Tiny Macau, the `Las Vegas of the East’

March 16, 2006

 



Tiny Macau, the `Las Vegas of the East’

By Tim Johnson
Knight Ridder Newspapers
MACAU – Once a backwater for hardcore gamblers, the former Portuguese colony of Macau is rising fast as Asia’s entertainment and casino capital.

Some now call Macau the “Las Vegas of the East,” and Macau’s gaming revenues are on par with those of the Las Vegas Strip.

Macau, however, is growing even faster than Las Vegas. It’s on the threshold of a gaming boom, with more than a dozen casinos and resorts on the drawing boards or under construction, the result of a 2001 decision to open its doors to foreign casino operators. Two years later, mainland authorities agreed to let visitors cross the border more freely.

Macau’s first U.S.-operated casino, the Sands Macau, opened in 2004. This autumn, a second U.S. casino and 600-room hotel, Wynn Resorts Macau, will debut. The $1 billion MGM Grand Macau will follow in 2007. The U.S. operators are bringing panache and entertainment, and they hope to turn Macau into a hot convention destination.

Macau drew 18.7 million tourists last year, more than Germany, and plans to lure 35 million a year by the end of the decade, about what Las Vegas gets now.

“It is on the cusp of getting launched,” said David J. Green, the director of gaming practice in Macau for the accounting and consulting giant PriceWaterhouseCoopers.

Macau, a port established 450 years ago by Portuguese traders and Catholic missionaries, has long been overshadowed by Hong Kong, the former British colony that’s an hour-long ferry ride to the east. Producing little revenue of its own, tiny Macau legalized gambling in 1847.

In the decade before Portugal handed Macau back to China in 1999, the enclave was plagued by casino-linked gangs avenging debts with daylight killings.

Macau’s monopoly-controlled casinos, run for decades by Hong Kong gambling tycoon Stanley Ho, were havens for VIPs in smoke-filled rooms. Signs reminded gamblers not to spit on the floor. Most customers came from Hong Kong. A few trickled in from China.

A series of factors after Macau’s 1999 handover to China led to the boom. The liberalization of the casino sector coincided with a crippling SARS epidemic in southern China in 2003. To help Hong Kong’s suffering economy, mainland authorities relaxed travel restrictions to Hong Kong and Macau. Chinese began to flood across the border. Casinos are illegal on the mainland, yet China’s 1.3 billion citizens itch to get rich quickly and travel outside traditional borders.

“The mass market has really exploded here. More and more people in their mid-20s and mid-30s are coming in … even for the day,” said Kareem Jalal, the editor of Inside Asian Gaming, a new Macau-based magazine. “There’s a lot of untapped wealth.”

Sleaze and crime ebbed. Macau beefed up its police force to 7,000 officers in a territory with only 482,000 residents.

Last year, the United Nations awarded Macau – with its East-meets-West merger of cultures, unique cuisine, colonial churches and black-and-white mosaic walkways – a coveted designation as a World Heritage Site.

Tiny Macau comprises two islands and a peninsula – less than 11 square miles. Its leaders have prepared for the boom by reclaiming the shallow sea between the islands of Coloane and Taipa to create new land, the Cotai Strip, which soon will emulate the one in Las Vegas.

The sprawling 3,000-room Venetian Macau resort and convention center will open next year, anchoring a promenade of resorts and casinos. The strip eventually may accommodate 20 new casinos and resorts, employing 50,000 workers.

“The target is that once all of Cotai is built in about 10 years’ time, there will be 60,000 more hotel rooms,” said Buddy Lam, a Sands Macau spokesman.

There are 11,042 rooms now, a sign that Macau is outpacing Las Vegas, the fastest-growing U.S. city over the past quarter century.

More Chinese than ever can travel to Macau freely. Under a system begun in 2003, some 190 million Chinese from 38 major cities can come at a moment’s notice.

Adding to the optimism: Plans are moving ahead for a 17.5-mile bridge between Hong Kong and Macau by 2010, ending reliance on ferries. The opening of Hong Kong Disneyland last fall is adding to the region’s momentum.

Crowds two and three people deep throng around gaming tables in Macau’s 19 casinos. Cheers, boos and clapping commonly erupt. Chinese gamblers like a noisy atmosphere.

As arrivals soar, Macau casinos can keep minimum bets high – about $40 – far higher than in Las Vegas. Much of Macau’s casino revenue, though, is gathered in VIP rooms where minimum bets are $2,600.

Some of the bettors look like Chinese farmers, wearing cloth-soled shoes and rustic clothing. Yet they plunk down big money.

A gambling table in a Macau casino generates $17,808 in revenue per day vs. $2,524 for a similar table in Las Vegas, according to a report, Macau Mania, issued last year by the investment bank CLSA. It said that the average Macau visitor spends $322, $40 more than the average visitor to Las Vegas.

Whether Macau can move smoothly from a gambling destination for high rollers to a mass-market holiday site remains unclear. Nearly 60 percent of Macau’s visitors are from the mainland, and some observers say cultural affinities among ethnic Chinese offer some guarantees.

“People feel at home here. They are Chinese. They can speak Chinese and eat Chinese food,” said Harald Bruning, the director of the English-language Macau Post.

There are obstacles, however. Political upheaval or a health epidemic in China could disrupt arrivals, experts said, and a crackdown on corruption also could hurt. China’s state-run Xinhua News Agency reported last fall that 8,740 members of the ruling Communist Party were punished for gambling last year.

And Singapore, which last year ended a four-decade ban on casinos, may crimp Macau’s growth.

U.S. casino operators are also limited by an inability to tap into high-stakes gamblers from the mainland who bet on credit. Availability of credit increases gambling revenues by as much as fivefold.

Currently, 70 percent of Macau’s gaming revenues come from VIP rooms at traditional casinos that let mainland industrialists and entrepreneurs bet on credit. Hong Kong-run casinos allegedly use enforcers and other means to collect bad debts.

U.S.-operated casinos have no legal mechanism to collect bad debts in China and no way to check credit.

“A guy walks in and says, `Can I have a million bucks?’ How do you know they are good for it?” Jalal, the magazine editor, said.

The biggest gamble, though, may be whether mainland visitors to Macau are ready to take in Vegas-style shows, stay in convention hotels and shop in high-end stores.

“If you look at Macau, you’d say that no one has ever put to the test the appetite for the Chinese for anything other than gambling,” said Green of PriceWaterhouseCoopers.

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