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February 2007 • MOP 30

The Serious Slot Player Building the Complete Package Chinese Are Not All the Same Brand Change

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February 2007

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Page 6 ~ The Serious Slot Player

Page 10 ~ Building 6the Complete Package

Page 14 ~ Chinese10 Are Not All the Same

Page 18 ~14 Brand Change

Page 22 ~18 Mahjong Buzz

Page 24 ~ High-Roller22 Accessories

Page 28 ~ Tour of24 the Properties: Hot Mocha

Page 35 ~28 Terminal Velocity

Page 40 ~ Super35 Casino Controversy

Page 4240 ~ Regional Briefs

Page 44 ~ 42International Briefs

Page 46 44~ A Private affair 46

Composici�n Editorial

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Complacency has given way to “cutthroat” competition in Macau’s six conveniently-located café-style slot machine outlets throughout casino sector, according to erstwhile monopoly operator Stanley Macau. Ho. In response to the competition, Dr Ho’s Sociedade de Jogos de Mocha Slot was the first gaming operation in the city to establish a Macau (SJM) is getting increasingly image conscious. distinct brand identity, and this issue’s “The Serious Slot Player” on During Dr Ho’s 40-year monopoly, relationships, rather than image, page 6 discusses how the company plans to retain its niche in Macau drove customers to his properties, with the bulk of casino revenue despite the impending arrival of mega resorts offering thousands deriving from high-stakes baccarat played in private VIP rooms. The of slot machines. Mocha Slot General Manager Ted Chan believes main floor of Dr Ho’s flagship Casino Lisboa was left to decay, and Mocha’s sole focus on slots will allow it to continue demanding the customer service was only a vague concept among the often surly loyalty of gaming machine aficionados, despite the glitz and glamour dealers known for tipping themselves from the winning chips of offered by the mega resorts, which will attempt to serve the needs of gamblers at their tables. all types of visitors. Competition has eaten into SJM’s market share at a faster rate than Macau casino operators are still finding their way in the wake of the analysts had originally predicted, proving Macau casinos can no lon- ever-growing deluge of mainland Chinese visitors, with brand build- ger neglect image, even in the VIP market. Following the opening of ing in the city very much in its nascency. The marketing efforts of the the crowd-pulling Sands Macau, SJM undertook a series of refurbish- casinos are still focused on Hong Kong customers, and tend to treat ments at the Lisboa, but the company’s most important branding mainland Chinese as a homogenous entity. As pointed out in “Chi- initiatives lie ahead. nese Are Not All the Same” on page 14, the mentality of “it works for In an interview with Inside Asian Gaming, Dr Ho’s right-hand man me, then it must work for all the other Chinese,” neglects the myriad Ambrose So conceded “Lisboa was built in the sixties, the ceilings cultural differences among the various regions of China. are low and it’s very cramped, and now people are looking for a “Brand Change” on page 18 outlines how Macau casinos are fol- more comfortable environment.” SJM will provide that at the Grand lowing the lead of their Las Vegas counterparts in their marketing Lisboa, which will open on February 11, in the run up to the Chinese endeavours. The arrival of casino branding in Macau is regarded as New Year visitor influx to Macau. SJM promises to give HK$10,000 another sign of the maturing of the industry since it was liberalised (US$1,300) to a random visitor at the Grand Lisboa every 15 minutes in 2002. Some of the branding efforts are, shall we say, “quaint,” such to mark the property’s opening. as the Grand Emperor’s mock Beefeaters – pictured on page 18 Stanley Ho may possess more marketing savvy than observers awed – performing the changing of the guard while grumbling in Russian. by Vegas-style glitz credit him with having. Last year, Stanley Ho Others are market revolutionizing and go on to be imitated around earned ridicule for his attempts to lure more visitors to his prop- the region and even world, such as the stadium-style gaming floor at erty with offers of complimentary dishes of barbecued pork rice. Sands Macau, which remains, in our view, the most exciting place for Gamblers losing all their money at Wynn Macau’s casino and being mass market customers to place their bets in the city. presented with their bill at its Red 8 noodle shop may form a differ- Virgin Group founder Richard Branson was in Macau last month to ent opinion. explore the possibility of getting involved in what has become the SJM’s new president of joint ventures and business development, world’s pre-eminent destination for tourism and gaming investment. Frank McFadden – the former COO of Las Vegas Sands Corp’s local Mr Branson’s interest in Macau is apt considering the city still offers subsidiary, charged with running Sands Macau – informed Inside virgin ground for international resort developers. Rather than emu- Asian Gaming that unlike the foreign newcomers developing Vegas- late, however, these developers could opt to innovate and tailor their style facilities in Macau, SJM will maintain gaming as its core attrac- marketing efforts to meet the specific needs of the mainland Chinese tion. market. The real sign that Macau has matured will come when Vegas The octogenarian Dr Ho remains a shrewd operator, but his son, starts looking east for inspiration. Lawrence Ho, has proven more adept at building a brand – after all, Kareem Jalal Asia’s youth is a lot more brand conscious than the older generations. In 2003, the younger Mr Ho established Mocha Slot, which now runs We crave your feedback. Please send your comments to [email protected]

Editor and Publisher Kareem Jalal

Inside Asian Gaming is published by Director Must Read Publications Ltd João Costeira Varela Rua de S. Domingos, nr 16-i, Ed. “Hin Lei” 7A - Macau Business Development Manager Tel: (853) 6646 0795 Ricardo Carvalho For subscription enquiries, please email [email protected] Operations Manager or call José Abecasis Tel: (853) 2838 9055 Rita Horta

Contributors For advertising enquiries, please email [email protected] Octo Chang, Ben Lee, Glen McCartney or call Ricardo Carvalho Tel: (853) 6682 8475 Photography www.asgam.com Ike Graphic Designers Ricardo Borges Karen Yiu, Vincenzo Zaccaria 5 bution in Vegas, is a vast improvement from ment in slot machines was held back by the Mr Chan predicts Macau will have 14,000 before 2003, when they did not even make high marginal returns from putting in more slot machines by the end of 2007 – a more up for one percent of total revenue. tables. As wins per table continue declining, than doubling in capacity. Venetian Macau In 2003, Macau had a mere 814 slot ma- the explosive growth in slot capacity could alone will add 4,300 slots when it opens in chines, but even so demand outstripped pick up further. July. Mocha, which currently has six outlets, is supply, as witnessed by the banks of idle machines at Casino Lisboa. In order to make slots more appealing, Lawrence Ho came up with Mocha Slot, a string of trendy and cosy outlets which focused exclusively on machine gaming.

Getting Them Through the Door As discussed in the last issue of Inside Asian Gaming, convincing table-loving Chinese gamblers to try out slots required a novel approach. Mocha Slot’s solution was to first introduce electronic versions of popular table games such as sic bo, baccarat and roulette. These electronic table machines, known as multi-terminal games, offer a hybrid between tables and slots, and are a fairly new innovation globally. “Most of our players started with multi- terminals because they are familiar with these games,” explains Mocha Slot General Manager Ted Chan. “But slowly they became curious about the slot machines next to the multi-terminals. When they saw more and more people actually winning jackpots, they began to see the point of slots.” At first, multi-terminal games made up 70% of the machine mix at Mocha and made up for a similar proportion of the company’s total revenue. Following a “migration we have witnessed over the past three years,” multi- terminals make up less than 50% of capacity The Serious Slot Player and revenue, having been replaced by regular slot machines, according to Mr Chan. Mr Chan believes strongly in the poten- Mocha Slot is not afraid of competition from the vast gaming halls of Macau’s upcoming mega-resorts, tial of slots, given their “variety of interface, which are set to swamp the market with thousands of new slot machines. Mocha Slot General Manger theme and design,” which makes them “more Ted Chan believes the company will continue to thrive by providing small but conveniently-located entertaining” than tables games, which are venues devoted solely to machine gaming “always played the same way.” Steady Slot Returns I n late 2003, Mocha Slot entered the profits by neglecting the main floor and con- Slots were distinctly lacking an image Macau now has 6,546 slot machines, repre- Macau market by opening a modest 3,000 sq centrating on the VIP market, where relation- during the monopoly era, when Lawrence senting a 91% increase from the 3,421 ma- ft outlet at the Royal Hotel, establishing the ships rather than image drive business. Pun- Ho believes casinos only included slot machines in 2005. The table count as of 2006 city’s first real gaming brand. dits predicted it would take many years for chines in order to “look more like a casino.” was 2,762, representing a 99% year-on-year Mocha Slot is the brainchild of Lawrence the new foreign casino operators to tap into While slots continue to contribute only a increase. Ho, son of Macau casino tycoon Stanley Ho, the VIP market because of the importance of small proportion of total gaming revenue, Whereas both tables and slots saw simi- who is himself trying to revive his company established relationships. However, the rapid they are showing explosive growth. Macau’s lar capacity growth in 2006, the average win by elevating its image – the first step will be and unexpected rise of the newcomers’ share slot revenue in 2006 reached US$249.5 mil- per slot per day only declined from US$138 opening the glitzy Grand Lisboa later this of the VIP market since 2005 – the first for- lion – a 64.4% increase over the US$151.8 on average in 2005 to US$135 in 2006 (a month. eign operated casino, Sands Macau, opened million collected in 2005. Slots contributed 1.8% decline), while win per table fell from During Macau’s 40-year casino monop- in May 2004 – has proven image is important 3.6% of total Macau casino win in 2006, which around US$11,600 in 2005 to US$8,500 in oly, Stanley Ho was happy to generate huge for everybody. though paltry compared to their 70% contri- 2006 (a 26.4% reduction). Previously, invest- The popular Vegas Star 6 7 also looking to open a further two venues in relative to the rest of the operation over the 2007, though it will only make a modest ad- coming months. dition to the total count, with its outlets each Whereas the big casinos are targeting Star Performers containing an average of 150 machines. Mo- visitors from all over China, the serious slot Mr Chan says stand-alone games cha’s target is to have 1,400 machines by the players sought by Mocha Slot predominantly from Australian manufacturers, end of this year, up from the current 1,000. hail from Hong Kong, Macau and neighbour- including Stargames, are Mocha’s The new casinos offer huge capacity ing Zhuhai in mainland China. Of Mocha’s top performers. Australian games and increasingly luxurious surroundings, but current members, 50% are from Macau, with dominate in Macau, with more Mocha is “outperforming more than 60% of the remaining members split evenly between than 50% market share. the market,” claims Mr Chan. Wynn Macau, Hong Kong and China. Mr Chan reveals “the As for the multi-terminals, In- which opened in September 2006, is the top Hong Kong figure is growing faster than that terblock products imitate the feel performer, says Mr Chan, because “they have of China. This year we will do more market- of “real tables,” whereas Stargames’ a fantastic property. It’s a must-go place.” ing in Hong Kong, although there are lots of Vegas Star employs a “theatre fit- This, along with the property’s novelty fac- restrictions on promoting gaming in Hong out.” Mr Chan says both types of tor and a relatively low machine count gives Kong. Hong Kong is a mature, international interface do equally well at Mocha, Wynn Macau an average daily win per slot of city. We will do some technical things to tar- with customers generally prefer- around US$375, compared to the market av- get that market.” ring one or the other type. erage of US$138. Mocha has three times as Mocha employs player tracking to de- many slot machines as Wynn, and despite its termine its members’ preferences and of- lack of casino glitz, its average daily win per fer loyalty points which can be redeemed slot is about US$213. for F&B and other services. Apart from the Royal Members’ Lounge, the second floor of Marina Plaza operates as a premium area Machine Focused restricted to 1,000 members. Access to the Asked whether he is concerned about the premium area is granted to customers ac- arrival of mammoth properties like Vene- cording to a matrix of criteria including vol- tian Macau, Mr Chan responds: “I don’t really ume of play and number of visits, as well as compete with the casinos. Sands and Wynn by invitation. Mr Chan emphasizes Mocha’s focus on visitation of property. They don’t focus on visitation, with access granted to care if visitors play tables or slots. Mocha’s both high-spending customers who come focus is 100% on gaming machines. No once or twice a month, and average-spend- tables, no hotel rooms, no retail. We focus ing customers who come every day. Access on that, we build our membership loyalty – to the Royal Members’ Lounge is by invita- which takes time. It’s growing. They are play- tion only. ing the same Aristocrat machines. Why are they playing here? Because they know this guy, they know this attendant, they know Benefits of the Capacity Boom this floor manager.” Mr Chan does not worry about the huge ex- Mocha offers conveniently located out- pansion in Macau’s slot capacity. In fact, he lets throughout Macau and aims to “accom- believes it will benefit the entire market by modate the needs of serious gaming ma- promoting “leisure gambling” in a city long chine players. There are a lot of choices for dominated by hard core table-gaming. Mo- tables. But if you are a serious slots player, cha’s parent company Melco will be part of come and play in Marina Plaza.” the capacity boom. Melco PBL Entertainment – a joint venture between Lawrence Ho’s Melco and Australia’s Publishing and Broad- Exclusivity at Marina Plaza casting Ltd – will install 3,000 machines at its The Marina Plaza outlet opened on Decem- flagship City of Dreams mega-resort, sched- ber 23, 2006, including the ultra-exclusive uled to open in 2008 along the burgeoning Royal Members’ Lounge. The Members’ Cotai Strip. Lounge has 31 machines, but limits access Venetian Macau, City of Dreams and other to only 50 of Mocha’s 76,000 members mega-resorts will bring greater entertainment, – with final access to the lounge to be re- retail, dining and other non-gaming draws to stricted to 100 members, alongside plans to Macau, drawing a new breed of visitor to the grow total membership to 150,000 by 2008. city. Mr Chan believes this, along with the big As of January – within one month of open- growth in the size of China’s middle-class, will ing – the average daily win per machine in raise demand for slots relative to tables, and the Members’ Lounge was double that of Mocha will seek to further establish its niche the rest of Mocha, with Mr Chan predicting as the only slot-focused venue to capitalise on the lounge will prove a much bigger earner that market-shift. 8 tive to non-gaming revenue. Macau’s effective gaming tax rate is 39% (35% as direct tax and a further 3-4% as compulsory social and welfare contributions) compared to 6.8% in Nevada and 8% in Atlantic City. Macau makes up for it high gambling tax rate with lower labour costs, however. Las Vegas Sands Corp (LVS) Chairman Sheldon explained to Inside Asian Gaming that the labour rate in Vegas works out to approxi- mately 35% of revenue, compared to 5-7% in Macau, “so overall it’s almost the same.”

Excessive Returns Gaming in Macau continues booming, and in 2006, the city’s gross casino revenue over- took that of the Las Vegas Strip. LVS’ Sands Macau has scaled back its unsuccessful high- end dining facilities to make way for more gaming tables – the high marginal returns on which have thus far discouraged investment in non-gaming attractions. Following the liberalisation of Macau’s wins per table. Macau casino operators have Macau currently lacks “stickability,” with gaming industry in December 2002, Vegas- thus far enjoyed a windfall from a spectacu- the average visitor stay around 1.1 days. based operators made bold declarations lar gaming boom, but they will have to start “There is a serious lack of non-gaming ele- about bringing world-class entertainment to pursuing non-gaming revenue and invest in ments that are needed to draw tourists to Macau, but the theatre at Sands Macau has transforming the city into a more complete stay a day or two longer,” explains Paul Steel- yet to stage performances, and Wynn Macau Vegas-style tourism destination in order to man Design Group (PSDG) Asia Managing has left its theatre for the second phase of continue generating healthy returns. Architect James Wong. development. As a slew of ambitious new casino-cen- PSDG – designer of Sands Macau – has Macau had 2,762 gaming tables as of tred properties come online over the next been commissioned to design the US$2 bil- end-2006, with supply increasing 99% year- few years, operators will increasingly turn to lion Macau Studio City – “Asia’s first leisure on-year, compared to the 22% growth in ca- non-gaming attractions to differentiate them- resort property combining theatre, televi- sino revenue. CLSA estimates 2,870 gaming selves and lure visitors. The introduction of sion and film production facilities, and Studio Building the Complete Package tables will be added to Macau’s current sup- major non-gaming draws, in turn, will trans- RetailTM, with gaming, entertainment and ply by 2008, leading to a marked decline in form Macau’s tourism and gaming market. world-class hotels.” Studio City will sit along Macau casino operators will increasingly rely on non-gaming attractions to differentiate themselves the Cotai Strip, where LVS and other Macau operators are frantically working to develop and maintain profit growth. Last month, developers broke ground on Macau Studio City, one of a number “Asia’s Las Vegas.” of upcoming mega-resorts that will transform the city into a more complete tourism destination Mr Wong emphasizes the need for Macau casino operators to increase their non-gaming offerings: “People in the industry say the I n Macau, 90-95% of the revenues of in Asia, this will still be below the 50% of rev- which have low overheads, contribute over [gaming] pie is getting bigger, but the tables casino operators derive from gaming activi- enue derived from non-gaming activities in 60% of gaming revenue in Vegas, but only 4% are increasing in number, which means ev- ties, compared to only around 50% in Las Ve- Las Vegas.” in Macau, where tables dominate. Meanwhile, eryone’s profit margins will go down. Any- gas. Macau’s current revenue mix is akin to the bulk of table gaming revenue in Macau body who is doing a project is now looking that of Vegas in the 1960s. Vegas moved on, comes from high-rollers playing VIP baccarat, at putting in more entertainment elements. and so will Macau, presumably at a much ac- Good for Margins and rising junket commissions are eating into You can thereby retain more family business celerated pace. The CLSA report pointed out that “hotel op- casino operators’ profits. As pointed out in “A and keep people here for a day or two longer. CLSA’s Aaron Fischer predicted in his erations typically generate an Ebitda [earn- Junket Primer” in the last issue of Inside Asian You give them more to do than just going to the tables. You give them shopping, you give authoritative Macau Mania report that the ings before interest, taxes, depreciation and Gaming: “VIP room operators used to offer them entertainment. That’s the best way for share of non-gaming revenue in Macau will amortization] margin in excess of 70%, while their clients 0.7% of theoretical win (TW) as everybody to make Macau a real tourist des- increase rapidly over the coming years, “par- food and beverage and entertainment is nar- commission, leaving them 0.3% to cover their tination.” ticularly as the Cotai Strip develops and casi- rower than the gaming activities’ margin of costs and contribute to their net margin. Now, nos attract visitors for business conventions closer to 50%.” with VIP room operators offering up to 1.0% of and family entertainment as seen in Las Ve- The gaming activities’ margin in Macau, TW as commission, they have effectively given Gaming Will Decline in the Mix gas.” He predicted non-gaming “will increase however, is likely to be significantly lower away their profit margin.” Macau Studio City is amongst the ten larg- to at least 25% of total revenue by 2010.” than that in Vegas, given the differences in Gaming revenue in Macau is also taxed at est casino projects currently being built in However, “given the inherent love of gaming the gaming markets of the two places. Slots, a much higher rate than in Vegas, and rela- the world. Phase one of the 2,000 hotel-room 10 11 complex is scheduled for completion in the vised fashion events, and film, television and Mr Parker says further research on the scoffs at the suggestion that it will take sever- little or nothing to Asian retailers.” first quarter of 2009. The property will have star-tie-ins and sponsorships that will excite market convinced Taubman to enter Macau. al more years for gambling-hungry mainland More About the Owners 3.7 million sq ft of gross floor area, of which audiences and guests alike, and bring Asia’s Taubman manages 23 regional shopping Chinese to start demanding non-gaming Entertaining Potential about 1 million sq ft will be devoted to re- most important stars to the shopping mall’s centres in eleven US states, and the company attractions to a sufficient degree to support Macau Studio City is being devel- Entertainment in Macau has even greater oped by Cyber One Agents Limited, tail space, film and TV studios, a concert hall walkways.” feels it could use its strength and experience Cotai’s mega-resorts. “I think they would growth potential than retail, if only because a 60/40 joint venture between East and expo facilities. There will be 2,000 hotel The entertainment facilities at Macau to establish a dominant position in Macau’s come if this project opened tomorrow. I think the base is so low. As CLSA’s Gavin Ho points Asia Satellite Television Holdings rooms, and a relatively small 200,000 sq ft Studio City will include a 2,300 seat theatre, a nascent resort-centred retail market. Mr Park- only because of a lack of it are they turning out, in 2005, 71% of visitors to Las Vegas at- (a subsidiary of Hong Kong-based set aside for gaming, with 400 gaming tables 4,700 person capacity multi-function venue er also called into question the 6 million sq ft to Hong Kong. When such facilities become tended shows during their stay, taking in an eSun Holdings) and New Cotai LLC. and 1,000 slot machines. Construction of the capable of hosting sporting and MICE (meet- forecast, pointing out “a lot of the supply is ei- available in Macau – and they may be even average of six shows. Vegas visitors spent eSun Holdings is one of Asia’s second phase of the project will likely start ings, incentives, conventions and exhibitions) ther delayed or not being built. There are big better than the Hong Kong ones in terms of an average US$137 and US$49 per trip on leading media and entertainment in 2009, and pending government approval, events, stand-alone state-of-the-art televi- question marks about what’s being built.” novelty and design – people will find that shopping and entertainment, respectively. companies and an associate compa- the gross floor area could be increased to 6 sion and film production facilities and a 1.4 Furthermore, Mr Parker adds that even if Macau is where they want to come and Meanwhile, Macau’s mainland Chinese visi- ny of Lai Sun Development, a lead- million sq ft by 2011. million sq ft Studio RetailTM complex. the 6 million sq ft gets built around new ho- spend their money and stay a couple of days tors spent an average US$237 – 73% higher ing hotel and property developer. A comparatively small proportion of Ma- tel rooms, Macau will only have 17 sq m of more before they go to Hong Kong just to go than Vegas visitors – on shopping in 2005, Both companies are part of Hong cau Studio City’s total area will be devoted to TM retail space per hotel room compared to 33.5 to Ocean Park, and god forbid, even Disney.” but because of the almost complete absence Kong’s Lai Sun Group. eSun holds gaming. LVS’ US$2.3 billion Venetian Macau, Studio Retail sq m per room in Las Vegas. Vegas currently LVS is the most fervent follower of the of shows in Macau, spent almost nothing on “Studio RetailTM will integrate live-audience 66.6% of East Asia Satellite Televi- by comparison, will have 700 tables and 4,300 has 41 million sq ft of retail space compared supply-creates-demand thesis in Macau. The entertainment. sion Holdings (giving it a 40% share slot machines when it opens in July 2007. Mr taped lifestyle and fashion programming to Macau’s 1 million sq ft. company is developing some 20,000 hotel Considering the cash they splash on of the Studio City project), while the Wong points out that “the development and throughout the retail environment,” accord- rooms along the Cotai Strip in properties that shopping, mainlanders could at least theo- remaining 33.3% is held by Singa- design of Macau Studio City is more into the ing to PSDG. Shopping at Macau Studio City include a total 3 million sq ft of retail space. retically afford to splurge on entertainment pore’s CapitaLand. way of a complete entertainment experience “is an experience whereby you are continu- So Long Hong Kong Sheldon Adelson has a knack for knocking as well. “Affordability aside, we believe shows New Cotai, LLC is a consortium for people, rather than singling out gaming ously interacting with the entertainment Macau bulls believe the massive new supply his competitors, and says he is not worried and concerts should have strong appeal, pro- of US-based investors including Da- as the theme.” element, which is either in the film or music of quality retail space in the city will allow it about the Taubman project. “If you were a vided they are the programmes these visitors vid Friedman, Co-Chairman of Ma- Macau Studio City is being developed by area,” explains Mr Wong. “You will be visually to draw mainland Chinese visitors who cur- shopper and you were staying in one of our are looking for,” writes Mr Ho. “Andy Lau, for cau Studio City, and funds managed three partners. Hong Kong-listed eSun Hold- and sensually entertained at the same time rently travel to Hong Kong to shop, especially 20,000 rooms, would you leave the proper- example, who has won countless music and by Silver Point Capital, a private US- ings (through its subsidiary, East Asia Satellite as you are going through your shopping ex- since Macau will soon also offer a wider vari- ty, walk down the street and go to another other awards in mainland China, Hong Kong based investment firm, and Oaktree Television Holdings) has a 40% share of the perience.” ety of entertainment and cheaper and higher property simply because it’s stand-alone and and overseas, could easily pull a full house in Capital Management, a global inde- project, New Cotai LLC, through a consortium Several attraction corners will be inter- quality hotel accommodation. Taubman developed it?” he asked. “I can as- a mainland show for which tickets sell at up pendent investment management headed by former LVS executive David Fried- spersed in the retail area, where visitors might Mr Wong echoes that sentiment and sure you that American developers mean to Rmb1,000 (US$130).” firm. Mr Friedman is a veteran resort man, also has 40%, and CapitaLand, one of witness a film shoot, celebrity-interview, or and gaming developer who led Las Singapore’s largest property developers, ac- small-scale music or theatrical performance. Vegas Sands Corp’s entry into Ma- quired the remaining 20% in January. The multi-function venue could see taping cau. He also holds a Nevada gaming The casino will operate under the license of TV shows and other performances in front license. of Melco PBL Entertainment – one of Macau’s of a live studio audience, and “we also have six gaming concession holders. Marriott In- small recording studios peppered around ternational has submitted a letter of intent the place,” adds Mr Wong. to manage both a Marriott hotel and a Ritz- In January, Taubman Asia was appointed Carlton hotel at Macau Studio City. Phase as Macau Studio City’s preferred retail part- One of the project will also include a new 6- ner. Taubman Asia is a subsidiary of Taubman star boutique hotel concept called The Tang Centers, one of America’s biggest shopping Hotel, created by David Tang, founder of the mall developers. Taubman’s retail projects in- China Clubs and Shanghai Tang. clude The Pier at Caesar’s in Atlantic City, the future MGM MIRAGE CityCenter retail district development in Las Vegas, and other retail Entertainment DNA properties spanning from Beverly Hills to Or- The entertainment element of Macau Studio lando, Florida. City will be provided by eSun, a major player Taubman Asia President Morgan Parker in the Chinese live entertainment and film- was initially concerned about retail over-ca- star market. The company says it will “inject pacity in Macau, given the forecast creation its media and entertainment ‘DNA’ across the of 6 million sq ft of new retail space in the full range of activities and experiences that city over the next three years. In October guests will enjoy at the property.” 2006, Mr Parker said the development was CLSA’s Gavin Ho elaborated on eSun’s too much too soon, but he has since changed role in the project: “For example, it will lever- his assessment. On the announcement of age its satellite network and have live-audi- his company’s partnership with the Macau ence television events taped on its prop- Studio City project, he commented: “We are erty in which guests can participate – game extremely confident Macau won’t be over- shows, music events, contests and the like, supplied with retail” as long as the pace of In designing Macau Studio City, PSDG President and CEO Paul Steelman says he “wanted to make a modern project – a building that is seamlessly relevant with Asia’s favourite talents. It also plans to development for casinos, convention centres for any time period. We want it to be functional and deemed as a great design and special tourist attraction forty years from now.” work with major retail partners to have tele- and resorts continues.” PSDG follows the same principles in designing its other projects, including the striking Ho Tram resort in Vietnam, pictured here. 12 13 If it Works for Me… Shanghai Travellers’ Perceptions of Macau This cultural arrogance has made its way into the marketing media, and Hong Kong-style Common promotions and slogans pervade the marketing efforts of all of Macau’s casinos, from US-based giants Sands and Wynn to smaller Good nightlife / adult oriented players like Rio and President. The mentality Restful and relaxing Relaxing of “it works for me, then it must work for all Political stability Stable and safe Friendly local people the other Chinese,” neglects the myriad cultural differences among the different regions of China. Image Holistic Some basic facts to consider – the popu- attributes imagery lation of Beijing is 12.8 million, Shanghai 20 million, Guangdong 84 million , Fujian 34 million, and so forth. These cities and provinces Gambling opportunities are bigger than most countries, and each Unique architecture Gaming activities – casinos, racing have their own unique and continuously Ruins of St. Paul’s evolving dialect and cultural roots. Disre- garding the written language, most of these dialects are considered unique languages by language professors. In a recent survey conducted in the departure areas of various regional airports, re- Unique search found that the messages that would influence the travellers to choose a destina- segment may actually alienate another seg- ages are positive attributes also possessed tion differed consistently depending on the ment. For instance, Taiwanese travellers in- by other destinations, while the “unique” im- origin of the travellers. In particular, the sur- dicated that safety is an important criterion, ages refer to attributes offered by Macau in vey found that the perception of Macau as but to emphasize it in a marketing commu- particular, and generally absent in compet- a destination varied quite markedly among nication to travellers from another market ing destinations travellers from Hong Kong, Shanghai, Beijing may instead raise questions as to why safety The two graphs show that both sets of and Taiwan.1 should even be an issue at all. travellers perceive Macau’s sole unique draw Macau gaming operators send out a bar- The following two graphs are examples as – surprise, surprise – gaming, as seen in Chinese Are Not All the Same rage of messages across a multitude of me- of the leading image components of Macau the bottom right-hand quadrant. Both also dia, yet according to the survey findings, a in the mind of travellers from Hong Kong unsurprisingly associate the image of the In sending marketing messages to mainland Chinese, Macau casinos generally make the mistake message that may be suited to one market versus those from Shanghai. “Common” im- historical Ruins of St Paul’s with Macau. of assuming all Chinese have similar cultural attitudes and preferences. Casino marketing guru Octo Chang teams up with Ben Lee, VP-Casino Projects with the Diamond Casinos Group, and Macau tourism academic Shifting Perceptions Hong Kong Travellers’ Perceptions of Macau Glenn McCartney to point out the need to differentiate marketing messages in different parts of China Now the challenge ahead for Macau operators is to alter travellers’ perceptions and Common align them with their product offerings: sig- nature restaurants (Lisboa’s Joel Robuchon), “A ll Chinese look the same.” dark hair and brown eyes, one ends up look- and last, but certainly not least, mainland glitzy nightlife (Wynn’s Tryst) and one-stop Many Caucasians – often apparently un- ing for other facial features like shape of the China. The marketer may congratulate him- adult entertainment (Grand Waldo’s 5-storey prejudiced ones – are guilty of having uttered eyebrows, shape of the eyelids or the face, self on his sensitivity in making the above Restful and relaxing Relaxing “Entertainment Block”). That is, the operators Friendly local people that statement on arriving in the Orient. The skin tone, etc, to tell individuals apart, and ig- distinction, but would still be making a huge Happy and fun Clean and litter free have to create the perception that Macau is reverse is also true. A Chinese traveller land- noring what would seem to the Caucasian to mistake – namely, thinking that all mainland more than just a gambling haven in order to ing in a predominantly Caucasian country be the most obvious distinguishing features. Chinese are alike and can be considered a Image Holistic maximize the draw-cards they have put or for the first time can also have trouble- dis Just as Caucasians may experience dif- homogenous entity. attributes imagery are putting in place. tinguishing between individuals. Why is that ficulty in distinguishing physical differences Chinese themselves are guilty of such Apart from the perceptions, however, how so? between individual Chinese, they may also ignorance, and you will find examples of it can operators actually motivate travellers to The answer lies in our respective back- fail to distinguish cultural differences. The in everyday life in Macau and neighbouring Access to China come to Macau? It takes a two-pronged ap- grounds and the resultant filter we use to various Chinese communities in this part Hong Kong. An overseas-born Chinese friend Gambling opportunities Gaming activities – casinos, racing proach. view the world. of Asia have had divergent cultural evolu- who happened to speak a different dialect to Ruins of St. Paul’s The first, as explained, is to change the If one grows up in a multi-hued society tions, and the savvy international marketer the dominant Cantonese in Macau was told Macau Tower current perception to match what you have where the colour of the eyes and hair differ, understands they need to be approached he couldn’t be Chinese if he didn’t speak Can- in terms of attractions. The second strategy as well as the colour of the skin, one would differently. For example, the marketer may tonese. That’s perhaps not surprising given should actually precede the first, and that naturally select those as distinguishing fea- tailor different messages for the Chinese that local schoolchildren in Macau and Hong is, to provide those attractions which the tures. If, on the other hand, one grows up in a communities of Malaysia, Singapore, Indone- Kong refer to the Cantonese dialect as “The travellers actually want to experience. Is society where the common physical traits are sia, Vietnam, Philippines, Taiwan, Hong Kong, Chinese Language.” Unique the glitzy thousand-dollar-entry and girl- 14 15 around-the-pole something that will draw kets. Go to Shanghai or even Beijing, however, and mainlanders stay an average of only 1.2 days than has been done to date, in order to iden- based casino marketing columnist, who has a punter from Beijing? Does Joel mean any- With the exception of the Americans, you are struck by the lack of pop glamour in in Macau and spend all their money gam- tify the various segments and the means to extensive qualifications in the gaming industry. thing to the Shanghainese, or is the glam- just about all the other operators and casino the media. bling at the expense of good food and enter- reach them. Please feel free to forward any amusing anec- our chef an attraction relevant only to Hong owners in Macau come from Hong Kong, and This clearly shows that there is scope in tainment. However, it could be that this ste- At the moment, the product offering in dotes or observations to [email protected]. Kong elites? their marketing promotions have a sameness places to greater align the communication reotype only applies to the Hong Kong and the main halls of the larger casinos are uni- Just to highlight some differences, the about them. Although the Vegas newcomers mix, leading to a better use of marketing and Guangdong set (with Southern China having form. This means that the smaller (individu- Ben Lee has an extensive background in casino analysis of the survey results also established offer different hardware and deploy subtler promotional resources. It will be in the inter- been heavily influenced by Hong Kong me- ally owned) casinos, if let loose by SJM and marketing in Asia and Australia, particularly in the individual messages that were deemed branding messages, they are also tending to- pretation, implementation and placement dia anyway), who make up the bulk of visitor Galaxy, have a potential distinct advantage profiling the Chinese market segment. by the travellers as important to them and wards the same direction in terms of execu- that challenges will arise for the many Vegas- numbers to Macau and hence skew the aver- over their larger brethren if they can reposi- that might influence their decision to travel tion and tools. driven/Hong Kong-centric casino marketing age data. tion themselves to capture a specific niche Glenn McCartney, PhD, is an Assistant Professor to Macau in the future. The “Y”s represent fac- departments in Macau. On the micro level, this means that the market segment. in Tourism at the Macau University of Science tors that were deemed important, while the Ultimately, the product itself may have to operators will have to re-pitch their F&B As table revenue becomes more diluted, and Technology. “N”s represent those that were not. Word of Mouth be tailored more closely to individual market outlets at different levels, and we are see- the focus of future marketing efforts will tend As mentioned earlier, the Taiwanese are The survey results also suggest that the segments. How many times have you heard ing that. Wynn Macau is now re-tuning its towards identifying as many viable niche rather concerned about safety in Macau and value of each marketing method differs the credo that the mainland Chinese will food outlets, which suggests it may not have market segments as possible. In fact, we may need to be reassured that the gang-wars pre- across markets. The Taiwanese traveller was spend all their money gambling, and will stay learnt from the experience of Sands Macau. even see small operations targeted at other Notes 1 This research was commissioned by ceding the handover to Chinese sovereignty being bombarded with TV and print adver- in the cheapest hotel or sometimes not stay Meanwhile, Sands still does not know what parts of the region, such as a boutique Ko- Glenn McCartney and conducted in the tisements and TV travel programmes – es- in December 1999 are not likely to resurface. in a hotel at all? Look at the Hong Kong (read to do with its outlets. Galaxy’s Starworld has rean or Japanese casino-hotel (feelers and departure areas of airports in Beijing, Hong Kong visitors, on the other hand, prefer sentially your typical Hong Kong-style cam- Cantonese) lifestyle. Food is a brief respite done a little better by offering various forms concepts are already being discussed). Shanghai, Hong Kong and Kaoshung, as a clean and tidy environment – something paign. However, the Taiwanese surveyed from the normal schedule of making money, of Chinese cuisine to the point where even Or maybe a spicy Sichuan or a Fujian style these destinations represent over 90% that does not even appear on the radar of indicated that they placed much greater a stop to take in some fuel in order to keep the local Macanese are frequenting them on property complete with native speakers and of air travel to Macau. Random sam- the mainlanders. importance on outdoor advertising, the in- going. Even wedding dinners in Hong Kong the weekends (the old informal network in cuisine? Why not? The population base is cer- pling was between 300 to 450 travel- Looking at the differences among the ternet and work colleagues. take only about 45 minutes (not including play here). tainly there. lers at each airport, and tested as valid. mainlanders themselves, it is interesting to In an earlier column, “Those Annoying the mandatory 1-2 hour wait for everybody At the macro level, the operators will As the Northerners will tell you with a dis- The questionnaire and survey was designed based on destination image and note that the northerners consider good People Called Customers,” that appeared in to turn up) from the cold platter to the Fried have to rethink their main hall in terms of lay- dainful sniff – only the Southerners eat rice. branding research undertaken glob- quality hotels a must, while the Shanghai- the October 2005 issue of Inside Asian Gam- Rice. out, positioning and perhaps the customer Chinese are not all the same. ally in the last ten to fifteen years and nese do not give a hoot. Likewise, neighbouring, I made mention of a marketing case On the other hand, residents of Beijing gaming experience. They will also have to data was tested using SPSS software ing Hong Kongers do not need hotels, yet where the informal word of mouth advertis- appear to have a much more sedentary life- conduct much more marketing research Octo Chang is the pseudonym of our Macau- and various multivariate techniques. owing to restrictions on advertising gaming was the key element in the successful style. The northerners will actually spend bling in Hong Kong, hotels are the featured outcome. This appears to be the case here a couple of hours over dinner, talking and element of the majority of casino ads over in as well. holding verbal discourse over whatever topic Hong Kong. The sameness in execution I alluded to is of the day may be current. Look at the speed Obviously, a “one message fits all” ap- clearly evident everywhere you go in Macau of the pedestrians – in Hong Kong, any new- Why Chinese Like Gambling proach is not the most optimal in promoting and Hong Kong. Print media galore, Canto comer casually sauntering around the MTR travel to Macau. Focusing on casino-based popstars and movie celebrities, and the ubiq- risks being trampled by the passengers. In While mainland Chinese cannot be considered a homogenous entity, they are widely considered to be tourism as the sole marketing and promo- uitous lucky draw are such common occur- any of the other provinces north of Guang- the world’s most hard-core gamblers. CLSA’s Aaron Fischer looks at the origins of the Chinese passion tional strategy may also limit the appeal of rences that one has to wonder about the ROI dong, the pace of life is definitely slower in Macau in the future to wider traveller mar- and measurable effectiveness of such tools. most respects. It is considered a truism that for courting lady luck

Cross section of some image messages important in making a travel decision to Macau Throughout history, the Chinese have been avid gamblers, bet- The weekly TV show about the lottery had one of the highest ting on everything from cricket fights to archery contests. Gambling ratings in Shanghai in 2001, according to Xinmin Evening News. It is has been dubbed China’s ancient vice. In fact, the very first accounts estimated that Chinese gambling losses abroad (including Macau) Image message Hong Kong traveller Beijing traveller Taiwan traveller Shanghai traveller of gambling, dating back some 3,000 years, were found in China. amounted to over US$75 billion annually in recent years – almost half The history of Mahjong, one of the most popular Chinese gambling of Thailand’s annual GDP. Indeed, where else but in this region could Safe places to visit N N Y N games, goes back to 960 AD – some even believe Confucius to be the one find a whole genre of film dedicated to stories about gambling inventor. masters? It is interesting to note that the Chinese love of gambling has per- This leads one to wonder why the Chinese love to gamble. Many places of interest to visit Y N Y N sisted despite strict laws and bans imposed by imperial rulers and, Although no single explanation seems to fully shed light on this more recently, the Communist Party. Not only were they considered “gambling gene”, a few probable reasons have been proffered. The Political stability N Y N Y morally bad (Confucius said that “a gentleman does not gamble”), first is economic: throughout its long history, most Chinese people gamblers were sentenced to death during the Song Dynasty and had have been impoverished, so they naturally hope for a windfall from their hands cut off during the Ming Dynasty. gambling games. The second is the supposed lack of a national Valuea for money N Y N N Gambling is, by and large, a way of life for the Chinese. Back in game, or in other words, they have nothing better to do. The third, the late 1800s, historians in China and Hong Kong observed that ev- and more plausible explanation, is the deep-rooted belief in luck Good quality and easy to find hotels N Y Y N eryone gambles for everything and that “the boys learned gambling and pursuing good luck – a fundamental component of Chinese as soon as they could talk, and pursued it through life.” Even buying culture. bread from a street vendor can be a gambling game. It is this strong belief in luck that leads many to gamble their mea- Clean and litter free Y N N N Recent anecdotal evidence suggests the same still holds true cen- ger savings in the hope of becoming rich. So a love of gambling can turies later. be said to follow naturally from this belief in luck. 16 17 fashion to fast food. Western casino and hotel brands appearing in Macau will likely achieve a similar following. Brand Change Some observers believe novelty, rather than incipient brand loyalty, drew the crowds Macau casino operators are scrambling to differentiate themselves in the face of intensifying competition. to the openings of Wynn Macau last Sep- Through branding, they will transform the hard-core gambling haven into a complete tember and Sands Macau in May 2004. Ac- Vegas-style tourism destination cording to that line of thinking, mass market customers will simply keep transferring their affections every time a new venue opens, like a big game of musical chairs. The true mass M acau has clinched the lead in the VIP room operators normally rely on a until 2008. Yet revenue figures released in market test for the new properties is reten- race to become the world’s top-grossing ca- personalised approach to woo high-rollers, January showed SJM’s share had already fall- tion rates. Sands Macau is certainly showing sino destination. The city’s casino revenues but in an increasingly busy mass market with en below 50% in 2006. staying power, recording only a one percent surged 22% year-on-year in 2006 to reach surging visitor numbers, branding is a more There are clear signs Dr Ho is reposition- fall in market share to 20% in 2006, despite US$6.95, compared to the Las Vegas Strip’s appropriate lure for ordinary gamblers. This ing his operation to meet the challenge. As the increased competition. SJM suffered the estimated US$6.5-6.6 billion for the year can be done in a number of ways, including well as opening new casinos, he announced largest decline in market share. (though adding the revenues of the other ca- encouraging repeat visits through loyalty a deal in late January to buy a HK$274 mil- sinos in Clark County to those from the Strip schemes, offering loss leaders such as cour- lion (US$35 million) stake in Malaysia’s Star brings the tally to over US$10 billion). tesy buses and complimentary snacks and Cruises. The investment, done via Dr Ho’s Incentive to Innovate While Macau’s casino revenues have out- drinks, or simply mesmerising customers private vehicle, Profit Boom Investment, For years, branding didn’t really matter in Ma- stripped those of the legendary Strip, in mar- with sheer glitz and glamour. benefits both sides. It gives Star access to cau. There was little incentive to innovate, as keting terms, Macau looks to be following Macau’s former gaming monopolist Macau’s coveted gaming market, while pro- all the city’s gambling halls fell under Stanley the American lead. Stanley Ho is the operator most dependent viding Dr Ho an inroad to the fledgling Sin- Ho’s monopoly license. The operators not di- Product branding has been, for better or on the VIP trade, and his revenue share has gapore market, where Star Cruises will soon rectly controlled by Dr Ho needed to main- worse, the United States’ great gift to world been eroded by the march of mass market build a gaming resort with its parent com- tain goodwill by making sure they didn’t en- commerce. Its growth in the Macau casino branding. When the first casinos from rival pany Genting Group. croach on his business interests. sector indicates that the mass market is start- operators opened in 2004, analysts predicted Genting and Star are well known brands Now Macau is making up for lost time, ing to drive the agenda of the city’s gaming Dr Ho’s Sociedade de Jogos de Macau (SJM) in Asia, and in December proved their inter- thanks to the influx of billions in overseas business model. would retain over half the local market share national competitiveness by clinching the investment following the ending of the mo- license for the second of Singapore’s two nopoly in December 2002. The latest brand to revenue from dining, retail, entertainment from the inferior product, but will also ex- planned casino-centred integrated resorts, to enter the market is Hard Rock International, and other non-gaming sources. As the Macau pand the market to a new set of customers, be located on the resort island of Sentosa. In operator of the themed hotel and restaurant market matures and moves towards the Las a set of customers that either doesn’t visit winning the license, Genting and Star outbid chain. It has signed an agreement with Melco Vegas model, its non-gaming revenue is ex- Macau at all today, or visits Macau only infre- Bahamas-based Kerzner International and a Hotels and Resorts Ltd – part of Melco Inter- pected to increase in importance. Las Vegas quently.” consortium headed by resort-builder Mark national, the Hong Kong-listed company run Sands Corp (LVS) Chairman Sheldon Adelson The desire of casino operators to move Advent (creator of the New York New York by Dr Ho’s son Lawrence – to run a Hard Rock is gambling on it. ever further into general entertainment casino in Vegas) and including Mississippi- Hotel and Casino at Melco’s City of Dreams In the third quarter of 2006, LVS, operator means the distinction between theme parks based Isle of Capri Casinos Inc and Australia’s complex being built along the nascent Cotai of the Sands Macau and The Venetian in Las and gambling palaces is becoming increas- Publishing and Broadcasting Ltd. Strip (of reclaimed land between Macau’s Co- Vegas, announced consolidated results for its ingly blurred to nearly everyone but the gam- loane and Taipa islands). The Hard Rock ven- American and Macau operations showing a ing regulators. No visit to Nevada’s ‘Sin City’ is ue will feature a 380-room hotel and a 25,000 29% increase in food and beverage revenues complete, for example, without witnessing Brand Ally sq ft casino, and is likely to open in the last to US$138.2 million, and a 29% increase in the pirate battle at Treasure Island Las Vegas By associating with Genting Group, Dr Ho quarter of 2008. retail revenues to US$9.6 million. LVS’ non- – though nowadays the spectacle is more like gains a strong brand with which to take on Hard Rock International is based in Or- gaming revenue growth will likely jump fur- Showgirls than Pirates of the Caribbean, with the western competition. The new partners lando, Florida, the de facto world capital of ther following the July 2007 opening of the skimpily-attired male and female performers plan to construct a boutique hotel and ca- theme parks. The company also has opera- US$2.3 billion Venetian Macau, which will busily jigging in the rigging. sino in Macau, slated to open in 2009. The tions in Las Vegas and in 44 other national feature sprawling entertainment, retail, expo It seems a modern casino entrepreneur hotel is likely to be named Resorts World, and territories, comprising 123 Hard Rock Cafes, and dining facilities, in addition to its 3,000 needs to be a combination of showman, the casino will be operated by SJM. The link seven hotel-casinos and one stand-alone suites. property developer, hotelier and retailer as with Star also opens up the possibility of cre- casino. LVS President and Chief Operating Of- well as bookmaker. One of the industry’s ating a new and lucrative revenue stream in Industry analysts say the expected arrival ficer William Weidner commented on the natural showmen is Steve Wynn. He is now al- Macau, through gambling cruises. of Hard Rock in Macau is another example of company’s Macau strategy during a confer- most as well known for buying famous paint- As the American and Australian new- the ‘Vegas-isation’ of the territory. ence call with financial analysts to discuss ings and displaying them in his hotels – and comers to the Macau market start to open LVS’ third quarter results: “Our extensive recently, for accidentally putting his elbow multiple venues targeting different market coast side development plans are based on through one of them – as he is for running segments, the impulse to tie customers in Betting on Non-Gaming two fundamental concepts; that the market gambling venues. to their brands is likely to grow stronger. While over 90% of the revenues of Macau will expand as quality product is introduced; In Macau, smaller casino operators with- Chinese consumers have responded enthu- casino operators are derived from gaming, [and] that the highest quality products in the out the deep pockets of Steve Wynn or LVS Genting Highlands Resort siastically to western brands ranging from Vegas operators now earn roughly half their marketplace will not only win market share are finding other ways to differentiate them- 18 19 selves in an increasingly busy mass market. A trip to Macau. ished the year with a 19% share. The Galaxy current fad is for themed properties. Although initial visitor numbers at Fish- properties have taken advantage of the op- erman’s Wharf have been disappointing, the portunities for cross-promotion and group Worth its Weight owners hope to revive its fortunes with the purchasing, as well as the novelty factor that The Grand Emperor Hotel and its accompa- new themed casino in the grounds operating new openings present. nying casino on the Macau peninsula went under SJM’s licence. The one recognisable casino brand that for a look of imperial opulence. It chose to The new casino’s exterior is loosely based did develop during the monopoly era was wow visitors by literally paving the lobby on a temple from ancient Babylon – another Stanley Ho’s Casino Lisboa. The birdcage- with gold – 78 one-kilo bars of it, to be pre- civilisation noted in The Bible for its love of shaped Lisboa was built in the late 1960s, cise. Emperor Entertainment Group has a excess. In reality, the frontage looks more like and as Stanley Ho’s right-hand man Ambrose strong entertainment brand in Asia, with film an Art Deco cinema theatre parachuted on So pointed out in an earlier interview with star Jackie Chan – a minority shareholder in to the banks of the Pearl River Delta than a Inside Asian Gaming, “the ceilings are low the project – appearing at the opening of the temple on the banks of the River Tigris. and it’s very cramped.” Still, the Lisboa has property in January last year, Other local operators are busy building achieved iconic status, and SJM is cashing in In Macau, even the shopping complexes a corporate identity to pull in visitors, and it on that with the adjoining Grand Lisboa, set are turning into theme parks. David Chow’s seems clear that when it comes to gaming, to open this month. SJM also has the benefit Fisherman’s Wharf retail and restaurant size and branding does matter. Hong Kong- of size, providing licences for 17 of the 24 ca- development is a pastiche of architectural listed Galaxy Entertainment Group, headed sinos currently operating in Macau. styles from around the world, reminiscent of by Hong Kong construction tycoon Lui Che a section of Disney’s Epcot Center in Florida. Woo, started 2006 with two casinos and a Sign of Maturity LVS’ Venetian Macau resort will soon add 9% revenue share. By the end of the fourth Gaming industry consultant Roger Egan says: quarter, it had five casinos operating and fin- Italy to the list of places you can visit on a “It’s a sign of the maturing of the Macau casino market that branding and themed venues are playing an increasing role. It’s a way of offering niche products to spread the appeal of Macau to non-gamblers as well as gamblers. The thinking is that you can drive up room occupancy rates, length of stay and general revenues if you can turn Macau into a general sightseeing and entertainment resort rather than just a gambling town. With this new business model, gambling could become the icing on the cake, rather than making up the whole cake.” The quest for branding in Macau can also be seen in the frantic rush of the different casino operators to sign up big name hotel chains to their new developments. But what of Macau’s traditional casinos and their VIP operations, who lack an obvious brand identity, brand allies, or linkage to a big organisation? How many of the analysts currently writing about Macau’s gaming industry have heard of the King Seiner Palace casino? Yet King Seiner is part-owned by Success Universe Group, one of the big three players in the Macau VIP market. Given the sheer number of potential customers available in mainland China, the march of Macau’s mass market looks unstop- pable. Wynn Macau managed to corner a 16% share of the territory’s gaming revenues within three months of opening. The Las Vegas experience has been that in the world of casino operations, the big get richer and the small get poorer. Unless Ma- cau’s small operators are able to hold on to the VIP trade and its big margins, the territory Grand Emperor Hotel may end up imitating Vegas yet again. 20 19 for real,” but serious contenders are gath- a major issue in “play for fun,” where the Friday night Mahjong party. ering their online and land-based wares in business model is to build online com- preparation to stake a claim in wide open munities and sell virtual product. In the terrain. “play for real” environment it goes with- Where is Mahjong Headed? As these contenders approach the mar- out saying that anti-collusion will be criti- Once the operators capitalize on the ket they will enjoy the following inherent cal to maintaining credibility among play- pluses and overcome the challenges, we qualities of Mahjong that will help build on- ers. Gaming software provider Playtech is will see a potentially explosive market for line and land-based player liquidity. working in cooperation with Tanksoft on mahjong that will be heavily driven by high groundbreaking AI technology that looks profile tournaments in Macau. Players from 1. Easy: Basic Mahjong is easy to learn. promising in overcoming the collusion is- across Asia will compete in online satellite You can buy a mahjong set for roughly the sues. tournaments to win a seat at multi-million same price you can buy cards and chips. 3. Fashionable: Mahjong is often associ- dollar tournaments hosted in Macau’s up- Friends and family play mahjong at home, ated with backroom activities and usually coming mega-resorts. in backrooms, basements – wherever you kept hush-hush in regular public banter, With huge player numbers, Las Vegas- can fit a 2x2 table much the same as poker was before it style glitz, worldwide TV distribution and star 2. Sport: China has officially declared exploded on to the television screen. The power all tied together with the ubiquity of mahjong a national sport, but anyone, of goal will be to raise the stature of Mahjong online gaming, mahjong is looking more and any physical build can compete in this among young adults in Asia to the point more like the next big gaming juggernaut. The sport. Remind you of poker? they talk excitedly about the upcoming question is “who will get there first?” 3. Variable price points: Online mahjong rooms can be built with multiple price points. Are you a beginner and want to try your luck? Go to the “el cheapo” room. Are you confident in your tile building skills? Go large on the high-roller table. 4. Anyone can win? There are several hands in a Mahjong game. To win a game you have to be skilled, but it is more than likely you will win at least one hand. This is what keeps players hooked. 5. Tournament play: As tournaments evolve so will the “play for real” player base. Beginners like the fact that for a small entry fee they could be a big winner. More skilled players like the big prizes, Mahjong Buzz which they are more favored to win. 6. Stars will be born: As tournaments grow in stature and television enters the With its widespread following among Chinese and other Asians, mahjong looks set to take the gaming world picture, Mahjong will spawn its own group by storm. Still, considerable challenges must be overcome before both land-based and online operators of celebrities and TV personalities. can cash in on mahjong, as they have with poker Even with the above advantages, it is still too early to call Mahjong a guaranteed success. There are still considerable challenges There is much excitement in the Asian apocryphal. The unique blend of skill, luck day. This number will continue to rise as it is for software developers and land-based op- and tile iconology of four winds, dragons and still early days for online mahjong – around gaming markets over Mahjong, with pundits erators. asking: “Will Mahjong become the next P2P “fa” (wealth) symbols appeals to the Asian 3 years since the major players were estab- [peer-to-peer] giant?” With over 350 million sense of strategy and success. Throughout lished. 1. Where is The Texas Hold ‘em?: Mah- mahjong players worldwide – several times time mahjong has kept friends and families The play-for-fun sites each have their jong will need to acquire a standard rule more than poker players – there certainly is huddled around square tables rattling tiles own identity; some attract high school and set that can easily cross boundaries. There potential for Mahjong to surpass poker as for hours, sometimes days. college kids that like to dress up their mah- are about as many mahjong rules as there the most successful land-based and online jong avatars in baggy jeans, sneakers and are Chinese dialects, almost one for each P2P game in the gaming industry. Where Mahjong Stands Now other hip virtual gear. Other P2P sites are less locality, including rules for Japan, Taiwan The high player-base has been nurtured The internet has taken Mahjong out of the fashion conscious and aim to provide a semi- and Hong Kong. A major factor in popu- over hundreds if not thousands of years. living room into the commercial arena. As professional mahjong environment focused larizing online and land based poker tour- Mahjong as we know it today was founded P2P game platforms have taken root in Chi- more on serious mahjong competition. naments was the rapid adoption of Texas in Ningbo, China around 1850, but some na, Mahjong is seeing a surge of online ac- Hold ‘em as the de facto rule set. sources trace its origins all the way back to tivity. Total “play for fun” mahjong usage is When Will They “Play for Real?” 2. Collusion: Of all the play for fun games Confucius – assertions that Confucius him- clocking in around 250,000 to 300,000 con- On the whole there has been minimal if any we tested, we have yet to find one that self developed the game are likely to be current players at any given time during the translation of “play for fun” players to “play adequately prevents collusion. 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In 2004, Rolls-Royce unveiled 100EX, a striking experimental drophead Launched at the Detroit Motor Show 2006, the Phantom Drophead Coupé is the elements and creating a stunning, social environment. built to celebrate 100 years of arguably the most famous automotive brand the second new model from Rolls-Royce since BMW Group became cus- in the world. Built without compromise, it encapsulated a century of el- todian of the marque in 1998. The two-door, four-seat convertible is a less The Drophead Coupé has been carefully crafted to be aesthetically pleas- egance and engineering, and, in an instant, defined the future direction of formal interpretation of classic Rolls-Royce design. Using the lightweight ing, yet practical. Wood, leather, chrome and brushed steel have been used the brand. rigidity of an all-aluminium spaceframe, it marries modern technology to a where most appropriate. Form and function have equal billing. The simplic- sleek, streamlined convertible body. ity of the design belies a car built to provide years of effortless service. In its two world tours, 100EX garnered positive comments from customers and the media alike. Such was the strength of the reaction that, in the au- Its exterior lines echo the timeless styling of the great Rolls-Royce cars: a The Phantom Drophead Coupé offers owners an unparalleled convertible tumn of 2005, Rolls-Royce announced that a production version would be long bonnet, large-diameter wheels, short front and long rear overhangs experience, combining compelling driveability with exceptional engineering, available by 2007. In the interim years, the team at Goodwood have worked and the quintessential dynamic line descending along its flanks. Inside, technology and design – hand-crafted from the finest materials to an ex- tirelessly to turn the experimental car into a reality. the design emphasises the airy openness of top-down motoring, embracing ceptional level of quality. ACE07 203 x 267ad.fh10 1/31/07 2:23 PM Page 1

High-Roller Accessories Key topic highlights The 12th annual Casino design Learn how to maximise player experience and profits through innovative architecture and interior design Las Vegas vs Macau Find out which is the best model for Asia A Toast to US Prohibition bill Get all the latest information on how it is Asian Casinos Executive Summit 2007 affecting the iGaming world and what it means for Asia and you! Technology update 16 - 19 April 2007,Raffles City Convention Centre, Singapore Hear it from the experts in land based Richard Hennessy casinos and iGaming

Puns aside, what better way is there to celebrate a big win at 2 separately bookable the baccarat table than with a sip of the nectar of the cognac post-conference masterclasses! 19 April 2007, Thursday gods from a hand-etched baccarat crystal decanter? Inside Masterclass A: Addressing corporate Asian Gaming was privileged to attend a recent banquet host- social responsibility in gaming ed by the good folk at Hennessy, where we learned that co- Learn about the importance of reaching a healthy balance between revenue gnac was the perfect accompaniment to fine Chinese cuisine generation and customer protection for competitive interests – if we’d gone for wine, we’d have needed to switch our selec- - Led by Singapore Pools and Singapore tion several times during the varied and unending courses (we National Council on Problem Gambling You bet! lost count thanks to the endless supply of Hennessy). Masterclass B: Marketing in a new era The banquet was topped off with a toast of the pride of the of total entertainment destinations Find out how you can better promote your Hennessy collection – Richard Hennessy, named for the com- casino business in a changing gaming The benchmark gaming event for Asia pany’s founder, a gallant Irish military officer serving under landscape - Led by Tulane University, USA • Full coverage of the very latest issues affecting both land based casino destinations and Louis XV in France, where he settled and started his now leg- iGaming today endary cognac company. Key speakers • A global gathering with an Asian focus - Key industry players from around the world will come together to share their expertise, network and form lasting relationships Richard Hennessy Cognac is a blend of more than a hundred • Find out how you can capitalise on the phenomenal growth of the gaming industry in Asia exceptional eaux-de-vie, partially coming from the Founder’s Cellar created in 1774 by Richard Hennessy, matured and sur- Lead Platinum sponsor Bronze sponsors rounded by a great luxury of attention. These eaux-de-vie for Ambrose So Andre Wilsenach Executive Director CEO the most part are from the best vineyards and parcels of La Sociedade de Jogos de Alderney Gambling Macau (SJM) Control Commission, Grande Champagne, while a small part comes from La Petite Channel Islands Champagne, and from Les Borderies and Les Fins Bois. Richard Hennessy Cognac reveals all the complexity, depth, balance and finesse of very old eaux-de-vie, some having at- Endorsed by Organised by

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www.terrapinn.com/2007/ace_SG Tour of the Properties

Hot Mocha Mocha Slot founder Lawrence Ho – son of Macau casino mogul Stanley Ho – once described the company’s café- style gaming machine outlets as “Starbucks with slot machines.” When the first Mocha Slot outlet opened in 2003, Macau was distinctly lacking in trendy gaming venues – the only other slot machines to be found in the city were in the dark, grimy corners of the elder Mr Ho’s monopoly-era casinos, including the flagship Casino Lisboa. The Mocha concept proved an instant hit, with the bright, cosy surroundings complimented by a new focus on customer service. Mocha now runs six outlets and a loyalty programme with 76,000 members. The latest addition to the Mocha network is the 20,000 sq ft Mocha Marina Plaza Slot Lounge, which opened on December 23 with 300 machines – twice as many as the other Mocha outlets. The first floor of Mocha Marina Plaza is open to the public, while the second floor is reserved for both a premium area restricted to 1,000 members and an ultra-exclusive Royal Members’ Lounge, currently restricted to 50 invited members. Inside Asian Gaming visited Mocha Marina Plaza, armed with a suitably trendy selection of attire designed and created by our stylist Alex Lam.

Photography: Ike Stylist: Alex Lam Coordination: Ricardo Carvalho Model: Nara F. Hair & make-up: Billie and Niki Mocha Marina Plaza Jewellery courtesy of Emphasis Jewellery Royal Members’ Lounge Mocha Marina Plaza Staircase to Second Floor

Mocha Marina Plaza First Floor General Area Mocha Marina Plaza Second Floor Premium Area

Mocha Marina Plaza Second Floor Premium Area Terminal Velocity Revenue rockets as VLT vendors integrate the latest slot advances into their platforms

Whether they’re in a tavern with five games or a racino with thousands, players who sit down at video lottery terminals are playing games with familiar sights, sounds and feel. “Players will come to us and say, ‘We saw this machine in Atlantic City or Las Vegas. Do you have it?’ We have it,” said Steve Keener, director of operations at Dover Downs, one of three Delaware racetracks permitted 2,000 VLTs each. Added Todd Elsasser, technical compliance director for Cyberview Technology, which is focused both on bringing server- based and downloadable technology to video lottery jurisdictions as well as up-to-date game content from independent designers, “The differences between a Las Vegas casino slot machine and a video lottery terminal are razor thin. A couple of protocol commands are the only difference.” But what’s meant by a video lottery terminal isn’t necessarily the same in every ju- risdiction. Games can have spinning reels, video displays, even electronic versions of table games. Each player interface, though, is a representation of the lottery game played within. “From a hardware perspective it’s essentially a slot machine that may require a variety of options depending on the juris- diction,” said Jim Borden, director for lottery accounts at WMS Gaming. “Generally its 1990 infancy to a $5.6 billion industry in year ending June 1 due to the effect of the sales are made directly to or through a state the United States alone in fiscal 2006 has expected addition of VLT gaming in Chester, agency such as a lottery commission where brought challenges to video lottery jurisdic- Pa., early in 2007, video lottery deputy direc- the regulator and the customer are one and tions. Keeping apace with player preference tor Don Johnson said. Part of Delaware’s chal- the same. in casino slot machines is just one of the lenge is offering a competitive product. “From a regulatory point of view it be- challenges. Monitoring systems and keep- “We’ve done a number of things in the comes less clear-cut, since pretty much any ing lottery games secure is another concern. last few years,” he said. “We’ve gone to 24/7 type of gaming product can be called a VLT,” And for operators in established VLT states operations, except Sunday mornings 6:00 Borden continued. “A VLT, therefore, is essen- such as Delaware, facing new competition is a.m. to noon. We have ticket-in/ticketout, and tially whatever the enabling legislation de- another. that was customer driven. We have automat- fines it to be.” “Each state has its own unique issues, but ed table games. Those things hopefully will As the video lottery industry nears its the biggest concern for most is the impact keep people wanting to play here.” second decade—South Dakota led the way of new machines in a contiguous state,” said with legalization of video lottery gaming in Mark Zetzmann, manager of business devel- 1989—it’s an industry facing changing con- opment for IGT. For instance, Delaware and Hazy definition ditions and challenges from within and with- West Virginia will be impacted by new loca- What video lottery gaming means is as varied out, and meeting those challenges with up- tions in Pennsylvania.” as the jurisdictions. Some, such as Delaware, todate technology. The Delaware State Lottery anticipates a include games with spinning reel displays as Growth from a $160 million industry in $10 million decline in revenue for the fiscal well as those with video displays. Delaware 42 35 also has recently introduced electronic black- edge. The Bally games are all CineVision and jack and poker games from Shuffle Master, widescreen upright.” with video representations of a dealer. Bally is not the only company infusing Video lottery terminal games outside slot-type innovation into VLT product. “WMS North America, however, can be much dif- video lottery terminals today share a com- ferent. In Israel, using monitoring technol- mon platform with our casino slots,” Borden ogy from Austin, Texasbased Multimedia said. “This benefits our lottery customers in Games Inc., the display is more basic. “There’s many ways: It eliminates the risk of obsoles- no sound,” said Gary L. Loebig, executive cence, allows our lottery products to evolve vice president for sales at Multimedia. “The with our casino products, and opens the VLT animation is simple. You see a display like a markets to our vast library of highly success- scratch ticket, and when you press the but- ful game themes. In fact, many of our hottest ton, you just see a jagged scratch.” In the games are getting solid play in VLT venues— United States, players want something more hit video themes such as ‘Kaboom,’ ‘Jackpot than an onscreen scratch. “There are almost Party Progressive,’ and ‘Men In Black,’ as well two distinct VLT markets,” said Elsasser, who as five-reel mechanical games from our inno- spent 15 years as executive director of engi- vative new series of ‘Hot Hot Super Jackpot’ neering at GLI and has been working with games and also coming soon to WMS VLT is video lottery terminals since South Dakota ‘Monopoly Big Event.’” first legalized them. “There’s the U.S., and That includes WMS’ most up-to-date then there’s the rest of the world. The mar- technology. Games in the video lottery markets are evolving at two different rates, two kets are housed in the ergonomic Bluebird different paces. The international market slot cabinet, and driven by the CPU-NXT tends to be a traditional VLT market, though game platform, just as are WMS’ newest ca- they’re starting to do some interesting sino slots. things in the United Kingdom. The video lot- “As successful as it has been, the Bluebird tery games are true to the traditional sense continues to evolve as gaming changes,” of the lottery.” Borden said. “Now sporting a belly LCD in the And even in the United States, differ- upright mechanical reel version, the Bluebird ent jurisdictions mean different kinds of has brought interactive help and pay table outlets. VLT installations can be huge, as in display and multi-coin functionality to tra- racetracks with 2,000 machines as in Dela- ditional mechanical reel games. This touch- ware, 750-unit sites in New Mexico, unlim- screen display utilizes the same logical infor- ited numbers in New York or at Louisiana mation sequencing as the larger LCDs found tracks, or numbers set by the commissions on the video Bluebird cabinets. In order to in Delaware and West Virginia. Or the outlets maximize its customers’ investment in this can be smaller venues such as bars and tav- product, WMS has ensured that the Bluebird erns with five games in Oregon, 10 in South cabinets can be easily upgraded to support Dakota, truck stops with 50 in Louisiana or server based gaming.” fraternal and veterans organizations with 10 The crossover from slots to VLTs ap- in West Virginia. Whatever a facility’s plies to International Game Technology, too, along with themes specially developed size, it expects top, Slot lessons for VLT markets. “IGT establishes a strong Whatever a facility’s size, it expects top, cur- brand identity and uses the same cabinet current product. “VLT rent product. “VLT markets now get top and game theme styles as found in other markets now get top games, the newest, latest greatest products,” traditional gaming markets,” said Jim Cole- said Craig Bullis, vice president public gam- man, IGT marketing manager, Class II and games, the newest, lat- ing and VLT operations for Bally Technolo- Lottery. “That brand identity includes game gies. “We’re rolling out CineVision, our 26-inch aesthetics, game play features and propri- est greatest products,” wide screen slant top, and Delaware is one of etary game play features that set us apart said Craig Bullis, vice our first markets. We introduced CineVision from the competition. We have also intro- early on the East Coast, in Delaware, and the duced unique game concepts tailored to president public gaming acceptance has been outstanding. each venue. The new Viva Macau isn't just an airline, it's one big gig in the sky. Where no one's just a “They’re trying our new product in Dela- “IGT is proactive in offering as many passenger and everyone feels like a superstar. Like vibrant Macau itself, our new airline and VLT operations for ware and New York. At Yonkers Raceway in products as possible to the lottery market.” boasts plenty of onboard fun, exotic destinations, wide bodied jetliner luxury, a premium Bally Technologies“ New York, they have our widescreen upright, Coleman added. “We have engineering teams 'Superstar' class with more legroom than ever, and all this without any compromise on and the Bally brand is the highest earning and product marketing support groups that your safety and comfort. So come fly Viva Macau, fly simply different! brand per device at more tracks than IGT focus solely on that market. We work with the or Spielo. At Yonkers, all their stuff is cutting state lotteries to educate them on develop- 36 Visit flyvivamacau.com ments in other gaming venues around the jackpot runs up because of the quantity fac- Oregon for 2007, and 100 percent of the Bally globe, and we create plans to bring popular tor. There’s a buzz about that.” units will be CineVision. That comes to 2,300 themes and game types to their markets. We units. We’re going from zero percent of the recently introduced the first widearea pro- Keeping current market to 20 percent, and we’re very proud gressive ‘Wheel of Gold’ game to Delaware. Meanwhile, content providers are doing to offer them the combination of our multi- We are constantly looking at ways to increase their best to drive play with up-to-date games. ple game library coupled with the CineVision revenue to lottery operations by offering ex- That’s a challenge manufacturers must meet technology.” citing multi-game products in bar and tavern to keep floor space. In Delaware, Johnson said The latest and greatest games and the markets as well.” the lottery replaces games with below-aver- latest and greatest technology—that’s the VLT markets have picked up tricks from age performance with games from manufac- key to competitiveness in VLT markets, for Indian gaming markets, too, with multi-state turers with above average performance. manufacturers and the lotteries themselves linked progressive jackpots such as those With the pressure to perform, it’s no won- alike. common in Native American casinos. In 2006, der WMS is turning to Bluebird and CPU-NXT, Spielo introduced its multi-state progressive IGT is rolling out Wheel of Gold progressives, By John Grochowski. Reprinted with permission system, Cashola. Bally is placing CineVision and Spielo has from International Gaming & Wagering Busi- “We have 28 of those here,” said Dover Cashola in lottery markets. ness magazine Downs’ Keener. “We’re part of a link of 240 “VLT markets are growing in quality and games, here in Delaware, West Virginia, and variety of product,” said Bally’s Bullis. “We John Grochowski is an Illinois-based reporter Rhode Island. They do well. The size of the were just awarded 20 percent of games in and freelance writer. VLTs may lead downloadable revolution

While the casino industry ponders the future of downloadable technology, a number of VLT jurisdictions have already embraced the tenants of central system control and are putting it to good use. In New York State, where video lottery gaming is in its infancy, race-tracks with VLTs are monitored cen- trally by a system designed by Multimedia Games Inc. “All sites are connected to the same system,” said Gary L. Loebig, executive vice president for sales at Multimedia. “They’re connected via land lines and satellite, so the system is redundant and double redundant. Down time is almost negligible. We monitor every transaction. With central determination, it’s all about control.” And, said Loebig, VLT markets are on their way to downloadability. “VLT markets will probably beat the casinos in downloadability,” he said, pointing out that in New York downloadable capability was built into the original product. Downloadable gaming is also where Todd Elsasser, technical compliance director for Cyberview Technol- ogy, sees the VLT market going. “Downloadable is tailor made for the video lottery,” said Elsasser, pointing to Cyberview’s server-based and downloadable products. “Look at Oregon, with five VLTs in a bar or a tavern. In Oregon it would cost a fortune to individually monitor all those remote sites. “The biggest thing is security. The games have to be bulletproof. Control of the lottery has to be secure. That’s where we get into a lot of new stuff, with remote diagnos- tics.” Multimedia Games’ MGAMe is one component of a system designed to help VLT operators in New York and elsewhere manage and monitor games John Grochowski from a centralized location. 38 but the deal ended when the Florida-based ticularly impressed by Manchester’s proposal, Mayor of Blackpool Allan Matthews re- Glazer family, owners of the National Football which in our view offers great promise. Man- sponded: “I’m very angry that Manchester League’s Tampa Bay Buccaneers, purchased chester represents a good place to test social has been chosen. It can look elsewhere for re- the soccer team. impact, and the council’s consultations with generation, but we cannot – tourism is all we The super casino would be based in the other local authorities and relevant bodies have. Does Manchester want our sea, and our Beswick area of Manchester, close to the City gave us confidence on that.” The panel add- Tower as well? They might as well have it all. of Manchester Stadium, now used by soccer ed that “Manchester has a catchment area for It’s like nailing the coffin lid down on Black- club Manchester City and built for the Com- a casino second only to that of London, and pool. The decision to put it in Manchester is monwealth Games. Sir Howard Bernstein, it is an area in need of regeneration at least the worst of all scenarios.” chief executive of Manchester City Council, as much as any of the others we observed.” “People talk about a plan B. Well, what said bids would be requested for a contract have we been doing for the past 100 years to build and operate the casino. Operators but feeding people and entertaining people would likely sign a 250-year lease agreement In the Other Corner and giving them a good time? Plan B is going with the City Council, which owns the land, Members of Parliament, led by the Blackpool on all the time,” Mr Matthews added. he said. contingent, are demanding the reopening of The Greenwich Dome in London is mov- The Culture Secretary, Tessa Jowell, said the decision-making process, and appear to ing on. AEG Europe, which owns the former members of parliament would have the final be gaining some support. A Commons mo- Millennium Dome, has said it will not dispute say in designating Manchester as England’s tion expressing “surprise and regret” that the the super casino decision. The dome, now re- equivalent of Las Vegas. Manchester’s pro- Casino Advisory Panel rejected Blackpool’s named The O2, sits in Greenwich, southeast posal is to make the super casino part of application has been signed by 18 MPs. London. Once completed the O2 will house a SportCity, a massive sport and entertainment Cambridgeshire’s Tory MP and gambling 20,000-seater music arena, entertainment and complex. The site will also have an arena, spokesman Malcolm Moss, said: “How can sport events. It will also boast an 11-screen swimming pool, restaurants, a nightclub and one defend choosing the most deprived and cinema, bars and restaurants and a smaller a hotel. vulnerable area of Manchester to test wheth- 2,200 capacity music venue. Still bleak for Blackpool er a super-casino that is open 24 hours a day, London mayor Ken Livingstone, how- with free admission, will generate an increase ever, said he would continue to lobby the Seeking a Casino Boost in problem gambling?” The Casino Panel, for government to allow a casino at the site. In a bid to use casinos to boost regional its part, says one of the factors behind Man- After all, having cut the number of planned economies with high unemployment, Britain chester’s selection was “the way it dealt with super casinos from 20-40 to just one, now eased its gaming laws in 2005. Britain already questions of problem gambling.” that it has seen the eagerness of regional Super Casino Controversy has around 140 small- and medium-size casi- Blackpool supporters argue the super ca- authorities to host a super casino, the UK nos, mainly based in major towns and cities. sino is vital to restoring the fortunes of the ail- government could be swayed to allow a few Manchester beat out London and the seaside community of Blackpool to be selected as the site of the UK’s The super casino is allowed to have 1,250 slot ing seaside community, which has seen visitor more. The odds of Manchester remaining machines –compared to the 4,300 at LVS’ up- first Las Vegas-style super casino. The decision is likely to face a legal challenge from Blackpool at least numbers drop by seven million over the past the country’s only super casino site for long coming Venetian Macau casino resort – and 15 years to an annual figure of 10 million. can only get higher. an unlimited number of table games. Eight large casinos with unlimited table M anchester’s designation as the site and a new story written. contract to build a small casino at the site games and a maximum of 150 slot machines of the UK’s first super casino is not necessar- The UK had originally planned to al- in Manchester. The process was reopened, and eight small casinos with 80 slot machines ily a compliment. The city, located 195 miles low the construction of 20-40 super casinos however, following reforms to British gaming were also approved. Winners of the large northwest of London, is known for its world- around the country, but a heated debate on laws in 2005. casino licenses include the holiday resort renowned soccer club Manchester United the possible social impacts led the govern- Malaysia’s Genting International, MGM of Great Yarmouth, Hull, Newham, Middles- and a rich industrial heritage. In making its ment to cut the number to first eight, then Mirage and Harrah’s had bid against Kerzner brough, Solihull, Milton Keynes, and the port selection, however, the UK’s independent finally one. The selection of Manchester is still for the Manchester site, and could bid again city of Southampton. Small casino licenses Casino Advisory Panel pointed to the super subject to approval by British lawmakers and for the super casino site. Still, analysts believe were granted to Bath and North East Som- casino as a way to foster badly needed eco- Culture Secretary Tessa Jowell. Prime Minister international interest in bidding for the super erset, Dumfries and Galloway, East Lindsey, nomic development in the city. Tony Blair’s office said Jowell and lawmakers casino site may be limited by government re- Luton, Scarborough, Swansea, Torbay and The selection of Manchester did come would likely agree with the panel’s findings, strictions. “US operators were once eager to Wolverhampton. as a surprise, however, with Blackpool con- which had been “an honest assessment of participate in the United Kingdom oppor- Stephen Crow, the advisory panel’s chair- sidered the front-runner and the Greenwich the various criteria.” tunity, however we believe enthusiasm has man, said that although Manchester has one Dome in London viewed as a highly contro- tempered somewhat as the size and scale of the country’s fastest-growing economies, versial second choice. Manchester was a 16 of the projects has been diluted,” Deutsche it was “the third-most deprived local author- to one outsider amongst bookmakers, who International Interest Bank gaming analyst Bill Lerner said in a note ity area in England.” Lawmakers claimed the may wish to appeal the decision too. The new casino, which would be the country’s to investors casino would bring around 2,500 jobs and The news perhaps came as the biggest largest, will have a minimum of 54,000 sq ft Las Vegas Sands Corp (LVS) has already that hotels and other leisure businesses surprise to Manchester city itself. The Man- of floor space. Several large casino operators announced its intention to bid for the Man- would boost the total to around 10,000. chester Evening News had its lunchtime first are likely to make bids for the location. Baha- chester site, with its chances boosted by its According to the Casino Panel’s report: edition set up with a banner headline pro- mas-based gaming group Kerzner Interna- recent success in Macau. LVS had previously “All the proposals shortlisted for the regional claiming Blackpool the winner. Printing was tional – operator of the Atlantis on Paradise reached a development agreement with casino presented their own particular and held up while the front page was changed Island – had previously won a US$509 million the Manchester United soccer club in 2005, compelling strengths. We were, however, par- Manchester is set for a revival 40 41 Regional Briefs

it had agreed with Hard Rock International to build a Hard Rock Hotel to the royal family – to raise payments, and according to the report, in Sofitel Macau@Ponte 16 offering 404 rooms and 19 VIP mansions; a Casino in the City of Dreams, which is currently being built in Macau. an effort to find a scapegoat, Mr Tuttle attempted to relieve Wadhwa 50,000 sq m shopping arcade and a casino. According to a statement from the companies, the City of Dreams of his responsibilities and take over one of his casinos. Mr Wadhwa is Macau Success will own 49% of the project once it completes the complex, which is to open in two phases starting in 2008, in- now mulling legal action against Mr Tuttle. acquisition of a 12.25% stake from Joy Idea, while Stanley Ho’s Socie- cludes four hotels (the Hard Rock Hotel, Grand Hyatt, Hyatt Re- dade de Jogos de Macau will hold 51%. “Ponte 16 should be earnings gency and Crown Towers). Hard Rock will have 380 rooms accretive in 2007,” according to Macau Success. Total investment is and other facilities that are common to the group as well as Hengqin Approval Still Pending HK$2.43 billion, with Macau Success committing HK$1.2 billion. Las Vegas Sands Corp (LVS) announced it had not yet received Chi- a casino in the first complex of its kind for Hard Rock in Asia. The 27,000 sq m casino at Ponte 16, scheduled for completion in nese government approval for its proposed project on mainland Hard Rock International operates hotels/casinos in London, Las Vegas, June 2006, will provide 150 ordinary tables, 24 VIP tables and 300 slot China’s Hengqin Island, which lies just off Macau’s Cotai Strip, where Hollywood and Tampa in Florida, with one in Biloxi, Mississippi due to machines. The ordinary tables will be operated and managed by the LVS is spearheading the development of “Asia’s Las Vegas.” Rumours open this summer. joint-venture company, while Macau Success is responsible for the 24 that LVS had already received final approval for the project had sent Meanwhile, Melco PBL announced that Garry Saunders, 55, has VIP tables, executive director Marco Lee Siu-cheung said. its stock price surging. been appointed as its Executive Vice President and Chief Operating LVS clarified that it has merely received a letter saying that the Officer. Zhuhai government established a project coordination committee Macau Casinos Risk Credit Rating Cuts Prior to joining Melco PBL Entertainment, Mr Saunders served as for the proposed resort. The committee acts as the government liai- Las Vegas Sands Corp (LVS), Galaxy Entertainment Group and other Vice President of International Operations at Las Vegas Sands Corp, son empowered to work directly with the developer to advance the Macau casino operators risk cuts to their credit ratings because of with principal responsibility for its Macau operations. This role in- development of a project. LVS said that while the formation of the their “aggressive” investment in the city, according to credit rating cluded overseeing the operations of Sands Macau and the pre-de- committee was a positive step, “the project remains subject to gov- agency Standard & Poor’s Ratings Services. velopment activities of certain properties on the Cotai Strip in Ma- ernmental approvals customary for projects of this scale in China.” While casino companies’ “heavy gamble on Macau may be paying Branson Seeks New Virgin Market cau. Previously, Mr. Saunders served ITT Corporation as Executive Vice off,” an S&P report said, ratings volatility is likely over the next few Richard Branson’s Virgin Group and Australia’s largest gaming group, LVS’ planned Hengqin Island Resort development will occupy President for the gaming activities in both its Sheraton and Caesars years.” Increased competition in the Asian gambling industry also Tabcorp, are in discussions to build a US$3 billion casino in Macau. over 1,300 acres of land and feature a diversified mix of leisure, tour- World Divisions, and Playboy Enterprises as the President of its Gam- poses risks, it said. Mr Branson visited Macau in January along with Tabcorp’s Matthew ism and convention amenities including top-rate hotels and villas, ing Division. In these roles, he was responsible for the development Las Vegas Sands’ credit ratings may be reduced after the company Slatter in order to seek potential sites and partners for its develop- convention facilities, a marina and yacht club, outdoor amphitheatre, and operations of properties throughout the US and Canada and var- was awarded a casino license in Singapore and Galaxy’s may be cut ment. and golf, tennis, fishing, and other leisure and recreational activities. ious international locations in Europe, South America, Australia, Asia following a US$240 million convertible bond sale in December, the During his Macau visit, Mr Branson held talks with Macau Chief and Africa. His responsibilities included the development and open- report said. Both companies “have been stretched by their heavy in- Executive Edmund Ho, setting out details of a proposed entertaining of numerous hotel casino properties. vestments in Macau,” S&P said. The company rates Las Vegas Sands’ ment complex, including three hotels and a casino. If approved, the long-term debt at BB- and Galaxy’s bonds at B+. complex could be completed by 2010 , and Virgin hopes to recoup its investment within 18 months. Nepal’s Casino King Asked to Quit The Financial Times reports Mr Branson is close to acquiring a Rakesh Wadhwa, a charatered accountant from New Delhi who be- Competition Brings Seoul Casino Boom prime 20-hectare site on which to build its development. came known as Nepal’s casino king, has been asked to relinquish his Seoul’s second casino targeted at foreigners, Seven Luck, opened for post, according to a report in Nepal’s Ghatana R Bichar weekly. business last year, ending the domination of Paradise Walkerhill Ca- US expatriate Rirchard D. Tuttle has a monopoly on casino opera- sino, which had dominated the market in Seoul for the past 38 years. Border Casinos Decimated tion in Nepal, with a network of seven casinos run under his Nepal The compeition is credited with having led to a boom in Seoul’s The number of foreign casinos operating near China’s border fell from Recreation Centre. The casinos rely on tourists from India for the bulk casino market, with the number of foreign visitors to Seoul’s casino in 149 in 2005 to 28 in 2006 as China stepped up efforts to prevent peo- of their revenue. Three of the casinos are operated by Mr Wadhwa 2006 exceeding 700,000, from around 330,000 in 2005. ple going abroad to gamble, as part of its anti-gambling campaign. under an agreement with Mr Tuttle, including the Shangri-La Casino, The Seven Luck casino is operated by Grand Korea Leisure, which According to the Ministry of Public Security, the measures imple- which opened recently with a lavish ceremony hosted by Bollywood recorded W120 billion (US$128 million) in revenue from the operation mented by China include harsher penalties, the closing of represen- starlet Urmila Matondkar. Mr Wadhwa also has gaming interests in Sri in its first year, compared to initial expectations of half that figure. tative offices of foreign casinos in China, and the closure of under- Lanka and Kazakhstan. Han Seung-ho, an analyst with Shinyoung Securities, said “The ground institutions used to transfer money overseas for gambling. Accordingly to the report, Mr Wadhwa is the victim of a power growth rate of Seoul’s casino market for foreigners hovered at 4.2% The ministry worked in conjunction with local police in border struggle between the royal family and Maoists. A big chunk of Nepal’s between 2002 and 2005. But since the market opened to competi- areas in Yunnan, Guangxi, Heilongjiang and Jilin to carry out surveil- casino revenues are paid to the Narayanhity royal palace, but the pay- tion, the figure is expected to soar to 16.8% on average for the next lance of nearby casinos and their customers. Chinese officials claim ments have dipped lately after King Gyanendra lost his place as head three years.” to have carried out 347,000 actions involving 1.1 million people in its of government due to a mass uprising. According to research by Lee Chung-ki, a professor at Korea’s anti-gambling drive in 2006. China says it also retrieved Rmb3.56 bil- The Maoist insurgents reached an agreement with the new mul- Kyunghui University, the per capita revenue derived from foreigners lion (US$445 million) of illegal betting money last year. tiparty government, and joined the parliament on January 15 with visiting casinos is equivalent to exporting 76 semiconductors or four Earlier reports estimated a total of Rmb600 billion (US$75 billion) Funds Sought for Ponte 16 a mandate to abolish the monarchy and transform Nepal into a re- Hong Kong-listed cruise and travel services operator Macau Success colour TVs. He points out that if 11 foreigners visit a casino, they will was gambled away annually by Chinese overseas – 15 times greater public. is seeking to raise HK$1.6 billion (US$205 million) to fund develop- bring revenue equivalent to one exported car. than the amount spent each year on China’s state-run lottery. When the Maoists examined the profits and expenses of Nepal’s ment of its flagship Ponte 16 integrated resort in Macau. Macau Suc- All but one of Korea’s casinos are restricted to foreigners and casinos, they discovered the sizeable payments to the royal palace cess operates the cruise ship MV Macau Success and is also involved draw business from China and Japan. Last year, Chinese visitors to Hard Rock Coming to Macau every month. Pressure from the rebel union has led to the casino de- in gaming and entertainment. Paradise Walkerhill equalled those from Japan, with each group Melco PBL Entertainment, a developer and owner of casino gaming and creasing those payments. Ponte 16, a joint venture on the bank of the inner harbour in Ma- making up 33% of the total. This year, the Chinese figure is expected entertainment resort facilities focused exclusively on Macau, announced The King, in turn, put pressure on Mr Tuttle – who has close links cau, will include, subject to government approval, the five-star hotel to grow to 40%. 42 43 International Briefs

telephone and internet gambling, effective February 1, 2007. London & Regional Properties, one of Europe’s biggest private A greater threat is that success at the WTO for Antigua could pave The report says that although HSBC customers will now immedi- property firms, recently clubbed together with Dubai-based Istithmar the way for the European Union to pursue a fair trade case against ately pay interest of between 21.9% and 27.8% instead of the previ- Group to buy up Cape Town’s Victoria & Alfred Waterfront for 7 billion the US over online gambling, which the US might have to take more ous charge of between 15.9% and 22.9%, they will not be charged the rand. The waterfront is the epicentre of Cape Town’s tourist activity. seriously. Several leading European online gambling companies have one-off fee applied to other cash transactions such as the purchase of Century Casinos, for its part, already operates gaming houses in South been hit by prosecutions from the US in recent months. foreign currency. Africa. Meanwhile, the billionaire founders of online payment solu- HSBC says the move is not a result of fears that customers who tions provider Neteller were arrested by US authorities in January on use their credit cards to gamble are more likely to amass debt that charges of conspiring to transfer funds with the intent to promote they cannot pay, but rather, to bring it in line with the practices of Guyana Passes Gambling Bill illegal gambling. They face a maximum sentence of 20 years in prison other banks. Guyana’s Parliament has approved limited casino gambling – restrict- if convicted. There is, however, a loophole in HSBC’s strategy as payments that ed to foreigners – in some hotels that are scheduled to open ahead Neteller began processing internet gambling transactions in July are channelled via the online payment service Paypal will still be of this year’s cricket World Cup. The proposal had earlier prompted 2000. According to Neteller’s 2005 annual report, the company pro- charged as a retail purchase and therefore continue to attract a lower street marches by the political opposition and religious groups who vided payment services to more than 80% of worldwide online gam- rate of interest. argue it will encourage vice and provide new opportunities for orga- ing companies. In 2005, Neteller processed over US$7.3 billion in fi- nized crime. nancial transactions, and 95% of the company’s revenue was derived The ruling party said the bill, backed by President Bharrat Jagdeo, from money transfers involving internet gambling companies. Non-Gaming Ahead in Nevada was necessary to help hoteliers recoup investments made ahead of In 2006, Nevada’s casino resorts and hotels reported revenue of just the World Cup. As many as 100,000 visitors are expected in the re- over US$24 billion, according to the state’s gaming board. The revenue gion for the tournament, which runs from March 13 to April 28, with AC Opts for Limited Smoking Ban was up 17% year-on-year and translated to a profit of US$2 billion for matches in Guyana and eight other Caribbean countries. The City Council of Atlantic City, New Jersey, passed a compromise the industry. The figures show that for the first time, dining, entertain- The legislation provides for up to 30 gambling licenses in the law restricting – not banning – smoking in casinos. The measure bars ment and retail made up over 50% of the revenues of Nevada’s casino South American country. No hotels currently in Guyana would meet smoking on 75% of a casino floor, and requires gambling halls to set resort hotels. Hotel room revenues of just under US$5 billion repre- the conditions for a license – which include having a minimum 250 aside 25% of the floor space as smoking areas by April 15. sent about 20% of total revenue, with year-round room occupancy on rooms – but two high-end hotels under construction in the capital of The council had been poised to enact a law that would have the Strip rising to a record 94% and average year-round rates reach- Georgetown near a new cricket stadium would be eligible. made New Jersey the largest gambling area in the nation to totally ing a record US$137 a night. ban smoking, but it backed down under extreme pressure from the casino industry, which claimed the law would result in the loss of 20% Tropicana to be Demolished and Remodeled Kentucky-based Columbia Sussex Corp has submitted plans to de- of its revenue and 3,400 jobs. molish and remodel the Tropicana following Columbia’s acquisition Meanwhile, Atlantic City’s casino revenue grew 4% year-on-year of the property through its US$2.75 billion buyout of Aztar. The plans to US$5.2 billion in 2006. The city’s newest casino, The Borgata, which call for US$2 billion to be spent on building towers comprising 10,224 opened in 2003, remained the biggest winner. It brought in US$739.2 guest rooms, 85,000 sq ft of casino area, over 644,000 sq ft of meet- million in gaming revenue, ahead of Bally’s Atlantic City, which was ings and convention space, and 270,000 sq ft of retail shopping. The second with US$677.3 million. new owners will maintain the Tropicana’s Paradise and Island Towers and the Showroom, and with the new construction, the Tropicana will Ladbrokes Expands in Europe beat out MGM’s upcoming US$7 billion City Center project and Boyd World renowned British-based gambling group, Ladbrokes, has made Gaming’s US$4 billion Echelon Place on the old Stardust site to be- a bid to buy Scandinavian online casino, Sponsio, which has made a come the world’s largest resort. Videobet Moves Into Land-Based Gaming Videobet, a subsidiary of online gaming software developer Play- huge presence in Norway, Sweden, Finland, and Denmark – which tech, has signed what is described as a “significant step” into the have amongst the highest spending per capita in Europe. Ladbrokes land-based gambling sector. Playtech announced Videobet has previously made a partnership deal with the company, but said the WTO Rules for Antigua The World Trade Organisation (WTO) has ruled against the US in secured a long-term licensing contract with leading Mexican ca- £36 million purchase would assist its position in the region. a long-running dispute with the tiny Caribbean island of Antigua, sino operator, Entretenimiento De Mexico (EMex). Under the Ladbrokes is also starting an alliance with Spanish slot machine which accuses the US of protectionism against international online terms of the three-year contract, EMex will add Videobet’s server firm, Cirsa Slot, whose machines are found in most arcades and bars. gambling companies. Antigua claims US laws that allow Americans to based gaming product to its existing and future gaming estates. Ladbrokes has also confirmed its licenses for operating betting out- place online bets on racing within the US, but forbid them to bet on Playtech chief executive Avigur Zmora said “This deal is the first sig- lets in Italy. gaming sites outside the US, are unfair. nificant step for our land-based offering, opening up a whole new Since the Unlawful Internet Gambling Enforcement Act was Bids for Peermont An Anglo-Austrian consortium – consisting of London & Regional The WTO has provided both sides with an initial report on its find- market whilst complimenting and further strengthening our existing signed into law in the US last year, online gambling companies have Properties and Austria’s Century Casinos – is looking to take over ings. Both parties will have the opportunity to submit additional com- portfolio.” been looking for business in other betting markets, including Eu- South Africa’s largest casino operator, Peermont Global. Peermont is ments before a final report is published in March, 2007. Meanwhile, Playtech scored another hit when Tila Tequila, the rope. also being bid for by South Africa’s Mineworkers Investment Com- After the final report, Antigua will be able to introduce retaliatory American glamour model and singer made famous by Playboy and pany. The South African investor made an initial 4.26 billion rand offer trade measures, such as introducing import tariffs on US goods. Such MySpace.com, launched her own official online casino, TilaCasino. HSBC Increases Credit Card Gambling Charges (US$585 million), but the rival bid should result in a higher offer. a route is thought unlikely to sway US lawmakers, however, given the com, which runs on a Playtech platform. Ms Tequila’s MySpace page According to a report by the BBC, HSBC customers will be charged Peermont owns Emperors Palace casino in Johannesburg and the small size of the Antiguan economy, which is substantially dependent has garnered over 54 million page views, and she was featured as a the cash advance rate rather than the normal purchase rate for all Grand Palm in Gaborone, Botswana, among others. on the US for trade. Time magazine “Person of the Year” in 2006 44 45 course of the next several months as Harrah’s now about 75:25, which is not so good for soars demand continues to outrun supply, and its new owners work to complete the the bondholders. In essence the company is with the result that risk is looking about as A Private Affair largest leveraged buyout in gambling in- funding its own acquisition by putting up its good as it ever has. And why shouldn’t it. The dustry history (and the seventh-largest of all assets as collateral. This is, however, the way default rate for speculative-grade invest- The $17B buyout of Harrah’s unleashes new force in casino industry investment time), with all that implies. Regulators have LBOs work, and Harrah’s new capital struc- ments hit a 24-year low in the United States never encountered a transaction with this ture is not out of line with the average for in 2006, according to Standard & Poor’s. many pieces before. Harrah’s is the largest ca- transactions of this sort. While the previous year saw only 23 defaults sino operator in the world with$21 billion in “Actually, it is similar to what we see in on more than $36 billion of fresh borrowing. The word from official and unofficial Madrid and Seville. The 40 percent partner is Slovenian gambling venture. The other is the assets comprised principally of 39 resorts in the public markets, and in terms of the merg- In Europe default rates stabilized last year circles is the sale of Harrah’s Entertainment a Spanish company called El Reino de Don country’s 30 percent tax rate, which Harrah’s 12 U.S. states and in Canada and Uruguay. All er transactions that have taken at an amazing 1.08 percent. All the demand will not halt the casino giant’s plans to invest Quixote de La Mancha, which is the name of reportedly wants reduced by half. these entities have to register their approval, place with some of the biggest compa- is driving down yields, of course; but who upwards of US$1.9 billion in expansion out- the master-planned community the two are In Britain there is Harrah’s purchase of and figuring how many people affiliated nies, the MGM Mirages of the world, and the cares when even debt rated CCC+ or lower side the United States. developing. The resort will market to a Eu- London Clubs International, a transaction with Texas Pacific and Apollo are required to multinationals,” said Mark Harms, CEO of in- is returning averages exceeding 11 percent. “I think it’s safe to say the company will rope-wide clientele with an array of hotels, valued at $570 million, or about 290 million undergo licensing will of course be a critical vestment bankers Global Leisure Partners, Not surprisingly, U.S. companies rated CCC continue to pursue growth,” said one source golf courses, spas, shops, convention and sterling. “This is an entrée into Europe for a part of this process. speaking last October to the annual con- or lower were able to float well more than close to the $17 billion deal that took Harrah’s conference facilities and a 50,000-square- company that can leverage that into a lot of “If you’re a regulator it’s going to change ference of the International Association of $30 billion of bonds last year, more than off the New York Stock Exchange in Decem- foot Caesars casino with an 850-room hotel other things. With deregulation it’s a smart your world,” said Sodl. Gaming Regulators. “Most of the public com- double all of 2005. ber and into the hands of U.S.-based private- and a 3,000-seat theater. move,” said Matt Sodl, managing director of Harrah’s also has a massive amount of panies in the U.S. were built on the back of Private equity, for its part, accomplished equity powerhouses Texas Pacific Group and In Slovenia Harrah’s has entered a 50-50 Innovation Capital, an investment banking investment on its U.S. drawing board. This in- high-yield debt, so the industry is very used something like $300 billion in deals last year. Apollo Management. “It’s full speed ahead.” partnership with HIT Group, the country’s firm active in mid-market casino industry cludes more than $1 billion in projects still in to seeing leverage. It’s probably one of the LBOs accounted for about 27 percent of all Harrah’s management has been quoted largest casino operator, on a $700 million M&A. development in Atlantic City and Indiana. But best industries in the world in terms of lever- U.S. mergers and acquisitions. Citing Standard in several news reports essentially affirm- development in Nova Gorica near the Italian LCI is Harrah’s second stab at the UK. the most important piece of the U.S. puzzle aged financing.” & Poor’s, BusinessWeek reckoned that in the ing this assessment. CFO Jonathan Halkyard border, where HIT already operates two casi- The first, a partnership with Gala Group, is what to do with some 125 prime undevel- Debt is the basis of the very impressive last three years, banks have funneled some told the Las Vegas Sun, “Internationally we no hotels. Plans call for a 48,000-square-foot foundered when opposition in Parliament oped acres the company owns around its returns private equity has generated for its $71 billion in loans through U.S. companies don’t expect [the purchase] to influence any casino, a hotel with between 800 and 1,200 blocked Government plans for dozens of Las seven casinos on the Las Vegas Strip. This is institutional investors over the last several to pay dividends to private-equity owners, up plans.” rooms, convention and conference facilities Vegas-style casinos. With LCI Harrah’s gets the casino industry’s ground zero, Harrah’s years — 20 percent and more on a compound from $10 billion for the preceding six years. In Spain, Harrah’s holds a 60 percent stake and a range of resort-style amenities. There seven operating casinos in England, four of values this land at $13 million an acre, and it’s annualized basis, according to some sources, How much leverage the corporate world in a $670 million development planned for a are a couple of sticking points to this deal, them in London, and three casinos in Egypt surrounded by deep-pocket competitors like 33 percent, according to Harms, which is al- can ultimately bear is another question. Crit- new resort enclave in Cuidad Real province however. One is a law that limits foreigners to and South Africa that more likely than not MGM Mirage, Las Vegas Sands, Wynn Resorts most double that of the hedge funds, almost ics say a reckoning is inevitable. For now, a couple of hours by auto or train between ownership of no more than 20 percent of any will be sold. LCI is especially attractive for and Boyd Gaming who are investing billions three times greater than the public markets though, there are fortunes to be made in the the five new casino licenses it has secured on the Strip. Harrah’s has yet to announce — and the source of the hefty dividends and transaction economy. The London Stock Ex- in England and Scotland, one of these for a its plans on the Strip, due in no small part to fees fund managers routinely extract from change opened for business in 2007 with £40 40,000-square-foot venue scheduled to open the fact that it’s still digesting the far-flung their portfolios. billion in deals waiting to close. According to next month at Leicester Square in London’s holdings of Caesars Entertainment, which it Because it is largely free of the restric- a recent BBC report, almost 80 percent of the West End. bought not 20 months ago for more than $9 tions and scrutiny that dog the public mar- FTSE 100 is talked about publicly in terms of “A good international diversification billion. kets, private equity is able to fully exploit the mergers, acquisitions and buyouts. play,” said a knowledgeable source. And so What is certain is that Apollo and Texas logic which holds that capital structure has Given its prodigious cash flows, no one it would seem, looking ahead to the reforms Pacific will take a keen interest in what hap- little affect on return on assets. Given that re- is concerned about Harrah’s ability to service enacted in 2005 that are opening Britain’s pens there. turns above and beyond the cost of capital, the added debt load. But it will of necessity traditionally staid casino industry to the mass “The attraction for them is the amount of which in the case of LBOs is relatively fixed, siphon off cash that would have gone to cap- market. real estate Harrah’s controls,” said Brian Gor- flow through to the equity, and that income ital expenditures, and management could In the Bahamas Harrah’s has a 33 percent don of Applied Analysis, an economics ad- flowing to equity is taxed while interest pay- face pressure down the road to identify assets stake in a $1.6 billion development near Nas- visory firm based in Las Vegas. “The acreage ments are not, debt actually increases the and markets that may be deemed less strate- sau that investors say will be the largest des- on the Strip is significant, and pricing points value of target companies, thus enabling gic and therefore disposable. Halkyard has tination resort in the Caribbean. It is called demonstrate there are premiums being ap- you to pay higher prices for acquisitions. said there are no plans to sell any casinos. But Baha Mar and is scheduled for completion in plied to it. They see an opportunity to lever- This happy state of affairs is driving creative the signals from corporate have been mixed. 2010 with six hotels, a 20-acre beach, a golf age the value of that real estate.” minds to develop ever more sophisticated Chairman Gary Loveman has called the buy- course, a water park, convention and meet- It was “the real estate value of the as- and complex credit engines in the form of out a “change in ownership, not a change in ing space, 50,000 square feet of retail, restau- sets” that inspired private equity’s move on mortgage-backed securities and things like direction,” but he has also acknowledged rants and entertainment venues and other Harrah’s, said Sodl. “collateralized loan obligations” in which that “With high initial debt levels, capital al- attractions. Harrah’s end is a 95,000-square- “These are deal-driven guys who are all separate pieces of mostly speculative-grade location priorities likely will change.” foot Caesars casino with a 1,000-room hotel. about delivering returns for their investors.” bank loans are bought, pooled and repack- For the rest of the industry, particularly The majority stakeholder is a Bahamas-based The other big issue is debt. As expected aged as high-grade paper and widely dis- some of the smaller players, this could be a developer called Baha Mar Resorts. Starwood with an LBO of this magnitude, Harrah’s debt persed to spread risk. good thing. Hotels & Resorts Worldwide has a 10 percent share. ballooned overnight, growing from $10.7 bil- It’s like having a license to print money, “Debt reduction will be one of the un- lion to $21 billion — from about four times when you think about it, and it’s a big part of derlying themes of this company for the next estimated 2007 EBITDA to eight times. The the reason the world is awash in capital right couple of years,” said Gordon, who believes The transaction economy ratio of debt to equity (which in Harrah’s now and the stuff is cheaper than it’s ever Harrah’s ambitions will suffer “modest” de- Needless to say, a lot can happen over the case correspondingly has shrunk by half) is been. So even as the collective debt level lays. But then Loveman has implied as much. 46 47 Said Gordon, “until the transaction closes it’s creating the kinds of enterprises which can artists, but they are far from the rule. As own- difficult to see how they can move forward provide decent jobs and future perspectives ers, fund managers are free to think longer- with their [investment] plans unless these are for a Europe which has been living far too term and generally they do. signed off by the new owners.” long with unacceptable levels of unemploy- “Gaming is a very long lead-time busi- By the same token, Harrah’s management ment.” ness, a long growth cycle,” Harms explained, is too smart not to seize this opportunity to The alarm has spread to Britain, where “typically five to seven years. With private eq- pursue a thoroughgoing reorganization, a the Trade Union Congress issued a report last uity that sits well.” process the Caesars acquisition, given its size, year titled “Investment Chains” attacking not The gambling world certainly is rich with had demanded anyway, and no doubt it’s private equity specifically but the culture of examples of companies that have grown been ongoing. “short-termism,” which it claims is threaten- larger, stronger and more profitable under So a lot can happen. And perhaps it al- ing jobs and has investment by British com- its stewardship. In Europe, private equity has ready is. Chief Operating Officer Tim Wilmott panies lagging their counterparts on the been a preferred source of funding for the resigned after Apollo and Texas Pacific en- continent and in the United States. industry for years. “Almost every major UK tered the picture. He was a 15-year veteran Yet for all this, when the dust settles over company has been in private-equity hands of the company and was considered the No. Harrah’s what will be clear is that private eq- at one time or another,” said Harms, whose 3 man behind Loveman and Vice Chairman uity and the casino industry are perfect for firm advised Permira on its £200 million in- Charles Atwood. Also gone, as of this writing, each other. Certainly the deal electrified the vestment in casino and bingo operator Gala, are Senior Vice President of Operations Tony public markets. “We believe [it] provides for which paved the way in 2005 for Gala’s £2.18 Santo and Central Division President Antho- easier entry into the gaming sector by other billion merger with bookmaking giant Coral ny Sanfilippo. private equity firms, which should ultimately Eurobet, a deal in which Global Leisure Part- They will not be the only three of Harrah’s lead to higher valuations for the group over- ners was an advisor and co-investor. 85,000 employees to go. all,” CIBC analyst David Katz said in a recent Harms holds up Gala Coral as the “poster note to investors. child, for not only the gaming industry in the As Las Vegas amply shows, the industry’s UK, but also for the private equity industry in ‘Really building businesses’ appetite for capital is insatiable. Globalization the UK. … This business was taken from $200 Among workers in Europe the transaction is an expensive proposition, and the compet- million in value eight years ago to $8 billion economy is setting off alarms. In a statement itive bar continues to rise. In markets every- in value today.” And it was accomplished released by Swissbased IUF, which represents where, projects that used to run in the tens through investment and capital formation, millions of food, hotel and agricultural work- of millions now cost hundreds of millions to “really building businesses,” he said. ers, General Secretary Ron Oswald blasted the complete, projects formerly in the hundreds At the IAGR conference he offered other buyout culture as “a serious threat to workers, of millions now cost billions. The investment- examples: “Morgan Stanley has announced their trade unions and their communities.” cycle is growing in length and complexity as that they’re building a billion-and-a-half- “When company cash flows become a result, and this is problematic for many in- dollar casino resort in Atlantic City. Colony merely a source of plunder for investors vestors in the public markets, where opinion Capital are rebuilding the Hilton in Las Vegas, seeking inflated, short-term windfall gains tends to run in 13-week spurts. Private equity they rebuilt Resorts in Atlantic City, reinvest- we are feeding financial markets rather than may have more than its share of fast-buck ing into the properties that they acquire and creating more profitable properties, creating jobs and therefore creating higher tax bases in the communities in which they’re operating, as well as profit for themselves.” Fund managers worldwide raised more than $300 billion last year, more than enough money to lavish on a “very attractive asset class,” as Harms describes gaming, an industry known for stable cash flows, good long-term growth prospects, a business model generally impervious to economic downturns, and one commanding a significant amount of real estate which the public markets are not fully valuing, or so many say. The Harrah’s acquisition proves that if the issue is price no casino company is beyond their reach. Said Gordon, “Any time the largest gaming company in the world goes private it changes the landscape a little bit.”

By James Rutherford, International Editor of IGWB. Reprinted with permission from Interna- Harrah’s Entertainment’s Rio All-Suite Hotel and Casino tional Gaming & Wagering Business magazine 48