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MANAGING HOTELS THAT CATER TO WHALES
By Martin B. Deutsch
June 10, 2010 -- Despite the fact that the U.S. hotel industry is seriously disfigured by the most severe recession since the Great Depression, there's light at the end of the tunnel for the hospitality trade in general and for the Sands empire in particular.

The upbeat assessment comes from Michael A. Leven, one of the hotel industry's most respected executives and the man who has been president and resident chief operating officer of The Sands Corporations since March, 2009. Plucked from hotel-keeping retirement two years ago by founder and chairman Sheldon Adelson, one of America's richest men, Leven was given the assignment to "fix" this far-flung lodging operation.

The Sands' most recent project? A gigantic integrated resort complex in Singapore that includes 2,600 guestrooms in three towers. The project, which also encompasses more than 1.2 million square feet of meeting space, had its "soft opening" late in April. The official grand opening of the Marina Bay Sands is scheduled for June 23.

"It is the largest complex of its kind in Asia," says Leven. "It will bring the Sands Corporation's total accommodations count to some 13,000 rooms and suites."

Surprised that the Sands is that large? Well, consider its operations. The Venetian Hotel Las Vegas, which opened 11 years ago, has 4,100 suites. The attached Palazzo Resort Hotel and Casino, now 30 months old, has 3,000 suites. Adelson's other holdings include a cluster of resorts--The Venetian, Sands and the Four Seasons--in Macao and the Sands Casino Resort in Bethlehem, Pennsylvania, which opened a year ago.

(By the way, Adelson also founded and created Comdex, which dominated the high-tech consumer-products industry for much of the 1980s and 1990s. Adelson's take of the show's sale in 1995 to a Japanese company netted him around $500 million and helped him fund his Las Vegas empire, which began with his purchase of the original Sands hotel in 1988.)

Leven's return to the hospitality industry last year came at the most challenging time in modern lodging history. Generally speaking, Leven says, hotels experienced "enormous room rate and visitor traffic growth" from 1996 to 2008. Then "the excess supply, combined with the 'great recession,' caused a huge reduction in the average room rate and falling profits."

"A lot of hotels are still in trouble," he says, "Many of them have serious financial problems, there are many foreclosures and fast sales to pay off debts."

Against this backdrop, however, Leven senses an improvement in Las Vegas, one of the areas hardest hit by the lodging decline of the last two years. He says he sees the pickup in restaurants, gambling, retail operations and room demand. But "there is only moderate price improvement for the rooms in 2010," he admits, observing that hotels generally experience growth in profitability only when room rates grow at a healthy clip.

With the 12-year bubble in room-rate growth gone, Leven predicts that hoteliers face real challenges. Room-rate growth will take "a longer time to come back than occupancy. If you want to inflate [room rates] to the same rate you had just in 2007, you have to grow 6 to 7 percent over a long period of time." At 7 percent, it will take more than 10 years to double the room rate and Leven notes that Las Vegas currently rents guestrooms for 35 to 50 percent below their pre-recession peaks.

Leven thinks it will take Las Vegas four or five years just to get nightly rates back to the levels they were at in 2007. "To make this recovery sustainable," Leven says, "jobs must be created throughout the [national] economy since our customer base won't grow unless it is fueled by a return to far higher employment."

"Eventually," the 50-year veteran of the cyclical hotel business says, "things repair themselves and even out." But, he admits, "this cycle is going to be a longer one."

Leven says that his Las Vegas properties earn 70 percent of their revenues from hotel operations and 30 percent from gaming. The recent deterioration of the casino side of the Sands' business has been partly driven by the proliferation of gaming in nearby California, which used to contribute a more substantial portion of that revenue. But even though the California segment of his business remains problematic, Leven says that casino business at the Sands properties is "slightly better this year than last year."

Leven anticipates that his Macao and Singapore operations will enjoy "a significant amount of growth," and that the Las Vegas properties will gradually resume their progress. In 2006-2007, the Venetian recorded an occupancy rate of 99 percent, with about 10 percent of the guestrooms distributed on a complimentary basis. At its low point last year, the occupancy was between 87-90 percent--and with significantly more comps. Right now, occupancy is in the low- to mid-90 percent range.

In any context that deals with gaming, the conversation eventually gets around to the "whales." That is the descriptive word for the big players who can win or lose many millions of dollars in a single sitting. By most calculations, there are probably only about 250 real whales on the planet. Many come from Asia and, for decades, most of these prized high rollers made Las Vegas their gaming home.

Leven agrees that the advent of his ambitious casino projects in places like Macao and Singapore would tempt some whales to roll the dice closer to home. But he insists Las Vegas will continue to attract its fair share of this rare species. Why? "Because they like Las Vegas," he says. "They can entertain families and friends here in the Nevada desert with stars, Broadway-style musicals and other prime revues, something they can't do yet at the Asian venues."

If nothing else, however, Leven is a realist and he accepts that his job at the Sands is unique.

"The complexities of this business are far more intense and far more challenging than the traditional hotel operating or franchising jobs I've had," he says. "You're dealing with executives at very high levels all over the world, million-dollar-plus executives. The higher up you go in that situation, the more challenging management and leadership becomes. If you're gonna get good people at this level, they're gonna have some egos because that's how they've achieved these roles."

Leven compares his current gig to the stratification of the sports world. "Some of the jobs I've had are like coaching a college basketball team," he says. "This job is like coaching the pros. The players are a different caliber and the competition is of a different caliber. So your coaching style has to be different. A lot of people are good at college, but they can't coach the pros. A lot of people are good at pros but can't coach college. It's a managerial test and you cannot teach the same way."

Speaking of coaching and careers, Leven started in the lodging business in 1961, working in the sales department of Manhattan's Roosevelt Hotel. The job paid $98 a week, plus a free lunch. Eventually, he would rise to the presidency of Americana Hotels and Days Inns of America, followed by the top job at Holiday Inns Worldwide. In 1995, he launched his own business, U.S. Franchise Systems, which was sold several years ago to the company now called Wyndham Worldwide.

A member of Sands board since 2004, one of the 72-year-old Leven's primary jobs is to find his own replacement. His two-year contract will expire next March and Leven expects to discuss his future with Adelson within the next few months.

In the meantime, he continues to focus on what he calls an "expansive and challenging commitment."

Editor's note: The organizers of the first conference held at the Marina Sands in Singapore are now involved in lawsuits with the resort. Bloomberg Business Week covers the story here.

ABOUT MARTIN B. DEUTSCH Martin B. Deutsch created Frequent Flyer magazine in 1980 and was editor-in-chief and publisher for 15 years. He also wrote a column called "Up Front" for Frequent Flyer during those years. In a 50-year career, he created, published and edited dozens of other travel publications. Deutsch is based in New York.

THE FINE PRINT Joe Brancatelli makes this space available to Martin B. Deutsch in the spirit of free speech and to encourage editorial diversity and the wider discussion of important travel issues. All of the opinions and material in this column are the sole property of Mr. Deutsch. This column may not be reproduced in any form without the permission of Mr. Deutsch.

This column is Copyright © 2010 by Martin B. Deutsch. JoeSentMe.com is Copyright © 2010 by Joe Brancatelli. All rights reserved.