Macau as Leisure Destination Still 10 Years Off, MGM China Says

Macau’s vision of transforming itself from Asia’s gambling capital into a Las Vegas-style destination with broader appeal is at least a decade off, MGM China Holdings Ltd. Chief Executive Officer Grant Bowie said.

Gambling would still account for 85 percent of sales for MGM China 10 years from now, compared with more than 95 percent today, Bowie said in a June 2 interview in Macau. That compares with Las Vegas, where non-casino operations generate more than half of sales for MGM China’s parent.

Billionaire Kirk Kerkorian’s MGM Resorts International (MGM) needed “25 to 30 years to achieve that scale” in Las Vegas, said Bowie, the day before his company started trading on the Hong Kong stock exchange following a $1.5 billion initial public offering. “If in the future we could do 15 percent, we would be pretty comfortable with that” in Macau, he said.

MGM China’s proposed development on Macau’s Cotai Strip will be key to its goal of deriving more income from other parts of the business such as hotel rooms and renting out store space, Bowie said. The planned 3 million square-foot property is part of the company’s bid to take advantage of the former Portuguese colony’s surging casino gambling revenue, which grew 58 percent last year to 188 billion patacas ($23.5 billion), about four times that of the Las Vegas Strip.

Macau must address labor and land shortages and inadequate infrastructure, and attract guests willing to stay longer, Bowie said.

40 Percent Growth

Gambling will dominate sales at casino operators for several more years, said Huei Suen Ng, a Hong Kong-based gambling and consumer analyst at CLSA Asia Pacific Markets.

“People do not go to Macau for non-gaming activities,” she said. “It needs more facilities in terms of hotel rooms and infrastructure,” including a connection to China’s high-speed rail network and a bridge to Hong Kong, she said.

MGM China, the first $1 billion-plus IPO in Hong Kong to price at the top of its range since AIA Group Ltd. in October, yesterday rose 1.8 percent to close at HK$15.62.

All net proceeds of the IPO will go to Pansy Ho, who sold down her stake to 29 percent, with 1 percent going to partner MGM Resorts. MGM China was a 50-50 joint venture between Ho and Kerkorian’s casino operator before the share sale.

Revenue Growth

The Las Vegas-based company now owns 51 percent of MGM China, enabling it to book profits from the Macau operation. MGM Resorts last year derived about 39 percent of its $6 billion sales from gambling operations, according to data compiled by Bloomberg.

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Grant R. Bowie, chief executive officer of MGM China Holdings Ltd.. Close

Grant R. Bowie, chief executive officer of MGM China Holdings Ltd..

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Photographer: Jerome Favre/Bloomberg

Grant R. Bowie, chief executive officer of MGM China Holdings Ltd..

Macau’s casino gambling revenue may grow 40 percent this year, according to David Bain, an analyst with Sterne, Agee & Leach Inc. He raised his estimate from 30 percent after Macau’s casino revenue grew 42 percent in May to 24.3 billion patacas, a fourth consecutive monthly record.

Ho’s father, 89-year-old billionaire Stanley Ho, held a gambling monopoly in Macau for four decades before the city’s government in 2002 started awarding casino licenses to overseas companies including Sheldon G. Adelson’s Las Vegas Sands Corp. (LVS) The government had said allowing the entry of Las Vegas casino magnates including billionaire Steve Wynn would help transform the Chinese city into a leisure destination.

Vegas Clone

The aim was for Macau, 40 miles west of Hong Kong and known for its smoky gambling dens and legalized prostitution, to be transformed into a Las Vegas clone, with luxury hotels, wholesome entertainment, convention halls and exhibitions.

The Americans piled in and helped build Macau into the world’s largest casino destination.

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Pansy Ho, co-chairman of MGM China Holdings Ltd., makes a toast during the company's Hong Kong stock exchange listing ceremony, in Hong Kong, China. Close

Pansy Ho, co-chairman of MGM China Holdings Ltd., makes a toast during the company's... Read More

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Pansy Ho, co-chairman of MGM China Holdings Ltd., makes a toast during the company's Hong Kong stock exchange listing ceremony, in Hong Kong, China.

Still, the average length of stay for Macau visitors was 1.7 days at the end of 2010, indicating that many players spend their money on the tables then head back home.

The majority of visitors are Chinese day trippers who are bused to the Macau border, Bowie said. The length of the average visit by tourists who arrive from further away has increased, he said.

MGM China’s Cotai development will be one and a half times the size of its hotel and casino on Peninsular Macau, the portion of the territory that shares a land border with the rest of China. It will offer “a more holistic entertainment experience,” Bowie said.

It will have more hotel rooms, restaurants, shops and entertainment concepts. The company plans a series of smaller attractions, Bowie said, unlike Adelson’s purpose-built Cirque du Soleil theater adjacent to Sands China Ltd. (1928)’s Venetian Macao, or the House of Dancing Water show at Melco International Development Ltd. (200)’s City of Dreams across the street.

MGM should receive approval from the government by the end of the year to start building, he said. Construction could start early next year, with the first phase taking up to three years to complete, he said. The timeline depends on MGM’s ability to find enough workers in Macau’s overstretched labor market.

“We all know it’s an issue now and the government is progressively working through a structured approach,” he said. “We are comfortable we are going to have the labor, but I’m not saying we aren’t going to have hiccups.”

To contact the writer on the story: Frederik Balfour in Hong Kong at fbalfour@bloomberg.net.

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

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