Gambling boom awakens sleepy Macau
Contrary to what you may have heard and read, Macau is not Las Vegas, at least not yet. But it is enjoying an unprecedented boom thanks to a US$12 billion wave of hotel and casino construction spurred by Las Vegas high rollers.
The former Portuguese colony, a peninsula and two islands about 60 kilometers (and at least 60 decibels) away from Hong Kong, first legalized gambling in 1847. When Macau returned to Chinese sovereignty in 1999, authorities immediately cracked down on triads whose open warfare had downgraded Macaus reputation from seedy to unsafe. Things really began picking up in 2002 when the government ended the 40-year gambling monopoly of Stanley Hos Sociedade do Jogos de Macau (SJM, or "Macau Gaming Society" in English). The government granted two new gaming licenses, and when the dust cleared (actually, things are
still pretty dusty these days with 1.7 million square feet under construction at more than 500 sites) Las Vegas high magnates Steve Wynn, of the eponymous chain Wynn Resorts, and Sheldon Adelson of the Las Vegas Sands empire had come to Macau with bankrolls in the billions.
Adelson envisions an eastern version of the Las Vegas Strip on landfill between Macaus outer islands of Coloane and Taipa, anchored by his $2 billion Venetian Macao. Ahead of the Venetians 2007 debut, the Sands opened a $240 million downtown casino in May 2004, giving Macau its initial look at Las Vegas glitz. From the pure gold glass exterior to shiny black 15,300 square meter open plan interior with a 50 ton chandelier and 20 meter high ceiling, the Sands antithesizes the gambling dens of the Hos flagship Hotel Lisboa. It also antithesizes Las Vegas: this Sands has no hotel (just 51 suites for invited high rollers; dont call us, well call you) and no retailing. These days, Vegas hotels get half their revenue outside the casino, from restaurants, retail, rooms and related attractions; in Macau, the take beyond the tables represents just 3% of the pie. Resorts on the drawing board, particularly the Cotai strip, will feature new ways to disgorge customers wallets.
Gambling on China
Today, most people come to Macau for one reason: to gamble. Rounding out the top five: romantic weekending from Hong Kong; commercial sex, ranging from Russian streetwalkers to massage parlors; eating Macanese, the original fusion cuisine; and seeing the legacies of Chinese culture and Portuguese rule dating to 1557 that won Macau a place on the United Nations World Heritage List in July.
Tourist numbers are skyrocketing, from 7.5 million in 1999 to 16.7 million last year, expected to reach 20 million this year. Current figures show 55.8% of visitors come from mainland China, many taking advantage of liberalized rules that allow travel to Macau by individuals, rather than only as part of those flag-waving, bus-riding, restaurant-jamming tour groups. Another 30% come from Hong Kong, one hour away on Hos jetfoil ferries making 80 trips a day, and 8.3% from Taiwan.
House winnings at Macaus 19 casinos are poised to exceed $6 billion this year, overtaking Las Vegas and its more than 200 casinos as the worlds top gambling earner. Macaus average daily take per table is around $18,000 (slot machines account for less than 2% of Macaus gambling take), better than five times the average for Las Vegas. Macau has a simple formula for its big money action: higher stakes. In Vegas, youll find $1 tables, but in Macau the betting starts at HK$100 (US$12.85; Macaus official currency is the pataca with a fixed exchange rate of eight to $1, but Hong Kong dollars are so common that casino limits are denominated in them, and they circulate on par with the slightly less valuable pataca), and those tables are hard to find.
The real action, however, isnt in the HK$300 blackjack or the Chinese big-small dice game, but VIP baccarat in plush, private rooms. High rollers, known as whales, account for about 80% of Macaus gambling revenue. The government takes a 35% tax on casino profits, comprising three-quarters of its revenue.
Insane growth
As youd expect, adding millions of visitors and Las Vegas developers to Macaus 465,000 residents and 450-year East-meets-West tradition has had a dramatic impact. GDP growth last year ran 28%, including an insane 49.4% in the second quarter, distorted by the impact of Severe Acute Respiratory Syndrome (SARS), which had misleadingly depressed the numbers for previous years. But Macaus 2003 GDP growth was 14.2%, so SARS didnt bring things to a complete halt. This years growth will likely come in just under 10%. Unemployment has fallen from 7.1% in 2002 to 4.1% today, and its still dropping, as construction continues and more hotels and casinos come on line and start hiring.
Theres never been a time like this in Macaus modern history, according to Paulo Azevedo, founder of Macau Business magazine. "Except for a couple of points hundreds of years ago - when it was the main stop on the Portugal-Japan trade route - Macau was a very laid back place," he says. The boom "brings a lot of challenges. Lets see if Macau is ready to cope," he adds.
"Quality of life is the first thing to go in an economic boom," Azevedo says. Were walking past one of several downtown sitting areas that lend a flavor of Europe to Macau. But this park is now closed due to construction on neighboring plots, and some open space may be lost for good. Azevedo applauds the government for recently establishing a quality of life task force "to step back and look at the big picture". He also salutes efforts to preserve Macaus unique legacy. The World Heritage List was a good first step, but "you need to protect the surrounding areas, not just the monuments". Hes optimistic because Beijing is on board. "They saw its a good idea to keep Macau different," says Azevedo, a native of Portugal who came to Macau a dozen years ago. "The Chinese are doing more for preservation than the Portuguese did."
Preservation is a challenge because space is at a premium. Macau measured 17.7 square kilometers in the 1980s and has added nearly 10 square kilometers since then. Reclamation is nearing its practical limit, and theres even talk of expanding to the mainlands Hangqin island if demand for resort sites continues to grow.
Residential real estate prices have broken out of a decade-long slump, rising nearly 50% since 2003. But they still havent reached the heights of the last boom that peaked in 1993. According to general manager Tony Yau of China Overseas Property, a Hong Kong developer building La Cite, a 1,000 unit project as its first Macau venture, Macau incomes are about 57% of those in Hong Kong, but property prices are roughly 27%. Prices may be limited in part by the bubbles legacy, a 30% vacancy rate at the luxury end of the market. But developers are hoping for an influx of expatriates as Cotai opens.
Skills gap
Thousands of expatriates will come because Macaus labor pool doesnt have the skills needed for all the new resorts. Thats most evident in the dearth of hotel and casino personnel comfortable with English. A pit boss who explained Caribbean Stud Poker to me turned out to be from Malaysia, a veteran of the Genting gambling resort outside Kuala Lumpur, lured to Macau on a lucrative contract.
The skills gap extends to the government. "In 1997, when [Hong Kongs British governor] Chris Patten got on the boat, everybody else in government stayed," Azevedo explains. "Here, when the Portuguese left here in 1999, none of the top secretaries were localized." As a result, some managers sped through 15 years worth of advancement in two or three years, and decisions tend to get kicked up to the top.
Theres also concern that the economy remains largely in overseas hands. Casino tycoon Ho is a Hong Kong resident and the other gambling licensees are also from outside Macau. Hong Kong firms dominate construction (and, increasingly, property sales) with some specialists imported from as far as Australia. Azevedo proposes taking advantage of these international firms by enlisting them in local training programs, including mentoring by executives for government and private sector and making their professional development programs available to all locals - or at least showing Macau the training models to follow.
Another hope to fill the skills gap is returnees. Christina Leong was educated in the UK, then worked there, Singapore and Hong Kong before returning to Macau at the start of the boom. "Before, everybody left," she says. "There were no good jobs here, but now things are changing." Maggie Lee graduated from the University of Nevada-Las Vegas last year and now works at the Sands. "Macau people I met whove been in the States for five years and longer are coming back."
The place theyre coming back to retains its Old World charm, despite the boom. The question for Macau is whether the charm and the boom can live happily ever after.
2005-09-12
