IAG 2006-04-05 - Apr- May - page 6-7

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InMacau, the race is far fromover,and thehare ishardly sleeping,but
the tortoise justpulledahead.Meanwhile, the local lion still lurkswell
aheadof theupstarts.
The racebeganwhen theMacaugovernment endedStanleyHo’s40-
yeargamblingmonopoly in2002,awarding threecasinooperating
concessions,whichhavenowmultiplied to six.
LasVegasSandsCorp (LVS)madeadashing startbyopening the
US$265millionSandsMacau inMay2004, threemonthsbefore
WynnResortsbrokegroundon itsfirstMacauproperty.LVS re-
couped its investment inSandsMacau in10months,and seemed
tohave securedanunassailable lead. In the inauguralOctober 2005
issueof InsideAsianGaming,FrankMcFadden,COOof LVS’ local
subsidiaryVenetianMacau,predictedhis companywould“bank
US$750millionof EBITDA [earningsbefore interest, taxes,deprecia-
tionandamortisation] beforeanyoneelse [namelyWynnMacau]
opens their casinos.”
Inanunexpected turn lastmonth,WynnResorts landedUS$900
millionby selling the last of the remainingMacau casino sub-con-
cessions –beatinganalysts’expectationsofUS$250-350million,
and theUS$260million ($200million+$60million landpurchase)
StanleyHo’s SJMearned from the saleof its sub-concession toa
joint-venturebetweenMr.Ho’sdaughter,Pansy,andUS-basedMGM
Mirage.VenetianMacauhadno sub-concession tohawk, since it
was the company’s splitwith itsoriginal biddingpartner,Galaxy
Casino, that gave rise to the sub-concessions in thefirst place (see
page26 formoreon thehistoryofMacau’smultiplying sub-conces-
sions).
The tortoisemayhave landedaheadof thehare,but LVS is still dart-
ingaheadwithconvictionand taking the race inaboldnewdirec-
tion.WynnResorts is set toopenWynnMacau inSeptember,and
has alreadyannouncedanexpansionplan thatwill bring its total
investment inMacau tooverUS$1billion.WynnMacauwill claim to
be thecity’sfirst full-fledgedVegas-styledestination resort, though
LVSChairmanSheldonAdelsonemphasizes the limitednon-gam-
ing scopeof theproperty inhis interviewwith
InsideAsianGaming
(page18).
Mr.Adelson says it is theupcomingUS$2.3billionVenetianMacau,
set toopen inmid-2007, thatwill herald thedawnof themega-re-
sorts inMacau.VenetianMacauwill form theanchorof theCotai
Strip, intowhichLVS ispouringaboutUS$6billion in investment to
create“Asia’sLasVegas.”
TheHare,theTortoiseand theLocal Lion
Most importantly,withVenetianMacau,LVSwill seek to transform
thecity intoamajor leisureandconventionandexhibitionhub. It
will be the successofVenetianMacau’snon-gamingofferings that
will ultimatelydeterminewhether thehare’s speedy supply-driven
strategyor the tortoise’smoreploddingbutprudentdemand-driven
approach ismoreprofitable.All SandsMacauhasproven so far is
that there isgreatdemand formore spaciousandattractivegaming
venues.WynnMacauwill focuson tapping into thatdemand.
Conventionsandexhibitionsdrivemid-weekoccupancyatVenetian
LasVegas,giving thepropertyanoccupancy ratenear 100%.There
areconcerns,however, that theChineseconventionandexhibition
market is still too small to support aprojectof the scaleofVenetian
Macau.Mr.Adelsonmaintains those fearsareunfounded,and that
demand for theupcoming resort is tremendous.Theredoesnot
seemmuch riskof theharebreedingawhiteelephant in the long
term,but timing isacritical issue thatweighson investors’minds,
asPrudential EquityGroup’sWilliam J.Lernerpointsout inhisAsian
FieldNotesonpage13.
Thehareand tortoisehavebrought their famousLasVegas rivalry to
Macau, the lairof StanleyHo’sSociedadede JogosdeMacau (SJM),
which retainsa70% shareof local gaming revenue.The local lion is
not sleepingeither,andhas investmentsworthaboutHK$10.4billion
(US$1.34billion) in thepipeline - theHK$3billionGrandLisboa,
theHK$6.2billionOceanus complex,anda51% stake in theHK$2.4
billionPonte16project.SJMcanfinance those investmentsoutof its
cashflow,but is seekinga listingon theHongKongStockExchange
toprovidegreaterfinancial flexibilityand fundpossible futureproj-
ects.Analysts conservativelyestimate that the saleof a25% shareof
thecompanycould raiseaboutUS$1.9billion.
InvestmentbankCLSApredictsSJMwill holdonto50%ofMacau’s
gaming revenueby2008.The race fornon-gaming revenueamong
Macau’s casino resorts isyet tobegin,but LVS ispositioning itself for
abighead startwith investmentseclipsing thoseof otheroperators.
By2008, thehare looks set to secure the lion’s shareof thenascent
non-gamingmarket.Howprofitable thatmarketwill proveandhow
soon isnot entirelyclear,butMr.Adelsonhasnodoubt about the
wisdomof leaving theothers trailing.
Kareem Jalal
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