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Sands Macau to change its marketing strategy

Posted on August 1st, 2010

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For a significant amount of time, The Las Vegas Sands Corp.’s Macau unit has been operating very aggressively in terms of its marketing to high rollers. Traditionally, the casino would employ the services of middlemen or people called “junkets” to reel in the bigger fish for the casino. These junkets will serve as the backbone of the casino’s marketing to high rollers. The idea is that junkets will market the casino to high rollers, earning for themselves a commission from the earnings the casino gets from the clients. However, former chief executive of the Las Vegas Sands in Macau, Steve Jacobs, has pushed for a more direct approach in the casino’s marketing scheme—the elimination of the middlemen.

This direct marketing scheme, proposed and indeed employed by the Las Vegas Sands in Macau, has been lauded by many as a smart and effective way to increase profits. However, the executives of the casino will be rethinking its direct marketing stance in favor of the more traditional strategy involving intermediaries. Mike Leven, the new chief executive of the Las Vegas Sands in Casino said that they are exploring the idea. Leven believes that rushing would be pointless and he stressed that the traditional approach and its effects will be studied thoroughly first before being employed as their marketing scheme. He added “It will be a number of months before we come to a conclusion,”.

The change comes after a slew of changes amid disagreements high up in the Las Vegas Sands’ operations. Former chief executive Steve Jacobs has left his post just last week in light of disagreements between Chairman Sheldon Adelson and two other top executive appointees in the past couple of weeks. Chairman Adelson said that they will be rethinking their marketing strategy despite reports saying that their current marketing strategy to VIP’s, the direct method, will double the returns of a junkets-based scheme. On the issue, Mr. Adelson said “We are in active discussion right now since we terminated Steve Jacobs about the wisdom of accentuating the effort for direct premium play,”

Junkets, who are responsible for marketing the casino to high rollers, reel in the big spenders. They are also responsible for debt collection. Since junkets earn through commission, they would naturally work harder to get higher paying clients—in effect, increasing the number of high rollers going to the casino. Junkets would also serve as a buffer for bad debts which, in China where gambling debt is not recognized, could take an extraordinarily long time to settle legally. Proponents of the junkets-based strategy said that the middlemen would be able to siphon through the good and bad clients since they deal with them personally, thus lessening the risks of attaining bad debts from clients.

Under the leadership of Steve Jacobs, Sands China’s earnings increased by 5.9% from the same period last year. This accentuates the effectiveness of the direct VIP scheme previously employed by the casino. Mr. Adelson argues however, that the strategy employed by Steve Jacobs alienates the middlemen; These middlemen have long been a driving force for gambling revenue in Macau and Sans China is loathe to lose them to their competitors. Currently, there are 75 junkets operating in Macau and they, specially the top 5, control almost all of the VIP market in the region.

Some analysts believe that although a direct approach may see an increase in earnings but in the long haul, problems concerning competition from the well-established junkets are certain. “We all understand the margins are better with direct but the question is if the operator can keep growing that business,” Credit Suisse analyst Gabriel Chan said. For Sands China, this is a decision that could turn either way. That is why Chairman Sheldon Adelson stresses that they go about this business as slowly and surely as possible. Wynn Macau, one of Sands Macau’s competitors is also engaging in direct VIP marketing but not in large volumes, as they also employ the services of junkets.