Case Analysis Project

Summer 2014

Brandon Ast

Christina Casey

Table of Contents

Introduction…………………………………………………………………………………………3

Overview of the Company

Current Strategies

Current Mission

External Environment…………………………………………………………………………….4

Assessment of External Environment

Porter’s Five Forces

Assessment of Strategic Groups

Key Competitors

Internal Environment……………………………………………………………………………..7

Value-Chain Analysis

SWOT Analysis

Financial Statement Analysis

Analysis of Financial Data

Key Resources and Capabilities

Internal Efficiency and Cost Savings

Industry Analysis

Analysis of Marketing Position………………………………………………………………..18

Company & Industry Growth

Marketing Strategies

Analysis of Management

Stock Performance

International Strategies

Strategic Position…………………………………………………………………………………21

Current Core Competencies

Competitive Advantages

Performance Indicators

Recommendations and Discussion………………………………………………………………23

Long-Term Options

SBU Level Recommendations

Short-Term Options

Corporate Social Responsibility

Environment and Sustainability
Introduction

Las Vegas Sands Corporation (LVS) is a multinational casino and resort company that began in 1989 when Sheldon Adelson purchased the Sands Hotel in Las Vegas, Nevada. Since 1990, LVS has grown into a luxury hotel, entertainment, and gambling corporation with locations in the United States in China. Among their most well-known American properties are The Venetian and Palazzo, both of which are in Las Vegas, and they also boast ownership of the Four Seasons Hotel, Sands Cotai Central, and The Venetian Macao in the Cotai Strip in Macao, China. Additionally, they operate the Marina Bay Sands in Marina Bay, Singapore. LVS is hoping to increase their presence in Singapore and Japan as well. They are planning to open The Parisian Macau, another hotel-casino, in late 2015 (Form 10-K, 2014).

Las Vegas Sands claims they were the first to introduce the concept of an “Integrated Resort.” Instead of offering a simple hotel room or a basic casino, they offer everything from “sumptuous suites to plush meeting rooms, celebrity status night clubs, intimate lounges, headliner and resident shows, upscale gaming, ultra-relaxing spa services, [to] a wide range of retail shops and award-winning cuisine (Las Vegas Sands, n.d.).” The company focuses on providing luxury to its customers in every way possible.

Las Vegas Sands does not have a mission statement, per se; instead, they discuss their values on the “Our Values” tab of their Sands.com website:

Our integrated resorts have become premier destinations for travel enthusiasts around the world. Why do they insist on us? Because they know they can count on unmatched service, a luxurious atmosphere, and superb hospitality every time.

They also know that at the heart of our company are unshakable values. We're committed to listening to our guests and employees, to considering the environmental impact of our decisions, and to contributing to the well-being of the communities in which we do business.

At the same time, we know that our values and words won't be worth much unless they are expressed through our actions. We insist therefore on participating every year in numerous charitable and environmental programs, which guarantee that our highest values have genuine impact on the world.

In order to achieve these goals, LVS does everything they can to consider guest’s wishes and to continually provide top-of-the-line service to their guests. LVS has also started a sustainability program called Sands Eco 360 which is being implemented in all their properties to help the environment without compromising their luxury experience.

Going forward, LVS has three long-term goals they will continue to pursue: 1) maximization of cash flow from existing Integrated Resort properties, 2) development of new destination Integrated Resorts in Asia, and 3) continued growth of return on capital to shareholders (2013 Annual Report, 2014).

The corporation is in the Casinos Industry in the Cyclical Consumer Goods and Services Sector. Even though they do provide experiences aside from gaming (hotels, shopping, etc.), for the purposes of this analysis, we will be focusing on the company’s gaming services only. Therefore, all the analysis focuses on the casino aspect of their business.

External Environment

The gambling industry in the United States is in the maturity stage. The market here is very saturated with everything from high revenue, all-inclusive destination resorts like Las Vegas Sands offers, all the way down to small Native American casinos and online gaming. In spite of this, Las Vegas continues to be a destination people seek out for its attractions. Gambling is legal in some form in 48 states, whether it be horse racing, casinos, lotteries, or charitable gaming such as bingo. Casinos in the United States are highly regulated at the state and federal level. They are even subject to some of the same federal laws as banks, due to the high volume of cash that they handle on a daily basis (American Gaming Association, 2009).

In Macau, the gaming industry is in the growth stage. It is still finding its way, and several changes must be made in order for it to really take off. One factor that could potentially harm the industry in Macau is the low level of diversity of visitors to the area. Most of their customers come from China and Hong Kong. Prior to 2003, Chinese law prohibited individuals from travelling to Macau; one had to apply for a group visa and visit Macau on a guided tour. Since the introduction of the Individual Visitor Scheme in 2003, individuals are now allowed to visit Macau once every three months. Another issue facing the gaming industry in Macau is the shortage of labor required to operate all the facilities that are springing up. The issue of whether or not to import labor is highly controversial, as it would potentially take jobs away from residents of the area. A third issue facing the market in Macau is the shortage of rooms in the area. In 2007, Macau only had enough rooms to lodge 12 million people over the course of the year, but they had 27 million visitors. Since then, more casino hotels have opened (including Las Vegas Sands’ Sands Cotai Central), but this may still be an issue deserving of more attention.

One interesting aspect of the markets in the two locations is the differing preferences of visitors. For example, gamblers in Las Vegas prefer slot machines to any other form of gambling. In 2007 the most frequently played games in Vegas were slot machines (65%), blackjack (14%), and video poker (6%). In Macau, high rollers are much more common, and these clients prefer higher stake table games. Macau’s top-played games were VIP baccarat (67%), baccarat (19.5%), and slot machines (only 4.3%). In addition, visitors to Las Vegas spend more on non-gaming entertainment, such as restaurants, shows, and shopping. One reason for this could be the average stay in each location: Las Vegas’ average stay is 4.6 days compared to only 1.2 days (Loi & Kim, 2009).

Porter’s Five Forces

  1. Rivalry

The first force to discuss is rivalry amongst existing firms, which is very high in this industry. Firms must constantly try to outdo each other to bring in customers. They can do this in a multitude of ways. One way casinos can compete for consumers is to manipulate the table limit (or minimum bet) to a level that is attractive to gamblers, but still brings in a profit. Many casinos, however, now prefer to let “cheaper” customers play the slot machines, reserving the table games for guests willing to take on a little more risk. Therefore, they rely on other tactics to draw people in. Casinos have a multitude of advertising strategies to bring in new guests as well as to entice old customers to return. For example, there are numerous billboards along the highway informing passers-by that when they visit a certain casino for the first time, they will be treated to a free buffet. Also, rewards program members are such offers as $50 to gamble with if they return to the casino. Finally, casinos compete for customers by providing services to their guests. Some casinos give their patrons drinks, free of charge. Others will give guests a discount on a hotel room, or even pay for their stay altogether. These services are what can change a consumer’s mind from playing at one casino to visiting another instead, so providing benefits to guests ultimately gives the casino the competitive edge they need.

  1. Barriers to Entry

The second force in Porter’s Five Forces is barriers to entry of the industry. This is also very high, primarily due to the high initial capital needed to open a casino. Anyone who has been to or seen Las Vegas knows that casino companies do not cut corners on their buildings. The over-the-top grandeur and pizazz are what casinos are known for, and anything less is just not good enough. On top of that expense, casino companies must also pay for the land to build on and a gambling license for their establishment. Obtaining a gambling license is not as simple as paying a fee, however. In the United States, each individual state decides whether or not to allow gambling, and to what degree. In Nevada, a very thorough questionnaire must be completed, which includes a background check and fingerprinting of the individual wishing to obtain the license, information about the proximity of the establishment relative to schools or churches, and where the individual plans to get the funds (Board, n.d.). In Macau, getting a gaming license is much more difficult. In 2002, three licenses were offered up, and twenty-one companies from across the world bid for them until three were chosen. Each of the three were allowed to sub-license to another gaming corporation; Galaxy Entertainment was one of the three, and they sub-licensed Las Vegas Sands, allowing them to enter the elite market in Macau (MacDonald & Eadington). Because of the sub-licensing allowance, there are at total of six companies running casinos in Macau. These licenses do not expire until 2020 at the earliest (they will likely extend until 2022), and no new licenses have been allowed.

  1. Bargaining Power of Consumers

The third force is the bargaining power of consumers. This factor is low because ultimately, the consumers do not have much, or any, influence over the casinos’ practices. Guests to casinos have no control over their odds of winning, and they are not able to manipulate casino employees to bend the rules to allow for lower minimum bets. Consumers do have minimal power over the casino in that they are able to choose which one to go to, and they have no switching costs when they leave one casino for another. Some guests do belong to a rewards program at some casinos, and leaving it would require them to forfeit some benefits, but generally customers pay absolutely nothing to go to someone else.

  1. Bargaining Power of Suppliers

Fourth, the bargaining power of suppliers is rated as moderate. The main reason that they have any power is because casinos cannot operate without the equipment the suppliers provide. However, there are getting to be an increased number of suppliers of gaming supplies, so if the casino is not impressed by one supplier, they can simply go to another. In addition, most suppliers of gaming equipment have very little business in other areas, so they depend on casinos for business, reducing their bargaining power even further. Finally, the equipment needed to run a casino (i.e. poker chips, playing cards, slot machines) is relatively cheap and easy to find. With the exception of certain novelty games like Deal or No Deal, games do not vary from one another too much, so they can be purchased from almost any supplier.

  1. Threat of Substitutes

The final factor is the threat of substitutes. Gambling is somewhat of a unique industry; there are no substitutes. Although there are some activities such as skydiving or putting money in the stock market that offer some degree of risk, some people become addicted to gambling, eliminating all substitutes. In addition, Las Vegas and Macau are places people go specifically to gamble, usually seeing shows and going shopping in between trips to the casinos.

Strategic Group – United States

Las Vegas Sands’ strategic group for the United States includes Wynn Resorts, Limited; MGM Resorts International; and Caesars Entertainment Corp. These companies are present in Las Vegas, Nevada to offer a wide range of services to their customers. They provide everything from casinos and hotels to high-end shows, five-star restaurants, and quality shopping.

Strategic Group – Macau

Las Vegas Sands’ competitors in Macau are slightly different than in the United States. Only six gaming licenses were offered in Macau in 2002. These licenses were offered to SJM Holdings Limited (holding company for Sociedade de Jogos de Macau S.A.), Galaxy Entertainment Group, and Wynn Resorts, Limited. Each of these companies sub-licensed, the honors going to MGM Resorts International, Las Vegas Sands Corp., and Melco Crown Entertainment, respectively. Because these are the only six companies allowed to have a gaming license in Macau at this time, and with all six offering similar high-end services, SJM, Galaxy, Wynn, MGM, and Melco Crown are in the strategic group of LVS in Macau (Kristof, Yang, & Ryan, 2010).

Internal Environment

Value Chain Analysis

Las Vegas Sands’ overall goal is to provide their guests with a luxury experience and high-end services while providing an excellent workplace for their employees and constantly utilizing the most current environmentally-friendly practices in their day-to-day operations.

Their primary activities include inbound logistics, operations, sales and marketing, and service.

  • Inbound Logistics: this category includes activities required to get a casino up and running. Perhaps the most important of these activities is acquiring a gaming license, as the company cannot operate in a country without one. Next comes purchasing land and building the casino. Finally, LVS must research and purchase the most popular games in order to entice customers to gamble at their casino.
  • Operations: these activities include anything that is part of running the casino on a day-to-day basis. This could be anything from cleaning the casino to researching the most current, popular games.
  • Sales and Marketing: this step of the value chain includes reaching out to customers in order to convince them to come back. Las Vegas Sands doesn’t do too much marketing, but they do offer direct mail promotions to their V.I.P. gamblers. Also, they do some billboard, television, and radio advertising in the areas closest to their casinos. For example, a gambler in the Las Vegas area of Nevada will likely hear advertisements for LVS properties, but an individual living in Colorado likely will not.
  • Service: this category is similar to the Sales and Marketing component. Las Vegas Sands offers promotions to their guests during and after their stay using their Club Grazie Program at The Venetian and The Palazzo, both located in Las Vegas (Palazzo, n.d.). This program offers everything from discounted drinks to free rental cars and upgraded tickets to its members, depending on their amount of gambling.

Their support activities mainly include human resource management, technological development, and procurement.

  • Human Resource Management: Las Vegas Sands mentions in its 2013 10-K Report that they have experienced issues with labor unions in the past. Therefore, it is vital that LVS continues to work with these unions to ensure that their employees are always getting the best out of their job as possible.
  • Technological Development: because LVS does not manufacture their games themselves, this is more related to the games they present to their guests. They must always make sure they have the most up-to-date, high demand games that people come to play. This category can also be applied to the processes LVS uses when they build new facilities. In order to retain their ISO 20121 certification, they should always look for new ways to build their properties in the most sustainable way possible, and they should also continue to operate in the most “green” way they can.
  • Procurement: LVS imposes high sustainability requirements onto themselves. They therefore require all of their suppliers to be as sustainable as possible, and they also ask their direct suppliers to require the same of their own suppliers. By doing so, LVS has created a chain of highly eco-friendly companies working together.

SWOT Analysis

  1. Strengths

Las Vegas Sands has several strengths that allow it to keep a competitive advantage over the majority of casino-operated hotels. First, the fact that LVS has diversified itself into the Macau region has given them a huge revenue stream, making them into a very profitable company. LVS owns the largest hotel & casino in the world (The Venetian Macau), which can see up to 100,000 guests in a single day. Also, LVS has one of only two gaming concessions in the country of Singapore. If LVS can keep it this way then they will have a majority of market share in the Singapore region. They have also adapted to the ever-growing trend of offering more things than just gambling, such as movie theaters, concerts, stage performances, helicopter tours, massage parlors, fine dining, comedy shows, a variety of local excursion tours, etc. in their Integrated Resorts.

  1. Weaknesses

LVS may have too much capital invested into the Asian region (Macau & Singapore). If the casinos in Macau lose their profitability, LVS stands to lose much of what makes their company profitable. In order to eliminate this risk, they should diversify by investing in other geographic regions. Also, LVS may be trying too hard to fit their Las Vegas model onto Macau; they should take into consideration that preferences differ by region, and they should offer the games that are popular in Macau, rather than those that are most played in Las Vegas. Finally, they need to become better at collecting the debts owed to them by their customers. Because high-rollers are allowed to gamble on credit, the company could face large losses if these customers never pay them back.