June 1 (Bloomberg) -- Melco Crown Entertainment Ltd. opens its City of Dreams casino today in a $2 billion bet that Macau will rebound from a slump that prompted rival Las Vegas Sands Corp. to halt construction on a neighboring project.

The complex on Macau’s Cotai Strip has 516 gambling tables in a 420,000-square-foot casino, Hard Rock and Grand Hyatt hotels as well as a multimedia theater and shops run by DFS. A poor reception for City of Dreams may spell “the endgame for us,” Melco Crown Chief Executive Officer Lawrence Ho, son of Macau billionaire Stanley Ho, said last month.

City of Dreams, across the road from Asia’s largest casino resort, the Venetian Macao operated by billionaire Sheldon Adelson’s Las Vegas Sands, will test Macau’s plan to turn the reclaimed swamp of Cotai into a gambling and entertainment center that surpasses Las Vegas. Adelson suspended construction of a second property on the strip in November as revenue fell and credit markets seized up.

“The gaming sector had a very bad year in 2008 because of a weakening Macau economy,” Winson Fong, who helps manage $2 billion at SG Asset Management H.K. Ltd., said in an interview. “Now, people are buying into the sector because as a speculative one, it tends to perform better during a recovery,” said Fong, who doesn’t invest in casinos for ethical reasons.

Longer Stays

Melco Crown, a joint venture between Lawrence Ho and Australian billionaire James Packer, has created a complex designed to get visitors to stay for longer by providing a entertainment, shopping and dining in addition to gambling. City of Dreams will host a permanent show designed by Franco Dragone, director of Celine Dion’s show in Las Vegas.

City of Dreams will need “much less” than the Venetian’s 70,000 daily visitors, Ho said in an interview today, declining to be more specific on the company’s metrics for measuring the success of the project, which is also next door to Las Vegas Sands’s stalled 20,000-room project, which would include Shangri-La and St Regis hotels.

The opening of Macau’s second-largest casino may be the “tipping point” for Cotai, CLSA Asia-Pacific Markets analysts Aaron Fischer and Huei Suen Ng said in a May 27 research report.

“The Venetian does attract visitors down to Cotai but is not strong enough on its own to retain visitors for the entire trip,” Fischer and Huei said. The City of Dreams’ addition to Cotai could lead to the area turning into the “the first stop” for gamblers, they added.

Cirque du Soleil

While the City of Dreams may help raise the average length of stay of Macau tourists, “I don’t think it will help raise average visitor stay beyond two days,” Gabriel Chan, a Hong Kong-based analyst at Credit Suisse Group, said in a phone interview today. “In Las Vegas, there are all these different shows. In Macau, now there’s just Zaia by Cirque du Soleil at the Venetian. There are more than 10,000 circuses in China, I don’t think they will be attracted to such shows.”

In the first four months of the year, more than half of Macau’s 7.3 million tourists were same-day visitors and the average length of stay in March was 1.3 nights, according to government data. Macau tourists’ average length of stay has ranged between 1.1 to 1.6 nights since 1997.

Visitors to Macau “tend to visit around three casinos on any visit to Macau and they lose on average 50 percent of their gaming budget in the first casino with 30 percent in the second and 20 percent in the third,” the CLSA analysts said.

Macau Tourism

Macau’s gambling revenue and visitor arrivals fell nearly every month except one between January 2008 and April amid the global recession. Curbs on visits by mainland Chinese to the city, the only part of China where casinos are legal, aggravated the slowdown.

Macau’s casino gambling revenue was 26 billion patacas ($3.3 billion) in the first quarter. While that’s 13 percent than a year earlier, it’s 8 percent higher than the previous three-month period.

Visitor arrivals in April dropped 3.5 percent from a year earlier, compared with 12 percent in March and 17 percent in February, according to the Macau Statistics and Census Service.

Casino operators’ share prices have rebounded this year after slumping in 2008. Melco Crown’s Nasdaq-listed depositary receipts have climbed 90 percent while those of Melco International Development Ltd., controlled by Lawrence Ho and traded in Hong Kong, have more than doubled. Both stocks lost more than 70 percent last year.

SJM, Galaxy

Stanley Ho’s SJM Holdings Ltd. advanced 91 percent this year. Galaxy Entertainment Group Ltd., part-owned by Permira Advisers LLP, surged 126 percent. Hong Kong’s benchmark Hang Seng Index, by comparison, has risen 31 percent.

Crown Ltd. is up 17 percent this year, compared with 4.6 percent for Australia’s benchmark S&P/ASX 200 Index. The stock lost 3 percent today. The company denied an Australian Financial Review report that it wrote off its entire 19.6 percent investment in Las Vegas’ Fontainebleau Resorts casino hotel.

Melco International slid 2.1 percent to close at HK$5.59 in Hong Kong today. SJM fell 3.6 percent to HK$3.23 and Galaxy declined 1.2 percent to HK$2.40.

“We are well on the road to recovery,” Lawrence Ho said in a May 20 conference call after Melco Crown reported it swung to a net loss in the first quarter.

The City of Dreams will help “widen the visitor base,” David Charles, DFS’s North Asia managing director, said. “It’s going to help both sides build a more critical mass for Cotai.”

DFS is a unit of LVMH Moet Hennessy Louis Vuitton SA.

To contact the reporter on this story: Chia-Peck Wong in Hong Kong at cpwong@bloomberg.net

Last Updated: June 1, 2009 06:26 EDT