Las Vegas Sun

August 18, 2019

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Resort owner has much at stake in latest gaming industry venture

Sheldon Adelson yearned to own a casino because he wanted to achieve what economists call vertical integration.

That means controlling all aspects of a product or service. Adelson already owned a charter airline company, a travel business and a trade show conglomerate. The only things missing were a hotel and convention center for his clients.

"If we generate the passengers and carry them to their destinations, it only makes sense to own the destination, too," he told the Boston Globe in 1988.

Adelson declined Sun interview requests for this series.

Adelson wanted his hotel and convention center to be in Las Vegas because he liked the city's entrepreneurship and knew that businessmen were attracted to the neon lifestyle of the Strip. Las Vegas also made good sense to Adelson because he was responsible for nearly 10 percent of the city's convention business by the mid-1980s.

He first attempted to enter the gaming industry in 1987, when he and former Las Vegas Hilton president Henri Lewin made an unsuccessful bid to buy the former Dunes hotel-casino. They pulled out when the bidding for the financially troubled property reached $142 million. The hotel was eventually sold to Japanese investor Masoa Nangaku for $155 million and later razed by gaming mogul Steve Wynn to make room for the Bellagio.

Despite his failure to acquire the Dunes, Adelson didn't give up. The following year he and his partners in the Interface Group of Needham, Mass., agreed to purchase the 750-room Sands hotel-casino for $128 million from Los Angeles financier Kirk Kerkorian. Adelson obtained his gaming license in 1989 with legal assistance from former Gov. Bob List.

Adelson had grand plans to expand the hotel, which served as a favorite haunt of the famous Frank Sinatra-led "Rat Pack" in the late 1950s and early '60s. Conceding that he knew nothing about operating a resort, he hired the flamboyant Lewin to manage the property.

"I can't hold a candle to Henri as a hotel and casino operator," Adelson told the Sun in 1989. "I am the businessperson -- the strategy guy. I'm an entrepreneur. We make decisions together."

Adelson's plans were proceeding in 1990 when he opened the $105 million Sands Expo & Convention Center, the largest privately owned facility of its kind in the country. The Sands Expo turned out to be a big hit, but the same couldn't be said for the hotel, which had problems keeping up with new Strip megaresorts.

As an example that things weren't going Adelson's way, he fought unsuccessfully to have the Clark County Commission enforce a noise code against the roaring volcano in front of the Mirage. He even hired an acoustics expert to help make his case by taping the noise from a Sands balcony across the Strip.

"The issue is whether one neighbor can drop their refuse on my property when people are trying to sleep," Adelson said at the time.

The media also turned up the heat on Adelson, who vehemently denied reports that his resort was heading into bankruptcy.

And even though Adelson told state gaming regulators that he wouldn't have purchased the Sands without Lewin's participation, he fired his first president. He also went through three other managers, later conceding to the Wall Street Journal that he hired "yesteryear's management."

Adelson's plan to add 2,500 rooms to the Sands in the form of two 43-story towers also was scotched. In 1991 he announced he would run the hotel himself.

"Now I am fixing mistakes others made," Adelson told the Sun in 1991. "They put friends and unqualified people on the payroll. They used the wrong marketing strategies, and they dissipated our existing customer base without replacing it."

A year later Adelson conceded he was scaling back plans to expand the Sands, expressing concern that Las Vegas possibly was overbuilding with all its new megaresorts. He also believed the financing market had tightened up since the 1980s.

Adelson offered to sell his 575,000-square-foot Sands Expo Center to the Las Vegas Convention and Visitors Authority to help raise money for his hotel plans but was turned down. He eventually spent $17 million to expand the casino but had trouble keeping high-rollers. He also delayed plans to expand the Sands Expo to 1 million square feet.

Good fortune came his way in 1995, however, with the $860 million sale of his wildly successful Comdex trade show to the Japanese company Softbank Corp. Adelson, who owned 58 percent of the Sands, planned to buy out his partners -- Irwin Chafetz, Theodore Cutler and Jordan Lee Shapiro -- and pursue his dream of operating a world-class resort.

The Sands agreed in 1995 to a contract with Culinary Union Local 226 that included assurances that with planned expansions the company would acknowledge the union with a majority of signed union cards. The union represents food servers, cooks, cocktail waitresses, housekeepers and bell captains.

But Adelson set off a firestorm of protest from the union and from politicians such as Clark County Commissioners Yvonne Atkinson Gates and Paul Christensen when he announced in May 1996 that he was closing the Sands that June 30 to make room for what would become the Venetian hotel-casino. The Sands was brought down with the help of 100 pounds of dynamite.

"I'm sorry we have to tear down the Sands, but it's no longer competitive," Adelson told the Associated Press. "The closing will be bittersweet."

The union protested the fact that the 550 Culinary employees who lost their jobs weren't given first preference to work at the new resort. And although the Sands thought its $5 million severance package to the employees was fair, Culinary officials complained their members were getting a raw deal and ended up suing the hotel.

"I won't be intimidated," Adelson told the New York Times last year. "There is no low point to which they will not stoop to put pressure on management. The only way they can get in is to pressure employees to cave in."

The Adelson-Culinary feud spilled into the political arena, where they took opposite sides in numerous local races. As the litigation dragged on, so did the battle outside the courtroom.

Their fight extended to sidewalk and traffic issues surrounding the Venetian. Adelson wanted assurances that protests could not occur on his sidewalks, which he considered private. The Culinary wanted the right to picket on the sidewalks.

Adelson wanted to keep a Venetian traffic study private until it was approved by the County Commission. The Culinary, convinced that Adelson was trying to hide something, took credit for pressuring the commission to vote down the initial study.

Adelson continued his battle plans by suing the union for forcing his Las Vegas Sands Inc. to recognize the Culinary by "applying political pressure to delay or deny the necessary licenses, permits and approvals" needed by his company from county and state regulators.

"The union is carrying on a scorched-earth policy," Adelson told the Sun in 1997. "They're carrying on an intense campaign of intimidation and obstruction.

"They're saying, 'Let's obstruct the project so that we can put enough pressure on the owner-developer so that he'll sign with us just to get us off his back.' I think that's bad for the community, and it's bad for the workers."

The union fought back by holding informational pickets at the Venetian and creating an Internet website.

Over union objections Adelson gained approval from the County Commission that September to begin building the Venetian. Adelson said he woke up the following day to find "Dead Jews" scrawled in soap on a cabana mirror at his Las Vegas Country Club home.

He implied that the union was responsible, given the fact some of its members chanted "Sheldon's Wailing Wall" while picketing the opening of the Venetian's visitor center earlier that year. The union apologized for the chanting incident but denied involvement in the mirror graffiti and no culprit was ever charged. Either way, members of the local Jewish community shared Adelson's outrage.

"In my opinion it's more than coincidental that the union chanted anti-Semitic statements when I did my opening," he said at the time. "It doesn't take a large leap of faith to believe that the union is involved in this."

Though Adelson obtained permission to open the Venetian over union objections, the Culinary and its political supporters have won their share of battles against him. Four Democrats he tried to defeat in 1998, including three County Commission candidates and a congressional candidate, all won their elections.

Adelson also failed to stop the National Jewish Medical and Research Center in Denver last year from honoring John Wilhelm, then-secretary-treasurer and now international president of the Culinary.

U.S. District Judge Philip Pro also ruled in the union's favor on Tuesday when he denied the Venetian's request for a temporary restraining order that would have barred protesters from the hotel's sidewalks.

But Adelson also has scored some victories, including a National Labor Relations Board ruling that dismissed a Culinary complaint alleging he closed the Sands to avoid union representation. A federal judge also upheld Adelson's right to sue the Culinary for allegedly threatening bankers and others doing business with his Las Vegas Sands Inc., which owns the Venetian.

The union isn't his only foe. He's actually had a longer-running feud with the convention authority that goes back to the late '80s, when Comdex was hitting full stride.

There was a time when Adelson got along with the authority. He developed the West Hall of the Las Vegas Convention Center in 70 days in 1983 and donated the building to the authority.

In 1988, however, he fought off suggestions by the authority to move the computer trade show from mid-November to mid-December, when hotel room occupancy was lower.

Adelson also was upset by suggestions that the authority share his lucrative Comdex advertising revenue. He began complaining that he was treated "shabbily" by the authority and the local press.

But he quashed a threatened lawsuit in 1990 when his company agreed to pay the authority $84,200 to settle a disputed concessionaire's advertising fee owed from the 1989 Comdex show.

That didn't stop Adelson from criticizing the authority. He has argued throughout the 1990s that the authority and its own convention facilities should be privatized.

He has boasted that he turns as much as $20 million in annual profit at his Sands Expo Center while the authority loses millions a year at the Las Vegas Convention Center, despite having taxpayer subsidies.

Adelson also has argued that the authority has little to do with the increase in tourism. And he has complained that the authority spends too much time promoting Las Vegas as a low-cost destination rather than a city with restaurant and shopping amenities attractive to well-heeled tourists.

"There's so much money there that can be diverted to much better uses," Adelson told the Sun in 1996.

The latest flap occurred earlier this month when Adelson ripped the authority's proposal to partly finance a $100 million, 1.3 million-square-foot addition to the Las Vegas Convention Center with prepaid rent from convention tenants. The authority said the prepaid rent idea came from a group of trade show customers who were unhappy with the Sands Expo Center.

Adelson argued, however, that the plan was illegal and would guarantee future operating losses.

"This approach to the expansion is not a responsible financial undertaking," Adelson told the authority on April 13. "It is not responsible to take advance income for the purpose of building capital expenditures."

The authority, which also proposed to raise financing through a bond offering, said the plan to collect prepaid rent would lower its costs by tens of millions of dollars. Adelson countered that the authority would be giving away the best convention dates to large customers who already hold their conventions in town.

"There's no additional room revenue or room tax revenue to be generated by these customers, because they're already here," Adelson said. "It doesn't help the community."

Adelson got his wish on Tuesday when the authority dropped its controversial prepaid rent financing plan. But the hotel owner said he still plans to sue the authority for predatory pricing practices.