WEBVTT NOTE The Market Speaks: A Misesian Perspective on Las Vegas 1 00:00:00.000 --> 00:00:18.000 This is to be hopefully more entertaining that it is educational because I certainly don't pretend to be an educator, although I did teach at a place called Paul Smith's College, it's an upstate New York and it is a two-year school that is involved in hotel training and forestry and things of that nature. 2 00:00:18.000 --> 00:00:26.000 But tonight I want to talk to you about a topic that, as I call it, the market speaks and here in Las Vegas it occasionally yells. 3 00:00:26.000 --> 00:00:34.000 and it's what I call a Mesian perspective, I guess, on Las Vegas, the Venetian and on global gaming. 4 00:00:34.000 --> 00:00:40.000 But I would first like to welcome you here to the Venetian, I'd like to thank you for joining us here 5 00:00:40.000 --> 00:00:44.000 for your conference on Austrian economics and the financial markets. 6 00:00:44.000 --> 00:00:50.000 We are a free market economics groupies here, I guess you would say, and we enjoy it 7 00:00:50.000 --> 00:00:56.480 and I would point out Diana Forbisch who is our Associate General Counsel has been a member 8 00:00:56.480 --> 00:01:01.120 of the Institute here for a number of years. I am a member also as well as a member of 9 00:01:01.120 --> 00:01:07.600 Fee and I've been involved with the Henry Haslett Foundation, etc. So we are free market 10 00:01:07.600 --> 00:01:12.880 economic groupies and we welcome you here so feel at home here because that which is 11 00:01:12.880 --> 00:01:18.520 built around you is built we think to a certain extent on the principles that you all envision 12 00:01:18.520 --> 00:01:24.880 and Communication. I'd also like to thank you for what you do, because you stand on 13 00:01:24.880 --> 00:01:30.120 the shoulder of those giants like von Mises and help us look ahead. And you help folks 14 00:01:30.120 --> 00:01:36.000 like us be what we call consciously competent. It's one thing to do something right. Perhaps 15 00:01:36.000 --> 00:01:39.600 it's another thing to kind of think about it, know about it, and be conscious about 16 00:01:39.600 --> 00:01:45.920 how you do it. And I guess one good example of that, as I told Lew earlier, I have his 17 00:01:45.920 --> 00:01:51.840 marked up pamphlet here on why Austrian economics matters and I'm going to refer to it because 18 00:01:51.840 --> 00:01:58.840 I actually have notes and things in it. I enjoyed reading it and I enjoy hopefully I'll 19 00:01:58.840 --> 00:02:03.840 draw some parallels perhaps at least some quotations from what he was talking about 20 00:02:03.840 --> 00:02:08.680 in that pamphlet. This evening I'd like to try to give you a little kind of a homespun 21 00:02:08.680 --> 00:02:16.360 Museum idea of Las Vegas overall on our market position and our market view and how we at 22 00:02:16.360 --> 00:02:22.440 the Venetian act and react as relates to our market and tell you a little story about how 23 00:02:22.440 --> 00:02:29.360 our single-minded pursuit of a very unique business plan, although it did face some externalities 24 00:02:29.360 --> 00:02:35.640 shall we say at the beginning, actually won and proved out in the market itself. 25 00:02:35.640 --> 00:02:40.640 So what I want to do, I want to start with our hometown. We live here. This is Vegas. 26 00:02:40.640 --> 00:02:46.280 This must be the most purely competitive market in the world. You may see it as a fun place 27 00:02:46.280 --> 00:02:53.760 to visit, but to us, it's a see you a billion and raise you a billion, high market or high 28 00:02:53.760 --> 00:03:00.520 wire economic gambling act because these buildings are very expensive to build and you really 29 00:03:00.520 --> 00:03:05.560 don't know if they work until after you build them and after the market says, yes, I like 30 00:03:05.560 --> 00:03:15.100 So, you can walk out our front door and watch the match happen today. If you walked out 31 00:03:15.100 --> 00:03:20.580 our front door and you turned right, and you walked about a half block down, you would 32 00:03:20.580 --> 00:03:28.580 see Steve Wynn building his resort. We spent about $1.6 billion building the original Venetian. 33 00:03:28.580 --> 00:03:37.380 We added to it, we now are at about $2 billion. Wynn is now spending $3 billion building Wynn 34 00:03:37.380 --> 00:03:42.860 Resort and between our building here and the whole, you're looking at now what we call 35 00:03:42.860 --> 00:03:51.220 the Palazzo. The Palazzo is another $1.6 billion investment and when we're done in 2007, we'll 36 00:03:51.220 --> 00:03:56.140 have 7,200 suites, 2.4 million square feet of meeting and exhibition space about the 37 00:03:56.140 --> 00:04:13.140 the size of McCormick Place where we are now, 1.2 million square feet of mall space, 3,800 seat theaters, museums, restaurants, 11 swimming pools, 150,000 square feet of spa, it will be the largest resort in the world by far. 38 00:04:13.140 --> 00:04:20.140 So what we're saying here is I bet or we bet our market insights, our resource allocations are better than yours. 39 00:04:20.140 --> 00:04:50.140 There's really no other market I know of like it, where you get instantaneous market research. You can look out your window and see where the foot traffic flows back and forth. You can watch the foot traffic. You can then, moment by moment, by computer, watch the games play and actually watch dollars flow in through the door. Here, the market is bigger than yours. 40 00:04:50.140 --> 00:04:56.140 The market speaks every minute of every 24-hour day. 41 00:04:56.140 --> 00:05:00.140 Las Vegas is proof positive that Adam Smith was right. 42 00:05:00.140 --> 00:05:03.140 Man creates endless demands out of countless possibilities. 43 00:05:03.140 --> 00:05:06.140 And you can see it right here. Endless choices. 44 00:05:06.140 --> 00:05:11.140 If you can imagine it, if you can build it, and if you do it right, people actually buy it. 45 00:05:11.140 --> 00:05:19.140 If you combine this idea of endless possibilities and endless choices with Lew's comments on page 8 and 13, 46 00:05:19.140 --> 00:05:24.620 He says economic value is subjective, that certainly is true, and economics is a social 47 00:05:24.620 --> 00:05:29.940 science dealing with people who make choices that change their minds and even act irrationally. 48 00:05:29.940 --> 00:05:34.420 Well, here it is very, very true, you know, we're built on irrationality. 49 00:05:34.420 --> 00:05:40.980 It's irrational to go in there and play on those tables, but it does relatively well. 50 00:05:40.980 --> 00:05:46.800 Where it's irrational, it is wasteful, it's decadent, it's purient, it's self-indulgent, 51 00:05:46.800 --> 00:05:51.480 It's good wastefulness and self-indulgence, it's pretty good. 52 00:05:51.480 --> 00:05:55.840 We are the world's favorite adult guilty pleasure. 53 00:05:55.840 --> 00:06:01.880 And with over 37 million visitor free market choices a year, it can't be wrong. 54 00:06:01.880 --> 00:06:05.740 Very Austrian, this place, Las Vegas. 55 00:06:05.740 --> 00:06:10.100 The problem with all this fun is that they keep score. 56 00:06:10.100 --> 00:06:14.800 Every transaction, every minute, every day, it's like a golf scorecard, you add it up 57 00:06:14.800 --> 00:06:20.720 stroke-by-stroke, play-by-play, room-by-room, roll-by-roll on the craps table, and at the 58 00:06:20.720 --> 00:06:26.280 end of the day, thanks to our friends at Sarbanes-Oxley, Enron, etc. and sector accounting, we compare 59 00:06:26.280 --> 00:06:33.280 scorecards, and to the victor flows the capital, to the victor flows the enough capital at 60 00:06:33.280 --> 00:06:38.200 a low enough cost to build another one of these or to build several other things inside 61 00:06:38.200 --> 00:06:39.780 of one of these. 62 00:06:39.780 --> 00:06:46.260 So it is purely the price system, the profit system, keeping score, allocating resources 63 00:06:46.260 --> 00:06:56.260 to the victor. Exhilarating? Yes. Terrifying? Definitely. Because once you make your commitment, 64 00:06:56.260 --> 00:07:01.460 it's not like a chef. If a chef makes a mistake, he can eat his cake. Here, when you make a 65 00:07:01.460 --> 00:07:07.060 one point billion dollar mistake, it sits there on the strip and eats your capital. 66 00:07:07.060 --> 00:07:13.300 And here, you know, we say the market never, the market doesn't just speak here, occasionally 67 00:07:13.300 --> 00:07:14.300 it's green. 68 00:07:14.300 --> 00:07:20.500 Now I want to turn to our Venetian story here for a moment, a story of what Hayek called 69 00:07:20.500 --> 00:07:28.540 the intellectual hubris and on, in his road to serfdom, he primarily focused on government, 70 00:07:28.540 --> 00:07:33.740 on the interventionists and the externalities, that interference, that interferes with free 71 00:07:33.740 --> 00:07:37.180 Industry Markets with Social Individualism. 72 00:07:37.180 --> 00:07:42.800 Our experiences in developing the Venetian and an innovative business plan that was different 73 00:07:42.800 --> 00:07:47.260 from anyone else had ever envisioned before is the story of that intellectual hubris. 74 00:07:47.260 --> 00:07:52.180 But it wasn't just government or quasi-government entities, it was competitors, it was our culinary 75 00:07:52.180 --> 00:07:56.980 union, it was the good old boys or the people here in Las Vegas who really are quote-unquote 76 00:07:56.980 --> 00:07:57.980 in the know. 77 00:07:57.980 --> 00:08:11.980 In 1997, on the front page of the Wall Street Journal, it was played out in an article by a young lady named Christina Binkley and Christina wrote about what was unusual about what happened here in Las Vegas. 78 00:08:11.980 --> 00:08:20.980 And she says that we here at the Venetian have managed to vex much of Las Vegas with our plans to build the world's largest casino here. 79 00:08:20.980 --> 00:08:28.980 And there are quotes from people who know anybody who wants to build 6,000 rooms in a city that's already overbuilt is smoking something. 80 00:08:28.980 --> 00:08:41.980 And all this quote-unquote concern is caused by a highly unusual lineup against the Venetian. Union leaders and gambling company executives alike have been lobbying potential investors not to support the Venetian. 81 00:08:41.980 --> 00:08:55.980 And there's a quote from a fellow who was a CFO of Mirage Resorts at the time where he told potential bond buyers that a failed Venetian could be worse for Las Vegas than a successful Venetian. 82 00:08:55.980 --> 00:09:04.980 So an interesting lineup of folks who feel, felt very directly that they should intervene with what we were doing. 83 00:09:04.980 --> 00:09:10.980 So I want to tell you the story of each of the pieces of the Venetian and the comments that they made. 84 00:09:10.980 --> 00:09:16.980 But first, I think I'm going to start with the Sands, because we are on the hallowed grounds of the Sands. 85 00:09:16.980 --> 00:09:24.980 It is that storied place of the Rat Pack, of the Copa Room, of the Showgirls, and Dino and Sammy and Sinatra. 86 00:09:24.980 --> 00:09:35.980 Wonderful, nostalgic, and so, of course, this is Las Vegas. We went right straight ahead and blew it up. 87 00:09:35.980 --> 00:09:42.980 We can probably address our first interventionist criticism, and that was that this place was just too big, it was just too large. 88 00:09:42.980 --> 00:09:46.980 The master plan, it was a massive scope of the project. 89 00:09:46.980 --> 00:09:51.980 Government or our government surrogate for competitors, I guess you would say, chimed in. 90 00:09:51.980 --> 00:09:55.980 It was too big, it was too aggressive, it was just too much. 91 00:09:55.980 --> 00:10:00.980 There would be gridlock, and it might fail, and if it did, it would ruin Las Vegas. 92 00:10:00.980 --> 00:10:05.780 in Las Vegas. And of course, as any good Austrian knows, it's impossible to judge market failure 93 00:10:05.780 --> 00:10:11.380 without an independent test, and that independent test is the market itself. So we fought through 94 00:10:11.380 --> 00:10:17.300 it, we developed it, and we went on. We developed something that they thought was stupid, the 95 00:10:17.300 --> 00:10:22.220 convention business. I mean, the conventional wisdom here was, conventioneers don't gamble. 96 00:10:22.220 --> 00:10:26.180 Why in the world would you ever build a huge convention center? But we did, we developed 97 00:10:26.180 --> 00:10:56.180 and it worked. We also had some difficulty with the government subsidized or quasi-government entity, that being the Las Vegas Convention Center that went ahead and cut its rates. It was subsidized by us to the tune of about $27 million this year. They charge about a third of our rates here and the public sector loses $40 or $50 million a year out of there and we actually make $15 or $16 million out of our own convention center. So they were a little obstructionist in that process too. Our all suite rooms, we built all 98 00:10:56.180 --> 00:10:59.980 All-Suite Rooms. And there was some criticism of that. I mean, after all, they're going 99 00:10:59.980 --> 00:11:03.740 to stay in their rooms. What are they going to do? We put minibars in wonderful large 100 00:11:03.740 --> 00:11:07.780 rooms in the place. In the 40s and 50s in Las Vegas, there were no televisions in the 101 00:11:07.780 --> 00:11:11.980 room because, of course, if you were in the room watching television, you weren't downstairs 102 00:11:11.980 --> 00:11:16.980 gambling. We built a mall. We built a very large mall, a similar kind of a criticism 103 00:11:16.980 --> 00:11:20.500 that said, well, if they're gambling, they're not going to shop. If they're shopping, they're 104 00:11:20.500 --> 00:11:38.500 and we also built a 17 name brand restaurants and what we did was we asked individual chefs to spend their money and develop their restaurants and allowed them to freely choose who they wanted to be able to work for them. 105 00:11:38.500 --> 00:11:41.500 Now that was something that the culinary union really didn't like. 106 00:11:41.500 --> 00:11:47.000 Our business plan here was to develop what we call a mixed-use building that happened to have a casino in it, 107 00:11:47.000 --> 00:11:53.000 but all those reasons for coming to a destination resort that happens to have a casino in it. 108 00:11:53.000 --> 00:11:57.500 So we were not casino-centric in how we thought about our development of the building. 109 00:11:57.500 --> 00:12:02.500 The unions, of course, tried to interfere with what we were doing and put their picketers out in front of our place, 110 00:12:02.500 --> 00:12:06.000 ran around and tried to keep people from coming in the building. 111 00:12:06.000 --> 00:12:11.000 So they picketed and our customers fortunately pushed them aside and flooded the building. 112 00:12:11.000 --> 00:12:17.080 So, at the end of the day, the market spoke, and the market walked by them, and we are 113 00:12:17.080 --> 00:12:19.600 fortunately non-union today. 114 00:12:19.600 --> 00:12:29.800 We are not, I have to qualify this, we are not anti-union. 115 00:12:29.800 --> 00:12:33.420 People are free to make their associations if they want to make their associations. 116 00:12:33.420 --> 00:12:37.480 And it's up to that free market for ideas to treat our employees in a way that they 117 00:12:37.480 --> 00:12:39.120 don't want to have to have a union. 118 00:12:39.120 --> 00:12:49.120 So it's up to them. But we just wouldn't deliver it to them. If people want to spend their money to have somebody represent them besides us, that's up to them. 119 00:12:49.120 --> 00:12:56.120 But to force me to make all my employees pay them money without even going through the election process just didn't work. 120 00:12:56.120 --> 00:13:03.120 Now, we do have a good relationship with our construction unions. We have to. We build millions and millions of square feet all over the world. 121 00:13:03.120 --> 00:13:33.120 and we do have a good relationship but they've made their decision but our decision here was to allow our own individual chefs to make their own decision and for us to make our own decision and for our employees to make their own decision and it's up to us to make sure that they feel good about being here and don't need somebody else to hire to be able to speak to us or to speak to me. Well that unintended, sometimes the law of unintended consequences help. Believe it or not, we bid for a license in Macau. Macau is a special administrative region 122 00:13:33.120 --> 00:13:51.120 in the People's Republic of China, I just used this example. In Las Vegas, if you drew a five-hour flight circle around Las Vegas from New York and up into Canada, Mexico and so forth, there would be about 356 million people within a five-hour flight of Las Vegas. 123 00:13:51.120 --> 00:14:04.120 A place like Macau, there are 3.11 billion people. And within a one hour flight, there are about one billion people. It's about a two hour flight, about two hours and fifteen minutes to Singapore, approximately. 124 00:14:04.120 --> 00:14:09.120 750 million people on the southern coast of China. So it's an extraordinary opportunity. 125 00:14:09.120 --> 00:14:15.120 And it was this market plan that really won it for us because they sent a delegation from mainland China. 126 00:14:15.120 --> 00:14:20.720 Imagine, mentally, guys in mouse suits walking up and down the strip here and picking out 127 00:14:20.720 --> 00:14:22.320 which building they wanted. 128 00:14:22.320 --> 00:14:28.320 Our building, because it was not necessarily casino-focused or casino-centric and the business 129 00:14:28.320 --> 00:14:32.360 plan relating to the convention business, the mall business, et cetera, really appealed 130 00:14:32.360 --> 00:14:37.140 to them and we won the contract over there in Macau based on that. 131 00:14:37.140 --> 00:14:39.880 So it was an unintended, wonderful, unintended consequence. 132 00:14:39.880 --> 00:14:42.640 We built this Sands building in 14 months. 133 00:14:42.640 --> 00:14:44.360 It's about a million square feet. 134 00:14:44.360 --> 00:14:55.720 We spent $265 million on it, and we will pay for that building in its first year of operation. 135 00:14:55.720 --> 00:15:02.080 But the real dream and the real future of Macau is the multi-night, multi-day stay. 136 00:15:02.080 --> 00:15:03.840 Macau is made of three different islands. 137 00:15:03.840 --> 00:15:07.640 There's an island called Taipa and Kuala Lumpur, and there's a landfill in between that we're 138 00:15:07.640 --> 00:15:10.440 filling land in now called Cotai. 139 00:15:10.440 --> 00:15:18.040 And our vision was to actually build the Las Vegas Strip in China. So this will give you 140 00:15:18.040 --> 00:15:22.580 a sense we're going to build our Venetian here, there, 10.5 million square feet, a million 141 00:15:22.580 --> 00:15:28.500 square feet of meeting and exhibition space, 18,000 seat arena, showrooms, etc. It is going 142 00:15:28.500 --> 00:15:35.900 to be a Las Vegas Macau actually on the doorstep to China. But in addition to that, we've master 143 00:15:35.900 --> 00:15:40.900 The Federal Reserve has planned that co-type piece of property for 60,000 rooms. 144 00:15:40.900 --> 00:15:44.900 There are only 450,000 people in Macau, and they kind of step back and say, 145 00:15:44.900 --> 00:15:47.900 wow, isn't that too big, isn't that too much? 146 00:15:47.900 --> 00:15:50.900 And we say, well, there are 130,000 rooms here in Las Vegas. 147 00:15:50.900 --> 00:15:54.900 We can't get any more than 60,000 rooms on that piece of property. 148 00:15:54.900 --> 00:15:57.900 They're a little taken back about that aggressiveness, 149 00:15:57.900 --> 00:16:02.900 so we started with one piece at a time, and we are now building the first phase, 150 00:16:02.900 --> 00:16:08.540 The Venetian that's on your right, six other branded hotels, so we'll have seven hotels 151 00:16:08.540 --> 00:16:14.300 arrayed on a Las Vegas strip. It'll be like taking from the Bellagio up to Wynn's New 152 00:16:14.300 --> 00:16:20.020 Resort, that proxy piece of property, picking up and plunking it down in China. And the 153 00:16:20.020 --> 00:16:26.060 goal here is to develop the Las Vegas of China, and of course the goal is to own all the casinos 154 00:16:26.060 --> 00:16:30.700 and all the showrooms and all the buildings. If we could have all of it in all of China 155 00:16:30.700 --> 00:16:36.100 I would be very happy to do that. We're avaricious, avaricious as could be. Anyway, so we are 156 00:16:36.100 --> 00:16:41.940 very, very fortunate to have this opportunity. We are building as we speak now, and as I 157 00:16:41.940 --> 00:16:48.060 say, sometimes there are some wonderful unintended consequences of the directions that you take. 158 00:16:48.060 --> 00:16:53.540 Anyway, we are very delighted that the market has spoken here in Las Vegas. We've added 159 00:16:53.540 --> 00:16:57.700 up the scorecard, we've compared it to our competitors, and I have to say the market 160 00:16:57.700 --> 00:17:03.340 has worked it out and I think we have now shown all of those that have the intellectual hubris 161 00:17:03.340 --> 00:17:09.980 to think that without their money, I mean with our money, and we're spending our money 162 00:17:09.980 --> 00:17:16.740 about our ideas to then criticize intellectually how we were going about developing our building 163 00:17:16.740 --> 00:17:21.140 as obstructionists. We've proven them pretty wrong. If you hit the button, we'll see some 164 00:17:21.140 --> 00:17:25.820 of the results. We were on the highest rate in Las Vegas. We were on the highest amount 165 00:17:25.820 --> 00:17:32.820 We have room's revenue in Las Vegas. Hit the button again. We run the highest margins. We have the highest returns on invested capital. 166 00:17:32.820 --> 00:17:39.820 Most importantly, since we went public December 15th, there's another measurement out there, and that's equity value in the marketplace. 167 00:17:39.820 --> 00:17:54.820 As of the 15th of February, the last time we had the numbers, Las Vegas Sands has an $18 billion market cap, and that's more than MGM, just about more than MGM and Harris put together. 168 00:17:54.820 --> 00:18:24.820 From a place that in 1997 started with about a $280 million equity base with an idea, a different idea, an idea that really challenged the market, that challenged the status quo, that had a fair amount of criticism about what we did and how we went about doing it to be the number one equity value place in our sector of the business, we think is a huge accomplishment, but it's a huge accomplishment for the marketplace because no matter whose opinion 169 00:18:24.820 --> 00:18:31.260 No matter who said what, no matter who tried to do what, we work it out here in this marketplace 170 00:18:31.260 --> 00:18:34.500 because those folks are free to walk up and down that strip and go anywhere they want 171 00:18:34.500 --> 00:18:38.500 to go and spend their money any way they want to and it's up to us to try to figure out 172 00:18:38.500 --> 00:18:43.100 how do we attract them, how do we capture it and then how do we win that game and deploy 173 00:18:43.100 --> 00:18:46.820 our capital correctly and deploy it well. 174 00:18:46.820 --> 00:18:47.820 The market did speak. 175 00:18:47.820 --> 00:18:53.620 It blew away all the externalities, the interventionists that exposed Hayek's intellectual hubris and 176 00:18:53.620 --> 00:19:23.620 and we're excited and happy with that and with I guess to close those economic giants that I spoke of when I welcomed you originally here may not necessarily be proud that their free market theories were proven out in the decadent competitive crucible of Las Vegas but I believe at the very least they would achieve a measure albeit perhaps an amused measure of vindication that their hypotheses have been tested and proven and what I think is the most brutally competitive market 177 00:19:23.620 --> 00:19:35.380 I leave you with my wish for all of you addressing and attending this conference. That is, that 178 00:19:35.380 --> 00:19:40.620 the theories expressed and debated here find equal success in being vindicated in the world's 179 00:19:40.620 --> 00:19:46.580 financial markets and are proven in the crucible of free markets for money, for goods, and 180 00:19:46.580 --> 00:19:51.900 for ideas. And may the best of those theories and ideas win. 181 00:19:51.900 --> 00:19:55.900 With that, I welcome you all here on behalf of the management and of the staff of Las 182 00:19:55.900 --> 00:20:00.540 Vegas Sands and the management staff here at the Venetian. We appreciate your coming 183 00:20:00.540 --> 00:20:06.500 here. As I say, we are free market economic groupies and we welcome you here to our house. 184 00:20:06.500 --> 00:20:11.300 And if you look around you, this was a house built on those principles. We're very proud 185 00:20:11.300 --> 00:20:13.020 of it and we're very happy to have you with us.