Macao Set to Trump Las Vegas in Gambling Biz
It's mid-afternoon on a Monday at the Sands Macao casino and the joint is jumping. A Chinese woman emits a shriek after winning a big hand at the baccarat table, where players and onlookers are packed three deep. White-gloved waiters dispensing free drinks make their way past green felt-covered tables and blinking slot machines where gamblers hunker down, as far as the eye can see.
Open for just over two years, the 740-table casino already accounts for more than half of parent company Las Vegas Sands' (LVS) gambling revenues. But that's just for starters. The group will open the 3,000-suite Venetian Macao in fall of next year, part of a $2 billion plan to build a strip with 12 hotels and a convention center, an entertainment Mecca that Chief Executive Officer Sheldon G. Adelson calls "an unprecedented development not only in Macao but in the entire world."
He's not the only one betting big on Macao, the former Portuguese colony opposite Hong Kong that is now a special enclave of the People's Republic of China. On Sept. 6, casino tycoon Steve Wynn will unveil the first phase of his $1 billion eponymous casino and luxury hotel with 600 rooms and 200 gaming tables. Nearby, the MGM Grand Macao, a joint venture between MGM Mirage (MGM) and Pansy Ho, daughter of gambling doyen Stanley Ho, is set to open its doors before the end of the year.
A BILLION GAMBLERS.
Las Vegas research and advisory firm Globalysis predicts that next year Macao gambling revenues will be catapulted 17.6%, to $8 billion, displacing the Las Vegas Strip as the world's gambling capital. With an average daily win per table of $8,000 to $9,000—compared with a daily per-table take for the house of about $3,200 in Vegas—corporate tax rates of just 12% compared with 35% in Nevada, and 1.3 billion gambling-crazy mainlanders at its doorstep, Macao is the future of global casinos.
It wasn't until 2002, when the Macao government ended Stanley Ho's 40-year-old monopoly and awarded licenses to international players, that the stakes got so huge. The government hoped that the foreigners would help clean up the image of a city best known, after gambling, for brothels and organized crime.
Dealing with dubious partners could cost U.S. companies their Nevada gaming licenses, so they have rigorous in-house teams vetting everyone they do business with. "We always have to be vigilant," says William P. Weidner, president and chief operating officer of Las Vegas Sands.
UPPING THE ANTE.
Ho's first competition came from the Sands Macao, which opened in 2004 and now has a 25% market share. It has succeeded largely by focusing on the mass market overlooked by Ho's casinos, which have catered to high rollers. Currently, hoi polloi account for 75% of the Sands' gambling revenues, mostly day-trippers crossing the border from China or arriving by ferry from Hong Kong. For Macao's 18 million visitors last year, the average stay was only 1.1 days.
The new hotels being built by Adelson and Wynn up the U.S. ante. By offering Broadway hits, Cirque du Soleil, wave pools, and gondola rides, Adelson hopes to entice tourists and conventioneers to extend their stays to several days—and spend plenty of time at the tables. But whether the Chinese will be willing to shell out $300 a night for accommodations is no sure thing.
"Mainland Chinese tourists gamble a big amount, but don't spend on accommodation," says Gabriel Chan, gaming analyst with Credit Suisse Group (CSR) in Hong Kong. "Initially, the Americans may be disappointed by the nonperformance of nongaming attractions."
Still, Sands executives are confident they can replicate their success in Las Vegas, where Adelson helped turn the city into one of the country's premier convention destinations. The group has signed deals to operate casinos in properties planned by the Four Seasons Hotel (FS), Starwood Hotels & Resorts' (HOT) Sheraton and St. Regis brands, Shangri-La Hotel, and the Hilton Hotels (HLT) and Conrad chains.
Meanwhile, it has signed up retail tenants ranging from Krispy Kreme Doughnuts (KKD) to Prada. Its flagship Venetian Macao has already booked its venue for 26 meetings, including a convention of hematologists. "You can look at the history of Las Vegas as a template to Macao," explains Weidner. "Not that long ago pharmaceuticals, insurers, and financial institutions wouldn't have held meetings in Las Vegas. So people who wouldn't have come to Macao will come."