Macau brings in more gambling revenue than Las Vegas, but will its astonishing success continue as rivals raise their heads?
By Jan Moir and Suzanne Harrison
It is a beautiful spring day in Macau: the sky is a stunning shade of blue, there is a slight breeze and the harbour glistens in the sunshine. Hoards of holiday-makers are filing off ferries, buses and planes. But they are not here to relax or take in the sights.
Each day masses of Chinese gamblers, from the occasional punter to the hard-core addict, pour out of the airports and bus stations and disappear behind the windowless halls of Macau's voluminous casinos.
Farmers, labourers, clerks, businessmen and army cadres take up residence at the city's gaming tables, VIP rooms and slot machines, wooed by Las Vegas-style razzle dazzle and the only legal chance to punt in China.
It is a phenomenon that since 2002, the year Macau liberalised its gaming industry, has seen what was once a sleepy Portuguese outpost catapulted into an Asian casino mecca.
The entry of international players to the market, with stalwarts such as Las Vegas Sands and Wynn Resorts leading the charge, has revolutionised the gambling scene in Macau. Once dominated by a handful of dark and tatty casinos, the city is now glitz central.
Macau has 29 casinos, 19 of which are owned or operated by Stanley Ho's Sociedade de Jogos de Macau (SJM), which enjoyed a monopoly on the gambling market until 2002.
Bolstered by Beijing's desire to turn Macau, once dogged by organised crime into a family-focused casino hub, six separate casino licences were allotted. Three are in concession form, held by SJM, Galaxy Entertainment and Wynn Resorts, and three are by way of sub-concession.
Joint ventures have teamed casino giants from the US with local players: MGM has teamed up with one of Stanley Ho's daughters, Pansy, while one of his sons, Lawrence, has aligned with the Australia-based Packer family company PBL.
The Melco / PBL venture culminated in Crown Macau, which opened in March 2007. As Melco group finance director Dennis Tam explains, the idea was to lure high-end punters by offering luxury accommodation and an entertainment experience.
'We offer one of the most exclusive and elegant accommodations in Macau, provide the ultimate in fine dining and attract discerning, high-end gaming patrons,' he says. Much of their focus has been on the junket-supported rolling chip market. It has, however, also seen the benefits of a more entertainment-based focus: the group's City of Dreams aquatic-themed casino and resort is scheduled to open in phases early next year.
On completion, it will have 1600 hotel rooms, a performance hall, retailers and restaurants. Tam believes it will turn the Cotai Strip into 'Asia's premier entertainment destination, comparable to the Las Vegas Strip'.
Gavin Ho, head of Hong Kong / China gaming and leisure research at investment bank CLSA believes the way forward for Macau is integrated resorts.
'People from further away will travel there and stay longer,' he explains. 'Before the launch of the Venetian, there wasn't a lot to do in Macau other than gambling now there is a new animal.'
Last year alone, four massive casinos opened their doors, including the 3000-room Las Vegas Sands' Venetian Macao on the Cotai Strip, a large piece of reclaimed land. A further five are earmarked to open this year, and as many as nine in 2009.
By the end of 2007, Macau had 4375 gaming tables and 13,267 slot machines. That is well up from 2762 tables and 6546 slots the year previously.
Macau not only now boasts the world's biggest casino, but is outstripping Vegas in terms of global gaming revenue. The city's coffers have been plumped to historic highs.
Property prices, retail sales and tourism revenue have been significantly stoked.
Macau gaming revenue increased to 83 billion patacas (the Macau currency, also known as MOP$) in 2007, up 46.6 per cent, according to figures from the Macau government's Gaming Inspection and Coordination Bureau.
More than 67 per cent of the total gaming revenue, or MOP$55.76 billion, came from the casinos' VIP rooms, where the high-rollers gamble. GDP growth in 2007 was 27 per cent.
In contrast, casinos on the Las Vegas strip in 2007 took in gambling revenue of MOP$6.83 billion, according to Nevada's Gaming Control Board, an increase of just 2.1 per cent from the year before.
Revenue has benefited from China's decision to allow its citizens to visit Macau with greater ease. Visitor arrivals in 2007 surged by 22.8 per cent to an all-time high of 27 million.
The majority of tourists are from the Chinese mainland, 24.1 per cent more visited Macau in 2007 compared to the previous year, and they totalled more than 14 million. This accounts for 55 per cent of total visitors.
Yet as developers continue to pile headline figures into casino halls, hotel accommodation and fringe services, the spotlight is slowly shifting to Macau's longevity. A sense of scepticism is creeping in as casino competition in the city intensifies.
Macau's winning streak has also been hit with a dose of economic realism: amid a global credit squeeze and volatile capital markets, some of the main players are tumbling in the equity stakes. It is getting harder to raise cash for massive developments and debt is becoming harder to refinance.
GDP growth this year is expected to slip significantly, with some analysts forecasting a 10-13 per cent rise. Patrick Ho, assistant professor of economics at Macau University explains: 'In the last few years Macau's economy has experienced quite significant growth. It's not easy for any economy to sustain any high growth rate for such a long time.'
Macau is heavily dependent on China's economic development, he stresses. 'If the China economy is becoming worse then it will affect revenue of our gaming sector,'' he says. In particular, heavy reliance on the VIP market has left the industry more exposed.
The island's fortune could also rise or fall on the basis of China's tolerance for money laundering and tax evasion.
Money laundering expert Peter Gallo, who heads up consultancy Pacific Risk, notes, 'The big problem from the casino operators' point of view is where the money is coming in from.
'The amount of money that mainland visitors are bringing in is more than they are legally allowed to carry out of the mainland in cash, so at the very least you have an exchange control breach.'
The issue of tax evasion through the casinos is moreover 'a question nobody wants to ask', he says.
Between 2003 and 2006 there were just four money laundering prosecutions. In what was being seen as a test of Macau's resolve to tackle the issue, it netted a high-profile conviction last year in the form of top-ranking official Ao Manlong.
The 51-year-old was jailed for 27 years after being found guilty of taking bribes and money laundering in a trial that sought to lessen public disquiet over endemic corruption and a growing wage gap. Ao took bribes in return for granting contracts to developers on public works projects.
The city also came under the spotlight in 2007 when lender Banco Delta Asia was accused by the US Treasury Department of helping North Korea launder the proceeds of illicit activities.
Macau has meanwhile been overhauling its anti-money laundering laws, in 2006 incorporating global recommendations to combat illicit cash flows.
The anti-money laundering law also broadened the definition of money laundering and extended the obligation of reporting suspicious transactions to lawyers, notaries, accountants, auditors, tax consultants and offshore companies.
Yet organised crime groups continue to exert control over many of the VIP rooms, and vice and loan sharks remain a reality. With Singapore, the Philippines and Vietnam rolling out ambitious casino plans, Macau, moreover, faces a tougher climate as the casino destination of choice for Asian tourists.
This is a pertinent threat for the US giants in Macau. 'The US casinos are now able to attract people from areas other than Hong Kong and China,' explains CLSA's Ho. 'The US casinos are expanding their customer base to professionals from Southeast Asia and Europe,' he says.
Recent global volatility has, however, hit some Macau casino operator shares hard, with Las Vegas Sands and Wynn losing market value since October. 'There are more than 20 casinos, some are old, some are new,' Ho notes. 'Some are world class and some are really different and I wouldn't be surprised if some have to close.'
Macau is also hostage to China's policy over gambling: if it arbitrarily decides to shift tack and clamp down on gambling amid social unrest, Macau would be dealt a hefty blow.
Melco's Tam, however, remains bullish. 'I believe that this growth is poised to continue,' he says. 'China is fast transforming into a consumption-led economy, with a massive middle-income group emerging and a population more willing to visit Macau. The Macau gaming industry is still very promising.'
Singapore opens the door Macau may be the hot spot for gaming in Asia, but Singapore will soon take a decent slice of the regional gambling pie with two new casinos opening next year and 2010. The Malaysian-owned Genting casino group and Las Vegas Sands (which owns the Venetian in Macau) are responsible for the two casinos: one in the tourist-heavy Santosa area, the other in Marina Bay.
Both casinos are expected to attract mostly regional mass market gambling tourists and those passing through the city looking for an integrated resort. They will also be of a high-end standard that can therefore cater to VIP, high-rolling customers.
Singapore's entry to gaming is in its infancy. The city state reversed its ban on casino gambling in 2006 in an attempt to double visitor arrivals to 17 million by 2015. It is estimated there are more than 2.5 billion people living within seven hours' flight from Singapore, including those living in India.
Singapore's cautious government is imposing measures to curb problem gambling, including a $100 levy on citizens and permanent residents entering the gambling rooms.
The government has also acted swiftly to ensure its city's clean image won't be sullied by a gambling-crazed culture. In an official statement, it said that 'a robust and stringent regulatory regime will be developed in Singapore. Similar to those imposed in leading global gaming jurisdictions, a set of strict international regulatory standards such as measures against money laundering, illegal money lending, licensing and screening of operators and employees will be imposed. This is also a key consideration for potential investors'.
The Sands group, which will operate the Marina Bay casino in Singapore, has enthusiastically said the new establishment will be a tourist boon for the city.
'As a catalyst for the economic future of Singapore and a launch pad for its tourism industry, the Marina Bay Sands will help Singapore solidify its standing among the world's greatest destinations,' said Sheldon G Adelson, chairman and chief executive officer of Las Vegas Sands Corp, in an official statement.
The casino will cater to conferences, meetings and exhibitions and take an integrated approach in the style of the Venetian.
'The vision is to build an integrated development that is timeless, a landmark that possesses a distinct identity and an image that forms a 'new urban idea' which distinguishes Singapore from other cities,' Adelson continued.
'It will feature three cascading hotel towers topped by a sky park, floating crystal pavilions, a lotus-inspired art, science museum, retail stores with international luxury brands, celebrity chef restaurants, entertainment at the two theatres, nightclubs and the casino,' he said.
Malaysia's Genting group, meanwhile, has joined with Star Cruises in its bid against the Las Vegas-based Eighth Wonder and Kerzner International to build and operate its Santosa-based resort.
Gavin Ho, head of Hong Kong and China gaming and leisure research for CLSA Asia-Pacific Markets, says there is currently only one gaming licence in Malaysia at the Genting casino, and this had been the case since it opened there in 1971.
'I don't know if Malaysia will ever relax that law,' says Ho. 'That's why they went to Singapore, otherwise new customers will be lured in to the other casino [Sands] in Singapore.'
Ho says the kind of customers who will mostly frequent Singapore's new casinos will be the same type of gamblers who go to Las Vegas, in other words, mass market tourists who don't live far away from the city.
'For example, if you're living in Malaysia or Singapore, you can go between the two cities very easily instead of flying four hours to Hong Kong and then taking an hour ferry ride to Macau.'
While the Singapore government has granted the two licences, Malaysia only has the one, although Genting, says Ho, continues to create add-ons to its original building and links to new concepts via walkways.
'They only allowed them to open one casino so Genting has taken an incremental approach to its older establishment,' Ho says.
In Singapore, Genting is taking a family-friendly, entertainment approach to its upcoming casino development. It intends to lure thousands of visitors with a Universal Studios theme park and a huge outdoor marine park.
It is unlikely another casino licence will be granted in the near future in Singapore or in Malaysia.
'The Singapore government can, of course, change its policy (of only two casinos for at least a decade), but the more likely scenario is that they are just seeing what happens and will decide if there is room for another,' says Ho.
'But Malaysia will definitely not be a gaming hot spot,' he concludes. 'If you're talking about gaming [in the region], you're talking about Macau.'
Jan Moir and Suzanne Harrison are journalists based in Hong Kong.
