Las Vegas Sands Corp.: A High-Risk, High-Return Strategy?

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Case Details:

Case Code : BSTR273
Case Length : 15 pages
Period : 1988-2007
Pub Date : 2008
Teaching Note :Not Available
Organization : -
Industry : Entertainment
Countries : USA, Macau SAR

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Introduction Contd...

However, analysts were not too sure if the huge investments would pay off, saying that there were several things that could wrong. To start with, they were not comfortable with the company building so many projects in one city.

The fact that Beijing's visa rules vis-à-vis Macau would dictate the number of visitors to the island made it highly risky, said analysts. A major part of the funding for the mega-projects came from high-interest debt, so the company was debt-heavy. Also, there were fears of a global slowdown following the US sub-prime crisis. If these fears were to come true, LVSC might see a drop in customer numbers, affecting its financial health.

Analysts also pointed out that the company depended almost entirely on the resourcefulness of Adelson - who was in his mid-70s - for all its strategic decisions.

Background Note

Las Vegas Sands Corp.'s first casino property, The Venetian, was constructed by demolishing the historic Sands Hotel and Casino (SHC). The SHC, founded by Jake Freedman, had opened for business on December 15, 1952. Initially, the hotel complex had only a few hundred rooms. After the death of Freedman in 1958, Jack Entratter and Carl Cohen became President and Vice-President of the hotel, respectively. They added a 15-story tower which went on to become a well-known landmark of Las Vegas (Refer Exhibit I for a photo of the old Sands Hotel and Casino).

The SHC became the hub of entertainment in Las Vegas, with Frank Sinatra, Dean Martin, and Sammy Davis Jr. performing regularly at the casino. Several celebrities including US presidents, Harry S. Truman and John F. Kennedy, were reported to have stayed at the SHC. In 1967, the casino-hotel came to be owned by Howard Hughes⁵, who in turn sold it to Dallas-based Inns of the Americas, Inc in 1981...

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5] Howard Hughes (1905-1976) was an American aviator, engineer, industrialist, film producer, and director. Between 1966 and 1968, Hughes was reported to have bought several hotels/casinos, including New Frontier, The Landmark Hotel and Casino, Castaways, and Silver Slipper, in the Las Vegas area.