Inside Asian Gaming

5 4 want,” explains Mr McFadden. “You can understand that it would make for a smoother relationship,” says Mr McFad- den.“[The property owner] is more in control of his domain and his operating costs, and the quality of his staff. And therefore we can devote more of our management time on our wholly owned properties, because man- agement time is something that will be very important. In most businesses, you spend 80% of your time looking after 20% of your revenue. You really want to spend 80% of your time looking after 80% of your revenue. And this was started before I arrived as part of their [SJM’s] engineering process.” Once the new arrangements are settled on, Mr McFadden will work on building SJM’s wholly-owned business. “We have a whole strategic plan,though it’s not been passed by the board yet. We’ll need the plan for when we go for an IPO. The strengths of SJM are 1) experience, and 2) their assets. We will be applying best practices to develop those as- sets.” Assets aplenty Those assets include dominant interests in Macau’s infrastructure, transport, prop- erty and hospitality industries. SJM’s parent company, STDM, owns major stakes in the city’s top hotels (the Mandarin Oriental and Westin), several other hotels, flag carrier Air Macau, as well as the airport, jetfoil and heli- copter services by which over 40% of visitors arrive in Macau. The property assets in particular are be- come increasingly valuable. Stanley Ho is still the largest landowner in Macau.“So while he might lose some gaming revenue,” says Mor- gan Stanley analyst Rob Hart,“the rest of his land bank portfolio is worth a huge amount. The land costs are going up in Macau, so he’s worth more and more.” Stanley Ho himself, and his network of re- lationships,is amajor asset of SJM.In a further move to strengthen his position in the mass market, Dr Ho announced a deal in late Janu- ary to buy a HK$274 million (US$35 million) stake in Malaysia’s Star Cruises. The invest- ment was done via Dr Ho’s private vehicle, Profit Boom Investment. It gives Star access to Macau, while Dr Ho gains a strong brand ally with which to take on the western com- petition (as discussed in Brand Change,in the February 2007 issue of Inside Asian Gaming ). “It’s another strategic move by Stanley Ho, and reflects his strength in terms of his network of contacts and people,”says Mr Mc- Fadden. “Stanley’s a prime asset for SJM. He knows his relationships – both business and personal – across Southeast Asia, and that’s why the deal was done between him and Star Cruises. It’s a personal deal with him. Not a company. But one of the fallouts of that is we [SJM] will be managing the Star Cruises operation here.” At times, Dr Ho comes across as resent- ful of the competition, especially when he recently decried the “cutthroat competition” characterised by rising junket commissions, which he claimed could drive a third of VIP room operators associated with SJM out of business. He was more cheerful at the Grand Lisboa opening though, saying that the in- vestments of his competitors had made Ma- cau a better place. “You see more and more improvement in Macau, thanks to fair com- petition,”he said. The bottlenecks Two major concerns surrounding the mas- sive casino resort development in Macau are the worsening shortage of labour and the city’s underdeveloped infrastructure, which is already straining under the load of the visi- tor influx. Macau has a ban on imported casino dealers, meaning all dealers must be recruit- ed from the rapidly shrinking local labour pool, driving dealer salaries ever higher.“I un- derstand why the policy is there. In order to ensure that Macau people benefit from the liberalisation,” says Mr McFadden.“But when you get to a mature market like Las Vegas where only 40% of the population are em- ployed in gaming, and 60% are involved in horticulture, design, architecture, engineer- ing, electricity, irrigation, accounting, market- ing,advertising,and so on,”he argues,that by restricting dealer jobs to locals, “you’re basi- cally almost denying the local people from going into the career, because you won’t be encouraged to go into those careers outside gaming. Economically they’re discouraged from doing that. That’s something society will have to address in the future.” Mr McFadden says, however, that “I have no complaints about infrastructure. The bor- der at Cotai has been completely refurbished and tripled in size. The border at Zhuhai is already doubling in size. You’re getting the high-speed rail coming down from Guang- zhou, and they’re expanding the airport.” Mr McFadden believes complaints about traffic congestion and long queues at the bor- ders are perhaps overdone.“People complain they can’t get a taxi in the rain.You try to get a taxi in London when it’s raining.” Listing to Proceed As for the mooted HK$15 billion (US$1.9 billion) SJM listing, Dr Ho an- nounced at the Grand Lisboa opening that it “will surely happen this year, and it will happen before September.” The IPO had been delayed by a law- suit filed by Dr Ho’s sister,Winnie, who claims SJM’s parent company, STDM, owes her about HK$3 billion (US$386 million) in dividends for the past five years for her 8% stake in the company. Winnie Ho has filed over 30 lawsuits against her brother over alleged debt, defamation, and the shareholding structure of the companies. In January,however,a Macau court ruled that a shareholder meeting that approved the float was legal, and Dr Ho announced “there’s nothing she can do that can stop us.”