In 10 years, Macau will look like Las Vegas 'on steroids'

William Mellor and Oliver Staley, Bloomberg
Published: Monday, January 08, 2007
MACAU - The Hotel Lisboa used to be the only game in Macau. The birdcage-shaped casino has welcomed Chinese playing baccarat, blackjack and sic bo -- an Asian dice game -- amid smoke-stained walls and frayed carpets for 35 years.

Now, the Lisboa and other casinos in Stanley Ho's gaming company, Sociedade de Jogos de Macau (SJM), are facing a horde of competitors. Ho, who had a government monopoly on Macau gaming for four decades until 2004, has seen his share of gambling revenue dive to 55 per cent from 100 per cent -- and it's still shrinking.

All around the Hotel Lisboa, crowded into a territory measuring just 28 square kilometers, gambling billionaires Sheldon Adelson of Las Vegas Sands Corp., Steve Wynn of Wynn Resorts Ltd., and Kirk Kerkorian of MGM Mirage are building new resorts complete with artificial canals, singing gondoliers, luxury shopping malls and celebrity chefs.

Blurring the battle lines is the manoeuvering and feuding within the sprawling Ho family. Patriarch Stanley Ho, 85, a billionaire in his own right, says he wants to sell as much as $1.9 billion worth of shares in closely held SJM to raise funds to go head-to-head with the Americans. That plan has so far been blocked by a lawsuit brought by his sister, Winnie Ho, 84, who holds a minority stake in SJM's parent company and says she wasn't consulted about the share sale.

Meanwhile, two of Ho's 17 children have formed joint ventures with his Western rivals. Pansy Ho, 44, chief executive officer of the family's conglomerate, Shun Tak Holdings Ltd., has used her own money to form a 50-50 partnership with Kerkorian's MGM Mirage, which is building the $1 billion MGM Grand casino-hotel within walking distance of her father's flagship Lisboa.

And Lawrence Ho, chairman of Hong Kong-listed Melco International Development Ltd., has teamed up with Australian tycoon James Packer to invest as much as $3.3 billion (all figures US) in three casinos in Macau. Lawrence, 30, and Packer, 39, raised $1.14 billion by selling shares in their joint venture, Melco PBL Entertainment (Macau) Ltd., on the U.S.'s Nasdaq Stock Market in December. The stock rose 11.9 per cent, to $21.26 on Dec. 29, in its first 10 days of trading.

In all, foreign investors are staking $20 billion on making Macau, a former Portuguese colony that's now a special administrative region of China, into the gambling capital of Asia.

"In 10 years, Macau will resemble Vegas on steroids," says Brian Summers, who helps manage $28 billion at Santa Fe, New Mexico- based Thornburg Investment Management Inc., including $240 million worth of Las Vegas Sands shares. Summers points to the demographics. Macau (population: 500,000) is the only place in greater China where its 1.3 billion people can wager in casinos. "They like retail, they like to gamble, their income is rising and they're being offered something they've never had before," Summers says of the Asian players.

Macau is already the biggest single gambling market in the world. In 2006, Macau's casinos raked in an estimated $6.8 billion, probably overtaking the Las Vegas Strip, says Rob Hart, a Hong Kong-based gaming and property markets strategist for Morgan Stanley. The Strip took in approximately $6.5 billion.

Adelson's 740-table Sands Macau, which opened in 2004, is doing such good business that he recouped his $260 million investment in eight months, he says. As many as 40,000 gamblers a day besiege the croupiers, almost all of them casually dressed Chinese.

Next door, in the relative calm of the Paiza Club VIP suites, high rollers, again mostly Chinese, relax in leather armchairs between $10,000 games of baccarat.

Outside, convoys of courtesy buses drop off new customers, some of them lured by text messages sent to their cell phones.

"Want to be a millionaire?" reads one. "Take the direct bus from China to Sands and you immediately qualify for the instant millionaire draw."

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The gambling frenzy goes beyond Macau. Foreign investors are also targeting Singapore, Japan, Vietnam and other Asian countries, as governments move to lift decades-long restrictions on casinos, says Sean Monaghan, a Singapore-based analyst with Merrill Lynch & Co. "The breadth of change is going to be monumental," Monaghan says.

The next gambling venue that will open up is Singapore, where in May the government issued its first casino license to Adelson's Las Vegas Sands. He will spend $3.6 billion building a casino and a 2,500-room hotel and convention centre on reclaimed land in Marina Bay, near Singapore's downtown.

In December, Singapore authorities announced that a second license had been awarded to Asia's biggest casino company, Kuala Lumpur-based Genting Bhd. Across Asia, annual gaming revenues for the region could double to $23 billion in 2010 from $11.9 billion in 2005, according to a 2006 PricewaterhouseCoopers LLP report.

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Even though Stanley Ho is losing market share in his casinos, his web of business interests ensures that gamblers visiting Macau can't help putting money into his pockets. He still owns 16 of the 23 gaming houses in Macau. Through Shun Tak and other companies, Ho owns a controlling interest in ferry and helicopter services that carry passengers between Hong Kong Island and Macau, and in Macau's biggest department store and second biggest bank.

While Ho held a monopoly, Macau casinos catered to hard-core gamblers who spent most of their money at the tables. Adelson, Wynn, Kerkorian and Packer, CEO of Australia's Publishing & Broadcasting Ltd. and son of the late tycoon Kerry Packer, are all betting that gamblers from China will be able and willing to pay for fine dining, cabaret shows, shopping trips and other extras that lure non-gamblers to Las Vegas.

Adelson has ridden his casino investment to a huge fortune. His 69-per-cent stake in Las Vegas Sands stock had a value of $22 billion on Dec. 29. Adelson says he may overtake Bill Gates to become the world's richest man. Gates's 9.54-per-cent stake in Microsoft Corp. is worth $28 billion, according to Bloomberg data.

Wynn, 64, is matching Adelson chip for chip. His 600-room, $300-a-night Wynn Macau offers a 220-table casino, seven restaurants and 26,000 square feet of luxury shopping.

Wynn is building an extension, scheduled to open in February, that will almost double the size of the casino. And he has plans for three more Macau resorts.

There are potential pitfalls for the gambling entrepreneurs. One is an oversupply of hotel rooms in Macau.

Skifeng Ke, who helps manage $21.5 billion for Edinburgh- based Martin Currie Investments, says he won't be buying any Macau-related casino stocks, partly because of the intense competition and partly because he thinks a recent Chinese government clampdown on corruption could scare mainlanders away from the enclave.

"You've got competition, you've got the anti-corruption campaign," says Ke.

Adelson, 73, dismisses such concerns. He points out that tens of millions of potential gamblers live just a short plane ride from Macau. "These people need entertainment. There's no question in my mind we're going to achieve the level of success we're shooting for."

 

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Was there last year, was amazed on what I saw, Macau is a really nice place, with many big cities around it in coastal China in just hours.

What I was amazed at is the people that went there, and the money that they had with them, on average, they bet 5 times more than Las Vegas, and in one VIP room that I went into, the Chinese bosses are betting over 50K dollars a hand a barracat.