The Adelson Effect

A decade ago, Sheldon Adelson faced the biggest challenge of his distinguished business life.

Perhaps, this time Adelson’s absolute certainty in his convictions against conventional wisdom were a step too far. His company, Las Vegas Sands’ stock had collapsed from $150 per share to under $1.50 and the doubters that had waited many years to prove Adelson wrong, lined up to write his business obituary. Oliver Lovat explores the career of Sheldon Adelson and tries to understand what we can learn from the most unlikely titan of global gaming.

The Many Makings of Sheldon Adelson

 In 1933, in the shadow of Adolf Hitler’s rise to power in a fragmented and dysfunctional Europe, Lithuanian immigrants to the USA, Sarah and Arthur Adelson gave birth to Sheldon Gary Adelson. Like many in the tough streets of the east coast, the early years of Adelson’s life were tough; the harsh living conditions of working-class neighbourhoods were punctuated by the anti-Semitism of both the streets and the country clubs.

Many have sepia-tinged memories of a childhood in simpler times, but growing up in Boston was not an easy time for a Jewish boy with big ideas. Denied the educational opportunities that today’s children face and acutely aware of the fate of his people in Europe, Adelson knew from an early age that in this world that you had to either eat or be eaten. In his case, it was about financial security. With the awareness that he was undoubtedly smarter than the other kids on the block and with the strong work ethic and determination that was instilled from his family, desperate to succeed in the new world as the life that his family had known was gone, a young Sheldon went to work. With many of the established professions and businesses closed to Jews, Adelson turned to trading. He traded newspapers, candy and toiletries, his mind alive to trading anything where there was a demand for his goods.

 After a short time at college, the army and as a court stenographer, he returned to business, selling more sophisticated products, including mortgages and financial services. Using his proceeds, he invested in companies, including The American International Travel Service, which proved to be a highly profitable venture. However, due to circumstances out of his control, namely the economic crisis of the late 1960s, his fledgling empire collapsed, and Adelson was left to rebuild. He turned to real estate, brokering Bostonian real estate and developing condominiums. He diversified to publishing, and again, always looking for opportunities, and with the insights gained from his past experience, saw the synergy between the emerging convention industry, travel and other trading businesses, including the potential of technology.

 At the age of 40, an age when many of today’s businessmen are supposed to be settled in a career or becoming risk averse, Adelson made another bold change. He would go into the convention business.

Initially slow, the technology convention business grew steadily and in 1979, as technology advanced, his computer show, COMDEX came to Las Vegas and quickly became the city’s largest and most successful trade show. Adelson grew the computer convention business almost single-handedly, acting as a conduit for cooperation and exposure for tech firms. By the late 1980s Adelson was not only wealthy in his own right, but sought to expand, acquiring the Las Vegas Sands hotel and surrounding land. Always looking forward, in 1995 Adelson sold Comdex for $860m and built the Sands Expo Center, a 1.2 million square foot convention center, the largest privately-owned convention space in the USA, which allowed him to operate his own conventions. He imploded the 715 room Sands hotel in 1996 and opened the $1.5bn, 4,000 room all-suite Venetian hotel in 1999 to service his convention business.

 Proven right again, Sheldon Adelson could smile as he embarked a new journey, but not even he could have conceived where this road would end.

Las Vegas and the Venetian

 It is difficult to recall how different Las Vegas was perceived when Sheldon Adelson acquired the Sands and the effect his influence has had in shaping modern Las Vegas. When writing the story of Las Vegas, it is easy to point to the radical legacy of Jay Sarno and Steve Wynn in casino design, the corporate influences of Howard Hughes and Kirk Kerkorian and innovative casino marketing strategies of Bill Bennett and Gary Loveman, but in many ways the city’s legacy and resilience owes much to Sheldon Adelson’s vision and business acumen.

In 1995, when Adelson acquired The Sands, Las Vegas was still predominantly a gaming town, with cheap rooms, subsidised food and free drinks, and the casino being the primary income generator providing nearly 58% of revenues.

As we established, Adelson wasn’t in the casino business, he was in the business, business, and his Venetian took a very different business strategy to other properties.

 In a 2014 interview, Adelson said, “If you do things differently success will follow you like a shadow.” This was certainly true with The Venetian.

As he had proved throughout his career, Adelson knew his customer’s needs and would deliver on them in the way that he felt best. He and his team were the market leaders at convention sales, tourism and knew their industries inside-out. He knew that the conventioneers that he catered for wanted nice rooms, and if they were prepared to pay $200 for a room in Orlando, Chicago or New York, why wouldn't they pay the same in Las Vegas? The conventional thinking in Las Vegas was to get the customers out the rooms and on the casino. Adelson didn’t care about conventional thinking on room strategy as his rooms were nearly double the size of the traditional Las Vegas room. Post Venetian, resorts spend considerably more attention on the room product than before and it is conceivable that by the close of this decade, room revenues will overtake casino as the primary revenue driver in Las Vegas.

 The conventional thinking was to operate all the food and beverage internally as an amenity to guests. Adelson didn’t care about conventional thinking on food and beverage strategy as he knew that if the offering was good enough people would pay. When it came to food and beverage they were novices, so LVS took the radical step of outsourcing all aspects of their food and beverage program, with the exception of the casino bars. This had two effects.

 Firstly, there was a consistent revenue stream from the leases and secondly, no operational headaches, especially from the Trade Unions which found the Adelson way of business not to their liking. The Venetian was the first integrated resort in Las Vegas not to have a buffet, which was deemed an essential component in casino resort development from the 1950s onwards. Even the 24-hour café, the Grand Lux, was an outsourced concept from the brains behind The Cheesecake Factory.

 The conventional thinking was that casinos should be dark, where customers would not realize the time of day. Adelson didn’t care about conventional thinking on casino design; his were light and bright, whatever the time of day. Conventional thinking was that casino resorts shouldn’t operate shopping malls and should leave that to retail specialists. Again, Adelson didn’t care about conventional thinking when he built a shopping mall contiguous to his hotel. The Grand Canal Shoppes, shopping mall was ultimately sold to General Growth Properties, a retail REIT for over $760m in 2004.

 Like Jay Sarno’s Caesars Palace in 1966, The Venetian had something bigger, something different in mind. Adelson sought to attract people to come to Las Vegas who had not been there before, catering for a different audience. He wanted conventioneers by week and tourists by weekend. Not just gamers, who sought to spend hours on slot machines, but real tourists, ones that would go to Las Vegas for the weekend instead of San Diego, Los Angeles of Dallas to go shopping, eat good food and see a show. If they gambled, great. If they didn’t gamble, also great.

Adelson’s effect on Las Vegas was profound. He had developed the first truly integrated resort, where non-gaming revenues were as important as gaming revenues, as the property gave their customers everything that they could want under one roof. This was a convention and tourist resort with gaming, restaurants, retail, nightclubs, exhibitions, entertainment and a spa. Adelson foresaw what Las Vegas was to be, with gaming accounting for one third of revenues. As we know, all other revenues grew over the subsequent decades as visitors appreciated the quality amenities in the city and chose to spend their money on non-gaming activities which were on offer.

It Was The Best Of Times, It Was The Worst Of Times

 Macau reverted to a special administrative region of China in 1999, and was a million miles from Las Vegas, when in 2002, the Macau Government ended the SJM monopoly on gaming and opened the Chinese province’s market to external gaming companies. Originally an outsider to the process, as MGM and Caesars appeared to be the leaders, the first of the western companies to take advantage was Sands, opening a casino designed and built in record time for $240m. the casino opened prior to the completion of the hotel. As we know, it was a success and the building’s construction debts were paid off in one year, as the Sands Macau shattered all gaming records for a property that size.

 With such strong performance both in Las Vegas and Macau, Adelson not just doubled down, but quadrupled down. Sands was awarded a license and committed to build a casino in Bethlehem, Pennsylvania which was to open in 2008. His Venetian Macau, located in the reclaimed ground of Cotai, broke ground in 2004 with an opening of 2007. Sands was to build a further 3,000 rooms in the Palazzo, as part of The Venetian complex to open year-end 2007 and most spectacularly, in 2006, originally perceived as an outsider to the process, Sands won the right to build the Marina Bay Sands in Singapore and committed nearly $5bn to the project. LVS was committed to over $10bn of investment as the world’s debt markets collapsed, leaving it highly exposed.

 In the USA, the financial crisis was more pronounced than Asia, as households were directly affected in terms of discretionary spending. Adelson’s convention and tourism model was not helped by President Obama’s plea to Americans not to go to Las Vegas and spend money.

Competitors in Las Vegas filed for bankruptcy. Some managed to hold on for a couple of years before they succumbed. Others just survived, requiring emergency equity and investment to keep the doors open.

 On November 6th, 2008, LVS reported to investors. “There is substantial doubt about the company's ability to continue as a going concern because of the company's failure to maintain a certain ratio of debt to earnings as required by its lenders.”

Speculators eyed up Sands. Unfinished buildings, huge debt, declining market, bookings down. Adelson was toast.

 For nearly all businesses, a public declaration like this would usually mean the end, however when reflecting on this time, I wonder if Adelson himself had an outlook that almost every other CEO in his position would not have. 40 years ago, when many of his contemporaries were at college and those analysts forecasting a sell were not even born, Adelson had seen this storm before and last time did not have the ability or wisdom to face it. I imagine he had long considered, “what if” his 1960s business had not folded. Now he could prove himself and in his own decisions.

In the South China Post and regional media there were frequent comment pieces challenging how a Las Vegas based conventioneer could understand the Chinese customer, prophesising failure, however the failure was in not understanding the mechanics of Adelson’s decision-making. Adelson and his team knew the Chinese customer, because the Chinese customers were like him and his family. This was a nation of over 1bn people benefitting from economic freedoms, the ability to start businesses, take risks challenge luck.  Yes, there are cultural differences, but from a psychological point of view, people in China wanted the same as people all over the world, good amenities, nice rooms, good food and in Asia, to gamble. Moreover, what Adelson saw that the analysts didn't, was the revenues that were beginning to come in from Macau, while all the US centric analysts wanted to look at was the armageddon of the Las Vegas casino market and decline in convention bookings.

In what must have been his boldest decision in a 50-year career, Adelson personally recapitalized the company of which he was the largest shareholder. If he failed, it may have wiped him out. However, he watched as Macau overtook Las Vegas to be the gaming capital of the world, peaking with revenues at $45bn and Sands was the biggest player in that market, generating nearly 50% of the market’s EBITDA.

 For Las Vegas Sands, the period 2007-2010 really was a tale of two cities.

 Today, Las Vegas Sands, Sheldon Adelson and the iconic properties in Macau, Singapore and Las Vegas are admired success stories. Sheldon Adelson is one of America’s most respected business leaders, with a box-seat at President Trump’s inauguration. Unwilling, or perhaps unable, to sit back, Adelson and LVS is a front-runner for a casino license in Japan, in what promises to be one of the most lucrative opportunities in global gaming. Who now would bet against Sheldon Adelson?

Insights to Adelson’s Business Success.

 Many books have been published the careers of the great innovators and marketers of the 20th and early 21st Century. The technology entrepreneurs of the late 20th Century are rightly lauded in developing and exploiting new technologies creating businesses that are essential for modern living. Investors and financiers used the power of global markets to uncover value and efficiently run businesses for maximum profit. The role of marketers, from the technology driven big data analysts, to the bold showmen with big ideas and bigger personalities is celebrated. Somehow Sheldon Adelson does not fit in the conventional stereotype. His is a story of shaping business to the evolving needs of the customer. He is an entrepreneur, yet of established and traditional businesses, moreover businesses for people.

 In public interviews and lectures, Sheldon Adelson has reflected on his career and having studied Mr Adelson for many years and lectured on his business career and strategic positioning to MBA students in London, I have spent some time trying to source a structure and framework in which we can explain Adelson’s success and business thinking.

The lessons below have been adapted from work done by Peter Druker, the father of management theory, and Mr Adelson’s own reflections. Let us call this program, The Adelson Attribute Management Model. Within this model, there are aspects to consider in personal training and development with the outputs being managerial competence, trust, efficiency and entrepreneurial thinking.

 1.    Be Effective

 In his work, Peter Druker is repeatedly concerned with managerial effectiveness, and the same is true for Sheldon Adelson. Effectiveness is the blend of insight and work ethic. It is the self-discipline required to turn intelligence to knowledge and to be able to operate within an organizational structure. Naively, the smartest person may not be the most effective, but the best executive or businessman will almost always be, and these skills are proven within structures that are created around the individual to enable their abilities to excel. Adelson’s breadth of career proves Druker’s hypothesis that those executives that specialize, for example in on single skill set, such as accounting, law or medicine, rarely have the breadth of insights to best handle the multi-variance of challenges that occur in business, as situations are fluid. Some believe that effectiveness is a gift that falls on some, but in truth with a range of exposure, focus, dedication and above all else, personal diligence, individuals can create their own structures and environments to maximise their personal effectiveness.

 2.    Have Values

As we know, Sheldon Adelson’s upbringing was unlike many that exist today in extend of hardship and lack of opportunity. There was no silver spoon or personal safety net, yet he regularly talks of the most valuable gift bequeathed to him by his parents, those of values.

 Values cost nothing, but are vital in understanding the sense of self and purpose. Outside of business. Adelson is one of the greatest philanthropists in the world and he uses his wealth to help and inspire those both within his community and outside, as helping others, supporting America and the Jewish people of which he is part are part of his DNA.

As we note, leading a business involves making decisions, and without a manager directing you, the individual has choices to make. Personal insights and values have been at the core of Adelson’s business career.

Druker asks each executive to consider three questions. What are my strengths? Where do I belong? What are my values? These are not questions where the answers become apparent at the beginning of one’s career, but will evolve throughout it. Sheldon Adelson repeatedly talks of values, as without doubt, understanding his sense of self has been vital in his successful business life.

 Opinions are insights gained from experience and values. In many cases, opinions are as valid as facts. Facts are what has been and what is. Opinions are skill based views based on experience of what will be and what has been, borne from personal knowledge. The best education a personal can have is based on their own experiences, which we determine as knowledge. Unlike many casino executives, having worked outside the industry, Adelson’s knowledge of his industries is as good as any education that could have been taught in a business school.

3.    What’s Next?

The Late Israeli President, Shimon Peres used to say that the Jewish People are never satisfied and will always do things better. Sheldon Adelson’s career is illustrative of this. Many businesses are risk averse and seek incremental growth. These are destined to failure unless the CEO is looking out and not in.

Within business, major companies follow one of two business philosophies, those of top down and bottom up decision making. The bottom up companies are reflective of their market and change as their market changes. Top down companies, let by confident executives make the changes and their customers adapt to these. Sheldon Adelson’s career is a lesson from bottom up decisions to a top down thought leader, having the ability to look at the market and shape his businesses to affect the needs that have yet to be identified.

 The lesson gained is that while internal management is important, too much focus on what has been will lead to even the most skilled manager missing the next opportunity.

4.    Trust Yourself

 As we have identified, executives form personal opinions, and in many cases these are subjugated by conventional wisdom, established norms and widespread market analysis. The lesson from Sheldon Adelson, like many entrepreneurs, is to trust your own judgement.

 It is good, if not essential, to think differently at solving problems and analysing challenges. Implementing free thinking is a high-risk strategy for many corporate businesses and consensus is always perceived to be a safer option, but Adelson has challenged this repeatedly, and is at the cornerstone of his success.

 “Effective people do not make a great many decisions. They concentrate on the important ones. They try to think through what is strategic and what is generic.” – Peter Druker.

 The ability to make decisions with clarity, conviction and purpose is what sets apart business leaders. Some may call this their appetite to risk, and it is certain that Adelson has taken more “high-risk” decisions than possibly anyone in business today. But for Adelson, risk is not perceived as others do. With the confidence and values as outlined above, these are effective, calculated judgements based on clarity and an understanding of the businesses that he is involved in.

 In order to make effective decisions, one needs to know what business that they operate in, and fully understand that business in order to be innovative with decisions. As such, there are few people (if any) who understand the convention business more than Adelson. He knows that his decision-making in the areas of convention, travel and hotels, as well as understanding finance and human needs are sound, so he can make effective decisions in these fields. However, with the same confidence that as he doesn’t have the time to divert his thoughts outside his core, he has eschewed big plays for technology and other transient investment trends, taking his own decision path.

 Sheldon Adelson tells us, that when many may doubt what you are doing, inner strength and confidence are required. Do not let others make you change your mind and stick with your convictions when justified. Be bold, be brave and be true to your vision. Adelson has exercised this in business, politics and in philanthropy. His successes are evident.

 5.    Understanding Your Market

 All Sheldon Adelson’s businesses have been customer driven. He has a clear perspective on customer psychology and market function. He knows views on what people want and how they want it, and has a strong view on how to deliver it. This is part experience driven, but also demonstrates a deeper insight into people.

 He understands that while it is important to meet aspirational wants, Adelson’s businesses are all about functional needs of a particular market, and if he can supply these in a commercial environment, where a profit can be achieved, then there is business case to be met. If you cannot understand that market or that business, leave it to someone else and revert to what you know.

Implementation Challenges of The Adelson Business Model 

It is relatively simple to codify the business attributes of Sheldon Adelson, it is hard to implement these in a commercial environment.

 As indicated, Adelson’s businesses have followed a pattern of high growth, expansion and dominance of competition. This success has relied on a singular top-down management culture that is reliant on competent, confident management that share the methodologies and adopts the vision as set out above.

His business structures are decidedly non-corporate and great power is held by a few people.

Within corporate structures it is near impossible to inculcate the culture and experiences required to broaden the thinking of management to be like Adelson, and corporations are reluctant to promote entrepreneurial minds that do not follow the prevailing organisational thinking – even when that thinking is validated by outside experiences.

Ironically, the outsider thinking of Gary Loveman and the Harrah’s MBA invasion in the early 2000s (which had a very different vision to Adelson) had a similar transformative impact on gaming, but was heavily focused on internal reflection rather than looking at future challenges.

Hindsight

With the benefit of hindsight, the business world should have been more confident of the durability of Sheldon Adelson a decade ago.

They should have known that unlike many competitors, Sheldon Adelson had been there before taking notes and looking forward. Today, even his most ardent of critics and detractors can only admire the business savvy and confidence of one of the world’s most unique and resilient businessmen, as he proved, yet again, that nobody should underestimate the instincts and decision-making of this most unorthodox business outsider. We can only hope that others can look at and benefit from his strategic legacy and try to replicate much from Sheldon Adelson’s unique business career.

Oliver Lovat is a Fellow of the Royal Institution of Chartered Surveyors. He leads the Denstone Group, which offers strategic consultancy on casinos and hotels. He lives in Las Vegas.

www.denstone-re.com