Tables turned: how US casino moguls are vying to rake it in at Asia's Vegas
Arriving fashionably late, Stanley Ho sauntered up to his front-row seat. It was May 2004 and the tycoon who for four decades had monopolised Macao's gambling industry was encountering his first real taste of competition.
Mr Ho, one of 30,000 people who flocked to the opening of Sheldon Adelson's Sands Macao casino, seemed anything but worried. His entrance, a few minutes after Mr Adelson had begun his opening speech, obliged the self-made American billionaire to interrupt the ceremony and welcome his rival.
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Two years on, Mr Ho does appear anxious, extremely so. In a series of recent public comments, he has described gaming competition in the former Portuguese colony as out of control, said the operators of his VIP gambling halls were struggling and even suggested that Macao's "social stability" now hung in the balance. Mr Ho, scion of a rich Eurasian family from Hong Kong, has learnt the hard way that Mr Adelson, who grew up on the mean streets of Boston, is a tough operator.
Last night brought another opening, another competitor: now Mr Ho has to reckon with Steve Wynn's $1.2bn (￡634m, �937m) Wynn Macau, too. But even Mr Wynn's gambit - the territory's first modern "integrated" resort and casino, with 600 suites and 220 tables in its first phase - pales in comparison to what Mr Adelson is planning next. That is the $2.3bn Venetian Macao, a 3,000 suite, 750-table mega-resort due to start trading in the middle of next year.
The chips are thus down for what promises to be an epic clash between two of Las Vegas' leading moguls - whose antipathy for each other is already the stuff of legend - and one of Asia's most vibrant tycoons. The stakes, too, are appropriately huge: Macao is poised, perhaps by the end of the year, to eclipse the famed Las Vegas Strip as the world's largest gambling market. Casino operators in the Chinese territory booked gross revenues of $3.1bn in the first half, only just behind the $3.3bn on the Strip.
For Macao and Hong Kong, its sister special administrative region across the Pearl River Delta, the showdown is unprecedented in both style and substance. As between Mr Adelson and Mr Wynn, who in the US have warred over everything from parking spaces and the decibel levels of competing attractions to bank financing, there is also little love lost among the dozen or so families that dominate economic and political life in Macao and Hong Kong.
But their feuds are usually quiet ones and the fiefdoms they control tend to be secure. The battle pitting Mr Adelson, Mr Wynn, Mr Ho and a handful of lesser-known characters against each other is not only a very public one, it will also be a competitivefree-for-all.
Responding to Mr Ho's gripes, Mr Adelson advised those who "can't stand the heat [to] get out of the kitchen". That drew a vigorous riposte from Mr Ho: "I not only won't stay out of the kitchen, I will also cook a barbecue rice set and whoever comes to my hotel will receive a dish. Chinese kitchens are hot and our cuisine is the best."
According to CLSA, the Asian brokerage house, by the end of 2007 the number of gambling tables in Macao will more than triple to 4,300 from 1,400 at the end of last year. Over the same period, hotel rooms will increase 63 per cent to 17,200. "What Las Vegas built in 40 years, Macao will build in 10," says Prentice Salter, a former executive of Mr Adelson's Las Vegas Sands group who is now with Superesorts, a Macao-based consultancy.
Macao's growth has come amid a relaxation of travel restrictions for mainland Chinese over the past few years. With growing wealth and an itch to gamble, mainlanders have been the biggest supporters of Macao's transformation from a gambling den to Asia's Las Vegas.
Indeed, before the Sands Macao opened, gambling in the territory was a dreary affair for most. While the high-rolling punters known as "whales" were pampered in VIP suites, ordinary punters crowded into dingy smoke-filled halls operated by Mr Ho's flagship Sociedade de Turismo e Divers?es de Macao and its sub-licensees.
According to estimates by Credit Suisse analysts, prior to liberalisation almost 80 per cent of Macao casino revenues flowed from VIP baccarat and annual net gaming wins per table were in excess of $8m. Comparable per-table figures for casinos in Las Vegas, Atlantic City, Malaysia and Australia ranged between $500,000 and $1.5m.
The Sands Macao injected glamour into the city. Its high ceilings, spaceship design, restaurants, long bar and floor shows attracted gamblers in droves. "What the Sands tapped was an unrecognised reservoir of demand," says one Macao-based industry executive. "It's the buzz around the place that attracts people - and the Chinese like to go where the luck is."
Built at a cost of $265m, the casino booked operating income of $541m in its first two years. Already the world's biggest casino in terms of tables, last month it opened a $99m expansion that increased its capacity by more than 50 per cent to 740 tables.
Because the Sands Macao initially attracted relatively low-rollers, it was a wake-up call for Mr Ho but no big threat to his VIP gaming income. However, the Sands Macao is now making inroads into this segment as well. Two years after the Sands Macao opened, Mr Ho's market share of gaming revenue in the VIP segment has fallen to 70 per cent.
According to Mr Ho, the Sands Macao destabilised the industry by increasing the standard commission rate paid to so-called junkets, organisers whose job it is to "harpoon" the whales and other affluent players and bring them to a company's VIP halls.
Las Vegas Sands executives acknowledge that their junkets earn more than those working for Sociedade de Jogos de Macao, Mr Ho's gaming operation, but say this is because of inefficiencies inherent in SJM's business model. Mr Ho, they argue, franchises his VIP rooms to independent operators, who then split the 1.1 per cent commission with the junkets. The Sands Macao pays the same rate but, because it operates its VIP rooms in-house, the junkets get the commission outright.
"The difference is Stanley's middlemen," says William Weidner, president of Las Vegas Sands and Mr Adelson's right-hand man. "His commissions don't get to the field reps. They are all taken by the people in the middle."
"The Macao government wanted competition - we're competition," adds Mr Adelson. "We live in a competitive environment [in Las Vegas] where there are over 100 casinos. We have to compete. If we don't compete we don't survive. The junkets bring the business to us because they get the whole 1.1 per cent. They don't have to do business with an intermediary."
But SJM sees no need to change its business model. "We have been here for a very long time. We know what is a good model and what works for us. We know the market and our customers very well. I don't think there need to be any changes for the moment," says Ambrose So, SJM's director and Mr Ho's right-hand man.
While Mr Ho's baccarat chips may be down, he has at least two more cards to play. The first is his $385m Grand Lisboa casino, an 800-room, 200-table project being built across the street from his iconic Lisboa hotel and casino. Its casino portion is scheduled to open in the fourth quarter.
"The Grand Lisboa is the key that will determine whether Stanley Ho can really compete with Sands and Wynn," says one Hong Kong-based industry analyst. "It will be very negative if it doesn't do well."
Nor will Mr Ho, who has married four times and has 17 children, be taking on the likes of Mr Adelson and Mr Wynn alone. His daughter Pansy is involved in a 247-table casino and resort joint venture with MGM Mirage of the US. His son Lawrence has joined forces with James Packer's Publishing and Broadcasting to develop three projects worth $1.7bn.
Mr Ho's other potential trump card is that he still owns at least half of Macao. Either directly or through Shun Tak Holdings, his Hong Kong-listed company, Mr Ho controls stakes in 16 casinos, Macao's dominant ferry company and helicopter service, its duty-free monopoly, the territory's airport, its flag carrier, its only short-range budget airline and many hotels.
"There are a lot of things we can't do that Stanley Ho does," Mr Adelson says. "We don't own ferries. We don't operate [Macao's] ferry terminal."
"Stanley Ho had an integrated resort before we even invented the term," adds Mr Salter, referring to the shops, restaurants and other amenities that have fed, and fed off, the crowds making their way to the Lisboa hotel and casino since it opened in 1970. "It's not like he's asleep at the wheel."
Nonetheless, it is at the roulette wheel, the baccarat table and other games of chance that Mr Ho will have to hope that luck, and the profit it generates, stays on his side.
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