Inside Asian Gaming

INSIDE ASIAN GAMING | May 2012 24 square meters on which Galaxy Macau sits. SJMChief Executive Ambrose So claims it could be a blessing for his company to plant its flag on Cotai after its competitors. “Being the latecomer we have the advantage of knowing what can be done and what cannot be done, what is successful and what is not successful,” he said. Although Dr So has recently avoided commenting on when his company’s land grant might be approved, he was quoted by Portuguese-language newspaper Hoje Macau as saying his company has already submitted to the government a draft master plan for a project costing around 15 billion Macau patacas (US$1.9 billion). Dr So added that SJM is in a position to finance the project with cash flow from its existing operations. “Being the latecomer [to Cotai] we have the advantage of knowing what can be done and what cannot be done, what is successful and what is not successful” Managing growth TheLandsandPublicWorksBureauclaims it is only able to approve two Cotai projects this year because of manpower constraints. Mr Govertsen postulates, however, that the real reason is to intentionally stagger the timing of future development. Mr Govertsen does concede that it is “possible that the bureau truly is overwhelmedby the applicationprocess, not due to a lack of manpower, but rather due to shifting casino development scopes. Given the high stakes, we can certainly envision the operators continually enhancing their proposals to include amenities (e.g. room counts and types, amount of expected local employment, scale of non-gaming attractions, total dollar investment, etc.) perceived to be the most likely to result in first approval.” The government has imposed a city- wide cap on the number of gaming tables as a means to manage the growth of the local gaming industry. Political reality, however, precludes that cap being enforceable unless the government also implements an unstated policy to stagger development on Cotai. Macau’s casino operators plan to invest heavily in non-gaming amenities at their planned Cotai resorts, furthering the government’s aim of diversifying the local economy away from its dependence on gaming. The current reality, though, is that the expanding array of entertainment, lodging, retail and dining offerings found on Cotai is either highly subsidized by gaming revenues or primarily patronized by wealthy gamblers. The prevailing view of industry sources spoken to by Inside Asian Gaming echoes Mr Govertsen’s belief that the Macau government will be flexible in interpreting the table cap and offer exceptions and waivers to Cotai’s upcoming integrated resorts to ensure they are financially viable. Following the opening of Sands Cotai Central last month, Macau is already near the 5,500-table cap set to run through to the first quarter of 2013. After that, the cap will increase by 3% per year for at least a decade. That translates to 165 new tables in 2013, 170 in 2014, 175 in 2015 and 180 in 2016 (for a total of 6,190 tables by the end of 2016). Assuming Galaxy Macau Phase 2 and Wynn Cotai get their expected table allocations and open on schedule, no other projects open in the meantime, and no tables are reallocated from other properties, that would require breaching the cap by more than 200 tables in 2016. If either MGM China Holdingsor SJMalsomanage toopenby2016, the table cap would be completely blown, and the industry’s growth would become unsustainable according to the variables the cap was designed to control (frommitigating the strain on Macau’s infrastructure to placating the central government in Beijing, which wants to limit the large sums its citizens are losing in Macau). Operators developing costly Cotai projects are no doubt counting on the Macau government to allot them sufficient gaming tables in order to run profitably. Loathe to tarnish the city’s recently won reputation for providing strong returns on resort infrastructure, the government has therefore turned to a strategy of staggering development on Cotai as the most practical approach to keeping growth at manageable levels. Cotai Ambrose So Construction has commenced on Galaxy Macau Phase 2, which is likely to be the first of the next wave of Cotai projects to open