Inside Asian Gaming

INSIDE ASIAN GAMING | July 2008 46 SJM—Macau’s DNA Until now, the received wisdom (in much of the English-language media covering SJM) has been that increased competition from Las Vegas-style integrated resorts would continue to erode SJM’s market share until or unless it produced its own mega resort. SJM’s “cluster” strategy may be more modest but just as effective. Dr Ho’s leisure businesses have sometimes been criticised for being slow to innovate, but 40 years as a monopolist haven’t been entirely wasted. SJM isn’t a stand-alone gaming operator relying on a marketing machine cloned from a parent company in Las Vegas. SJM is in the DNA of Macau thanks to its extensive network of contacts among VIP operators, and the potential to set up a conveyor belt of mass- market customers through Dr Ho’s huge investment in transport infrastructure. This is where the future direction and strategy of SJM becomes particularly interesting. As the appeal of Macau spreads beyond the southern sector of the Pearl River Delta, and more visitors arrive by land and by air,Taipa and particularly Cotai and its large-scale resorts and more capacious road infrastructurewill be ideally placed tobenefit from the mousetrap effect. Here SJM looks dangerously exposed in terms of coverage. SJM’s presence in the two southern zones of Macau is currently limited to relatively small SJM-licensed casinos in Taipa—the Marina Casino, Casino Taipa, Greek Mythology and Macau Jockey Club casino. With no timetable set out for its Cotai properties,SJM risks being left behind in the race for market share in southern Macau. Land Ho Dr Ho does,though,control the territory’s largest privately held land bank. As of April 2007, Shun Tak alone had 6.79 million sq. ft of attributable floor area in new housing and retail developments in Macau, and 1.06 million sq.ft of gross floor area in commercial property in the territory according to a research paper from Morgan Stanley. Up to now, Dr Ho has been allowed by the Macau government to allocate land to different companies under the STDM umbrella in pursuit of his strategic interests. Access to this land—much of it in prime areas—could significantly mitigate the cost of any new gaming property that SJM decides to build, subject to government approval. The cluster around the Grand Lisboa A New Start An IPO may be a chance for a management shake up at SJM A useful side effect of the SJM public offer may be to unblock some of the more scelerotic arteries in SJM’s management system. Opening the company up to the market and to internationally recognised standards of corporate governance may also be the chance for a kind of corporate rebranding. A successful listing on a world-respected bourse goes some way to blunting the effects of what amounts to a four decades- long whispering campaign among foreign regulators against Dr Ho as an individual. If it’s good enough for the Hong Kong regulators it should be good enough for the Americans and the Australians, goes the thinking. What gives some weight to the ‘listing as spring cleaning’ theory is a feeling in the industry that internal issues and resistance to change have blunted SJM’s competitive edge in the past. When Frank McFadden, a former chief operating officer of Venetian Macau Ltd for Las Vegas Sands Corp was appointed SJM’s President of Joint Ventures and Business Development two years ago, it was widely taken as a signal that SJM had things to learn from its foreign competitors as well as things to teach them. Such anecdotes may be enough to make international institutional investors wary of even a newly public SJM as a distinctivelyChinesedishthatdoesn’talwaystravelwell.Regardless of investor appetite for the new SJM, one thing seems clear. It’s dangerous to ignore the competitive threat from an organisation headed by a chairman who made his first fortune before Steve Wynn was even born. The Grand Lisboa dominates the Macau Peninsula skyline