Dirty Little Secrets Haunting Las Vegas Sands

Legal woes continue to be a thorn in the side of American gaming companies. Wynn Resorts (Nasdaq: WYNN  ) is dealing with a lawsuit and forced buyout of one of its largest investors, which includes accusations of wrongdoing in a $135 million donation to the University of Macau Development Foundation by the company. Late last week the lawsuit between Las Vegas Sands (NYSE: LVS  ) and Steve Jacobs got a little more interesting when Jacobs accused Sheldon Adelson of personally approving a prostitution strategy to drum up business.

Bribery and deals of questionable legality are nothing new in Macau. Stanley Ho, who used to have a monopoly on gambling there, was often tied to organized crime. His ties even forced MGM Resorts (NYSE: MGM  ) to divest from its Atlantic City operations because the gaming board was uncomfortable with Macau partner Pansy Ho's father. Bribery and other questionable business arrangements are common in Asia and often seen as a part of doing business by American companies.

Jacobs, former head of Macau operations for Las Vegas Sands, is trying to uncover documents he says he kept in a folder labeled "Outrageous," according to The Wall Street Journal, documents that highlight the prostitution strategy, deals with organized crime members, and hiring of illegal construction workers, among other things. At the very least, we know that prostitution was reported on a widespread level at The Venetian Macau because 100 suspected prostitutes were arrested while Adelson was visiting in 2010.

What it means for you
The mudslinging between Adelson and Jacobs has been going on for two years and with the SEC and Department of Justice involved it will be at the very least a nuisance for the company going forward. That will place a cloud over Las Vegas Sands, but I see it as highly unlikely the company will be meaningfully affected by any lawsuits.

Macau has had all kinds of questionable practices and both family and political connections play a much larger role than they would in a more open market. Just look at gaming companies: Melco Crown's (Nasdaq: MPEL  ) CEO is the son of Stanley Ho, MGM partnered with his daughter to get its license, Las Vegas Sands had to pay $42.5 million to three men who said they were owed money for helping the company get a casino license, and Wynn Resorts had a head-scratching land deal with an unknown person in Macau for its lot on Cotai.

It's a tangled web in Cotai and right now Las Vegas Sands is at the center of the mess. It isn't a reason to sell right now, but it will be worth keeping a close eye on.

Interested in reading more about Las Vegas Sands? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium manages an account that owns shares of Melco Crown and Wynn Resorts. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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  • Report this Comment On July 02, 2012, at 9:49 PM, cp757 wrote:

    Travis as usual you like to slap Las Vegas Sands around with as few facts as you can to get some eyeballs looking at your article. You think "Legal woes continue to be a thorn in the side for WYNN and LVS. If you think a lawsuit between Jacobs and Las Vegas Sands is a " dirty little secret " and compares to two billionaires fighting in a multi billion dollar take over deal like in the Wynn vs Okada deal they are not even close. Jacobs is a broken petty man looking for some black mail money from his claim's. The story on Mr. Steven Craig Jacobs, is that Steve served from 1994 to 2008, as the President and Chief Executive Officer of a little company he put together called Vagus Group Inc. (“VGI”). Through VGI, Mr. Jacobs assumed a variety of executive roles in companies including the Louvre Hotels, U.S. Franchise Systems, Hyatt and Best Western International. He got the job of his life and served as an Executive Director of Sands China Ltd. from August 18, 2009 to July 2010. Mr. Jacobs was fired for lying, mismanagement and unauthorized conduct. In a little over 10 months he managed to mess up the best job he ever had. He has been thrown out of court twice.

    As other unqualified, inadequate, unfit and incompetent people he continues to bring up lie after lie that he should have put in his original lawsuit. This newest cry for attention is over a claim about prostitution policy's. Just so you know prostitution is legal in Navada,Macau,and Singapore. Its a cultural thing. It is a disgusting practice and objectifies women and Sheldon Adelson does not support it. It is a fact that company’s must take into consideration. If the society allows it how do the corporations that operate in those markets deal with it. In some markets it is harder and they must work with the officials in that area. Have you ever seen a pamphlet in Vegas with a girls picture advertising have fun in Vegas. What happens in Vegas stays in Vegas. We can get all high and mighty and thump our bible’s but Macau and Singapore are working with the problem just like in Vegas.

    Adelson has been here before. Adelson and his partners incorporated LVSI in Nevada in 1988 for the purpose of buying and running the Sands. The hotel was purchased from financier Kirk Kerkorian, who earlier purchased the hotel from Howard Hughes' heirs, the Summa Corporation. In February 1989, the Nevada Gaming Control Board approved the sale. Adelson appointed Henri Lewin, a former Hilton executive, as the hotel's president.

    Lewin was a colorful figure, and his style clashed with Adelson's, often publicly. Gaming revenues at the Sands were disappointing, and ten months after he was appointed president of the Sands, Lewin was fired from his job. He later sued LVSI and settled out of court. Management of the hotel was handed to a team headed by Al Benedict, a former executive at MGM Grand. Benedict's team resigned seven months later, and Steve Norton was appointed interim president of the Sands.

    LVSI added the Sands Expo and Convention Center to the hotel, a 575,000-square-feet convention facility. The plan was to add another tower to the hotel, almost doubling its capacity. The initial architect for the expansion project, Nikita Zukov, was fired four months into the job. According to LVSI, he failed to develop the project on budget. He later sued for breach of contract and won a $1.3 million award. During the trial, Henri Lewin testified for Zukov, blasting Adelson and his management style. The convention facility opened and was making money, but the old Sands, with 750 rooms, could not compete with the new mega-resorts sprouting around it, especially the gilded Mirage that opened across the street.

    The final fact that Jacobs is going to have some problems with is his claim he has e-mails from Adelson. Adelson says he appreciates how technology is improving the casino business, but he doesn't text, email, or even use a computer. "I have a great person who knows the computer and she reads every single thing that I read," he tells Palenik. "She takes dictation from me the old fashioned way, using shorthand, and that's the only way I like to dictate." This will help Adelson legally, and if Jacobs had any claim all his lawyers have to do is call his assistant to testify but he will not do that. In March 2011, when LVS disclosed the Justice Department and SEC investigations into its Macao dealings, Adelson said the feds won't find anything illegal: "They want to get all my emails. I don't have a computer. And I don't use emails. I'm not an email type of person."

    Las Vegas Sands spokesman Ron Reese said in a statement that allegations of misconduct and wrongdoing by Jacobs against the company and senior managers are baseless.

    "Mr. Adelson has always objected to and maintained a strong policy against prostitution on our properties and any accusation to the contrary represents a blatant and reprehensible personal attack on Mr. Adelson's character," the statement said.

    I hope the Sands organization sue's Jacobs and leaves him without a dime.

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