Macau: Family-Style Casinos for Sin City?

It's inviting U.S. tycoons to build an Asian Las Vegas

It's early Friday evening in the Casino Lisboa, and players crowd three-deep around the baccarat tables. Mainland Chinese men with bad haircuts jostle for space with hard-eyed gamblers from Hong Kong. In VIP suites upstairs, high rollers drop $250,000 on a single bet. Prostitutes in tight skirts and platform shoes prowl the corridors. Even the croupiers look a bit tawdry, their bow ties drooping in the stale air.

Welcome to Macau. Although this former Portuguese colony boasts cobblestone streets and charming 400-year-old architecture, for decades its main tourist attractions have been baccarat, brothels, and bars. Gunfights between mob factions have disappeared since Beijing took over the enclave in 1999. But the place still has a Wild West feel, with organized-crime groups--the triads--operating out of the city's 11 casinos and running lucrative junket operations and loan-sharking rackets.

Now, Macau's government has decided to give its gambling industry a good scrubbing. Their model: Las Vegas, with its resort hotels, conventions, golf, and family-friendly shows--all wrapped around a core of lucrative green-felt tables and blinking slot machines. So Macau went straight to the source. In February, it awarded gaming licenses to Vegas titans Sheldon G. Adelson and Stephen A. Wynn. That ended the 40-year gambling monopoly of Hong Kong billionaire Stanley Ho. "We are going to transform Macau," says Adelson, owner of the $1.2 billion Venetian Casino Resort in Las Vegas. "We want it to be known not just as a gambling resort but as an Asian Las Vegas."

The Vegas rivals are ready to put down a pile of chips to make it happen. Galaxy Casino Co., owned by Adelson, a Macau lawyer, and several wealthy Hong Kong partners, has promised the government of Macau that it will spend more than $1 billion building a convention center, an arena, and as many as five hotels including one modeled after the Venetian. Although Adelson has yet to acquire the land for that project, he's about to begin construction on a smaller casino called the Las Vegas Sands Inc., which should open in late 2003. Wynn's group has a lease on land adjacent to the Lisboa and is committed to spending $497 million on casinos within seven years.

It's a crapshoot, though, since Asian gamblers aren't exactly your average Las Vegas casino-goers. While slot machines account for half of Vegas's gaming take, they provide just 5% of Macau's receipts. Asians prefer table games such as baccarat and high-low, which require skill, not just luck. And they rarely venture out of the casino, even to eat, let alone take in a nightclub act or ride a water slide. "Their main objective is gambling," says Ambrose So, director of Sociedade de Jogos de Macau, which operates Ho's casinos. "It would be very difficult to change those appetites or habits." Counters Adelson: "The fact that Macau's image needs some burnishing is why the opportunity exists."

But Chinese families can't just load up the Winnebago and drive to Macau for a holiday. Mainlanders require visas to enter Macau, so travel restrictions must be liberalized before they can lose their money at its tables en masse. Until then, Macau will continue to count on Hong Kong, an hour away via hydrofoil, which provided half of Macau's 10 million visitors last year. Problem is, that proximity means that an average visitor's stay in Macau is just a day and a half, which keeps occupancy rates in the city's hotels at less than 55%, compared with 85% in Las Vegas.

Then there are the mob connections. Roughly 70% of casino revenues come from junket operators who bring in high rollers in exchange for a commission on whatever the casino makes on their wagers. Many of the junketeers are triad-linked, which poses a serious risk for U.S. operators such as Adelson and Wynn, who could lose their Nevada gaming licenses if they do business with anyone anywhere having underworld connections. The Macau government is working with Nevada regulators to clean up the industry--a delegation visited Las Vegas in mid-September--but it will be slow going. "It took years to get the Mafia out of Las Vegas, and the triads are well-entrenched in Macau," says Dan Grove, a former FBI agent conducting background checks on prospective partners for Adelson's Galaxy group.

If the stakes are high for Adelson and Wynn, they're even higher for Macau. Last year, its casinos grossed $2.25 billion, or nearly 40% of the enclave's gross domestic product. And taxes on casino earnings contributed 60% of the government's budget. The Gaming Control Board predicts that gambling receipts will grow an additional 15% this year.

Meanwhile, Stanley Ho is upping the ante to make sure he gets his share of that growth. He has committed to spending $585 million to upgrade his casinos in exchange for renewal of his gambling-concession license. And his group is building a theme park complete with a 40-meter-high volcano that spews lava and an underground convention center inspired by the tombs of the Pharaohs.

But it will take more than volcanoes and gondolas to clean up Macau. Manuel Joaquim das Neves, director of Macau's Gaming Control Board, says vice is a core part of the city's lure. "If you want to do away with these social problems, you can do away with gaming and live in heaven--but we'll be hungry," he says. Macau may have a long way to go before it becomes the Vegas of Asia.

By Frederik Balfour in Macau

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