Inside Asian Gaming

inside asian gaming September 2015 10 expansion “may raise investors’ concern over ‘industry over-supply’ and may trigger a sector de-rating. We remain cautious.” So far, the Galaxy Macau expansion doesn’t seem to have moved the needle much, with Macau casino revenue down 36%, 34% and 36%, respectively, in June, July and August. The Macau optimists claim, however, that that’s because it was seen by consumers more as an extension of an existing property than a game-changing new product. Another issue is the major new features might be positioned too much at the higher end and the property arguably still lacks sufficient mass market draws. For those, we will likely have to wait for Galaxy’s further expansion. Indeed, the creation of an adequate critical mass of mass- market offerings to enable Macau to compete with the world’s leading tourism destinations will likely take the combined efforts of all the operators that are developing new resorts on Cotai. GEG Vice-Chairman Francis Lui said during the company’s second quarter results announcement, “All of the middle class from the mainland are our potential premium-mass customers. We are still very optimistic about that market. That’s why we continue with our plans for phases three and four. We need to offer new products in order to cater to these potential customers.” The company reiterated during its latest earnings call that it had “an unrivalled development pipeline in Macau,” with plans to expand its Cotai footprint by a further one million square meters in the coming years with the addition of Phases 3 and 4. Meanwhile, on the mainland Chinese island of Hengqin, which sits adjacent to the Cotai strip accessible by a short car ride over the Lotus Bridge, GEG “continues to advance its conceptual plans” to develop a low- rise, low-density leisure and entertainment resort on a 2.7 square kilometer land parcel. “They’re the best-positioned for long-termgrowth and are focused on becoming the dominant player in Macau,” observes Union Gaming Securities Asia’s Grant Govertsen. “If you believe in the China consumer story you have to believe in Macau,” says Mr Lui. A civil and structural engineer by training, he started his career in the late ’70s in the quarries of Hong Kong with his family’s construction materials business and in 1985 started doing business directly in mainland China. “If there is a person in Macau who understands what the Chinese customer will look like in the next five or 10 years it is probably somebody like me, who has been there doing business in China, seeing them evolving,” he says. His father, Lui family patriarch and GEG Chairman Lui Che Woo, is ranked the 18th-richest man in Asia, according to Forbes , thanks largely to the family’s 51% stake in GEG, contributing to a net worth of $7.8. The family’s wealth is down sharply from last year after a prolonged sell- down in Macau casino stocks reduced GEG’s market capitalization to its current $13 billion from $30 billion a year ago. The elder Mr Lui confirmed publicly in 2012 what was already widely known in the market—his son is in charge of the business. Francis Lui has done so well holding his own against SJM, the legendary Stanley Ho’s former monopoly, and international stalwarts Sands, Wynn Resorts and MGM Resorts International that it’s easy to forget that prior to 2004 he had no gaming experience at all. Galaxy began operations in Macau in July 2004, at the Waldo, a third-party-owned venue, one of the three casinos of the City Clubs brand that Galaxy now operates. But it was only in 2006, with the opening of StarWorld Hotel, that GEG’s brand identity began to emerge. Owing to the relatively small footprint and limited amenities at StarWorld, that brand- building was initially defined by a strong service mindset and an ability to forge lasting relationships with players and junkets. Those qualities, which continue to drive StarWorld’s success in a challenging marketplace, were carried through to the sprawling Galaxy Macau, which finally gave Mr Lui a platform worthy of fulfilling his vision of providing an experience imbued with a distinctively Asian flavor rather than merely transplanting the Las Vegas megaresort model to Macau. He defines his management philosophy as a mix of his Chinese upbringing and Western education. Forbes said of him: “When Lui Che Woo first won the Macau gambling license, Francis was taking business courses at Stanford University and found the casino industry in Las Vegas impressive. He noticed that the American model added entertainment elements besides traditional gambling in order to attract tourists. And during his global travels he found Southeast Asian-style service the best. It dawned on him that he could combine the two.”