Macau adds up gambling debts
By Muhammad Cohen


MACAU - Not all bets lead to happy endings, and if anyone should know that it is the authorities in Macau, where freshly minted revenue figures confirm that 2007 was another jackpot year as new casinos appeared like a rash of winner's gambling chips.

Gross gaming winnings at the gambling tables climbed 46.6% last year to a record 83 billion patacas (US$10.4 billion), nearly triple 2003 levels.

A quartet of grand openings helped fuel a boom that has steadily picked up pace since the former Portuguese enclave was returned to Chinese sovereignty in December 1999. The newcomers represent only an early wave of some US$20 billion in investment that is flowing into Macau’s hospitality sector.

Former casino monopolist Stanley Ho opened his new flagship Grand Lisboa casino just in time for the Lunar New Year Chinese holiday last February. Ho’s 40-year monopoly on gaming through his Sociedade de Jogos de Macau (SJM) ended in 2002, yet the octogenarian now probably makes more money than ever from his share of Macau’s greatly expanded pie.

SJM operates 18 of Macau’s 28 casinos and for good measure Ho’s children hold partnerships in two of the city's five other gaming licenses, independent of SJM.

Grand Lisboa is Ho’s proclamation that he "gets" the new Macau - he understands that the arrival of Sands Macao and its Las Vegas style format four years ago fundamentally changed the game. The Grand Lisboa demonstrates that SJM can build casinos every bit as glitzy and welcoming as the creations from the boys from Vegas. Grand Lisboa’s casino floor even features a free version of the sexy Crazy Paris show from SJM’s previous flagship, the Lisboa.

Chinese choice
That element of what passes for tradition here also marks clearly where SJM has planted its marketing feet. Amid all these Americans pushing imitation versions of their Las Vegas products, SJM positions itself as the homegrown Chinese company that understands the Asian market.

Combining elements of Macau’s iconic lotus and Rio de Janeiro’s carnival headdress, the Grand Lisboa stands tall at 52 stories - though nothing above Grand Lisboa’s third floor is yet open for business.

As with most Macau casino hotels, SJM got the betting areas sorted first: nearly 300 gaming tables and 800 slot machines spread over 38,342 square meters. Sometime this year, Grand Lisboa will open its 400-room hotel and more VIP gambling rooms on those upper floors.

Across the street from the Lisboa, Grand Lisboa’s other neighbors include 2006 debutants Wynn Macao and Galaxy StarWorld, plus MGM Grand Macau, which opened in December, the last of Macau’s six gaming licensees to roll the dice. These properties reinforce Macau’s traditional gaming hub, adjacent to the central business district.

In August, the Venetian, with 3,000 rooms and the world’s largest casino, opened a new frontier. In just five months since Venetian’s opening, Las Vegas Sands Corporation (LVS), its US-listed corporate parent, has boosted its share of casino revenue to 30% from around 20%. The $1.3 billion resort hotel aims to remake Macau’s tourism landscape and shift its center of gravity.

The Venetian stands at the head of the 5.2 square kilometer Cotai reclamation area linking Macau’s outer islands Taipa and Coloane. It’s the first of 10 hotels with 13,200 rooms (nearly 2,000 casino tables and 10,000 gaming machines) LVS is developing in Cotai. Rivals are building at least another 5,800 rooms along Cotai’s grand boulevard, a 15-minute taxi ride from downtown.

LVS has tried putting the terms "Asia’s Las Vegas" and "Cotai Strip" under trademark, signaling its vision for the area. LVS chairman Sheldon Adelson transformed Las Vegas into a global convention destination, and he aims to unleash a stampede of MICE (meetings, incentives, conventions and exhibitions) in Macau. (And in Singapore, where LVS is developing one of the city-state’s two casino resorts, due to open by 2010.)

Conventions expand adult marketing opportunities, including upscale dining and shopping that barely interested Macau (or Vegas) visitors in the past. Adelson has bet more than $3 billion of other people’s money on his Cotai dream.

Glitz R Us
MICE scurrying across a glittering imitation of the Las Vegas Strip may eventually expand Macau’s appeal beyond the present day-trippers from mainland China. But for now, the Venetian is equivalent of a big box store for gawking at, a category killer for bus tourists from across the mainland Chinese borders.

"The Venetian is built to be a mega facility and needs thousands of people in the property just to make it look busy," observes Andy Nazarechuk, dean of the William F Harrah College of Hotel Administration at the University of Nevada Las Vegas-Singapore. "No one wants to stay in an empty property, and the bigger the property, the more people you need."

Macau’s visitor arrivals topped 27 million last year, up from the record 22 million in 2006 and more than double the figure from 2002. Residential population has also grown by at least 10% to more than 500,000 in what has long been the most densely populated city on earth. While high rollers continue pushing up gaming revenues, much of the growth in arrivals comprises visitors who don’t spend much while burdening overstretched public resources including transport and water.

Crown Macau, which opened in May, aims at a different type of visitor. With film star Chow Yun Fat as its pitchman, Crown promised six-star service. You’d expect the group to understand luxury: Crown Macau is part of a joint venture between Australia’s Publishing and Broadcasting Ltd - run by James Packer, heir to the late Kerry Packer, renowned as Australia’s richest man and one of the world’ biggest gamblers - and Melco, led by Stanley Ho’s son Lawrence Ho.

Crown Macau’s 240 rooms certainly meet the six-star promise, a tasteful medley of natural wood and stone accents with contemporary styling. But Crown management privately concedes it’s difficult finding personnel to meet its standard of service in Macau’s tiny labor pool. Throughout Macau, an estimated 100,000 additional hospitality jobs are coming on line in an economy with fewer than 10,000 unemployed and these are mainly older, poorly educated factory workers whose jobs have migrated to the mainland.

Dealer wins, but loses
Despite virtual full employment, there’s staunch opposition to liberalizing labor laws that reserve casino jobs for local residents. That restriction has created perverse incentives for youngsters to quit school and take jobs as dealers at double the prevailing local wage. But those same labor laws and lack of higher education doom these Macau natives to spend their careers on the casino floor rather than moving into management.

Crown also flashed a far more troubling warning sign for Macau investors across the board. Opening a casino has been viewed as a license to print money. But the number of gaming tables has increased more than 10-fold since 2003 (slot machines have multiplied more than 15-fold), while revenue has merely tripled. Casinos must compete harder to win punters’ business.

VIP betting still dominates in Macau. That market is largely based on relationships, it’s often contracted to third parties, and it takes place hidden from view. The mass market - representing about a third of gaming revenue - is much more openly competitive, with the highly visible empty tables the price of failure. Casinos deploy fleets of buses to Macau’s entry points and give away millions of dollars in lucky draw and other contests in this battle to pull in the small fry bettors.

In November, Crown raised the white flag on the mass market scramble. It announced a casino renovation that will dedicate 80% of its gaming floor space and tables to VIPs, and a deal with a major VIP operator to fill the new rooms. It’s the first sign that "build it and they will come" will not always succeed in Macau. Shares in casino companies are off sharply, in New York and Hong Kong. Wynn, LVS and Melco-PBL are all down more than 40% from 2007 highs.

Even successful casinos may not be enough anymore. Macau’s population is beginning to ask questions about its pot of gold and who gets what share. Former secretary for Transport and Public Works Ao Man Long was found guilty on Wednesday on more than 50 of 76 graft charges including bribe-taking and money laundering after being accused of pocketing kickbacks from the development projects that crossed his desk to accumulate more than $100 million in assets. Ao Macau's Court of Final Appeal ordered him to return 252 million patacas to the government, a Xinhua report carried by Sina.com reported. Many contend Ao’s case is just the tip of corruption.

Even without theft, it’s scandalous that, as government coffers overflow, Macau’s social and structural problems mount. The public has started to realize that the city, with its unique Mediter-Asian history, has missed a unique opportunity. Macau is consigned to playing catch-up in a process that’s been guided by gaming moguls and greed rather than any notion of public good. However things turn out, it’s already obvious this tale could have had a much happier ending for Macau.

Former broadcast news producer Muhammad Cohen is special correspondent for Macau Business and author of Hong Kong On Air (Blacksmith Books) a novel set during the 1997 handover and Asian economic meltdown featuring television news, love, betrayal, high finance and cheap lingerie.