Inside Asian Gaming

INSIDE ASIAN GAMING | July 2008 6 The arrival of competition in Macau’s casino sector has inevitably eroded the market share of former monopoly operator Stanley Ho. Still, Dr Ho’s Sociedade de Jogos de Macau (SJM), through the 19 Macau casinos it controls, continues to generate a larger share of the city’s total casino revenue (28% in March 2008) than any of the other five new operators in the market. In the mid-1980s, Dr Ho created Macau’s unique VIP market structure—involving operators of private VIP rooms and the rolling chip commission programme—that continues to generate the bulk of casino revenue in Macau and virtually all of Asia. TheVIP rooms,locatedwithin Dr Ho’s casinos, took on some of the administrative burden of the gaming operations in exchange for a share of revenue. Meanwhile, junkets received a commission on the purchase of “non-negotiable” or “dead” chips by the players they brought in. The commission serves not only as a reward to junkets for bringing their clients to a particular casino, but also for extending credit to those clients, since the bulk of VIP gamblers in Macau hail frommainland China and are unable to bring large sums of money out of the country to play with. In addition, gambling debts are not legally enforceable in China, so the junkets are also charged with the sometimes onerous task of collection. Each successive foreign operator arriving in Macau proclaimed it would court high-rollers directly and do away with the junket middle men (and therefore not contribute to escalating junket commission rates). Each, however, quickly realised that junkets are crucial to operating a high-roller business in Macau, and adopted the familiar arrangements pioneered by Dr Ho. While many claimed Stanley Ho would have to adapt and improve the service and facilities at his properties to meet the competition fromglitzy newUS operators,it appears the US operators have followed Dr Ho’s lead in more important ways. Las Vegas Sands Corp (LVS) unveiled Sand Macao in May 2004, proclaiming it would primarily target the mass market, which had been long neglected due to Dr Ho’s focus on the VIP market. Despite the efforts of Sands and other new casinos with resplendent main floors, however, the mass market still lags in its contribution to casinos’ overall revenue, with baccarat played in the city’s VIP rooms commanding close to 70% of all casino revenue in the first quarter of this year. Unsurprisingly, LVS,Wynn, MGM Grand Paradise and Melco Crown Entertainment have all backtracked on their stated goal of luring high-rollers directly. Instead, they have adopted aggressive junket arrangements, contributing to the junket commission war. Having enjoyed an effective 42-year monopoly on casino operation in Macau, Dr Ho earned the title “King of Casinos” throughout Asia, and accumulated a fortune of US$7.0 billion, according to the Forbes 2007 Billionaire’s list, on which he ranks joint 104th. In addition to gaming, his business interests span entertainment, tourism, shipping, real estate, banking and air and sea transport. Stanley Ho profits from Macau’s tourism and gaming boom in many ways beyond the inexorable rise in casino revenues. He and his family own major stakes in flag carrier Air Macau, as well as the airport, jetfoil and helicopter services by which over 40% of visitors arrive in Macau. Stanley Ho’s Sociedade de Turismo e Diversões de Macau (STDM)—of which SJM is a subsidiary—is also Macau’s largest landowner, benefiting from skyrocketing property prices and offering a considerable land bank for future expansion. 86-year-old Stanley Ho has also invested in casino projects in Portugal, North Korea, Vietnam and the Philippines. His son Lawrence and daughter Pansy formed joint ventures with foreign partners—Australia’s Publishing and Broadcasting Ltd as it was known at the time, and MGM Mirage, respectively—to create two more of Macau’s six casino operators. It would be hard to find an example anywhere in the world in the last 50 years of an individual businessman (as opposed to a politician or government officer) who has had a greater impact on an entire jurisdiction’s growth and development, earning Stanley Ho the honour of being the only living Macau resident to have a street named after him. Though he is often maligned, there is no denying him credit for creating much of the framework and infrastructure of today’s Macau. Asian Gaming 50 1 Stanley Ho Hung-sun Chairman and Managing Director, Sociedade de Jogos de Macau (SJM)