3 Editor and Publisher Kareem Jalal Director João Costeira Varela Business Development Manager Ricardo Carvalho Operations Manager José Abecassis Contributors Desmond Lam, Karen Tang, Mike Grimes, Richard Marcus, Octo Chang Photography Ike Graphic Designers Ricardo Borges, Karen Yiu Editorial Inside Asian Gaming is published by Must Read Publications Ltd Suite 1907, AIA Tower, 215A-301 Av. Comercial de Macau - Macau Tel: (853) 6646 0795 For subscription enquiries, please email
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[email protected] or call Ricardo Carvalho Tel: (853) 6682 8475 www.asgam.com Since Macau embarked on a spectacular gaming and tourism boom from the second half of 2003, nowhere did the adage “the house always wins” ring more true than the city where the US$265 mil- lion Sands Macao recouped its entire initial investment within ten months of opening in May 2004. At the end of 2003, Macau had a mere 424 gaming tables, but twelve months later, had 1,092. Gaming capacity continued to soar, and by the close of 2006, the city had 2,762 gaming tables—a 99% year-on- year increase.The number of slot machines went from 814 at the end of 2003 to 6,546 at end-2006 (with a 91.3% increase in 2006). Accord- ing to estimates by Macquarie Securities Conglomerates and Gaming analyst Gary Pinge, the number of tables will increase a further 100.0% in 2007, while slots will increase 173.7%. The gaming and tourism boom was prompted by the easing of travel restrictions on mainland Chinese wishing to visit Macau and Hong Kong, driving a flood of mainland visitors to the two special administrative regions of China. Casino developers began planning a huge increase in capacity to capitalise on the boom.The first world- class crowd-pulling casino to open after Sands was Wynn Macau, in September 2006.Then in October that year came the StarWorld, highlighted in this issue’s “Tour of the Properties”, on page 26. In the interim, several derelict or unfinished office and residential buildings in the city had been hastily converted into hotel-casinos, including the Casa Real, Golden Dragon and Galaxy’s Waldo. Despite their per- functory nature, the converted properties generated healthy returns given Macau’s acute shortage of gaming capacity, and the crush of visitors descending upon the city. With capacity continuing to surge, new casinos in Macau are no longer looking like such a sure bet. Apart from potential overcapacity, inves- tors are also becoming increasingly concerned about the insufficiency of the city’s infrastructure, cost escalations (of wages and construction), and negative developments—both economic and political—in main- land China, where the bulk of visitors to Macau hail from. In May, the authorities of neighbouring Guangdong province—the source of about 85% of mainland Chinese visitors to Macau—im- posed new restrictions on its citizens applying for permits to visit the city. Other potential risks to Macau’s casino industry from political developments on the mainland are discussed in “Killing the Chicken” on page 10. The move by the Guangdong government was part of a slew of negative developments—including cost blowouts and opening delays—that caused a major sell-off in shares of Melco PBL Entertain- Still a Gamble ment, the owner and operator of the six-star Crown Macau hotel and casino, which opened two months ago. It is premature to pronounce Crown a failure, however, and in “Things Can Only Get Better,” on page 4, we point out some of the positives which investors may be neglecting. Still, the sell-off suggests investors are no longer as san- guine about the prospects of major new casino properties opening in Macau. The opening of the US$2.4 billion Venetian Macao mega-resort on August 28 will give offer a clearer picture of where the capacity boom will take the city.The 3,000 all-suite Venetian Macau will fea- ture the biggest casino in the world, spanning a half-million sq. ft and containing 850 gaming tables and 4,100 slot machines. In addition, the property will have a whopping 1.2 million sq. feet of convention and exhibition space, a 350-store shopping mall, a 1,800-seat Cirque du Soleil theatre and 15,000-seat stadium. Venetian Macao will be a market-revolutionizing property, aiming to draw a different breed of visitor to Macau—those seeking to attend conventions and exhibitions and entertainment spectacles, and con- sume the resort’s myriad retail and dining offerings, rather than the gambling-focused day-trippers who currently make up the majority of visitors to Macau. The average visitor stays just 1.1 days in Macau, and Venetian Macao will spearhead the new mega resorts seeking to extend the length of stay in the city. If visitors are drawn in ever-greater numbers by the mega-resorts, and stay longer, not only will casinos benefit, but operators will also finally be able to derive substantial non-gaming revenues—on the Las Vegas Strip, casino operators already derive over half of their revenue from non-gaming sources, compared to an estimated 5% in Macau. Many analysts are concerned that Macau’s straining infrastructure will be unable to cope with Venetian in its early days, and believe the company will be unable to avoid a list of teething troubles owing to its unprecedented scope in tiny Macau.Venetian Macao is also taking a gamble with its massive stadium and planned entertainment spec- tacles, given visitors to the city have thus far not demonstrated much demand for non-gaming entertainment.The outcome of that gamble will be closely watched by other operators, including MGM, who have indicated they are not yet willing to bet on non-gaming in Macau. Kareem Jalal We crave your feedback. 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