Casino Companies Are Betting Big on Macau

Written on August 20, 2007 by admin

When America’s largest casino companies looked at the world’s emerging gambling scene, it wasn’t Pennsylvania where they placed their biggest bets.

Instead, MGM Mirage Inc. and Wynn Resorts Ltd. are pouring money into Macao, a tiny peninsula on the southeastern tip of China.

And while the Las Vegas Sands Corp. is spending $600 million on Bethworks Casino in Bethlehem, Pa., it’s plunking down $12 billion in Macao.

Five years ago, Macao was a seedy backwater town about one-eighth the area of Philadelphia, with just one casino operator.

Today, it’s the world’s most lucrative gambling mecca, with nearly $7 billion in revenue last year, compared with Las Vegas’ $6.7 billion.

Macao will reach another milestone Aug. 28, when the Las Vegas Sands opens the world’s biggest casino here. The Venetian Macao Resort-Hotel Casino, with 546,000 square feet of casino space, will be three times the size of Las Vegas’ largest, the MGM Grand, and Atlantic City’s biggest, the Borgata.

“This is the new frontier,” said Ray Dougherty,a native of West Philadelphia, who is the director of casino operations for the Venetian Macao.

“There’s no doubt. This is the mother lode.”

But behind the glittering construction, Macao is reeling from overpopulation, traffic congestion, a crumbling infrastructure of roads, bridges and ferry terminals - and a total dislocation of its labor market.

And there is growing concern among the Chinese - Macao’s primary clientele - about gambling addiction.

As the only legal gambling venue in China, Macao is within a five-hour flight for three billion people, and in the midst of a soaring economy. Thousands of day-trippers crowd buses for the 45-minute ride from Zhuhai in Guangdong Province to Macao’s border.

Gambling is entrenched in the culture, with little stigma, explained advertising agency executive Tom Doctoroff, who has lived in Hong Kong and China for 13 years.

“It’s a conspicuous demonstration of freedom and making it to the top.”

The transformation
Macao’s transformation began eight years ago, when Portugal, after four centuries of rule, returned Macao to China as a Special Administrative Region - making it largely independent, except for foreign policy and defense - just like nearby Hong Kong, 50 air miles up the South China coast.

In short order, the government ended the gambling monopoly that billionaire Stanley Ho had held for 40 years and swung open the doors to competition, and to tourism, especially from southern China.

When the first American-owned casino, the Sands Macao, opened on May 18, 2004, additional police had to be called to handle the surging crowd. An escalator buckled and went into reverse with the crush of people trying to get to the gaming floor. (There were no injuries.)

As was typical of Macao casinos at the time, the Sands Macao was built without hotel rooms. The culture of gambling in China is simply to gamble - and gamble big - not to make a vacation of it.

“Here we have people betting on the floor between $5,000 and $10,000 U.S. dollars a hand, and it’s just like somebody back home in Atlantic City playing $10 on the floor,” said Mark Brown, who became president of Sands Macao and Venetian Macao after 19 years in key jobs at Donald Trump’s Atlantic City casinos.

“Nobody eats, nobody drinks, nobody stays overnight here,” said Brown, who brought a half-dozen Trump executives with him from Atlantic City. “They just gamble, and they leave.”

Even so, within eight months, the Sands Macao generated $400 million - about what the casino cost to build - in revenue.

Then last September, gambling mogul Steve Wynn became the first to test whether Macao could become a Las Vegas-style casino resort and attract people from all over Asia with retail malls, fine restaurants and spas.

So Wynn built posh hotel rooms - 600 of them - and a high-end retail mall with Macao’s first Louis Vuitton shop at his Wynn Macao. The resort features a lake with fountains that perform a musical water ballet each night, and a mega-casino with white marble floors and stunning chandeliers.

China, flush with new millionaires, has proved him right. His rooms, which cost $311 a night, are largely full. And in the latest quarter, Wynn Macao’s revenue jumped 23 percent to $335.2 million - nearly half of it from the new non-gambling amenities.

Going up next door is the $1 billion MGM Grand Macao - a giant ocean wave in three shades of gold. Opening this fall with 600 hotel rooms, it features an atrium four times the size of the Bellagio’s in Las Vegas.

Not to be outdone, longtime Macao gambling czar Stanley Ho in February opened the gaming floor of the $640 million Grand Lisboa Casino. Its companion hotel is nearing completion. When it’s finished, the complex will resemble a gigantic Faberge’ egg from which the hotel, with 295 rooms, shoots up like a large lotus flower.

More extravaganzas are planned for Macao’s new Cotai Strip. The Venetian, with three canals (the Las Vegas Venetian has just one), will be the first “integrated resort” to open on this wetland reclaimed from the sea, with a major convention center and entertainment hall.

“We are reproducing the Las Vegas Strip,” said billionaire Sheldon Adelson, chairman and chief executive officer of Las Vegas Sands, in an interview.

“Now all of our competitors are trying to get in here,” he said. “In the beginning, they all trashed it.”

Explosive growth
With 20,000 hotel rooms, the largest theater in Asia, and a ballroom for 7,000, the Venetian, many say, will be to Macao what the Mirage was to Las Vegas and the Borgata to Atlantic City.

It will redefine the city - though some say for the worse.

For the Venetian to succeed, gambling experts say, the number of daily visitors to Macao will need to jump from 45,000 to 80,000.

“The rapid growth in the past year of the casino industry has brought in foreign direct investment,” said Davis Fong, director of the Institute for the Study of Commercial Gaming at the University of Macao. “At the same time, we are suffering some of these negative impacts.”

While nearly 52,500 people work in the casinos here, a tapped-out local labor force of 250,000 has left too few workers for Macao’s schools, hospitals and restaurants.

“It’s really difficult to get help,” said Hon Wing Hau, who alone runs a fruit stand in the shadow of the Sands Macao. “Young people all want 16,000 patacas [$2,000] a month because that’s what they can get at a casino. I can’t compete with that.”

Labor experts estimate that Macao’s new casinos will create 20,000 to 100,000 jobs over the next 10 years - if employees can be found.

Macao, with a population of only 457,000, must now compete with Malaysia, Singapore, Cambodia, South Korea and the Philippines for casino staff. Taiwan and Thailand are considering legalizing gambling; Japan will vote next year.

Many residents of Macao “are dropping out of school,” said Christopher McNally, a China expert at the East-West Center in Honolulu, who teaches in Macao. “They aren’t finishing their MBA degrees because it makes much more sense to go into a casino and be a dealer.”

The lure of gambling is also changing the lives of some who frequent the casinos to try their luck/.

Every day, 60-year-old Kelvin Leung is among the masses who ride the bus from Zhuhai, in Guangdong Province, to the Macao border. There he boards a second bus into Macao, then a shuttle bus to one of Stanley Ho’s casinos, something he has been doing since 1974.

On one of his treks last spring, he talked about his losses.

He said that, in the 1970s - at the peak of his gambling addiction - he lost about $200,000, money from an inheritance and the sale of a property he owned in Hong Kong. He dropped it at the old Casino Lisboa, still known for its smoke-filled gambling dens and lobby teeming with prostitutes - a throwback to Macao’s old gambling days.

Leung, now a regular at Ho’s new Grand Lisboa, said his family cut off all contact with him in 2003 because he was constantly borrowing money to gamble.

“It’s cost me my life,” he said. He doesn’t even know whether his mother is still alive. “I’m all alone.”

So concerned is the Chinese government about gambling addiction and illegal workers that in May it made it more complicated for residents of Guangdong Province to get visas.

Women, such as Sandra Law, 50, a mother of three from Hong Kong, now make up 40 percent of Macao’s gamblers, up from 10 percent a few years ago.

“A lot of my friends have lost their jobs and their savings here already,” Law said as she tried a slot machine at Wynn Macao. “I’m afraid that gambling is too popular and will change our lives.”

China eased the visa restrictions last week; the rule was hurting business travel - but not gambling.

The restrictions didn’t affect Leung at all; he has a Hong Kong ID card and a permanent business passport. “I still go to Macao every day,” he said last week.

The road ahead
The really high rollers - the casino companies - are confident that Macao’s growing pains will be short-lived, and that the boom will continue.

“I don’t see any end in sight over there,” said MGM Mirage chairman and CEO Terry Lanni.

A new ferry terminal will open next year, funded in part by Macao’s 40 percent tax on gross gambling revenue - far higher than Las Vegas’ (6.75 percent) or Atlantic City’s (9.25 percent).

In fact, about 70 percent of Macao’s budget derives from the tax. Macao’s top government official, Edmund Ho, has pledged his support to the casino industry.

A 21.8-mile bridge is being built to connect Hong Kong, Macao and South China. Border terminals are being upgraded, and Macao International Airport is expanding. A high-speed rail line will be completed in three years.

“This really speaks to the strength of Macao,” said Harvey Perkins, senior vice president of Spectrum Gaming Group, a casino consulting company in Northfield, N.J.

On its own, Las Vegas Sands is buying 10 ferries at $15 million each, 100 luxury buses, and a fleet of airplanes, limousines and expensive cars, including a Rolls-Royce Phantom and Bentley Arnage 728, so its VIP guests can get to the Venetian with ease.

Sands CEO Adelson, named the third-richest American by Forbes magazine last year, has no doubts.

“I’m 100 percent confident it’s going to win,” Adelson said. “How can you lose?

“You can’t.”

Dougherty has no intentions of moving back to Philadelphia, though his parents and siblings live in the city, and he occasionally craves a Philly cheesesteak.

Asia, where he has worked in casinos for a dozen years, is now home.

“Those of us who have been out here awhile, we knew the Asian market was going to explode,” Dougherty said as he surveyed the Sands Macao casino floor, teeming with gamblers, on a recent weeknight.

“It was just a matter of when.”

Courtesy: the Philly

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