Why Las Vegas Sands' Sheldon Adelson Is Really Against Online Gambling
Nov 27 2013, 09:23
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Sheldon Adelson, billionaire and chief executive of casino company Las Vegas Sands Corp. (LVS) told Forbes on 11/22/2013 that he is determined to stop online gambling in America.
I won't go into the moral debate but will examine his standpoint from a business strategic / investor perspective. I'm quoting Sheldon Adelson from the recent Forbes article and will address the concerns he raises with respect to online gambling.
It turns out we can easily falsify Adelson's claim. If we review statistics of Pokerscout it is immediately obvious that Pokerstars is the leading network to play online poker. Pokerstars is leading the pack on many fronts but from my personal research I can assure you that they are not leading in financial incentives or just plain price to play. The only players for whom Pokerstars might be most attractive from a financial perspective are those with very high MGR ("Montly Gross Revenue") over a prolonged period of time. I'm sure many players aspire to that kind of MGR but the vast majority will be better off at other networks.
If you want to do your own research comparing prices and incentives of poker rooms you should compare rake of the various rooms. Next thing you compare rake back offers and bonus offers. You will find out that comparing prices is incredibly complex and casual players will have a very hard time differentiating on the basis of price between the rooms.
The Pokerstars example clearly demonstrates that the leading network does not match the lowest prices on offer, while it does have the economy of scale advantage and easily could offer the best prices.
How can this be explained? Online gambling where other players are involved like Betting exchanges, Poker, Backgammon and other gambling games involving real competitors can capture a real and sustainable competitive advantage: The network effect. If you are logging on to play poker, you need the game to start immediately and other players to be there at your preferred level of stakes/game/structure. Only the top rooms offer this kind of "liquidity" and it's very important to the quality of their offer. It's also a sustainable advantage because once you have this advantage it becomes very hard for other competitors to match your offer.
Online gambling where it's player vs machine compete much more on price but it's not the only issue to players. For example many players view security as an important issue. The sustainable competitive advantage of Customer preference for rooms can definitely be developed.
Margins may very well become razor thin but this type of business returns on capital can be astounding nonetheless.
I can't speak for every land based casino in Europe but the ones I have visited are terrible. If they were hurt by online gambling, that happened because their offerings are so terrible that any substitute will be a lethal threat.
If I examine the Holland Casino in my country (The Netherlands) that is clearly demonstrated. This state enterprise failed to turn a profit last year and is on the verge of bankruptcy while the venues charge an entry fee, charge an entry fee on a weekly tournament of €50 of €10 and then have the nerve to take 5% out of the remaining prize pool.
The only reason people visit the place is because there are no alternatives to this state monopoly. Is it really surprising their attendance is hurt when an online substitute becomes available?
And social media companies will enter the online gambling market and crush the casinos.
I can see Zynga Inc's (ZNGA) poker app develop into a competitor but overall if gambling were to become popular to access through social networks, that seems like a positive for the industry. It would mean casino's get a shot at monetizing social media traffic instead of Facebook Inc (FB) crushing the Mirage out of business. You could argue social media threatens almost every business model in existence while the reality is, customers just have to be acquired through different channels.
"I won't go into the business because it's a moral issue for me," says Adelson about online gambling.
Perhaps the most important and actionable comment of Sheldon Adelson is the above. Adelson and his wife own more than 50% of the company and his strong moral opinion (right or wrong) is a huge threat to shareholder value.
When I reviewed LVS on May 9 I was tempted to buy into it. However this statement alone reinforces my view that the Wynn Resorts (WYNN) is more attractive. Wynn and MGM are much stronger positioned to capitalize on a legalization of online gambling. They have a much wider footprint on the Las Vegas Strip and control stronger brands like Bellagio, Aria, MGM Grand, Mirage, Wynn and Encore. Perhaps the most attractive name from this perspective would be MGM Resorts International (MGM).
Perhaps the reason Sheldon Adelson is so concerned is that legalization of online gambling will threaten the competitive position of Las Vegas Sands, I'm of the belief (as are his competitors) it would be a huge driver of growth for the industry as a whole.
http://seekingalpha.com/article/1865901-why-las-vegas-sands-sheldon-adelson-is-really-against-online-gambling?source=email_rt_article_readmore
Sheldon Adelson, billionaire and chief executive of casino company Las Vegas Sands Corp. (LVS) told Forbes on 11/22/2013 that he is determined to stop online gambling in America.
I won't go into the moral debate but will examine his standpoint from a business strategic / investor perspective. I'm quoting Sheldon Adelson from the recent Forbes article and will address the concerns he raises with respect to online gambling.
Adelson also thinks that online gambling is "suicidal" for the U.S. casino industry in the long run and will destroy hundreds of thousands of jobs.Many inefficient industries float hundreds of thousands of jobs. I think there is a good chance online gambling will fuel demand for real-life gambling but if not, the general economy will prosper because technology solves inefficiency. It's not fun if it's your job but it's great for consumers whose money goes a longer way.
In the short-term, Adelson predicts that U.S. casinos could make money from their branded offerings online, but that non-branded web sites would quickly saturate the market with financial incentives that casino-branded offerings would inevitably need to match to stay competitive, eating away at their profit margins.This is the most important issue to discuss when you are actively investing in the gaming space. In the current landscape of online gambling this trend can clearly be observed. At least the main way for gaming sites to attract sophisticated gamblers by offering more deals on better terms. Newer players are marketed to in other ways as they are not as price sensitive.
It turns out we can easily falsify Adelson's claim. If we review statistics of Pokerscout it is immediately obvious that Pokerstars is the leading network to play online poker. Pokerstars is leading the pack on many fronts but from my personal research I can assure you that they are not leading in financial incentives or just plain price to play. The only players for whom Pokerstars might be most attractive from a financial perspective are those with very high MGR ("Montly Gross Revenue") over a prolonged period of time. I'm sure many players aspire to that kind of MGR but the vast majority will be better off at other networks.
If you want to do your own research comparing prices and incentives of poker rooms you should compare rake of the various rooms. Next thing you compare rake back offers and bonus offers. You will find out that comparing prices is incredibly complex and casual players will have a very hard time differentiating on the basis of price between the rooms.
The Pokerstars example clearly demonstrates that the leading network does not match the lowest prices on offer, while it does have the economy of scale advantage and easily could offer the best prices.
How can this be explained? Online gambling where other players are involved like Betting exchanges, Poker, Backgammon and other gambling games involving real competitors can capture a real and sustainable competitive advantage: The network effect. If you are logging on to play poker, you need the game to start immediately and other players to be there at your preferred level of stakes/game/structure. Only the top rooms offer this kind of "liquidity" and it's very important to the quality of their offer. It's also a sustainable advantage because once you have this advantage it becomes very hard for other competitors to match your offer.
Online gambling where it's player vs machine compete much more on price but it's not the only issue to players. For example many players view security as an important issue. The sustainable competitive advantage of Customer preference for rooms can definitely be developed.
Margins may very well become razor thin but this type of business returns on capital can be astounding nonetheless.
At the same time, Adelson claims, the casinos would be cannibalizing their existing land-based businesses, eventually hurting their revenues and making them vulnerable. As proof, he points to the impact he claims online gambling has had on land-based casinos in certain European jurisdictions.Sure Casinos will cannibalize some of their current business. From time to time it will function as a substitute. However the rooms can also be used to drive traffic to their venues. Just browse through Pokerstar's live event offerings. Everyday it runs countless tournaments that qualify players for these events. Usually including event tickets, hotel and spending money. There are huge opportunities for cross promotion and to leverage the brands of existing casino operators.
I can't speak for every land based casino in Europe but the ones I have visited are terrible. If they were hurt by online gambling, that happened because their offerings are so terrible that any substitute will be a lethal threat.
If I examine the Holland Casino in my country (The Netherlands) that is clearly demonstrated. This state enterprise failed to turn a profit last year and is on the verge of bankruptcy while the venues charge an entry fee, charge an entry fee on a weekly tournament of €50 of €10 and then have the nerve to take 5% out of the remaining prize pool.
The only reason people visit the place is because there are no alternatives to this state monopoly. Is it really surprising their attendance is hurt when an online substitute becomes available?
Inevitably, Adelson argues, the states will increase taxes on the online gaming businessesThe state may very well do so and if Adelson is afraid this will happen and it will be so high returns on invested capital will not be worth it, he will be free to stay away. It's not an argument to fight against legislation. If he were right it could turn out great for him when legislation passes. His competitors will invest heavily and end up getting taxed to death while he scoops up the profitable parts of the market.
And social media companies will enter the online gambling market and crush the casinos.
I can see Zynga Inc's (ZNGA) poker app develop into a competitor but overall if gambling were to become popular to access through social networks, that seems like a positive for the industry. It would mean casino's get a shot at monetizing social media traffic instead of Facebook Inc (FB) crushing the Mirage out of business. You could argue social media threatens almost every business model in existence while the reality is, customers just have to be acquired through different channels.
"I won't go into the business because it's a moral issue for me," says Adelson about online gambling.
Perhaps the most important and actionable comment of Sheldon Adelson is the above. Adelson and his wife own more than 50% of the company and his strong moral opinion (right or wrong) is a huge threat to shareholder value.
When I reviewed LVS on May 9 I was tempted to buy into it. However this statement alone reinforces my view that the Wynn Resorts (WYNN) is more attractive. Wynn and MGM are much stronger positioned to capitalize on a legalization of online gambling. They have a much wider footprint on the Las Vegas Strip and control stronger brands like Bellagio, Aria, MGM Grand, Mirage, Wynn and Encore. Perhaps the most attractive name from this perspective would be MGM Resorts International (MGM).
Perhaps the reason Sheldon Adelson is so concerned is that legalization of online gambling will threaten the competitive position of Las Vegas Sands, I'm of the belief (as are his competitors) it would be a huge driver of growth for the industry as a whole.
http://seekingalpha.com/article/1865901-why-las-vegas-sands-sheldon-adelson-is-really-against-online-gambling?source=email_rt_article_readmore
Wall Street
Sheldon Adelson, the nation’s 11th richest person and chief executive of casino company Las Vegas Sands LVS +1.09%, says he is determined to stop online gambling in America and he will go to great lengths to battle the corporate interests pushing for it. “I am willing to spend whatever it takes,” Adelson said in his first interview since The Washington Post revealed that he had hired an army of lawyers and lobbyists to try to convince Congress to ban online gambling. “My moral standard compels me to speak out on this issue because I am the largest company by far in the industry and I am willing to speak out. I don’t see any compelling reason for the government to allow people to gamble on the Internet and nobody has ever explained except for the two companies whose special interest is going to be served if there is gaming on the Internet, Caesars and MGM.”
Adelson’s effort to launch an advocacy group, the Coalition To Stop Internet Gambling, has shocked a casino industry that has been gearing up for a big push into online gambling in states like New Jersey, Delaware and Nevada—and maybe beyond. One of the nation’s top political donors, Adelson first openly declared his opposition to online gambling in a June article he wrote for Forbes, in which he claimed online gambling would cause people to lose their homes. He spent enormous amounts of money on the 2012 presidential election and is now preparing to use his financial firepower to push a legislative agenda connected to his business like never before. While Adelson is closely identified with Republican Party politics, his campaign against online gambling is a bipartisan effort, headed by former Republican governor George Pataki, together with Democrats Blanche Lincoln, the former Arkansas senator, and Wellington Webb, the former mayor of Denver. “I won’t go into the business because it’s a moral issue for me,” says Adelson about online gambling. “If a stockholder said to me ‘your morality can’t count when it comes to making money for shareholders,’ I see it from a business view point as very harmful to all the companies that go into it.”
The way Adelson sees it, Internet gambling will hurt young and economically vulnerable Americans, including those who will view it as a potential way to get out from under a mountain of student debt.
He claims that there is no efficient technological way to stop minors or those suffering from alcohol or other substance abuse problems from gambling online, but that land-based casinos can prevent issues like money-laundering and stop people who should not be gambling from engaging in it.
Adelson says online gambling advocates are “hypocrites” because they claim that a tightly regulated online gambling industry can prevent people who should not be gambling from betting money online, yet at the same time it has proven impossible to stop offshore online gambling sites in a timely manner from operating U.S. facing web sites or criminals from operating web sites involved in all sorts of illegal activity. “It’s the height of hypocrisy,” says Adelson. “On one hand, high tech is not strong enough to stop bad people or bad things, but on the other hand, if you say it’s a regulation the high tech is strong enough.”
But Adelson also thinks that online gambling is “suicidal” for the U.S. casino industry in the long run and will destroy hundreds of thousands of jobs. In the short-term, Adelson predicts that U.S. casinos could make money from their branded offerings online, but that non-branded web sites would quickly saturate the market with financial incentives that casino-branded offerings would inevitably need to match to stay competitive, eating away at their profit margins. At the same time, Adelson claims, the casinos would be cannibalizing their existing land-based businesses, eventually hurting their revenues and making them vulnerable. As proof, he points to the impact he claims online gambling has had on land-based casinos in certain European jurisdictions. Inevitably, Adelson argues, the states will increase taxes on the online gaming businesses and social media companies will enter the online gambling market and crush the casinos. “In the beginning, it will be good for companies and I see strategically that unbranded competitors will eat into the market and buy the business and make their profitability much less,” says Adelson. “Then the coup de grace, the big social media sites like Facebook, like Twitter, like shmitter, like whoever or Zynga, will come in with a billion hits a day with the name that is popular and respected and a Google GOOG +0.55% will say ‘play with me.’”
Adelson is quick to point out that his company is not too vulnerable to an online gambling assault in the U.S. because the vast majority of its income comes from Asia and his U.S. casinos are high-end properties. “I have 25 competitors just on the Las Vegas strip, have I ever trashed the Las Vegas strip? This is not a competitive issue,” he says. Adelson also claims that executives of his competitors who are pushing for online gambling are not thinking in a strategically sound way for the long-term. He added that New Jersey Governor Chris Christie was wrong to support online gambling in an effort to help Atlantic City. “I know that Chris Christie doesn’t want Atlantic City to fail, but I don’t think anything can save Atlantic City, it is surrounded by Delaware, Maryland, Pennsylvania, it’s surrounded by states that are legalizing gaming,” says Adelson.
The online gambling landscape changed dramatically two year ago after the Department of Justice flip-flopped on its long-held position that the federal Wire Act of 1961 made all forms of Internet gambling illegal. While the Unlawful Internet Gambling Enforcement Act of 2006 remains in effect, the Justice Department’s new 2011 position effectively unleashed states that want to allow forms of online gambling other than sports betting. Since then proponents of online gambling have been unable to push federal lawmakers to create a federal regulatory regime for online gambling, but states on an individual basis have started to move toward green lighting and regulating online gambling. It’s tough to get anything done in Washington these days, but Adelson will be armed with new polling data that shows the majority of Americans have a negative view of online gambling. He also will be backing efforts in various states.
Adelson will be taking on a number of other billionaires who are betting on online gambling and companies like MGM Resorts and Caesars Entertainment, which this week spun off ownership in its online gambling assets in a rights offering for publicly-traded Caesars Acquisition Corp. The biggest owners of Caesars, private equity firms Apollo Global Management and TPG, are trying to find a way to salvage a leveraged buyout of Caesars Entertainment that has left the casino company struggling under too much debt. Caesars is the U.S. casino company that has been most aggressive in pursuing online gambling, taking the position that any online business would help grow the land-based casinos and compliment its offerings.
“The extension of poker to the Internet is the next logical distribution channel for our product and brand and is supported by the entire gaming industry, except for Mr. Adelson,” Mitch Garber, chief executive of Caesars Acquisition Corp., said in a statement. “The suggestion that effective safeguards can’t be implemented or that online distribution is detrimental to the land-based business is antiquated and ignores the substantial technology available as well as the well-documented growth of land-based poker and successful exclusion of minors in the U.S. pre-UIGEA.”
http://www.forbes.com/sites/nathanvardi/2013/11/22/sheldon-adelson-says-he-is-willing-to-spend-whatever-it-takes-to-stop-online-gambling/
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11/22/2013 @ 9:08AM |73,051 views
Sheldon Adelson Says He Is 'Willing To Spend Whatever It Takes' To Stop Online Gambling
Sheldon Adelson, the nation’s 11th richest person and chief executive of casino company Las Vegas Sands LVS +1.09%, says he is determined to stop online gambling in America and he will go to great lengths to battle the corporate interests pushing for it. “I am willing to spend whatever it takes,” Adelson said in his first interview since The Washington Post revealed that he had hired an army of lawyers and lobbyists to try to convince Congress to ban online gambling. “My moral standard compels me to speak out on this issue because I am the largest company by far in the industry and I am willing to speak out. I don’t see any compelling reason for the government to allow people to gamble on the Internet and nobody has ever explained except for the two companies whose special interest is going to be served if there is gaming on the Internet, Caesars and MGM.”
Adelson’s effort to launch an advocacy group, the Coalition To Stop Internet Gambling, has shocked a casino industry that has been gearing up for a big push into online gambling in states like New Jersey, Delaware and Nevada—and maybe beyond. One of the nation’s top political donors, Adelson first openly declared his opposition to online gambling in a June article he wrote for Forbes, in which he claimed online gambling would cause people to lose their homes. He spent enormous amounts of money on the 2012 presidential election and is now preparing to use his financial firepower to push a legislative agenda connected to his business like never before. While Adelson is closely identified with Republican Party politics, his campaign against online gambling is a bipartisan effort, headed by former Republican governor George Pataki, together with Democrats Blanche Lincoln, the former Arkansas senator, and Wellington Webb, the former mayor of Denver. “I won’t go into the business because it’s a moral issue for me,” says Adelson about online gambling. “If a stockholder said to me ‘your morality can’t count when it comes to making money for shareholders,’ I see it from a business view point as very harmful to all the companies that go into it.”
The way Adelson sees it, Internet gambling will hurt young and economically vulnerable Americans, including those who will view it as a potential way to get out from under a mountain of student debt.
He claims that there is no efficient technological way to stop minors or those suffering from alcohol or other substance abuse problems from gambling online, but that land-based casinos can prevent issues like money-laundering and stop people who should not be gambling from engaging in it.
Adelson says online gambling advocates are “hypocrites” because they claim that a tightly regulated online gambling industry can prevent people who should not be gambling from betting money online, yet at the same time it has proven impossible to stop offshore online gambling sites in a timely manner from operating U.S. facing web sites or criminals from operating web sites involved in all sorts of illegal activity. “It’s the height of hypocrisy,” says Adelson. “On one hand, high tech is not strong enough to stop bad people or bad things, but on the other hand, if you say it’s a regulation the high tech is strong enough.”
But Adelson also thinks that online gambling is “suicidal” for the U.S. casino industry in the long run and will destroy hundreds of thousands of jobs. In the short-term, Adelson predicts that U.S. casinos could make money from their branded offerings online, but that non-branded web sites would quickly saturate the market with financial incentives that casino-branded offerings would inevitably need to match to stay competitive, eating away at their profit margins. At the same time, Adelson claims, the casinos would be cannibalizing their existing land-based businesses, eventually hurting their revenues and making them vulnerable. As proof, he points to the impact he claims online gambling has had on land-based casinos in certain European jurisdictions. Inevitably, Adelson argues, the states will increase taxes on the online gaming businesses and social media companies will enter the online gambling market and crush the casinos. “In the beginning, it will be good for companies and I see strategically that unbranded competitors will eat into the market and buy the business and make their profitability much less,” says Adelson. “Then the coup de grace, the big social media sites like Facebook, like Twitter, like shmitter, like whoever or Zynga, will come in with a billion hits a day with the name that is popular and respected and a Google GOOG +0.55% will say ‘play with me.’”
Adelson is quick to point out that his company is not too vulnerable to an online gambling assault in the U.S. because the vast majority of its income comes from Asia and his U.S. casinos are high-end properties. “I have 25 competitors just on the Las Vegas strip, have I ever trashed the Las Vegas strip? This is not a competitive issue,” he says. Adelson also claims that executives of his competitors who are pushing for online gambling are not thinking in a strategically sound way for the long-term. He added that New Jersey Governor Chris Christie was wrong to support online gambling in an effort to help Atlantic City. “I know that Chris Christie doesn’t want Atlantic City to fail, but I don’t think anything can save Atlantic City, it is surrounded by Delaware, Maryland, Pennsylvania, it’s surrounded by states that are legalizing gaming,” says Adelson.
The online gambling landscape changed dramatically two year ago after the Department of Justice flip-flopped on its long-held position that the federal Wire Act of 1961 made all forms of Internet gambling illegal. While the Unlawful Internet Gambling Enforcement Act of 2006 remains in effect, the Justice Department’s new 2011 position effectively unleashed states that want to allow forms of online gambling other than sports betting. Since then proponents of online gambling have been unable to push federal lawmakers to create a federal regulatory regime for online gambling, but states on an individual basis have started to move toward green lighting and regulating online gambling. It’s tough to get anything done in Washington these days, but Adelson will be armed with new polling data that shows the majority of Americans have a negative view of online gambling. He also will be backing efforts in various states.
Adelson will be taking on a number of other billionaires who are betting on online gambling and companies like MGM Resorts and Caesars Entertainment, which this week spun off ownership in its online gambling assets in a rights offering for publicly-traded Caesars Acquisition Corp. The biggest owners of Caesars, private equity firms Apollo Global Management and TPG, are trying to find a way to salvage a leveraged buyout of Caesars Entertainment that has left the casino company struggling under too much debt. Caesars is the U.S. casino company that has been most aggressive in pursuing online gambling, taking the position that any online business would help grow the land-based casinos and compliment its offerings.
“The extension of poker to the Internet is the next logical distribution channel for our product and brand and is supported by the entire gaming industry, except for Mr. Adelson,” Mitch Garber, chief executive of Caesars Acquisition Corp., said in a statement. “The suggestion that effective safeguards can’t be implemented or that online distribution is detrimental to the land-based business is antiquated and ignores the substantial technology available as well as the well-documented growth of land-based poker and successful exclusion of minors in the U.S. pre-UIGEA.”
http://www.forbes.com/sites/nathanvardi/2013/11/22/sheldon-adelson-says-he-is-willing-to-spend-whatever-it-takes-to-stop-online-gambling/
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