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Las Vegas Business Review |
The Macau market is bumping against constraints on the number of gaming licenses, available labor and construction materials, as well as future competition from other Southeast Asian countries.
July, traditionally a hot month for gambling in Macau, saw a cold snap in the form of an 11 percent decline in casino receipts, stunting revenue growth that had been projected to overtake that of the Las Vegas Strip, which won $5.3 billion from bettors a year ago.
Macau's gaming revenues are predicted to surpass Nevada by 2008.
Sheldon Adelson's Sands Macau casino-hotel is the precursor of several billion dollars of casino development planned for the Cotai Strip, land reclaimed from the harbor of the former Portugese colony.
Las Vegas Sands, which has already had a falling out with its joint-venture partner Galaxy Casino, saw Regal Hotels International Holdings pull out of a deal that would have seen Sands lease a casino and showroom built by Regal. According to Singapore-based consultant Jonathan Galaviz, Regal wanted profit participation in the casino rather than the fixed rent Sands -- owner of The Venetian in Las Vegas and of Sands Macao -- was willing to pay.
MGM Mirage said Regal had not approached them, while Galaviz speculated that the hotelier would be compelled to peddle its sub-licensed status, formerly subordinate to Sands, to either Wynn Resorts or Stanley Ho's Sociedade do Jogos de Macau, former monopoly owner of the enclave's casino trade. Macanese law forbids sub-concessionaires from operating their own casinos.
Casino concessions in Macau are presently limited by statute and concession owners can sell one sub-license apiece. "The means Steve Wynn could apply (for a sub-concession)," explained Larry Woolf, consultant to Galaxy. "He could bring in Harrah's and give them something."
He noted that the number and standing of concessionaires permissible in Macau had been blurred by recent history.
"It wasn't long before it became apparent that Galaxy and Sheldon (Adelson, chief executive officer of Ls Vegas Sands) were not seeing eye to eye," Woolf recalled, prompting a compromise: "They just cut the baby in half and said, 'You're two separate concessionaires,' " effectively breaching the three-license limit -- and possibly setting a precedent for still more casino licenses.
Las Vegas' resurgence at the expense of Macau was partly attributable to the opening of Wynn Las Vegas, according to an interview with Galaviz in The Standard.
In an e-mail to the Business Press, however, the analyst appeared to modify his assessment, saying "it is unlikely that Wynn Las Vegas would be able to siphon away enough business from the Macau market to make a material impact." Only by creating a superior value for high rollers, Galaviz wrote, would Wynn be able to outshine Macau's allure.
Conversely, Las Vegas-style gambling isn't having an easy transition into Macau, particularly where slot play is concerned. "They don't like our slots," Woolf clarified. "They like to gamble. They spend a billion a year on cricket fights. They actually have specialists that train the crickets. They (the
crickets) wear colors like jockeys."
"Until the table games profit comes down," Tolo noted, "nobody will invest in slots."
"Stanley Ho's doing $10,000 (daily) or more on a baccarat game," Woolf explained, referring to Macau's predominant operator, owner of 17 of the enclave's 19 casinos. "So he doesn't care about slots. He puts them in a hole where they don't bother anyone. They put them in the worst sections because they don't have much room." The problem is supposedly compounded by Ho's penchant for purchasing cheap, secondhand slot machines with seats designed for taller, American players.
TABLE GAMES NEEDED
While observing that Sands Macau has introduced more user-friendly slots and seen slot play go from $30- to $50-per-machine daily to $200, Woolf cautioned that nobody really knows which slots will succeed in Macau.
But customers want greater interactivity, he said, including being able to reach out and stop the reels manually.
"They like to touch and feel the game, and slots don't provide that," added Woolf, chief executive officer of locally headquartered Navegante Group, operator of Casino Fandango, in Carson City.
Local architect Paul Steelman, who conceptualized Sands Macau over what he described as a sleepless weekend, offered Magnificent 7s as an example of a slot game that bombed in Macau and was removed from the casino floor. He forecast that the evolution of Sands' master-planned Cotai Strip and the introduction of progressive games will make Macau a slot market.
"Until the Sands opened last year," wrote Gloria Korporaal in The Australian, "Macau's casino market was associated with dingy gambling rooms, Russian hookers, loan sharks and reports of seedy figures demanding a cut from 'lucky' winners."
Galaviz seconds Steelman's and Korporaal's view of Sands Macau as a perception-changing force in the Macau slot market, but cautioned, "operators and suppliers are not doing enough to educate the Asian consumer on slot product.
Many Asian consumers have the belief that slots will either 'rip you off' or that the casino will make it to where the slots will 'steal money from you. You have to remember that slot machines in Asia have traditionally been associated with either scams or very low pay-outs," he wrote. "The Las Vegas style of slot product offering (including higher-payouts) does not immediately neutralize the negative impression Asians have of slot product."
Woolf contends that American slot manufacturers need to import Chinese software engineers to develop games expressly for the Pacific Rim.
"The smartest mind in America can't think like a born-and-raised Chinese," he said. "Obviously, U.S.
manufacturers, they think they can figure this out,"
by stratagems like using Koi fish as slot-reel symbols because Koi connote luck in Eastern cultures. Woolf likens this kind of thinking to IGT's takeover of Olympia Gaming, in Australia, after which Olympia went from 33 percent of the Down Under slot market to 10 percent.
Woolf's prescription for Macanese success would include more mechanized table games, like Rapid Roulette, something that would also help forestall a projected shortage of dealers. He also cited the popularity of video baccarat in the city's many corner slot parlors. The latter are operated by Stanley Ho's SJM, which obtains its slots from Melco International, run by Ho's son Lawrence, one of his numerous children.
Various media sources estimate that Ho has three or four wives and 16 to 17 children. According to the Asian Pacific Post, the Asian Organized Crime Roster of the Royal Canadian Mounted Police lists Ho as the leader of a Triad, or criminal syndicate.
The traditional Las Vegas buffet hasn't always gone over in Macau, either. Steelman faulted the Sands Macau buffet for having been too steeply priced, at 240 patacas, or $30, which he said could four or five extra hands of baccarat.
In a Bloomberg interview, Lawrence Ho stated that arriviste Vegas operators didn't care whether their customers were Chinese, European or Indian: "You are supposed to go to the buffet."
Responding in The Australian, Grant Bowie, manager of Wynn Macau, hit back that his casino would target China's newly affluent -- worldly, university-educated individuals "who either work or aspire to work in a global company."
INFRASTRUCTURE NEEDS
Slots and other forms of mass-market play may be making inroads, according the Macau Gaming Commission's legal adviser, Carlos Tolo, who said VIP play was down to 65 percent of total Macanese gaming revenues. Dean Macomber, CEO of Macomber International, added that while Macau taxed casinos at
39.5 percent of revenue, low labor costs and scant need for marketing were good for cash flow, while Woolf pointed out that casino taxes in Australia were eventually driven downward by heavy competition.
Macau's hotel room inventory is expected to triple to 30,000 rooms by 2010, but Scott Fisher, of the leisure-industry consultants Innovation Group, cautioned that, in the wake of the Boxing Day tsunami, a supply crunch for building materials exists in Southeast Asia -- a warning echoed by Galaviz.
Fisher also cautioned that new housing going up in the former Portugese colony might not be affordable for the growing pool of casino workers. Obtaining those employees is a complicated proposition, depending on where Macau's casinos are looking.
"It might be easier to get Filipinos," said Woolf, adding that construction workers from mainland China might not be skilled enough by Hong Kong and Macau standards. Galaviz disagreed to the extent of characterizing the Asian market as very elastic, but he concurred that Macau would be looking to foreign labor. However, Tolo observed, Macau's citizens tend to oppose the importation of guest workers.
The situation, said Woolf, is further complicated by visa limitations and travel restrictions not from China to other countries but within China itself.
"Heaven forbid there's a case of SARS and they close the border, and all your workers live in China."
Incoming casino operators like Wynn and MGM Mirage, which is partnering with Stanley Ho's daughter Pansy, who fronted at least one of her father's attempts to get a Canadian provincial gaming license, won't want to hire former Stanley Ho dealers, according to Woolf.
"So they're going to be looking for petty, 21-year-old girls to deal and they're just not available," Woolf said. "Unless something changes, there's going to be a lot of tables and no dealers."
While Steelman used terms like "heavy" and "phenomenal" to characterize Macau's infrastructure issues, he said that they will solve themselves over time, saying of Las Vegas, "55 years ago there was one dirty road leading to this place." Now, he says, industry figures contemplating reconstruction of Biloxi's casinos are asking, "Should we follow the Cotai lead?"
The Cotai Strip is being built on land reclaimed from under the waters that surround Macau, at multibillion-dollar cost. "I kidded Sheldon that the only thing that costs more than this project is the Space Station," he added.
Adelson, Steelman said, set as one of his criterion that Las Vegas Sands have the cleanest possible casino, particularly its air. "I saw an indoor cloud the first time I went to (SJM's Casino) Lisboa,"
Macomber joked. "It was nicotine." "That is quite a pit," Steelman responded, adding that the most popular of Lisboa's three gambling floors is its no-smoking one.
"Nobody ever thought Macau would be like this when we opened the market to competition," concluded Carlos Tolo. But, he noted, a lack of regulation combined with an influx of tourism spells more problems, and "we have to face it."
