a night for their rooms. Compared to those rates, suites at the Venetian are a bargain, he said.

Adelson extolled the virtues of the Venetian rooms at length, noting that distinct sleeping and living areas -- separated by three steps and a waist-high wrought-iron fence -- make the Venetian an all-suite hotel. All rooms have two 27-inch televisions, a fax machine with a separate dedicated line for computers, a safe large enough for a laptop computer, a wet bar, and plush furniture and fixtures.

"Take a look at the room," answered Adelson, when asked how the Venetian would command high room rates. "Our room is substantially superior to any other room in town."

The Venetian's business model is based largely on its vast convention space and the trade shows it will attract. Adelson argues that people in town for trade shows -- living on corporate expense accounts -- will gladly pay as much as $229 a night for their rooms.

"People will pay for this room," Adelson said. "People will say, 'I'm on the company account.' "

Adelson also attacked the conventional wisdom that conventioneers do not gamble.

"It's wrong that the convention customer is not valuable to the casino," said Adelson. "That's a misconception."

Adelson expects the Venetian to generate average daily gaming machine win of $151, and average daily table game win of $2,463. Like its ADR predictions, those per-unit revenue projections are high. According to Bear, Stearns, average slot win on the Strip last October was $116, while average table win was $2,285.

Adelson said conventioneers might not spend a lot of time in the casino, but when they do gamble, they gamble a lot. Conventioneers are the best kind of casino customer, he said -- business people and entrepreneurs with deep pockets.

"We expect that the convention customer will average 80 percent of his playing time in our hotel, whereas the average customer will only spend 50 percent," said Adelson. "That market is an enormous pent-up wellspring of business for us that other properties can't get."

Adelson then turned his attention to the other factor expected to cloud the Venetian's opening: the Culinary Union. Adelson has refused to negotiate with the union or agree to make the Venetian a union shop. As a result, the union is widely expected to hold rallies, pickets and demonstrations when the Venetian opens.

Asked whether the protests would hurt its operation, Adelson replied, "Not in our opinion. They can't do it forever, they won't do it everyday."

Adelson said the situation will be nothing like that at the Frontier hotel-casino, where striking Culinary Union workers picketed for six years until the property was sold to a union-friendly owner. Venetian picketers will not be striking workers, they will be workers from other properties that the union will have to pay to man the lines, said Adelson.

"We own the sidewalks," he said. "We've given the county the right to allow people to walk our sidewalks, but not to demonstrate."

Adelson also questioned the value of the union to his workers. The Venetian will offer a slew of progressive benefits, including on-site day care, health care, a 150-percent matching 401K plan, holiday and vacation time. Given those benefits, why would anyone want to work for a union shop, he asked.

"What function does the union have here?" asked Adelson. "They don't have any function."

He will only sit down with the union if 51 percent of his employees -- in a secret ballot -- vote the union in, said Adelson.

"If they ask, and they vote, then we'll sit down with the union," said Adelson.

Tom Snyder, the Culinary Union organizer in charge of the Venetian, declined to say what actions the union will take against the Venetian. Instead, he offered a historical perspective:

"Like Margaret Elardi, he doubts our staying power. Like Bob Maxey, he promises better benefits and says he owns the sidewalks, and like the Lowdens at the Santa Fe, he says he'll abide by an election. Is there a pattern here? Two are out of the casino business, and one is facing bankruptcy proceedings."

Margaret Elardi owned the Frontier during the long strike.

Bob Maxey ran the MGM Grand hotel-casino when it opened in December 1993. The Culinary Union protested and picketed the non-union MGM Grand until Maxey resigned two years later. The new chairman of MGM Grand Inc., Terry Lanni, quickly negotiated a union contract.

The Lowden family, owner of the Santa Fe hotel-casino in northwest Las Vegas and the Pioneer hotel-casino in Laughlin, has been locked in a yearslong battle with the union over its refusal to allow an open card-count union organizing campaign. The union claims the Lowdens refuse to honor the results of a secret ballot election that the union says was in its favor. The Lowdens claim the union lost the vote.

In December, Santa Fe Gaming missed a $60 million balloon payment due on debt floated in 1998 to buy the Pioneer. The company has said it will declare Chapter 11 bankruptcy, and two creditors are trying to force it into Chapter 7 bankruptcy. Santa Fe says the bankruptcy will not affect its casino operations.

Despite the implied union threats and its organizing history, Adelson sees no reason to sit down with the union.

"As an entrepreneur, I don't think I need anybody to negotiate between me and my employees," said Adelson.

And he is looking beyond the two-phase Venetian project. Asked whether Las Vegas Sands will ever go public, he said it may, if it needs money to build or buy new properties. His preference, said Adelson, is to build from scratch.

"We may or may not issue shares, we may or may not go public," said Adelson.

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