Tuesday, May 30, 2006

The first time he saw China's planned Cotai Strip development four years
ago, Las Vegas Sands Corp. Chairman Sheldon Adelson thought the Chinese
government was banishing him to some faraway no-man's land. Much of the
Cotai Strip was submerged under several feet of water. Engineers were just
beginning to reclaim land from the South China Sea and transform the area
into an industrial complex. Adelson had other ideas. Las Vegas Sands Corp.,
was already spending close to $300 million to build a Sands casino on the
waterfront of the Macau Peninsula, a former Portuguese colonial region that
is the only place in China where gambling is legal.

Government sponsors asked Adelson to look at Cotai, which is just minutes
south of Macau by car, as another potential gaming destination.

"At first, I thought it was political exile," Adelson recalled. "I thought
(rival Chinese casino developer) Stanley Ho had some influence that he got
me off the peninsula because that's where he believes the center of
everything is. All I was hoping was that I could get a location in which I
could really do something."

By the end of the decade, Cotai, which derives its name from its position
between the islands of Taipa and Coloane, could be home to more than a dozen
hotels with 20,000 rooms, casinos, showrooms, restaurants, convention space,
shops and a 15,000-seat sports arena.

Adelson guided Cotai's development, persuading some of the world's largest
and most profitable hotel chains to join Las Vegas Sands in opening
locations on the Cotai Strip. North American hotel companies, such as
Hilton, Starwood and Four Seasons will join Asian hotel company Shangri-La
to build properties using some of the world's most recognizable brands --
Sheraton, St. Regis, Intercontinental, Conrad and Holiday Inn.

The hotel operators will manage their own rooms and restaurants. Las Vegas
Sands will run the properties' casinos and showrooms.

The anchor centerpiece of the Cotai Strip, the $3 billion Las Vegas
Sands-owned Venetian Macau, is well under construction on slightly more than
67 acres. It will open in 2007.

With 3,000 rooms, 565,000 square feet of casino space, a 1
million-square-foot convention and meeting center, a 2,000-seat showroom and
a 1 million-square-foot version of the Grand Canal Shoppes, the Venetian
Macau emulates its sister property, The Venetian in Las Vegas.

The sports arena is also part of the Venetian site.

The development of Cotai helps complete a personal vision for the
72-year-old Adelson: creating a second, somewhat smaller, Las Vegas.

In a long interview with the Review-Journal, Adelson, the majority
shareholder in Las Vegas Sands, said developing Cotai almost didn't happen
until he investigated the location.

"When I went out to see it, I said to myself 'this could be what I'm
dreaming about. I could create another Las Vegas,'" Adelson said. "That's
when I got excited about (Cotai). Nobody wanted this and it wasn't even land
anyway. It was just a bay."

Adelson said architects and planners helped his company devise a U-shaped
Strip with seven sites covering a little more than 147 acres. Each site
could hold several hotel-casinos. Adelson thought Asia, which includes
China, Japan, Korea, Malaysia and Singapore, deserved its own Las Vegas.

"There isn't anybody who knows anything about hospitality, lodging, casinos
and entertainment that would deny, if you picked up Las Vegas and brought it
over to anywhere in Asia, it would be a grand slam home run," Adelson said.

Adelson said he had little trouble conveying his vision and encouraging
hotel operators to build on Cotai. Many of the hotel sites could be under
construction by 2007. One 15-acre site controlled by Las Vegas Sands remains
in development negotiations.

Even rival casino developer Steve Wynn, who Adelson says at first scoffed at
the idea of developing Cotai, is asking the Chinese government for
permission to build three or four casino-hotels on about 50 acres of Cotai
Strip property east of Las Vegas Sands' development.

"All you have to do is go over there," Adelson said. "You can't help but see
it if you go over there."

Wall Street analysts estimate Cotai, which is about 25 miles from Hong Kong
via ferry, could lead one of the world's most lucrative gambling markets.

By decade's end, Cotai Strip casinos, along with casinos in Macau, could
collectively report anywhere between $15 billion and $18 billion in annual
gaming revenue. In 2005, Macau casinos, including the Sands Macau which
opened in 2004, churned out almost $6 billion in gaming revenue. By
comparison, Nevada, the nation's leading casino market, reported gaming
revenues of $11.6 billion in 2005, an all-time record.

Macau casinos operated by Wynn Resorts Ltd. and MGM Mirage are scheduled to
open in the next 12 months.

"A lot is going to depend upon how loose the Chinese government gets in
opening up travel restrictions," said Steven Wieczynski, gaming analyst for
Stifel Nicolaus in Baltimore. "There are anywhere from 2 billion to 3
billion people living a short distance from Macau and Cotai. Once those nice
properties are built on Cotai, a lot of people are going to want to get over
there. Our estimates have been $11 billion (in gaming revenues by the end of
the decade) but we're a little conservative. While $15 billion is a big
number, it's absolutely doable."

Wieczynski said savvy investors understand what Las Vegas Sands is doing in
China.

In March, Las Vegas Sands shares were trading in the $50 price range on the
New York Stock Exchange. The company's stock price climbed to a 52-week high
of $72.69 on May 9 but investor profit-taking brought the share price down
below $60 this past week. However, shares in the company closed at $69.63
Friday on news that Las Vegas Sands won its bid to build a $3.6 billion
resort in Singapore.

Much of Cotai's approximately 250 acres has been reclaimed and is being
prepared for development.

Adelson said the Cotai Strip will create, in essence, two Macaus. The
downtown area, dominated by the Sands Macau, Stanley Ho's Lisboa casino, and
the soon-to-open Wynn Macau and MGM Grand Macau, will be the domain of
day-trip Chinese gamblers. The Cotai resorts will be packed with destination
travelers.

Though competitors may disagree, Adelson thinks the Cotai Strip properties
will be the true destination resorts in Macau; he envisions free-spending
gamblers and tourists flocking there.

"Downtown (Macau) is not a destination market," Adelson said. "When my
competitors say they are building a destination resort, to me, it's like
saying you're building a destination resort in downtown Las Vegas. You have
to be sensitive enough to the market to understand what the people want and
what they respond to. I frequently touch the numbers and I know what's going
on over there, and it's not a destination resort."

But revenue from casinos in the Macau Peninsula area won't vanish. His
company's Sands Casino is expanding, ready to capitalize on its location
less than a mile from Macau's ferry terminal.

Gaming analysts agree with Adelson's assessment that Macau's market will
change.

Wieczynski said Macau could see a boost in day-trip gamblers who would flood
the downtown casinos while high-end gamblers gravitate toward the Cotai
properties.

Expansion of the Macau International Airport to accommodate more airline
traffic and the building of the Hong Kong-Zhuhai-Macau Bridge by 2011 or
2012 would connect regions now separated by water.

Susquehanna Financial Group gaming analyst Brian McGill said pent-up demand
for more gambling in Macau will drive the market. He said the Cotai Strip
will turn the area into a true travel destination.

"What they've done with the Sands Macau has already exceeded everyone's
expectations," McGill said of the casino, which reported revenues of $278.2
million and cash flow of $103.4 million in 2006's first quarter.

"There is a lot that doesn't exist in Macau that Las Vegas Sands is helping
to create," McGill said. "(Adelson) is clearly a visionary in the industry
and he's been proven right more times than he has been wrong. There was a
lot of skepticism on Macau and Cotai early, but most have come around and
believe he'll be right on this."

One early skeptic was Wynn.

In a 2005 interview with Fortune magazine, Adelson said Wynn dismissed any
notion of building on Cotai, a claim he repeated recently to the
Review-Journal. Adelson even offered witnesses to corroborate his story,
people who were with him when he approached Wynn outside a meeting in Macau
and proposing a partnership in the Cotai project.

"I said 'Steve, I have this idea about doing a Strip. I think if you and I
did it together, it would be unbeatable,'" Adelson recalled. "He turned me
down flat. He said it was the most stupid idea he had ever heard in his
whole life. I think he now sees that it is happening and everybody is trying
to buy into it, so now it's a perfect time. Of course, when he gets ready to
open his first (casino), I'll have seven hotel-casinos open on Cotai."

Wynn was traveling last week and could not be reached for comment.

To complement its projects on Cotai, Las Vegas Sands signed an agreement in
October with the city of Zhuhai to master plan and build a 1,300-acre
nongaming resort on Hengquin Island, less than a mile from the Venetian
Macau site and a short trip by water taxi to the main areas of Macau.
Adelson said the Hengquin Island site, which will have golf courses, resort
villas and a marina, will serve as an amenity to Macau tourism.

Adelson said Cotai and Macau will combine to make the Chinese region the Las
Vegas of the Far East.

"In the Asian culture, there is a great propensity to play, but they're not
gambling addicts," Adelson said. "Gambling is a form of entertainment to
them and that's their social activity to gamble. Every Chinese New Year,
they give family members little red envelopes with 'lucky money.' The
concept of luck is in all their thoughts."

Although he believes Asian visitors will flock to Cotai, Adelson believes
few Americans will have any reason to venture halfway around the world to
visit.

"Would Americans want to go? No," Adelson said. "I think Americans will go
for convention purposes. But Americans already have Las Vegas. Why would
they want to go to an Asian Las Vegas? To me, it's a broadening of the
market so that Asians will want to come to the real Las Vegas, which is the
mecca of entertainment."