5 4 In Macau, the race is far from over, and the hare is hardly sleeping, but the tortoise just pulled ahead. Meanwhile, the local lion still lurks well ahead of the upstarts. The race began when the Macau government ended Stanley Ho’s 40- year gambling monopoly in 2002, awarding three casino operating concessions, which have now multiplied to six. Las Vegas Sands Corp (LVS) made a dashing start by opening the US$265 million Sands Macau in May 2004, three months before Wynn Resorts broke ground on its first Macau property. LVS re- couped its investment in Sands Macau in 10 months, and seemed to have secured an unassailable lead. In the inaugural October 2005 issue of Inside Asian Gaming, Frank McFadden, COO of LVS’ local subsidiary Venetian Macau, predicted his company would “bank US$750 million of EBITDA [earnings before interest, taxes, deprecia- tion and amortisation] before anyone else [namely Wynn Macau] opens their casinos.” In an unexpected turn last month,Wynn Resorts landed US$900 million by selling the last of the remaining Macau casino sub-con- cessions – beating analysts’ expectations of US$250-350 million, and the US$260 million ($200 million + $60 million land purchase) Stanley Ho’s SJM earned from the sale of its sub-concession to a joint-venture between Mr. Ho’s daughter, Pansy, and US-based MGM Mirage. Venetian Macau had no sub-concession to hawk, since it was the company’s split with its original bidding partner, Galaxy Casino, that gave rise to the sub-concessions in the first place (see page 26 for more on the history of Macau’s multiplying sub-conces- sions). The tortoise may have landed ahead of the hare, but LVS is still dart- ing ahead with conviction and taking the race in a bold new direc- tion.Wynn Resorts is set to open Wynn Macau in September, and has already announced an expansion plan that will bring its total investment in Macau to over US$1 billion.Wynn Macau will claim to be the city’s first full-fledged Vegas-style destination resort, though LVS Chairman Sheldon Adelson emphasizes the limited non-gam- ing scope of the property in his interview with Inside Asian Gaming (page 18). Mr. Adelson says it is the upcoming US$2.3 billion Venetian Macau, set to open in mid-2007, that will herald the dawn of the mega-re- sorts in Macau.Venetian Macau will form the anchor of the Cotai Strip, into which LVS is pouring about US$6 billion in investment to create “Asia’s Las Vegas.” The Hare, the Tortoise and the Local Lion Most importantly, with Venetian Macau, LVS will seek to transform the city into a major leisure and convention and exhibition hub. It will be the success of Venetian Macau’s non-gaming offerings that will ultimately determine whether the hare’s speedy supply-driven strategy or the tortoise’s more plodding but prudent demand-driven approach is more profitable. All Sands Macau has proven so far is that there is great demand for more spacious and attractive gaming venues.Wynn Macau will focus on tapping into that demand. Conventions and exhibitions drive mid-week occupancy at Venetian Las Vegas, giving the property an occupancy rate near 100%.There are concerns, however, that the Chinese convention and exhibition market is still too small to support a project of the scale of Venetian Macau. Mr. Adelson maintains those fears are unfounded, and that demand for the upcoming resort is tremendous.There does not seem much risk of the hare breeding a white elephant in the long term, but timing is a critical issue that weighs on investors’minds, as Prudential Equity Group’s William J. Lerner points out in his Asian Field Notes on page 13. The hare and tortoise have brought their famous Las Vegas rivalry to Macau, the lair of Stanley Ho’s Sociedade de Jogos de Macau (SJM), which retains a 70% share of local gaming revenue.The local lion is not sleeping either, and has investments worth about HK$10.4 billion (US$1.34 billion) in the pipeline - the HK$ 3 billion Grand Lisboa, the HK$6.2 billion Oceanus complex, and a 51% stake in the HK$2.4 billion Ponte 16 project. SJM can finance those investments out of its cash flow, but is seeking a listing on the Hong Kong Stock Exchange to provide greater financial flexibility and fund possible future proj- ects. Analysts conservatively estimate that the sale of a 25% share of the company could raise about US$1.9 billion. Investment bank CLSA predicts SJM will hold onto 50% of Macau’s gaming revenue by 2008.The race for non-gaming revenue among Macau’s casino resorts is yet to begin, but LVS is positioning itself for a big head start with investments eclipsing those of other operators. By 2008, the hare looks set to secure the lion’s share of the nascent non-gaming market. How profitable that market will prove and how soon is not entirely clear, but Mr. Adelson has no doubt about the wisdom of leaving the others trailing. Kareem Jalal We crave your feedback. Please send your comments to
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