Inside Asian Gaming

10 11 Italian, with a large marble staircase lead- ing to the entrance and walls adorned with paintings of Italian streetscapes, including canals that bring Venice to Macau a year and a half before the Venetian. Despite the Rio’s disappointing facade, the mainland Chinese visitors we spoke to seem universally im- pressed with its interiors, and there are indi- cations that the casino is eating into the busi- ness of Hong Kong-based Emperor Group’s Emperor Palace Casino, which opened in January (with gaming run under Stanley Ho’s SJM concession). Galaxy is rushing to open the Grand Wal- do in Cotai before the “Golden Week” rush of mainland Chinese holidaymakers in the first week of May. The property will house 16 VIP gaming rooms, 166 tables and 350 slots, and will continue the company’s focus on the high-roller segment. Galaxy will then make its first major move to draw the mass-market with the 33-storey HK$2.5 billion (US$320 million) Galaxy StarWorld, scheduled to open one month before Wynn. Galaxy StarWorld will have 200 tables and 300 slot machines,as well as 500 five-star hotel rooms at what the company calls “affordable rates” and a bevy of dining and entertainment offerings. Affordability is key to Galaxy’s strategy. Galaxy CEO Anthony Carter stresses the com- pany’s adherence to the“Asian price point.”He observes that while Sands Macau’s fine din- ing restaurants are devoid of customers, the noodle shop enjoys a brisk trade with penny- pinching day-trippers keen to save as much of their cash as possible for the gaming tables. The day-trippers are Macau’s proven mar- ket, and Galaxy, which claims to have a better understanding of the local market than the new arrivals from Las Vegas, believes main- land Chinese will not support the more pricey products offered byWynn Resorts and LVS for at least another ten years.Of course,Wynn Re- sorts and LVS believe their superior product offering will immediately bring a new market of longer-staying, higher-spending visitors to Macau to support the expensive non-gaming elements of their new properties. Cost will not be a concern at the casinos, since none will impose cover charges and a HK$100 (US$12.8) chip costs the same across all properties. All the new casinos will also presumably contain at least some tables car- rying minimum bets of HK$100 – the lowest minimum currently available in Macau. As Sands Macau has proven, day-trippers with no ties to hotels will prefer to gamble in the best-quality surroundings. Assuming the likes of Wynn Resorts and LVS are able to provide at least a marginally Galaxy Cotai Mega Resort better casino environment than the “local” operators, Galaxy StarWorld’s casino business may be more restricted to the customers ac- tually residing in its hotel rooms. In a recent article in Fortune magazine, Mr. Carter was quoted as saying:“This is not Las Vegas; Asians want to gamble,not go shopping or see Celine Dion shows. That will come in due course. But right now I just don’t see that the demand for these new facilities the Americans are build- ing will meet the cost.”The trouble for Galaxy is, regardless of the Americans’ bottom lines, Asians may prefer to gamble in the venues surrounded by shopping and shows. Macau’s Second Big Bang? One of the latest theories gaining acceptance in astrophysics circles is that the universe was created by not one, but two big bangs. The development of mega-resorts, of which LVS’ Venetian Macau will be the first, could create a second big bang in Macau. That big bang may not be gaming-focused though. It could instead see the emergence of a new non- gaming universe in Macau, and the explosion of entertainment, dining and convention and exhibition revenues – at present, casino op- erators in Macau earn negligible non-gaming revenues, while those along the Las Vegas Strip earn over half their revenues from non- gaming sources. Currently, only 20% of visitors to Macau stay in hotels, and the city needs to develop greater attractions to encourage people to stay longer – gambling on its own is clearly not enough. The sprawling Venetian Macau will seek to provide a critical mass of non- gaming attractions under one roof to keep guests staying two or more nights, as the Ve- netian in Las Vegas has done.The more mod- est Galaxy StarWorld will be more reliant on external attractions to keep its guests staying one or more nights in the city. Galaxy’s attempt at single-property criti- cal mass will take the shape of the HK$4.76 billion (US$610 million) Galaxy Cotai Mega Resort, slated to open in 2008 and be com- pleted in four phases by 2009 – by which time Asians will presumably be ready to go shopping and see shows (though not neces- sarily Celine Dion). The casino at the Mega Resort will fea- ture about 450 tables and 1,000 slots, and the non-gaming draws include restaurants, a water park, a health club and spa, karaoke lounges, shops, an amusement arcade and a theatre, in addition to multi-purpose con- vention and exhibition facilities (PBL-Melco notably dropped the convention center from its US$1 billion City of Dreams project, perhaps fearing the Venetian Macau jugger- naut). The Mega Resort will come after Ve- netian Macau and provide less extravagant but probably more affordable non-gaming amenities. Galaxy may deride the strategy of the US-based operators, but the market it is tar- geting is as unproven as theirs. For their part, the US operators deride Mr. Carter’s assertion that their offerings will be too expensive for mainland Chinese. Says Steve Wynn in the Fortune article: “To look at the high level of shopping and consumer taste in Shanghai and Hong Kong and still suggest that the Chi- nese won’t care about luxury is a ridiculous denial of reality.” There will likely be demand for both Ve- gas-style luxury and Galaxy’s “affordable lux- ury.” Galaxy has no plans to offer the former, but it may find itself competing with LVS in the market for the latter. Told that Mr. Carter believes the “Asian price point” for a hotel room is under US$100, LVS Chairman Shel- don Adelson responded: “I’m going to have five price points in Cotai. I want the mass- market and the high-roller market. My target is to maximize every opportunity.”