Lui Che Woo Goes It Alone in Macao

Written on October 9, 2006 by admin

You must give it to these guys, Sheldon Adelson, Dr. Stanley Ho and Lui Che Woo all multi-billionaires, in their seventies and still going for it like there is no tommorrow! The compassion, energy and the brilliant minds of these guys is a joy to watch, good on them, there is no sitting on their butts for these guys!

Lui Che Woo spells out some interesting observations in this article about his US counterparts trying to make Macau into another Las Vegas!

Galaxy Entertainment has a strategy that doesn’t include a U.S. partner and hopes to succeed by understanding what China’s players want

Full article courtesy Business Week | Galaxy Entertainment chairman Lui Che Woo sees himself as an underdog, albeit an extremely wealthy one. At 77, the Hong Kong billionaire who made his fortune in construction materials, hotels, and real estate development is now making the last major wager of his storied business career.

He is going double down on China’s new playground, the former Portuguese enclave and island leisure haven of Macao. To succeed, he will have to outsmart the U.S. casino developer Steve Wynn and Las Vegas Sands (LVS ) chairman Sheldon G. Adelson, who have spent billions there to chase Chinese punters.

Macao’s burgeoning casino market is the scene of a major rumble among the world’s big casino and resort development heavyweights. Aside from Wynn Resorts and Las Vegas Sands, MGM Mirage (MGM ), Australia’s entertainment and media company PBL, and local casino mogul Stanley Ho are all in expansion mode on the island.

WINNING CONCESSIONS. Macao generated $5.6 billion in gaming revenues last year compared to $3.5 billion in 2003. Investment bank UBS predicts Macao gross gaming revenues will top $10 billion by 2010 (see BusinessWeek.com, 9/5/06, “Macao Set to Trump Las Vegas in Gambling Biz”).

Four years ago, Hong Kong-based Galaxy Entertainment was one of the three consortia picked from 22 applicants for gaming concessions when the Macao government broke casino czar Stanley Ho’s decades-old monopoly on the territory. Each of the main licensees has the right to award sublicenses, and Macao now effectively has six separate casino licensees, including Ho.

Galaxy already has four casinos in Macao, up from zero three years ago. The latest, opened on Sept. 29, is the $410 million Grand Waldo, boasting 100 tables, 334 slot machines and another 68 tables in VIP rooms (decorated with huge dragons) for high rollers. A fifth Galaxy casino, a $345 million effort called Star World, will be tailored specifically for mainland China gamblers and is set to open on Oct. 19. It will lack the shopping malls, Celine Dion shows, and Western restaurants that are becoming a regular feature of Macao’s casino culture.

NEEDS A BODYGUARD? Galaxy currently has a 20% share of Macao’s gaming revenues and is spending another $1.1 billion to build the first phase of a more upscale Galaxy Mega Resort, a casino complex that could eventually cost more than $4 billion. It won’t be ready until the end of the decade. By then, Galaxy is hoping a segment of sophisticated mainland Chinese will be flocking to the resort.

Some analysts believe that without a strong Vegas partner, Galaxy is the most vulnerable of all casino operators in Macao and might eventually be gobbled up by one of the large U.S. players that don’t currently have a big footprint in Macao. “Galaxy seems to be the weakest of all concessionaires in its current form, lacking both branding and management experience of its global competitors as well as the network of its local competitors” says Kader Lim, a Citigroup gaming industry analyst in Hong Kong.

In a recent report, Grant Chum, a UBS gaming analyst in Hong Kong, described Galaxy as a firm “with no track record in the gaming industry and a highly leveraged start-up competing against the best-known operators in the industry.”

UNDERSTANDING CHINA. Not everyone agrees with that line of thinking. Galaxy “can still be a hugely profitable player if it carves itself a niche that others are overlooking,” says Jonathan V. Galaviz, a partner for Globalysis, a Las Vegas-based consulting firm. One of Macao’s greatest opportunities for future growth, says Galaviz, is in the mass-market consumer business. “No casino operator in Macao has yet been able to consistently draw mass-market punters. If Galaxy can develop products, services, and customer loyalty within the mass-market segment, it would cement its long-term market position.”

For his part, Lui says his U.S. competitors and most critics don’t understand his strategy. “I am Chinese and I understand what the China market wants,” he said during a recent interview with BusinessWeek.com. Lui says there is a misguided conception among U.S.-based casino operators as well as industry insiders that Macao is just an Asian version of Las Vegas.

Operators such as Sands and Wynn want to build projects with all the bells and whistles and hope people will come. In Vegas, a typical visitor checks in to a five-star hotel, has a martini, goes to a show, has dinner, plays a game of golf, and pops into the casino, or is a convention delegate who attends seminars, does some networking and sightseeing, and then maybe kills some time in a casino, according to Lui. “There are many who do go to Vegas for nothing else but gambling, but they are a small portion of the total,” he says.

In Macao, says Lui, “most people come for one thing and one thing alone: They come to gamble.” That’s especially true of mainland Chinese, who now form 70% of the total gamblers at most Macao casinos. Chinese gamblers tend to come in for 12- to 16-hour swings and want to spend money at the tables—not on fancy hotel rooms or shopping.

Lui says Galaxy has a step-by-step strategy that retains its flexibility, depending on how the Macao market eventually develops. Galaxy has entered the lucrative VIP segment through its small cozy city club casinos. It has tailored the Star World to Chinese day-trippers and will enter the luxury market over the long run through Mega Resort. It is not aiming for the full-blown casino, retail and convention complex that operators such as Sands have developed. “There is no point in imitating Sands or MGM or Wynn, because that’s not what the mainland punters want,” says Lui.

A BED TO SLEEP IN. As things stand now, a huge short-term glut in hotel rooms is looming in Macao, which currently has more than 12,500 rooms. By the end of next year, that figure will more than double. Mainland Chinese now make up more than 60% of visitors to Macao and nearly 70% of the gamblers. Half of Macao visitors are day-trippers who return to Hong Kong or China when they are done with gambling or sightseeing, and don’t need hotel rooms. That’s why Galaxy is focusing on basic three- or four-star rooms at pared-down prices.

Lui says hotels attached to Galaxy casinos have rooms that are “good-sized, not too large because the people from Shenzhen or Guangzhou just want a bed to sleep on.” While some of his U.S. competitors are building rooms that are greater than 800 sq. ft., or about the size of small Hong Kong apartment, “the market for top-end guests is very small,” Lui adds. “We are targeting the medium and lower-end segment, which we think will be 90% of the business.”

Lui says he learned the model from Toyota, which excels at selling affordable, quality cars. “We could make a Mercedes or BMW and be a niche player, but we would rather be a Toyota of Macao,” he says.

NOT FOR SALE. The strategy is winning over some early skeptics. “Galaxy,” says UBS analyst Chum, “believes it is offering what the market wants, while foreign operators are building what they think the market should have.” The company, he adds, “is pursuing a lower-risk strategy, especially as the Las Vegas-style product is much more capital-expenditure intensive.”

Because Galaxy is perceived as a weak player, there has been speculation that it will eventually be taken over by a strong global partner. Malaysian casino operator Genting (GEBEY )—which has a 4% stake in Galaxy—has been mentioned, as has Harrah’s Entertainment (HET ), now in the process of being taken over by a U.S. private equity consortium. “We have had many approaches, but we are not selling,” says Lui.

Not everyone buys that, given the cash outlays Galaxy needs in the years ahead to be a dominant player in Macao. “The possibility that Galaxy could enter into a significant strategic alliance with a large corporation for the development of product offerings in Macao should not be discounted,” says Globalysis’ Galaviz. However things turn out, it’s clear that Lui plans to finish his career in grand fashion.