Macau may trump Vegas - Saturday 12th of March 2005
IN the late 1940s, the mobster Bugsy Segal dreamed an improbable dream that a desert town could turn into one of the US's biggest resorts.
Years later, long after Segal's associates had silenced him, Las Vegas shook off the mob to become not only the world's gambling capital, but the fastest growing city in the US.
Now gambling moguls such as Kerry Packer and Steve Wynn are hoping to pull off, without the mob connections, a similar transformation in Macau ??? turning what has been a sleazy sinkhole of smoky gambling dens, recycling reputedly ill-gotten cash, into a conference centre and a family-friendly international tourist destination.
Over the next few years, more than $US17 billion ($22 billion) is poised to plunge into this tiny former Portuguese enclave, sparking a building frenzy of hotels, casinos, resorts and shopping malls that will transform the territory for its 440,000 people.
Already Macau ranks among the fastest growing places in greater China with economic growth of 25 per cent last year and 47 per cent growth in private investment. It is set to blitz Las Vegas in gambling revenues this year and Australian companies have a front seat at the tables.
Packer's Publishing & Broadcasting Ltd is teaming up with Lawrence Ho, son of Macau gambling mogul Stanley Ho, to build a $HK1.5 billion ($250 million), six-star hotel and casino complex due to open next year. Meanwhile, poker machine maker Aristocrat Leisure is setting up in Macau after soaring sales in the territory helped it become the best performing large stock on the Australian stock market last year.
Sands casino founder Sheldon Adelson last week unveiled his grand vision for a gambling and tourism strip which he expects to outclass and out-earn anything Las Vegas has to offer.
The anchor property on what is now 4.7sqkm of soggy mudflats ??? reclaimed from the ocean to make two islands into one ??? is the $US1.8 billion, 3000 room Venetian Hotel. There are plans for at least eight major hotels and a shopping citadel where cashed-up new-rich Chinese can pay homage to some of the world's best known (and hopefully genuine) luxury brands. Within seven to 10 years, there could be 60,000 hotel rooms, Adelson says, predicting the whole project will cost up to $US15 billion.
Frank McFadden, the Irishman running the new Sands, has billed it as perhaps the world's single biggest tourist investment ever.
Seemingly in response, Lawrence Ho was quoted in the Financial Times saying the partnership between his company Melco and PBL would build a $US1 billion "mass market" casino to take on the Sands properties. This will dwarf the $US192 million Park Hyatt already under way, which will cater primarily for high rollers, who account for an estimated 70-80 per cent of existing Ho revenues.
Aristocrat has snared 50 per cent of poker machine sales to the stunningly lucrative new Sands in Macau, which has earned back its $US250 million investment in less than a year.
Since the mainland regained control in 1999, visitor numbers have more than tripled from 6 million a year to 16.7 million last year thanks to China's progressive lifting of restrictions on individual travel for its citizens. Macau gambling revenues surged around 40 per cent to $5.1 billion last year. That's just a whisker behind Las Vegas's $5.3 billion, with half the visitor numbers. Macau revenues will grow 18 per cent a year through to 2008, forecasts Marc Falcone, gaming analyst at Deutsche Bank, by which time gambling opportunities are expected to balloon from the current 16 casinos and 894 gaming tables to at least 30 casinos and 3500 tables. Analysts say property prices are up 50 per cent in the past 12 months, while a frenzy for "Macau concept" stocks has fuelled warnings of a dotcom-style bubble in the making.
Melco has been a big beneficiary, its share price more than doubling from $HK7.15 to $HK19.15 since last October. Wynn Resorts doubled in price on the Nasdaq last year while Sands has added more than 60 per cent since listing last December.
Sands is one of three groups to secure gambling licences after Macau's chief executive Edmund Ho (no relation) ended Stanley Ho's 40-year monopoly on gambling in the territory in 2002. Stanley Ho's Sociedade de Jogos de Macau (SJM) also got a licence, as did Wynn Resorts, whose owner Steve Wynn created the amed Vegas casinos Mirage and Bellagio. Wynn Resorts has a $US700 million resort under construction.
"We designed (the casino) to be the antithesis of what was existing. Where there were low ceilings there is height. Where there was darkness, there is bright," says McFadden of the Sands Macau.
So far, the non-smoking gambling area and floor-to-roof windows on the upper level are working their magic. The casino is already earning more than the company flagship, the Venetian in Las Vegas.
On a recent Wednesday evening, about 4000 people crowded around the baccarat tables while dancers shimmied on an adjacent stage with the action beamed from a giant video screen overhead.
Stanley Ho, having lost 30 per cent of the Macau gambling take to the newcomers, is fighting back with four new casinos in the past two years and big plans for more. This includes a $US250 million Grand Lisboa hotel/casino taking shape across the road from his ageing landmark Casino Lisboa, and a $US110 million Fisherman's Wharf theme park. Due to open in September, it will feature a spewing volcano, a Mississippi steamboat hotel, a Chinese fort and a faux Colosseum.p>"We are Chinese and we will not be disgraced. We will not lose to the intruders," Ho vowed at a company function in September, according to the South China Morning Post.
Excavation work has begun on the PBL-Melco Park Hyatt site where last week two men were laboriously shovelling dirt into plastic bags while five cranes worked overhead. Phase one, a six-storey casino of 200 tables and 1300 poker machines, is due to open mid-2006. The hotel of 240 deluxe VIP suites promises "spaciousness and unrivalled luxury decor" follows in 2007.
PBL-Melco are spearheading a pokie push into Macau. Among the assets of the joint venture are three "Mocha slot lounges", cafe-style machine parlours through which Melco-PBL are trying to persuade Chinese punters of the pleasures of pokies.
While machines are the "bread and butter" of casinos elsewhere in the world, including Australia and the US, they contribute less than 3 per cent of Macau gambling revenues, according to Michael Swing, Ho's nephew and regional operations manager of SJM.
"The Chinese don't play slot machines, only on their way from the baccarat tables to the toilet. Now we have to educate them," Swing says.
Lawrence Ho has charge of the task. It looks like an uphill battle. On a weekday afternoon when The Australian called in to the Mocha slot lounge at the Hotel Royale, on a winding hilly street well away from the big downtown gambling venues, all of about 30 places at the electronic roulette tables were taken. By contrast only six of 41 machines were occupied.
One older lady who declined to give her name was pressing the buttons of "Warrior Woman". She plays the pokies when she has some free time because she doesn't know how to play the table games, she says. It doesn't worry her that the machines are covered in English writing which she can't read. "The machine will tell you if you've won," she says.
According to Swing, Chinese punters prefer playing the tables because they have a greater sense of influence in the choice of "lucky" cards. The Sands has put in 1800 machines but there, too, few punters appear to be using them. "I don't think this will be a slot-based gambling industry in the foreseeable future," McFadden says.
Analysts estimate the eventual market at about 20,000 machines, compared with 680,000 in the US and more than 200,000 in Australia.
Foisting machines on an uninterested clientele isn't the only gamble for the PBL-Melco joint venture. There's also the matter of whether the Victorian and West Australian gaming authorities will deem Melco a fit and proper business partner for PBL, as is required by the terms of PBL's licences to operate the Crown casino in Melbourne and the Burswood casino in Perth.
In 1986, the NSW authorities deemed Stanley Ho, chairman of Melco, "unsuitable" to hold a NSW gaming licence during the tender for Sydney's Star City casino.
Melco-PBL, whose joint venture aims to cover casino developments throughout Asia including Vietnam, Japan and Thailand, are also among more than 12 groups who have tendered for the casino or casinos being considered by the Singapore Government.
Singapore is hesitant to tarnish its squeaky-clean image by introducing a passtime known to attract vice. A PBL-Melco proposal might be a long shot.
On the border with the mainland at Zhuhai, stall operators reportedly take cash deposits well beyond the legal cross-border limits in return for the promise of waiting chips at the casino counters in Macau.
Michael Swing admits with disarming candour that the Lisboa is happy to send winnings to Hong Kong for gamblers in false names, that it's not uncommon for people to leave the casino carrying bags full of cash; that the notorious jailed triad leader Broken Tooth was well known at the Lisboa where he was a "nice guy" who "behaved well".p>But the bad old days just before the 1999 handover, when Macau citizens were cowed by casino bombings and street warfare between triads, are over, says Swing, thanks to a Chinese government crackdown.
"Macau is so small, you can't hide, they will find you. China knows exactly which are the good guys and which are the bad guys," says Swing.
Yet Macau hardly featured in a recent, well-publicised crackdown on the illegal outflow of mainland funds which has forced casino closures just across the borders in North Korea, Burma, Vietnam and Russia.
China may be content to turn a somewhat blind eye to shady dealings in Macau, which it holds up as a winning example of the "one country, two systems" model ??? an example it hopes to use to win over Taiwan.
"Macau's achievements since its return are a great source of joy to all of us," Chinese President Hu Jintao told Macau's chief executive Tung Chee Wa last December.
With China's average income adding 8 per cent a year for the past 20 years, more than a billion people living within a three-hour flight of the city, and the apparently enthusiastic support of Beijing, Macau may be a fair bet for a while yet.
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