Here's How Las Vegas Sands Makes Money

Legendary fund manager Peter Lynch said that you shouldn't invest in any idea you couldn't illustrate with a crayon.

I'm not much for crayons, but I do love the pithiness of that line. It's something we regularly preach at the Fool: Don't buy what you don't understand. And if you can't simply sketch out a company's business model -- how it, you know, actually makes money -- then maybe you shouldn't be investing in it.

Today I'd like to share a very simple visual of how heavily traded gaming stock Las Vegas Sands (NYSE: LVS  ) makes money. Here's my attempt to encapsulate the company's business model:

Sources: Company website; FY09 10-K.

Disagree with me? Think I missed something? General thoughts on this exercise? I'll be reading the comments below, so please share. And if you haven't already, be sure to follow Las Vegas Sands using the Fool's free new My Watchlist tool.

Fool.com managing editor Brian Richards does not own shares of any companies mentioned. The Motley Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (25)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 31, 2010, at 11:31 AM, investorval wrote:

    good visual! I think this company will show increased earnings, and I currently own. have bought and sold it a couple times. Today;s action quite good! Hope it continues. I'd like to see more revenue from the rooms and food, but what the hey, the world economy is improving, so that should be a + for LVS!

  • Report this Comment On December 31, 2010, at 11:32 AM, Sandlotz wrote:

    I think you have got it wrong..I think Las Vegas sands is money given by investors to purchase the "sand" literally in lasvegas. This "sand" is basically land and soil and they then sell it to people that were building in the housing and construction bubble all the homes and hotels etc. Now since thats bust...Las Vegas Sands might be bust!

  • Report this Comment On December 31, 2010, at 1:45 PM, spokanimal wrote:

    There are many ways to "elaborate" on your diagram but I have one big suggestion that doesn't add any complexity...

    ... Move Singapore and Macau to the top of the diagram and Las Vegas resorts below them.

    88% of this company's revenues and even more of their EBITDA will come from asia in 2011. This is an asian company now and asia is both rabid about gaming and a very young, un-proliferated gaming market to boot.

    S

  • Report this Comment On December 31, 2010, at 3:32 PM, TMFBrich wrote:

    Thanks for the feedback, S. That's a good suggestion.

  • Report this Comment On December 31, 2010, at 4:23 PM, richzeng wrote:

    In my last vacation, I went to LV. The casino offered me 3 nights of free room ( $200/night). I spent $2-300 for food, because the casino gave me $80 for free dinner. I lost $3200 in these three days. That's the way most of the casinos made money.

  • Report this Comment On December 31, 2010, at 7:55 PM, captaindsl wrote:

    And most importantly don't forget that Marina Bay has a "MOAT". It has only 1 competitor for the next 5 to 7 years. This is a license to print money.

  • Report this Comment On January 01, 2011, at 10:04 AM, FortunesFormula wrote:

    Even the TV show "The Simpsons" can sum up how Casino's make money:

    here is a clip between Smithers and Montgomery Burns from the episode "$pringfield. How I learned to stop worrying and love legalized Gambling"

    From the control room, Smithers and Burns watch the patrons gamble.

    Burns' hair is longer and he has some stubble.

    Smithers: Sir, you haven't slept since the casino opened five days ago.

    Burns: Yeah, well, I've discovered the perfect business: people swarm

    in, empty their pockets, and scuttle off.

    That's about it. Pretty simple stuff.

    FF

  • Report this Comment On January 02, 2011, at 7:07 PM, MIdemps wrote:

    One small thing, it's Sands Casino Resort not Resport in Bethlehem, PA. Love the graphic representation of how they make money.

  • Report this Comment On January 02, 2011, at 11:40 PM, TMFBrich wrote:

    @Mldemps,

    D'oh. Thanks for the catch. Foolish best in the new year --

    Brian Richards

  • Report this Comment On January 03, 2011, at 1:27 PM, ROEfiend wrote:

    I think you should clarify that this is revenue. Probably 100% of net profits comes from gaming.

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