Sands China Looks Beyond Macau’s High Rollers

Against a backdrop of falling gaming revenue in Macau, Sands China CEO Edward Tracy is hoping to profit from the mainland’s fast-growing middle class.


Ed Tracy keeps his focus — in good times and bad — and the veteran gaming industry executive knows that bad times inevitably follow good ones. As head of Donald Trump’s Atlantic City casino properties in 1990, he helped the real estate tycoon grow the Trump Organization’s annual revenue to more than $1 billion despite the recession. A year later, the mercurial Trump replaced Tracy, who would go on to become CEO of Capital Gaming International, a Phoenix-based company that develops and manages Native American gaming facilities.

Today the 61-year-old Tracy is CEO of Sands China, the Hong Kong Stock Exchange–listed subsidiary of Las Vegas Sands Corp. that operates four casino-hotel properties in Macau, the only place in China where gambling is legal. Under Tracy’s management, Sands China grew its annual revenue from $4.9 billion in 2011 to $8.9 billion in 2013, with profits doubling to $2.2 billion during that period. But after posting strong results during the first half of 2014 — revenue grew 24.7 percent from the same period in 2013, to $5.1 billion — Sands China saw its third quarter revenue decline, falling 0.4 percent to $2.33 billion, as the effect of Chinese President Xi Jinping’s two-year-old anti-corruption campaign is being felt in Macau. Earlier this month, Macau police arrested the nephew of casino mogul Stanley Ho for allegedly masterminding a prostitution ring.

China’s crackdown cuts into the spending by VIP gamblers — high rollers who shell out more than $1 million per visit to the gaming tables of Macau. According to industry estimates, close to 80 percent of Macau’s high rollers are from Mainland China. In the city’s VIP rooms, betting on baccarat can go as high as $300,000 a hand.

Last year annual gaming revenue fell in Macau, a the former Portuguese territory that reverted to Chinese rule in 1999, dropping 2.6 percent to 351.5 billion patacas ($44 billion), after a record 30.4 percent monthly decline in December, according to Macau’s Gaming Inspection and Coordination Bureau. The drop — which came amid Xi’s anti-graft drive and a slowing economy on the mainland — was the first since the territory liberalized the gaming industry in 2001. December’s takings — 23.3 billion patacas — were the smallest for the year, marking the seventh straight month of decline.

“Ups and downs in the market are to be expected,” says Tracy, who is retiring in March after five years with Sands China.

Gaming accounts for the lion’s share of Sands China’s current business: nearly 90 percent of the company’s revenue for the first nine months of 2014. Tracy and his boss, Las Vegas Sands Corp. CEO Sheldon Adelson, have long seen the need for Macau to reduce its reliance on high rollers. The two are accelerating Sands China’s integrated resort model “to create Asia’s premier gaming, leisure and convention destination,” according to the firm’s website. The company, whose properties have a combined 9,000 hotel rooms, 600 shops and 100 eating establishments, is going mass market, creating retail, dining and family entertainment that caters to China’s fast-growing middle class.


Sands China’s key weapon is the Parisian Macao, a $2.7 billion, 3,000-room property that will open in late 2015 and offer a wide range of family entertainment and a European shopping experience — as well as a half-scale replica of the Eiffel Tower. The Parisian, located on Macau’s Cotai Strip, will further strengthen Sands China’s European lifestyle offering, which began in 2007 with the opening of the Venetian Macao resort — a hotel, mall, casino and event complex that attracts more than 100,000 visitors a day to its indoor canals, which are modeled on the canals of Venice.

Investors, for their part, have been concerned about the falloff in Macau’s gaming revenue. Sands China’s share price fell 39.8 percent in 2014, with most of the loss coming in the last four months of the year. “While we continue to like Sands China for its good earnings quality, high exposure to mass consumers with a solid yield support, we believe concerns about slower mass-market growth may hurt Sands China’s share price in the near term as investors have not expected the industry mass revenue growth to turn negative,” says Kenneth Fong, a Hong Kong–based gaming analyst for Credit Suisse. “Longer term, Sands China will benefit relatively more when the market growth resumes.”

Tracy recently spoke with Institutional Investor Asia Bureau Chief Allen Cheng about Sands China’s strategy to continue to grow in the face of the slowdown in the Macau gaming market.

Institutional Investor: Are you concerned about the recent falloff in your sales?

Tracy: It is not a cause of concern for us. One of the factors of our success is that our integrated resort model is founded on six diverse business pillars — accommodation, retail, dining, MICE [meetings, incentives, conferencing, exhibitions], entertainment, and gaming. It’s a holistic approach to the tourism product that aims to provide a variety of experiences for all types of visitors.

Do you think the impact of China’s anti-corruption campaign on Macau revenue will lessen over time?

I can’t speculate as to the future, but I can say that our approach to doing business remains focused on providing a product that’s appealing to the mass market. We’ll continue doing what we do best, and that’s delivering outstanding business, leisure and entertainment experiences for young and old, individuals and families — and providing it all conveniently under one roof.

The resort as a whole, which is celebrating its seventh anniversary, still experienced record profits, as the No. 1 most successful integrated resort brand in the world. The Venetian Macao has established itself as the go-to destination in China for Hollywood, delivering top international entertainers including Beyoncé, Lady Gaga, the Police, Avril Lavigne, and a record-setting concert by the Rolling Stones. In 2013 alone, the property attracted the tours of Rihanna, Alicia Keys and Justin Bieber. David Beckham joined forces with the Venetian Macao and Las Vegas Sands’ resort property in Singapore as part of a partnership between Beckham Ventures and Las Vegas Sands.

If you look beyond the actual financial results, behind our numbers are our team members, our staff, our efforts to promote social outreach to the Macau community, building relations with the government — these are all essential and key drivers of our success.

Tell us about your integrated resort concept.

The integrated resort concept delivers the results. It helped transform Macau from purely a gaming center to a resort and family entertainment center, which was what the Macau government wanted. The Macau government has very clearly stated that as a matter of policy. It was a clear focus of Chief Executive Fernando Chui Sai On’s recent speech. We were really ahead of the curve. Sheldon Adelson was ahead of the curve. He not only put up the money, he implemented the vision.

How do your Macau properties differ from those of Las Vegas Sands in the U.S.?

The Macau properties are similar to ones in Las Vegas and elsewhere. They focus on luxury finishes, celebrity chefs, quality entertainment.The Venetian in Macau is now twice as large as the one in Las Vegas. We’re about to open our fifth property in Macau, the Parisian, which is as big as the Venetian. The biggest difference in Macau is that the volumes — whether gaming, retail, entertainment — are phenomenally larger than anywhere else in the world.

Here in Macau, we get more than 200,000 people a day. I can tell you it is a substantial challenge to come anywhere close to that in Las Vegas. Our average throughout is north of 100,000 a day. In Las Vegas, our properties get 12,000 to 15,000 visitors a day.

As a group here in Macau, we have a staff of over 28,000, with more than 50 nations represented. You can hear 40 to 45 languages spoken on a daily basis. That is somewhat of a challenge, but we somehow manage it.

We have some of highest grossing retail operations in Macau. Our malls do north of $2 billion in retail revenue per year. We have 70 percent of the cash retail market in Macau. We have 23 percent of the gaming revenue.

It’s turned out to be a great business. We have more of what the average customer is looking for, whether food and beverage, mass-market entertainment, and free entertainment for kids. Among our headline entertainment is UFC, the Ultimate Fighting Championship Macau. The UFC attracts huge crowds.

Headlining our star visits this past year were Sylvester Stallone and Arnold Schwarzenegger, who came in late August for the China premiere screening of The Expendables 3. They drew big crowds. They also attended the Manny Pacquiao–Chris Algieri boxing match in November. Both visits were successful. Our customers just loved them. We had a great red carpet event at the movie premiere in August. They did a meet and greet with many of our customers. They went shopping, too.

All of these star visits and entertainment have lent credibility to Macau as a destination of leisure and entertainment, and not only gambling. We have developed a wide range of family entertainment; this suits business conventions and business travelers alike. We have really leveraged our celebrity quotient to become the entertainment capital of Asia.

What is your strategy for the Greater China region?

We will continue to develop the mass market in China. The Parisian Macao, which is opening up later in 2015 or early 2016, is similar to the Venetian Macao in size. It offers a huge shopping area that will be fashion forward, with fancy brands from Europe, that will spur further growth here in Macau. This is the only market in the world where these types of projects and accomplishments are possible. We have great assets and we are sitting next to the biggest market in the world. We raised the consciousness that there is a great amount to do in Macau other than gambling. This is, after all, what China’s President Xi Jinping wants, for Macau to diversify its economy away from relying only on gambling.

How do you view the future?

I wake up every morning and am surprised at the level of success and the growth potential. Our penetration into the China market is only about 1 percent. The middle class is the fastest-growing economic sector in China. We expect that to continue for quite a number of years. We remain very optimistic about our chances in the future.

What about expansion in Asia outside of Macau?

Our group company is working diligently in Japan and Korea. We believe both nations will have enabling legislation to foster the growth of legalized gambling and resorts. The group also owns Marina Bay Sands Resort in Singapore, which has been great success. • •

Get more on emerging markets. Follow Allen Cheng on Twitter at @acheng87.