Mike Leven in an exclusive interview: “Casinos will be smoke-free”

The COO of Las Vegas Sands, Michael Leven came to Macau with boss Sheldon Adelson for Sands China’s annual meeting (where a final dividend of HKD0.66 per share was declared), and a lunch, courtesy of Chui Sai On, last week, but no details were made available after the occasion. In an exclusive interview with The Times ahead of the lunch with the Chief Executive (Thursday), Mr Leven told us that business would not be on the table, “it would be just a get together”.
After a round-the-world trip from the States to Madrid, Tel-Aviv and Macau, Michael Leven addressed – in a very straightforward manner – some of the hottest topics surrounding LVS’ operations in Macau, such as diversification and “the inevitability” of smoke-free casinos in the medium-term. Due to lack of space in this anniversary edition, the second part of the extended interview – addressing topics including lawsuits, Asian expansion, Eurovegas – will be published in the next couple of days.

Macau Daily Times – What is the major purpose of this visit to Macau?
Michael Leven – Well, we have our annual general meeting of the shareholders tomorrow morning  (Friday May 31), and Sheldon Adelson is attending. I haven’t been here for a while. And usually when I come I sit down with Edmund Ho and Secretary Tam. This year we have the privilege of being invited for lunch by the Chief Executive, Mr Chui Sai On.

MDT – That will be today (Thursday)?
Leven – Yes. It’s purely social. It’s not supposed for there to be any business discussed. Just getting together. Our relationship with the government has been improving continuously, and we want to hear from him if he has any suggestions regarding things that we could do better.

MDT – LVS is bringing a great array of entertainment to the city. How does that impact Macau in terms of diversification?
Leven – We’ve been very happy with what Ed Tracy and his team have done here. They organized 60 events in the Cotai Arena and the Venetian, such as the fights, the UFC, and the entertainers and a wide variety of events.
My job here has been from the very beginning to try to diversify this economy away from a total gaming destination. It’s taking a long time. It’s going to take a longer time, but it’s getting there. And Macau is now talked about around the world not as simply a gaming city. The goal is (for Macau) to be talked about like Las Vegas – a place for conventions, meetings and entertainment, gaming, where people could also bring their kids… And the other properties that are being built here (in Cotai) are also aiming for that, family entertainment…

MDT – Actually speaking of that, I’ve been here for 30 years and, I have to say, I’ve never pictured Macau as a family entertainment destination. Does Macau have what it takes to get there?
Leven – I understand that, definitely. If you would have been in Las Vegas 30 years before Venetian and some of the other properties that Steve Wynn built you might have thought the same thing about Las Vegas but today Vegas survives on the fact that it is an entertainment destination, because gaming has proliferated to so many other destinations, and 30, 40 years from now there will be a lot more gaming in Asia than there is today. So, Macau will survive if it transforms itself into a visitors’ market for more than gaming. And if you look at Vegas today it would not be successful if the mid-week business of meetings and conventions, the MICE business, wasn’t there.

MDT – That diversification of offerings is also aiming at diversifying the market?
Leven – Well I think today is not as diverse as could be because Guangdong continues to be the major source. The nature of this market is that 51 percent of the people come and go and don’t stay overnight. You don’t see that in the Vegas market: people don’t drive there and go back home the same day. Las Vegas has 40 million visitors a year, most of whom stay overnight or more. When you start to see the nature of this stay extended you’ll begin to see the market changing. That will be the one solid indicator to see by 2017 when new properties get built and open. If the average stay is one night and 51 percent of the people are still going home, you’re going to start to ask some questions as to whether the market is really changing or not. But today with 51 percent of the people going home (on the same day) the question is “did 70 percent of the people go home five years ago?”  If that’s the case you’ve made progress. And next year, and particularly in 2015, if 51 percent of the people don’t go home on the same day and that number is 35 [percent] or so, then we’re making progress in extending the stay. And if you are going to extend the stay people then have to bring their families, have to bring their kids…

MDT – Is that what would really mean that the market had changed?
Leven – Yes, that the market is changing. And Hengqin Island too would have a lot of people coming and going home, because they have a lot of facilities there, so you have to be careful when you’re looking at the numbers, but I think that’s a critical indicator. See, the one-night stay people who come – let’s assume they’re going to stay the same amount of time – the only way you can drop that number down is to bring more visitors on top of that.

MDT – There is always a limit…
Leven – There is a limit. There is a limit to the availability of those that go back and forth. I think it’s going to take another 4-5 years to see some significant change. Some of the things that we are doing and COD is doing, COD with the Dancing Water Show, we with DreamWorks’ characters, I think Galaxy is working hard in that area as well…

MDT – So you think we are going to have much more of that in Cotai by 2017?
Leven – You should be seeing much more of that. I’d like to think that only 30 percent of the people would be coming and going, and that’s okay! I mean, that base of business for the properties from a gaming standpoint is very important to fund all the other stuff. But the long-term ambition for Macau is to be the Las Vegas of Asia – you can’t be that reliant only on one-day trip gamblers.

MDT – The mass market has been growing lately. But more recent news, just this week, shows that VIP gambling is on the rise in Q1. Do you think this a reverse of the trend or is VIP is going to get bumpy again soon?
Leven – You know, the thing is, everything that is happening in Macau now is so public. The media generally watch for things to go wrong so they can talk about it. It’s the nature of the “beast”, so when you get a month when VIP falls, you will go “Oh, VIP is going away”… There will be cycles in the VIP market, there will be cycles in premium-mass, there will be cycles in mass-mass, and all these things will happen. One week or one month is not a trend-make. I never worry about the VIP. I don’t think VIP will grow at the same rate (as the others) because it’s the top of the market. The amount of growth that you get is not going to be as significant as you get at the bottom of the market: it’s plain simple demographics. The only way VIP grows is by people making bigger bets, the same level of people. And that gets to be dangerous too.
I think VIP is going to continue to have moderate growth. The biggest growth here is going to come in the mass market, because that’s where the growth is in China. Think about it this way. The VIP gamblers in China are buying the best cars, the most expensive, the Ferraris and the Maseratis and all the rest. But the real growth in the automobile industry is in the mass market. That doesn’t mean that the profitability of manufacturers of the latter is going to continue to grow. But the real quantity of cars that is going to be sold will be for the masses.
That same factor is going to happen here with gambling. So you’re going to have more and more players here at the mass-mass market level. To that extent our company has some advantages – at least today. That’s also why Macau is going to have to increase the table counts when they build the new buildings. And I wouldn’t be surprised to see the mass market table count growing but with some argument about what the minimum bets should be. I believe that the Gaming Commission and the government may very well say “You want more tables? Okay, but you have to lower the minimum bets” to cater to the mass market.

MDT – Speaking of that, there seems to be confusion in the community about the definition of the different types of gamblers, although the VIP gambler here is pretty much profiled. What is your and LVS’s definition of the VIP, the Premium Mass and the Mass gamblers?
Leven – The VIP gambler of course is junket-based. There is then what they call the Premium Direct, which is a VIP customer who’s given credit; that’s a very small piece of the market. They are high-bettors, who do not come through junkets and they are usually from Hong Kong.  Underneath that there’s what it’s called the Premium Mass category, which is a large-scale bettor who comes in here without credit and generally brings cash. They play usually at baccarat tables, and this type of gambler usually loses between 25-50 thousand dollars, even up to USD100,000. They go by sub-categories, Ruby, Gold, Diamond. It’s an elite player but not at the VIP level. I’m not exactly sure but these players come mostly from Hong Kong but also from Guangdong province and that market has grown and all of the properties attend to them. I think COD had positioned itself as a Premium Mass building, and from what my guys tell me we are doing pretty well there too.
Then you have under that two more categories. The Mass market category and under that, the Mass-Mass market category, and you can define those people as mostly slot machines and electronic tables players. Some in the Mass market category will be low limit table baccarat players, but the rest in those categories are slot-machines and electronic games players.
That is the middle-class Chinese, and that in my view, it’s just a one-person’s view, is where the greater growth is going come from in the future.

MDT – What about the Premium Mass market prospects?
Leven – What’s happened in the last couple of years is that people have concentrated on this Premium Mass business because you don’t pay commission, you don’t give credit and it has a very, very high margin of profitability; I think it’s a 40 percent margin business. That business is not going to stay at 40 percent, because what’s going to happen when hotels begin to compete for that player? They will compete with stuff that cost money and it’s going to lower profitability. It’s just the natural way of things…

MDT – A price war?
Leven – Yeah! Different products are going to be marketed to them. So, it’s going to be growth in all of those markets, to a certain extent. And there’s room in those markets for different kinds of hotel product. For instance Wynn will be a VIP, Premium Direct and Premium Mass product – that’s what he will do in Cotai. We’re building for a broader base, like Galaxy.
MDT – The smoking, anti-smoking regulations have been one of the hottest debates in town. Unions are saying that the government is not doing enough in terms of checking what casinos are doing… What is your stance on this issue – for the employees, for LVS, for the industry?
Leven – Look I could get fired for telling you this but I think eventually there will be no smoking in these casinos. It’s going to happen like that – or if there is smoking it will be very limited, very limited. And the reason for that is that it’s what’s happening all over the world. Although smoking, drinking and sex have been common-place when describing the casino industry for years and years, you can see that a lot of those things have gone away and smoking, well, eventually goes away as well. And gamblers, players, or punters as you call them here, they will gamble anyway. They will go outside to smoke and come back to gamble just like it happens now with restaurants.
I think Angela Leong, who made a big fuss about this, is going to win in the end. Eventually by 2017-18 we’re going to have almost no smoking casinos, inevitably.