June-July 2006 • MOP 30

Rise of the Machines Cashless Slots Niche Benefits Bus Ad Wars

Drop in Intensity ’s shifting style of play June-July 2006

Shifting Style of Play

Page 7 ~ Meteoric Melco

Page 10 ~ Rise7 of the Machines Page 16 ~10 Macau 1Q Trends Page 18 ~ Wynn16 Macau’s Niche Benefits Page 26 ~ The Ins and Outs18 of Cashless Machine Gaming Page 28 ~ Las Vegas26 Sands’ Bid-Winning Boon Page 30 ~ Tour of the28 Properties: Sparkle in the City Page 42 ~ Casino30 Marketing: Bus Wars Page 4442 ~ Regional Briefs Page 46 ~44 International Briefs Page 51 ~ Galaxy’s Performance46 is Less Than Stellar 51 Editorial

If You Can’t Beat’Em, Pick ‘Em

On May 26, the Singapore Government’s selected Las Vegas Sands and has already announced plans to raise its expo space in Macau to Corp (LVS) to build and operate the city-state’s first integrated casino 2.4 million square feet. This will give the company a dominant posi- resort at Marina Bay – a decision that surprised many who believed tion in the burgeoning Asian MICE sector. that companies submitting joint bids with government-linked local property developers were much more likely to win. LVS’ Vegas-based rivals, Harrah’s Entertainment Inc and MGM Mirage, had both teamed No Casino Contest Singapore’s casinos will face a 10% gross gaming tax rate on incen- up with partners affiliated with Singapore state investor Temasek tivised play, compared to Genting Highlands’ 28% and Macau’s 39% Holdings on their bids – Harrah’s with Keppel Land and MGM Mirage (35% direct gambling tax, and 3-4% mandatory social and welfare with CapitaLand. The odds of LVS winning the bid were seen as contributions). This will allow Singapore’s coming casinos the flexibil- having plunged after the withdrawal of its proposed equity partner, ity to offer higher commissions and incentives to draw junket opera- Singapore property firm City Developments. tors and premium players. Still, Macau’s casinos are likely to appeal By choosing LVS over one of the Temasek-linked bidders, some more to the massive mainland Chinese market, not only because of analysts claim the Singapore government has proven the superiority geographical proximity (a billion people live within a three-hour flight of the city-state over many other nations in both Asia and the rest of from Macau, compared to 550 million people from Singapore, and a the world, where lesser bidders are often able to secure contracts by mere 150 million from Las Vegas), but also cultural affiliation. marshalling political influence. Singapore could, however, give Macau a run for its MICE money. The Singapore government had listed the selection criteria for the While Macau currently suffers from limited air connectivity, Singa- operator of the Marina Bay resort as knowledge of Asia, a proven pore is a global-crossroads for air traffic, and is also an appealing track record in the meetings, incentives, conventions and exhibitions MICE destination because of its stable, crime-free environment. (MICE) business, experience developing properties of the scale and Macau’s major MICE advantage is that the local industry will be ag- quality of the planned Marina Bay Development, a track record in at- gressively developed by LVS from the opening of Venetian Macau in tracting all segments of visitors, and no problems with probity. mid-2007. Analysts who believed the Singapore government was more con- With an integrated resort from any of the Marina Bay bidders only set cerned with choosing the bidder offering the greatest long-term to open two years after the opening of Venetian Macau, the Singa- value to Singapore than one with a Temasek-link had tipped LVS as pore government must have realised that rather than picking a non- the favourite according to these criteria, with the syndicate led by LVS operator to compete with the world’s leading MICE company Malaysia’s Genting International regarded as the second most likely enjoying a significant head-start in Macau, its best bet was to pick to win, and only disadvantaged by its lack of MICE experience. LVS to develop the Marina Bay resort, forcing LVS to share its MICE The deciding factor was clearly LVS’ MICE strength. LVS Chairman business between Macau and Singapore. Sheldon Adelson founded the Computer Dealers Exposition (Com- Furthermore, the casino at Venetian Macau is likely to generate dex), and made it the most successful trade show the world has ever much higher returns than the casino at Marina Bay Sands. This could seen. During its peak in the 90s, Comdex drew 2,480 exhibitors and encourage LVS to give greater priority to bringing MICE to Singapore 212,000 attendees to Las Vegas. than to Macau in order to ensure an equal return across its Asian Mr. Adelson highlighted his company’s edge in the Marina Bay properties. The Singapore government made a canny decision, ap- bidding in April when he said that conventions, rather than gam- parently at the expense of Macau’s MICE ambitions. bling machines, will be the biggest tourist draw for Singapore. LVS’ proposed Marina Bay Sands will have around 1.2 million square feet of convention and exhibition space, giving Singapore the largest Kareem Jalal installed base of expo space in ASEAN. LVS is currently building 1.2 million square feet of expo space at its Venetian Macau casino resort, We crave your feedback. Please send your comments to [email protected]

Editor and Publisher Kareem Jalal Inside Asian Gaming is published by Must Read Publications Ltd Director 9B Edifício Regent, 22 Praça de Lobo de Ávila - Macau João Costeira Varela Tel: (853) 646 0795 Business Development Manager Ricardo Carvalho For subscription enquiries, please email [email protected]

Contributors For advertising enquiries, please email [email protected] David J. Green, José Ho, Karen Tang, Octo Chang or call Ricardo Carvalho (Macau) tel: (853) 6828475; Herb Moskowitz (HK) tel: (852) 2838 8702 Photography Ike

Graphic Designers Ricardo Borges, Vincenzo Zaccaria

5 Artist’s impression of City of Dreams Meteoric Melco What goes up must come down – but not necessarily all the way, and a higher ascent could follow, especially if the world’s largest financial institutions have anything to say about it

M outh agape, Inside Asian Gaming price had blasted to HK$21 – ending up 3.4% consensus is that the expected 20% listing of has been tracking the unrelenting ascent of on the day despite the company’s placement the JV on Nasdaq will raise US$1-1.6 billion. Melco International Development’s share of a further 63.6 million shares, which techni- price. For much of 2004, Melco shares had cally diluted the value of the existing shares. languished at around HK$1.20. The explosion Of course, it hasn’t all been smooth sail- Are the Bulls Biased? of Macau’s casino revenue from the second ing upwards. On May 22, Melco’s share price Citigroup, Credit Suisse and UBS are said to be half of that year then drove the price steadi- dropped 10% to close at HK$16.8 as investors working on the listing details for the planned ly up to HK$8.95 by the first trading day of took the Hong Kong stockmarket’s 508 point, initial public offering (IPO). That is a caveat 2006. 3.1% drop that day to take profit. But then the to Citigroup’s revised HK$23 target price When meteors make it onto institutional ascent resumed on the news that Melco and and Credit Suisse’s aggressive HK$30 target. radars, they usually gain momentum. At the its joint venture (JV) partner, Australia’s Pub- Deutsche Bank, meanwhile, sees the price go- start of this year, Citigroup issued a “buy” call lishing and Broadcasting Ltd (PBL), were seek- ing to HK$25. As the January issue of Inside on Melco shares with what seemed like an ag- ing a listing on the US Nasdaq exchange be- Asian Gaming pointed out, when the big boys gressive HK$15 price target. This heralded ag- fore the end of the year, in a deal which would of banking collectively issue such bullish calls, gressive fund buying, and by June 1 the share value the JV at more than US$6 billion – the their targets can become self-fulfilling. 7 2.7% of total revenue. Slot revenue in the first quarter of 2006 stood at US$53 million, or 3.4% of total gaming revenue. Light Background Melco’s slot revenue will likely continue Melco International Development Limited was originally incorporated as “The Macao posting strong growth, but absolute gam- Electric Lighting Company Limited” in 1910, and has been listed on the Hong Kong ing revenue will only seriously take off after Stock Exchange since 1927. It was only in 2001 that Melco adopted its current form. the Melco-PBL JV starts operating tables at In addition to its core gaming business, Melco owns an investment banking firm, the two casinos it is currently building, and the Jumbo Kingdom floating restaurant in Hong Kong and a gaming technology arm a third for which it recently announced it called Elixir, which this year announced a 20-year alliance with Shuffle Master Inc to would acquire land. jointly develop localized gaming technologies in Asia, as well as distribute Shuffle Melco formed its JV with PBL in 2004, and Master’s existing products in the region. in March this year purchased the last of Ma- On June 1, Melco was added to Morgan Stanley Capital International’s Asia Pacific cau’s six casino licenses from Wynn Resorts ex-Japan indices and its Hong Kong index. This should raise holdings of its shares by for US$900 million. Melco and PBL will share international funds, many of which use MSCI’s indices as performance benchmarks and profits from all future projects in Macau and maintain the bulk of their portfolios in any given region with MSCI constituent stocks. Asia on a 50:50 basis. Melco’s JV partner, Publishing and Broadcasting Ltd (PBL), owns Melbourne’s Melco is headed by Lawrence Ho, son of Crown Casino and Perth’s Burswood International Resort, Western Australia’s only ca- Macau’s legendary king of casinos, . sino, for which PBL paid A$715 million (US$535m) in September 2004. PBL is headed by James Packer, son of recent- PBL is one of Australia’s largest diversified media and entertainment companies. ly deceased Australian media and gaming Its market capitalisation of more than A$8 billion places it among the top 25 compa- mogul, Kerry Packer. The JV’s projects under nies in Australia. construction are the US$256 million Crown PBL will rely heavily on its gaming operations to drive earnings growth. Profit at Macau hotel and casino, slated to open in PBL’s gaming unit jumped 60% year-on-year in the six months ended December 31, April 2007 (delayed from the original Sep- while its television profit declined 13% as the company’s Nine Network struggled to tember 2006 opening) on Taipa island, and maintain its five-year lead as Australia’s most viewed network. the US$1 billion City of Dreams resort on the Cotai Strip, expected to open in mid-2008. In May, the Melco-PBL JV widened its fu- ture geographic presence in Macau by agree- ing to purchase a site along the peninsula’s Friendship Avenue – where SJM’s flagship and LVS’ Sands Macau current- ly sit, and , Galaxy StarWorld, and Analysts argue for the continued rise of first property in Macau on September 5 (full – almost double the 18.7 million visitor ar- MGM Grand Macau are being built. The land Melco’s share price by pointing out that the story on page 18) could result in “cannibaliza- rivals logged by the city with a mere 488,000 purchase will cost HK$1.5 billion (US$193 company is trading at a substantial discount tion” of some of LVS’ market share. Most ana- residents in 2005. million), and pending government approval, to its US peers, Las Vegas Sands Corp (LVS) lysts view Macau’s gaming industry as supply is expected to be completed in the first quar- and Wynn Resorts, which have enjoyed big driven, although they agree that the coming ter of 2007. run-ups in their share prices on the back of huge expansion in capacity – from 1,648 gam- Bubbly Valuation? The JV’s third casino project could open optimistic forecasts for revenue growth from ing tables at present to close to 10,000 by the As with the technology companies that dom- as early as 2009, and will include a hotel and their Macau operations. Those expectations end of the decade – will naturally result in a inated the Nasdaq during the Internet boom, a block of serviced apartments. Construction are based on the view that the Macau gaming significant dilution of win per table. Only three the value of Melco’s share price is based costs are expected to bring the project’s total market will repeat the Las Vegas experience of Macau’s six casino licensees – Stanley Ho’s largely on its future earnings prospects. At cost to an estimated HK$3.5 billion (US$449 of supply-creates-demand – a view shared by SJM, Las Vegas Sands Corp and Galaxy En- the start of this year, Melco’s price to earnings million). Melco’s June 1 share placement, Deutsche Bank’s Karen Tang on page 16. tertainment Group – are currently operating ratio was a heady 120, but it declined con- which was handled solely by Credit Suisse, With Melco’s share price at such lofty tables, so their respective shares of the over- siderably following a nine-fold year-on-year raised HK$1.21 billion (US$157 million), the altitudes, however, it’s not surprising that all market will also likely decline as the other jump in the company’s profit in 2005. Melco’s bulk of which will go towards the land pur- some analysts are getting cold feet. Dow licensees – Wynn Resorts, the Melco-PBL JV P/E ratio was 40 as of June 1, but that is based chase, with the remainder earmarked for debt Jones Newswires reported the views of an and the MGM-Pansy Ho JV – open shop. If on an artificially high 2005 profit figure – the repayment and other corporate purposes. unnamed analyst who fears Melco’s shares supply continues creating demand, however, HK$548.7 million profit for the year included With Melco’s major gaming operations now look a tad overvalued when considering although LVS could lose some of its market a one-time gain of HK$514.4 million from yet to commence, its share price is subject the potential risks, and offers a sum-of-parts share going forward, its revenue growth will PBL’s purchase of its JV stake. to the vagaries of sentiment towards Macau, valuation of the shares at about HK$16.3. continue. The bulk of Melco’s revenue currently de- and moved by news about the city’s casino While Citigroup and Credit Suisse may be ex- Compounding fears that demand will be rives from the company’s six Mocha Slot out- revenues and visitor arrivals. Analysts regard cessively bullish because of their likely par- unable to match the huge increase in supply lets, which account for about 30% of Macau’s project delays as one of the major risks to ticipation in the Nasdaq IPO, the bearish view are concerns about tiny Macau’s straining in- slot machines. Slot revenue in Macau is grow- the share price. With Crown Macau’s open- of the anonymous analyst could also have frastructure, even though casino operators ing rapidly, albeit from a negligible base. Slots ing date having already been pushed back ulterior motives. claim they are confident the city will have the earned US$29 million in 2003, accounting for six months without grounding Melco’s me- Dow Jones quoted the analyst with no facilities and workforce in place to host the 0.8% of total casino gaming revenue, and teoric rise, the bias thus far has clearly been name as saying the opening of Wynn Resorts’ projected 35 million visitor arrivals in 2010 US$152 million in 2005, when they provided on the upside. 8 9 believed that slots – known in the Cantonese to see the point of slots,” says Ted Chan, gen- dialect as “hungry tigers” – were rigged by ca- eral manager of Mocha Slot. Mr. Chan’s “ ulti- sinos to offer meagre payouts. With increas- mate intention is to move players away from ing competition in the slot market following low-denom electronic table games to slot the liberalisation of the gaming industry machines,” since he believes slots can have a in 2002, slot machines in Macau are paying more lasting appeal than tables games. “Even out more. Furthermore, as Chinese gamblers though you can have the whole collection of become familiar with slots, they are realising table games on machines, the way they are that they don’t offer such a bad deal. played is always the same. Slots, with their Although slots have a much higher theo- variety of interface, theme and design are far retical house advantage than table games, in more entertaining.” practice, casinos end up keeping much less of Mocha Slot is the brainchild of Lawrence the money spent on slots than on the tables. Ho, son of Macau gaming tycoon Stanley Ho. At Sands Macau, for example, the average The younger Mr. Ho claimed that in the past, table win percentage as measured as a per- Macau’s casinos only included slot machines centage of table game drop is 15-16%, while in order to “look more like a casino.” In order the average slot machine win percentage as to make slots more appealing, Lawrence Ho measured as a percentage of slot machine set out to establish a string of trendy and handle is 6-7%. Chinese players, keen to get cosy slot outlets under his company, Melco the most bang for their gambling buck, are International Development. realising that they can satisfy their gambling The first Mocha Slot outlet, a 3,000 square desire on slots with a potentially much lower foot venue in Macau’s Royal Hotel, opened total outlay than at the tables. in late 2003. Recognising the limited appeal Another explanation for the dominance of traditional slot machines at the time, Mo- of tables games in Macau is that Chinese cha Slot introduced multi-terminals, which gamblers supposedly believe they can influ- quickly became a hit, generating roughly ence the outcomes by spotting patterns and 70% of Mocha Slot’s total revenue, accord- picking lucky cards or numbers, whereas they ing to Mr. Chan. The multi-terminals drew leave their destinies to unfeeling and pos- crowds who gradually began to explore the sibly corrupt computers when playing slots. other idle machines in the outlets, and now Such attitudes are quickly changing however, multi-terminals contribute only around 40% in large part due to the efforts of Macau’s slot of total revenue, with traditional slots mak- Rapid Roulette at Grand Waldo hall operators to educate Chinese gamblers. ing up the rest.

Familiarity Breeds Comfort Automated Benefits In order to make table-loving Chinese gam- One third of the machines at Emperor Pal- blers more comfortable with machines, slot ace Casino’s slot hall are multi-terminals. The Rise of the Machines hall operators in Macau brought in elec- casino’s assistant general manager, Patrick tronic versions of popular tables games Lam, points out that electronic table games Macau is pegged to experience greater slot machine growth over the next few years than anywhere else such as sic bo, baccarat and roulette. These can speed up play, and hence raise turnover in the world. Slot hall operators first drew Chinese gamblers to machines by offering electronic versions electronic table games, known as multi-ter- and contribute to overall player convenience. minal games, offer a hybrid between tables For example, a traditional Sic Bo game can be of popular table games. While these electronic table games originally dominated the rapidly growing and slots, and are a fairly new innovation held up as croupiers wait for additional bets machine market, Inside Asian Gaming’s José Ho discovers that traditional slots are now taking the lead globally. Macau is the main market where and pay out winnings, while multi-terminals multi-terminal games have really taken off, run at preset intervals and automatically In order to make table-loving but while machine revenue in the city was credit winning players. Chinese gamblers more M achines are making their mark in slot machines to gaming tables in Macau is among Chinese gamblers in his authoritative initially dominated by such machines, ac- As the casino boom drains the local la- Macau. Slot machines earned US$53 million now 2.6 times, compared to over 20 times on Macau Mania report. “The style of gaming is cording to slot hall operators Mocha Slot bour pool and the Macau government con- comfortable with machines, in the first quarter of 2006 – almost twice as the Las Vegas Strip. All this suggests potential different, with a much higher level of player and Emperor Palace Casino, traditional slot tinues its ban on foreign dealers in order to much as in the whole of 2003. Still, even now for explosive growth of slots in Macau. David intensity in Macau than in Las Vegas. Gam- machines have now taken the lead, with the restrict high-paying casino jobs to locals, slot hall operators in Macau they account for only 3.4% of total gaming Green, director of PricewaterhouseCoopers’ ing in Macau is a battle against the house operators having achieved their objective of the growing popularity of multi-terminals brought in electronic revenue, compared to close to 55% on the Macau gaming practice, predicts there will whereas in Las Vegas it is treated more as a using multi-terminal games to drive Chinese and slots has proved a godsend to casino Las Vegas Strip and over 70% in downtown be as many as 13,000 slot machines in Macau source of entertainment. Players in Macau gamblers to slots. operators. Mr. Lam says that the Emperor versions of popular tables Las Vegas. by 2008. are more likely to be from a lower socio-eco- “Most of our players started with multi- Palace Casino, operated by Stanley Ho’s SJM, The number of slot machines in Macau is nomic background but are also prepared to terminals because they are familiar with is unable to expand because of a lack of games such as sic bo, also growing rapidly from a low base. In 2003, spend more of their disposable income on these games. But slowly they became curious dealers. He says that the casino is waiting to baccarat and roulette there were a mere 814 machines in the city, Why Tables Dominate gaming. These reasons favour table games about the slot machines next to the multi- hire at least 40 dealers in order to open four but by the first quarter of 2006 the number CLSA’s Aaron Fischer offered one explanation where the stakes are higher.” terminals. When they saw more and more more tables – ten dealers are needed to op- had grown over five-fold to 4,223. The ratio of for the greater popularity of tables than slots Until recently, gamblers in Macau also people actually winning jackpots, they began erate one table on three shifts. On the other 10 11 hand, an entire medium-sized slot hall with up to two hundred machines requires Macau Sets Machine Trends Slot manufacturers claim that Macau is Machines also facilitate just one technician on duty to handle tech- becoming a launching pad for the latest nical problems. tracking customers’ gaming technologies. Patrick Hogan, re- Dealers in Macau are currently paid about gional general manager of RGB (Macau), 14,000 patacas (US$ 1,750) a month, putting behaviour and says “I think Macau is becoming the leader the annual labour cost of running each table as far as gaming opportunities and tech- preferences, and allow the at 1.68 million patacas (US$ 210,000). The nologies are concerned. I would have to basic salary of dealers rose considerably fol- awarding of redemption say that probably Macau is now evolv- lowing the end of SJM’s 40-year monopoly ing to become more about multi-termi- because dealers are now no longer allowed points which are becoming nal games. In Western casinos, you don’t to exhort gamblers to give them tips – as get the variety of games you can find a must-have to retain was common practice at Stanley Ho’s casinos here. Macau is dynamic. It’s adventurous.” during the monopoly era. This, along with loyalty as competition for According to Mr. Lam, the Emperor Palace Ca- limited supply driving up wages, is making sino was the first place in the world to intro- electronic gaming an increasingly cost-effec- players intensifies duce Golden Blackjack. “Macau is very lucky. tive alternative. All of the operators are new, so they bring in Another innovation is electronic table the best machines from around the world.” games that use human dealers in conjunc- Ted Chan predicts multi-terminals will tion with automation to speed play and cut spread to other Asian gaming jurisdictions staffing requirements. Rapid Roulette and where the market for gaming machines is in Rapid Sic Bo, developed by Australian video its infancy, serving as a transitional product gaming company Stargames, have been in- from tables to slots. troduced at Galaxy Entertainment Group’s To capture emerging machine gam- new casino, Grand Waldo, and SJM has also ing opportunities in Asia, Melco’s technol- put in orders for the machines. The dealer an- ogy arm, Elixir, recently entered a gaming nounces the games’ countdown and results, technology alliance with Shuffle Master, while bets are taken and payouts made by the parent company of Stargames. The al- computers. liance plans to “develop localized gaming technologies for legalized gaming jurisdic- Bonus Attractions tions in Asia” and to build “a world-class Machines can offer more bonus features manufacturing base” in mainland China. to players than table games. Among the Ted Chan points out that the existing major most popular games at Emperor’s slot hall slot manufacturers do fully not address the Emperor Palace Casino’s slot hall is Golden Blackjack, produced by Japanese Asian market. “Over the past 20 years, Asian manufacturer Ohira Giken Industry. Golden players have contributed too little to the slot in Las Vegas, where there is no commission ket is still relatively insignificant – IGT, for Mocha Slot and Emperor’s slot hall are Ma- Blackjack is unlike computer blackjack in that market. Most slot games are developed by but the house takes half the bet if the banker example, sold 91,400 machines worldwide cau residents. it deals real cards to players rather than of- US and Australian slot makers for their own has a six. This can, of course, confuse players in 2005, equivalent to almost 22 times the The coming years will see more middle- fering animated simulations. Golden Black- markets. Unfortunately, we have to choose in Macau unfamiliar with Vegas rules. “We entire installed slot machine base in Macau. class mainland Chinese coming to Macau, jack also features a progressive jackpot as an from what is available. The products are not are forced to take it. Fortunately, it is still That is perhaps the main reason why the big raising demand for slots relative to the 1,000 added attraction for players. Mr. Lam tells of a customized for our market. Now what I hope very popular in Macau,” explains Mr. Chan. manufacturers have been so slow to devel- pataca minimum baccarat tables favoured Chinese lady who walked away with a 90,000 is to have some big [Asian] slot operators The alliance between Shuffle Master op customised offerings for the local mar- by big-spending mainlanders that currently pataca (US$11,250) jackpot in May. to negotiate with the slot manufacturers and Elixir will compliment the Mocha ket. This provides an opportunity for Asian contribute the bulk of the city’s gaming rev- Machines also facilitate tracking custom- or to cooperate with them to develop new Slot outlets by providing games more in manufacturers such as Elixir and Taiwan’s enue in VIP gaming rooms. ers’ behaviour and preferences, and allow games and then re-export them to the US.” tune with the Asian market. “We will put our Jumbo Technology Co – developer of the sic It was only in the 1980s that slot ma- the awarding of redemption points which Mr. Chan suggests manufacturers develop experience into the design [of Elixir’s prod- bo machine – to stake their position in the chines took the lead from table games in are becoming a must-have to retain loyalty more highly volatile games to appeal to ucts]. These games hopefully will be the emerging market. the Las Vegas mass market. Analysts look to as competition for players intensifies. All of Chinese gamblers, as well as games with most popular games in Asia,” says Mr. Chan. Las Vegas’ history to predict where Macau Macau’s slot halls offer loyalty programs, with Chinese-language interfaces (some manu- He adds: “Mocha is a very important plat- is headed. It appeared that Macau could go players accumulating points that can be re- facturers are only willing to translate the ma- form. Without this platform it is very hard Drawing a New Crowd down a slightly divergent path given the deemed for prizes. chines’ buttons and displays to perfunctori- to know what the market wants exactly.” Slots in Macau are attracting a new demo- initial popularity of multi-terminal games, Patrick Lam estimates that 60% of players ly satisfy their clients) and Chinese-themes. Macau is regarded as a potential goldmine graphic of gambler seeking to while away a but with traditional slots having taken the at his slot hall hold loyalty cards. “It helps. A Even the popular electronic baccarat ma- by slot machine manufacturers. Many in- few hours without staking table minimums lead in the gaming machine market comes lot of clients like the system we run because, chines are not properly customised for the ternational manufacturers, including Aris- starting at 100 patacas (US$12.5) in the city. further confirmation that Macau is moving for example, within our group we have got a Macau market. The established practice in tocrat Technologies, Bally Gaming and Sys- “Our prediction is that the market will shift towards the Vegas model at an accelerated lot of different businesses: our entertainment, Macau is for the house to take a five per cent tems, IGT, TCSJohnHuxley and RGB have set to the middle class players. Gradually, slots pace. Thus, like the foreign casino operators jewellery and watches. Before Valentine’s Day, commission on winning banker bets, where- up marketing offices in the city in order to will become very popular in Macau,” pre- arriving in Macau, slot manufacturers fo- there were guys coming in with lots of points as manufacturers only offer electronic bac- get closer to local clients. At the moment, dicts Mr. Chan. Slots are also drawing in lo- cused on the city also look set to enjoy ac- on their cards.” carat machines run according to the practice however, the Macau gaming machine mar- cals, and half or more of customers at both celerated earnings. 12 13 Regulating the Explosion Macau currently lacks regulations covering its rapidly growing gam- But what of the view that Macau casino operators will in coming ing machine market. According to Jorge Oliveira, the man charged years create vast halls of gaming machines, particularly on Cotai? with drafting Macau’s gaming laws, gaming machine regulation will “Casino operators sell the idea that they are going to invest a need to cover “who can sell, if you need to be licensed, if the equip- lot in machines. But common sense dictates otherwise. Tables make ment needs to be certified. Who can touch the machines. These kinds US$5,500 per day, and even if that falls to US$4,000,” will still offer of things.” much better returns for casinos than machines, which currently make The machine manufacturers are also calling on the Macau gov- around US$300 per day. ernment to allow them to share revenue with casinos on the ma- “Sands is closing its restaurants to put in more tables. Wynn Ma- chines they install. Mr. Oliveira feels this would distort the working cau [set to open in September] will have 20,000 sq. m of casino space. of the market. And you know how many machines they will have in 20,000 sq. m? “We want the machines to come because the operators here want Three hundred something. Those are almost like artificial plants. They to invest in machines. Casinos may put machines in without invest- are decorative elements.” ment by offering profit share to the manufacturers.” By seeking to maintain their exclusive right to operate gaming ma- Mr. Oliveira wants more gaming machines in Macau, and he be- chines, Mr. Oliveira believes the new casino operators will only strength- lieves the best way to achieve that is to liberalise the gaming machine en the position of Melco International Development, which is the main market to allow hotels and other non-Casino venues to install them. organisation in Macau currently investing in machines. “Because the He believes failing to liberalise the market will lead to under-invest- group with which they are associated, STDM [parent company of Stan- ment and open the door to a significant threat to Macau. “You may ley Ho’s SJM], has a lot of gaming floor available. STDM is the largest real have very soon in Hong Kong the idea that they should start to le- estate company in Macau, and they can have a lot of gaming floor avail- galise casinos by legalising machines.” He argues it would be hard to able. If they have an unlimited gaming floor, it makes sense that they try argue for the protection of Macau’s gaming machine market because to drive the competition out by reserving a part of that for machines. the city currently has so few machines. The current system only benefits Melco, at the end of the day.”

A Mocha Slot outlet 14 Macau 1Q Trends Deutsche Bank’s Karen Tang looks at Macau’s first quarter gaming results, which point to impressive mass mar- ket growth. A string of new casinos set to open in the second half of 2006 suggest stronger growth ahead

First quarter gaming revenue growth Gaming revenue (yoy change) was in line with recent year to date trends (of around 17% year-on-year) and support- Macau avg VIP market Mass market ed by higher tourist arrivals. The growth is driven almost entirely by the mass market 75% (+44%), with only the VIP segment being 80% stable (+3%). Since 2006 looks to be a back- 60% 44% 45% 44% 38% end-loaded year, full year growth may actu- 40% 34% 35% ally exceed our expectations if the recent 17% 16% 20% 20% 11% monthly growth rate continues for the next 3% 2% 4% few months. We are confident that the Las 0% Vegas experience of supply-creates-demand -3% -20% will be repeated in Macau. 2004 2005 1Q06 2006F 2006-08F Cagr Bulletin Research while the VIP segment was up only +3% yoy to expansion, and opening of Tiger Slot at New openings after 18 months US$0.9m. Growth in both segments is in line the . Despite the 52% jump in Aside from February (which was distorted by with our full year expectations. the number of slots over the past twelve the shift in Chinese New Year timing), March Due to faster growth, the mass market months, average slot win per machine still saw the highest y-o-y growth over the past segment has gained market share from 34% increased 15% y-o-y to US$140 per day. We six months. We think this is because Macau in 1Q05 to 42% in 1Q06. Slot remained a tiny believe this is because the introduction of finally saw more casinos opening in 1Q06 af- 3% of total gaming revenue. new slot machines, such as Stargame’s multi- ter a quiet 18months. During 1Q06, two new player baccarat electronic gaming machines, casinos (the SJM-run Emperor and Galaxy-run have significantly expanded the market. We Rio) and a large-scale tourist attraction (SJM’s Win per slot up despite supply jump Macau added 1,450 slot machines to a to- expect slot win to remain at this level for the Fisherman’s Wharf) opened their doors. tal of 4,220 in 1Q06, thanks to Mocha Slot rest of the year.

Table win diluted Table win (US$ / table / day) With two new casinos and expansion at Sands, Macau added 422 tables to a total of 1Q05 2Q05 3Q05 4Q05 1Q06 2006F 2007F 2008F 1,650 over the twelve months to the end of Macau average 11,700 12,200 11,600 10,800 10,100 6,400 4,700 4,600 1Q06. With this 34% increase in table supply, average win per table was diluted down 14% VIP segment 34,500 36,100 31,900 28,100 26,300 17,700 11,700 10,800 to US$10,100 per day. We will not be surprised Mass market segment 5,300 5,700 6,000 6,100 5,700 3,400 3,200 3,200 to see this figure halved over the next two years, given the large coming increase in table supply (4,000 tables in 3 years). Even then, we Table win forecast think it would be around US$4,600/table/day, which is still much higher than the Las Vegas (US$/table/day) VIP market DB forecast average (US$2,500/table/day). In Macau, the table win discrepancy between the VIP and Mass market mass markets is extremely wide. We estimate 30,000 Macau avg that 1Q06 VIP tables averaged US$26,300/ table/day, and mass market tables averaged 20,000 only a fifth of that, i.e. US$5,700/table/day. 11,700 12,200 11,600 10,800 10,100 10,000 6,400 Mass market dominates1Q06 growth 4,700 4,600 1Q06 growth was driven almost entirely by ex- pansion in the mass market. Mass market gam- ing revenue was up +44% yoy to US$0.65m, 1Q05 2Q05 3Q05 4Q05 1Q06 2006F 2007F 2008F 16 Vegas, though it’s hard to discern the differ- ence in scale from the pictures, or even from Niche Benefits street-level. The architects eliminated scale- revealing details from the original property’s glass façade in order to disguise the size Wynn Macau is scheduled to open on September 5, becoming the first full-fledged Vegas-style destination resort of the hotel – the Vegas property pictured to open in the city (the following images from Wynn Las Vegas offer an idea of what the property will offer). across is in fact 50-storeys tall. Wynn Las Ve- Much larger casino-centred resorts will follow hot on its heels, but Executive Director of Hotel Operations Mark- gas cost US$2.7 billion, and is currently con- sidered the most expensive gaming complex land Blaiklock believes Wynn Macau will maintain its appeal among a more discerning crowd ever built – each room has about US$1 mil- lion in spending associated to it, while each room at Wynn Macau will have about US$2 In the last issue of Inside Asian Gam- million. Wynn Macau can perhaps claim to be ing, Las Vegas Sands Corp (LVS) Chairman the world’s most pricey gaming resort on a Sheldon Adelson sought to deride the scale room-for-room basis. Even after LVS opens its of Wynn Macau in relation to the mammoth US$3.6 billion 2,500-room integrated resort Venetian Macau property he is developing in Singapore’s Marina Bay, Wynn Macau can along the Cotai Strip, but the folks at Wynn continue making that boast. Macau are not concerned. They have a clear idea of the high-end niche the 600-room Small Benefits Wynn Macau will fill in the emerging Macau A New York Times review of Wynn Las Vegas resort market when it opens on September gushed about the facilities, from the spacious 5th, and believe they can retain their position bathtubs which fill in record time to the gal- even after the 3,000-suite Venetian Macau lery featuring paintings from Steve Wynn’s opens in mid-2007. fabled private collection. The recurring fault the review pointed to was the enormous size A Room-for-Room Comparison of the property, which “makes impromptu Wynn Macau has a strict policy of not com- movements practically impossible.” For ex- menting on competitors, so we felt compelled ample, “say you’re at the pool and decide to respond on its behalf to Mr. Adelson’s un- you want to read a newspaper. Do you really favourable comparisons of Wynn Macau with want to spend half an hour walking to the his property. gift shop?” Waiting for an elevator in the 50- The total budget for Wynn Macau, in- storey property “can be maddening,” and in cluding an expansion scheduled for comple- the morning, “you may not want to hike to a tion by the first half of 2007, comes to about restaurant for your first cup of coffee.” US$1.2 billion. Venetian Macau, meanwhile, Markland Blaiklock, Wynn Macau’s Execu- will cost US$2.3 billion. While it’s hardly rigor- tive Director of Hotel Operations, points out ous to make such a comparison, that means that the Wynn Las Vegas property “is kind of each room at Wynn Macau will have almost two hotels in one – the resort side of the ho- 3.5 times as much investment devoted to it tel, and then there’s the tower suite side. The as one at Venetian Macau. tower suite side is about 600 rooms. We’re on Venetian Macau may enjoy economies a pretty comparable scale to the tower suite.” of scale, but it will also spend a lot more It seems Wynn Macau is not merely a mini- money on other facilities. Wynn Macau will me to Wynn Vegas, but perhaps also a distil- have 13 shops in its mall and 24,000 sq. ft lation of its most luxurious elements. of meeting space, while Venetian Macau will Mr. Blaiklock explains that the 16-acre Evening pool cabanas have 350 shops and 1.2 million sq. ft of con- Wynn Macau will break the mould in the vention and exhibition space. Wynn Macau city by having all shops, restaurants and fire effects and projected holographic imag- Mr. Blaiklock. The signature restaurant will be will add a 600-seat theatre in its expansion entertainment facilities on one level. This es. “Just the general ambience of the property Cantonese, with top chefs hired from Hong phase, while Venetian Macau will boast a will necessitate some walking around, but is one of fun and gaiety and it is a captivating Kong. There will also be Japanese and Italian 1,800-seat theatre and 15,000-seat stadium. hardly as much as at your typical mega-re- one,” he says, although the theatre will only restaurants, a noodle shop, a Macanese/Por- Mr. Adelson uses such comparisons to argue sort – a half-hour walk from Wynn Macau’s be completed in the expansion phase. tuguese café and a “food fair.” Wynn Macau’s claims to be a destination pool would get you most of the way to the Wynn Macau’s guests can unwind at a resort are a “joke.” Wynn Macau can equally China border. lush pool garden or at the spa. They can dine Defining the Niche claim that room-for-room, it is spending a Wynn Macau will attempt to entertain at one of six restaurants, all of which “will have According to Mr. Blaiklock, Wynn Macau lot more on providing Vegas-style luxury visitors from “even before they come into the natural light and views over the pool garden, aims to bring “a new customer to Macau.” than Mr. Adelson. property,” says Mr. Blaiklock, referring to the or out over the exterior of the property, look- The property’s core business will come from Wynn Macau is a mirror-image, scaled- “performance lake” at the entrance featuring ing out over or over our per- “people who are looking for a destination ex- down version of the 2,716-room Wynn Las a musically choreographed water show with formance lake in front of the property,” says perience. They’ll come to the destination, Ma- 18 19 terminal and along which LVS’ Sands Macau also sits. Galaxy StarWorld and MGM Grand Macau will also open along that strip. Vene- tian Macau, meanwhile, will form the anchor of a new strip being developed on Cotai – the name given to the strip of reclaimed land be- tween Coloane and Taipa islands. It is believed the emerging Friendship Avenue Strip will be more of an “adult,” day-tripper destination than the Cotai Strip, which will have more sprawling resorts with large-scale conventions, entertainment and shopping facilities. Wynn Macau will pre- sumably appeal more to the type of crowd destined for the Cotai Strip, but Mr. Blaiklock does not believe being off Cotai will prove an obstacle to the property because Macau is so small and “even in the worst of times, it only takes ten or fifteen minutes to get across” from the Macau peninsula to Cotai. He adds that some people who need to at- tend conventions or exhibitions on Cotai “may choose not to be housed in that area, and we think that we’ll be their best choice for being in Macau.” Of course, Wynn Macau understands the appeal of Cotai, and will build its next prop- erty there, though clear details have yet to emerge. In March, Wynn Macau applied to Deluxe room the Macau government for a 21.9-hectare site on the Cotai Strip to develop four ho- tels, three with casinos. In May, Steve Wynn Living room in one-bedroom suite Ballroom promenade revealed during a conference call to analysts about the company’s first-quarter results that cau, for some of the things that Macau has to complete experience in a resort environment stage productions or allow or facilitate event he was in talks to open a hotel under the Fer- offer. But we think that they’re also going to then you could start attracting couples from organisers to stage their own. It’s a beautiful rari brand name as part of his Cotai project, come very specifically to enjoy our facilities. Hong Kong to come and have their wed- area. It’s a destination area unto itself.” And of though no further news of the discussions You can do everything under our roof.” dings here.” course, it is on a scale that caters to demand has yet emerged. As for where they will come from, Mr. “Also, on the MICE side, it would be mostly Wynn Macau is confident it can tap. Blaiklock has a fairly clear idea: “It will be smaller corporate meetings with some small- predominantly from Hong Kong or coming er incentives. It’s a much more personalised Acknowledging His Rival through Hong Kong. We see maybe 70 to 80 space. But it is a purpose-built, fully function- Facing the Old World Mr. Wynn also told the analysts that his Cotai percent coming from Hong Kong, including ing convention area,” adds Mr. Blaiklock. Mr. Blaiklock explains the rationale behind project would include large-scale convention what comes from China through Hong Kong. LVS’ plans are perhaps more exciting Steve Wynn’s decision to locate his first prop- facilities. “A very aggressive convention pro- The remainder will come from Southeast and ultimately could be more profitable, but erty in Macau directly opposite Stanley Ho’s gram ... is going to be part of our land use,” Asia, and there will be a percentage that will while many question whether the China con- flagship Lisboa Hotel, an icon of Macau’s he said, adding “we share some of the other come predominantly from North America. ventions business is sufficiently developed past. “He [Mr. Wynn] wanted this site because companies’ views that Macau has a bright Any North American visitation into Hong to support LVS’ trade show ambitions at this it was in the best location in Macau. It’s the convention future and that we will be able Kong, for example, if they know we exist in point in time, there is clearly a market right best location right opposite the Lisboa hotel, to sustain large amounts of midweek occu- the States, they know we’re just a ferry ride now for luxurious venues in Macau and Hong at the focal point of the [Friendship Avenue] pancy with groups that will come to Macau or a helicopter ride away from Hong Kong. Kong to host smaller corporate meetings and strip. It’s the best location because it’s the for meetings and conventions.” They’ll come visit.” wedding banquets. Mr. Blaiklock stresses: “We centre of the business district. It’s also the Thus, Mr. Wynn shares Mr. Adelson’s vision, While LVS will seek to turn Macau into a feel that there is a strong market that we can cultural centre of the city, with access to the though as Mr. Adelson pointed out in the last conventions and exhibitions hub by drawing attract, that will fill our spaces from those [Senado] Square and that whole area. And issue of this magazine, Wynn Macau will be the region’s largest trade shows to its sprawl- sources.” it’s also a very scenic location to be in. You’re two and a half years behind LVS in developing ing expo facilities, Mr. Blaiklock says Wynn Wynn Macau’s grand ballroom is about looking out over Nam Van Lake. It’s also great large-scale conventions facilities. Mr. Adelson Macau is “looking at the smaller, more high- 1,000 sq. metres, which can seat a dinner from the point of view of accessibility from charges his competitors offer “too little too end, more discerning type of event. We’re event with 60 tables of 12. Mr. Blaiklock re- the ferry terminal. It’s a direct ride.” late,” but perhaps Wynn Macau’s more pru- focused on social events. The weddings busi- veals the grand ballroom will have “a full the- Wynn Macau and the Lisboa sit on Friend- dent strategy will be vindicated if it turns out ness is one that is growing. If you provide a atrical stage with a flyloft, so we’ll be able to ship Avenue, a strip which runs from the ferry that LVS offers “too much too soon.” Grand deluxe room 20 21 call them “feel good” marketing tools. It’s a tool for making the bosses feel good, because it helps them feel like they are presiding over a large high-profile company. As one advertiser said (somewhere in the annals of marketing lore), “I know that 90% of my money is wasted in advertising. Problem is I don’t know which 90%”. Advertising has always been a tool for communicating with the masses. It’s always good for exposure and branding, getting informa- tion to the public about their product, etc. The critical element there, however, has always been the message. Take Sands’ new public bus ad. They are pushing the angular poses of the Cappuccino ballroom dancers (what’s with it with them and their ballroom dancers?), so I ask myself: what’s the objective of that ad, the target audience, and the message it is trying to communicate. My analysis is as follows: Sands has awkward looking western people in funny poses and strange Sound of Music-style costumes, and those funny people do a show for coffee aficionados. Pharaohs’ ad probably needs a good revision as well, because the only thing I ever noticed on those taxi ads are the gold feathered wings or something resembling that. Greek Mythology’s bus ads? Well, they promise a strange looking god-like idol as well as lots of girls in feathers – in essence, Vegas-style entertainment, and to an extent, they arguably do offer it, though the shows are getting a little tired for want of new variety. Customers are not stupid. If you promise something, eventually you will have to deliver or your brand will suffer. Grand Emperor promises a golden cabby and Russian Beefeaters with fake guns, and indeed that’s what it has parked outside its ca- sino. It also offers Russian girls dressed in French maid outfits offer- ings shoe shines for 20 patacas (US$2.5). Similarly, Macau Diamond at Holiday Inn features that windmill (will it spin around like a paper propeller in a typhoon?), which I heard almost spun away when one of the cogs failed. What we are seeing folks are two different types of adverts. Sands and GM are trying to sell a product or service offering that they be- lieve is unique to their properties, whilst the latter two are relying on external feature attractions that they hope will become tourist icons. Incidentally, I hear the Galaxy Group is getting worried about its properties. My observations suggest the two newest additions to Bus Wars their group, Rio and President, are garnering the city’s lowest casino patronage and main hall gaming results. And the boys can’t figure Macau’s “dragon head” gaming industry is devouring the city’s scarce resources, and other businesses it out… get rid of the garish neon lights for starters. It’s more of the same. Looks like the same exterior designer for all their new prop- are bemoaning rapidly rising rents and the worsening labour crunch. As casino marketing guru Octo Chang erties. Do they have shares in a neon light factory? I remember our points out, however, the casino boom is proving a bonanza for the two public bus companies at least editor’s summary of their group results in the last issue of Inside Asian Gaming – the building materials division made more money than the gaming side. Ah ha! In my first column, I pointed out the dominance of Greek My- the others jump on the bandwagon. Grand Waldo just had its soft opening as did Grandeur in Taipa. thology’s ads on Macau’s public buses. Since then, other casino op- I have since seen Grand Emperor, Sands Macau and even Macau Galaxy StarWorld will start running in a couple of months, with Wynn erators have enthusiastically adopted this media channel. One won- Diamond on these buses. I have seen Pharaohs’ on taxis, but cannot Macau snapping at its heels. As the quality of the table staff gets dilut- ders whether the bus companies’ advertising revenues now don’t recall seeing them on the buses. ed to a common denominator (already, I see the quality of the Sands rival their takings from fares – a mere 2.5 patacas (US$0.3) on wind- We even have a plethora of free shuttle buses plying the routes and Galaxy staff has declined since the properties first opened), the ing routes around the peninsula, and 3.3 patacas (US$0.4) on routes from the Macau-China border as well as the Ferry Terminal back to the battle will then move to a new front: more sophisticated forms of mar- crossing the bridge to Taipa island. respective casinos. I heard that Wynn Macau is planning something keting, which is tailored, focused and based on in-depth research into It’s not clear how effective GM’s bus ads have been, since the bulk like a fleet of about twenty-something shuttles for their operations. the behaviour and preferences of the mainland Chinese customers. of its patrons appear to be shuttled in from across the border on tour- But more is on the way. I’ll wager that Venetian will have an even big- I wonder if anybody has even conducted a focus group here yet, ist buses. Still, the other operators seem to believe the bus ads work. ger fleet to try and fill that humongous place in Cotai when it opens. or is that concept alien? Imitation is the best form of flattery, and that’s what happens in a If you think a shortage of dealers is a big problem, wait till you try to highly competitive market. The minute a good/creative idea appears, find qualified bus drivers. More mayhem on Macau’s motorways. (Any amusing anecdotes or observations of the marketing variety, please the novelty and advantage of being the first mover is quickly lost as Back to the effectiveness of the bus ads – we marketing people feel free to forward to [email protected]) 22 23

booth and exchanged for currency. Alterna- gaming machines, or other areas within a ca- about a person who may be maintaining an tively, patrons purchase tickets at a booth and sino, such as retail shops, restaurants and also account with the casino can be disclosed, or use the tickets to play the machines, which are table games. A player can deposit money with otherwise used. equipped with ticket readers. When players a casino and use that as the account linked to complete their play, they can either cash out the funds carrier, or, in a variant of the system, Anti-Money Laundering the ticket that they receive from the machine, he can link his bank account to the casino ac- There is clear potential for some forms of or they can use it to play other machines. count, using the same medium. cashless wagering (in particular, using stored The technology is relatively straight for- The device itself only stores an account value cards) to be used in money laundering. ward; it involves the integration of a thermal identifier which allows a player to transfer The question here will be whether transac- printer with each gaming machine, as well as money to or from his account. Accordingly, if tions using cashless systems are reportable, a reader. As with gaming machines which the device is lost, it can be de-activated and, or otherwise subject to scrutiny under anti- operate using cash, the machine generates since the system works with personal identi- money laundering laws. its own audit trail. fication numbers, a lost or stolen device can- not be used by a third party. Unclaimed Property Laws Magnetic Strip Cards As is often the case with bank accounts with A Magnetic strip card is similar to a credit card, What Issues small balances, it is conceivable that money such as might be issued by banks to enable which should be claimed by players remains customers to access their accounts. The sce- Does Cashless Gaming Raise? unclaimed for extended periods, particularly nario here is that a customer may establish a Security/Integrity in the case of smart cards. An issue which may deposit account with a casino, which then is- Various cashless wagering systems are al- arise is at what point of time those funds may sues him with a card and password. The card is then swiped through a reader integrated with a machine, the player enters the pass- word, and the display indicates the amount Out with the old of funds he has available with which to play. At the completion of each cycle of play, the account is debited or credited, depending on whether the player has won or lost. This technology is well established; mag- The Ins and Outs of Cashless netic card readers have been manufactured for more than 30 years.

Smart Cards, Also Known as Stored Value Cards Machine Gaming A magnetic strip card encodes information about the card holder onto the magnetic strip. Cashless gaming is a generic term which refers to a variety of systems for cashless or coinless wagering, A smart card, however, uses an electronic chip to store information, and it may be adapted to or payouts, or both, from electronic gaming machines (slots). The deployment of cashless gaming systems also store value on the card itself. is growing, to the point that new properties, such as Wynn Las Vegas, are opening with coinless slots A smart card can offer similar functional- ready approved for installation and play in be regarded as abandoned, and be transfer- ity to the magnetic card, particularly in rela- various jurisdictions in the United States. In able to a government authority. tion to password protection. However, since most cases, the systems are demonstrably There are considerable benefits for not need to be handled on the floor to the • The potential use of cards to aid harm it can store more information, it can be linked safer than those associated with cash. There is no doubt that cashless systems operators, which encourage the utilisation of extent required by cash-based systems. minimization. effectively to other back office systems of op- will overtake conventional casino floors glob- these systems. These include the following: • It is claimed by industry insiders that erators, particularly those relating to player Banking Laws ally. Not only does their utility benefit op- • The reduction or elimination of hard 30% to 40% of direct labour costs associated loyalty and rewards schemes, marketing and A concern might be that a casino which takes erators and players alike; card-based systems count and dropping of machines. with machine gaming can be saved by the Forms of Cashless Wagering the like. The downside with smart cards is demand deposits from players is in fact en- also offer significant potential as a tool in There are currently four distinct technologies • Substantial reduction in floor staff - re introduction of cashless systems. that they are significantly more expensive to gaged in the conduct of a banking business, harm minimization for patrons; for example, for cashless wagering, as follows: quirements, particularly in operating change There are also a number of benefits produce than magnetic swipe cards. or a non-bank financial business. This may a smartcard could be encoded with a player’s booths, cash trolleys and in making hand claimed for patrons, including the following: raise an issue as to the regulatory oversight of request to be self-excluded from a casino. If payments. • Improved security, particularly for large Bar Coded Tickets Electronic Funds Transfers (“EFT”) these systems, and prudential requirements play can only be enabled or conducted us- • The reduction or elimination of machine amounts of coins or tokens which a patron This technology is often referred to as TOTI, or An example of an EFT system is that which has for holding and disbursing those funds. ing the card, the player would be unable to lock-ups in cases where, for example, hop- might otherwise have won. ticket out-ticket in. There are several permu- been developed by Ardent Gaming. The com- participate. Moreover, the card could signal pers empty. • Greater portability; patrons do not have tations which are possible with a TOTI system. pany produces a system known as the Easy Financial Privacy Laws the presence of the excluded player on the • Improved auditability and reduced pa- to carry buckets of coins. The first is that players may use currency (i.e. Money Electronic Funds Carrier (TM), which The issue here is whether operators should casino floor, leading to his removal and, de- per flows associated with accountability doc- • Clean hands; change booths in most ca- banknotes) to load a machine with credits consists of a small electronic device fitted to be obliged to provide notice of their privacy pending on the jurisdiction, possible criminal umentation generated for fills or hand pays. sinos require a large stock of disposable wipes when they commence play. When they com- a key chain carried by a player. This system practices to players using cashless gaming action for trespass. Identification of self-ex- • Improved security; cash transactions do for use by patrons who have been handling plete play, instead of cashing out, they will re- uses wireless technology to transfer credits technology. In addition, there is the mat- cluded players is a nightmare for operators; not occur on the casino floor, and cash does coins. ceive a printed ticket, which is then taken to a between a player’s account and the casino ter of how, and when, information gathered this may provide a solution. 26 27 Tel: 715070 Tel:

, Macau. Bid-Winning Boon Las Vegas Sands Corp (LVS) looks set to secure a dominant position in Asia’s burgeoning casino and trade show industries after being awarded a 30-year concession to build and operate Singapore’s first casino-centred integrated resort (IR) along the downtown Marina Bayfront ﹝南灣一定好商業中心﹞ L VS has committed to investing US$3.2 billion in the Marina Bay Sands, which is scheduled to open in 2009, becoming the world’s most expensive gaming resort. LVS’ Singapore property will feature 2,500 hotel rooms, a one million square foot retail mall, and a 200,000 square foot arts and sciences museum. Most importantly, Marina Bay Sands will feature 1.2 million square feet of convention and exhibition space, which in addition to the 1.2 million square feet of expo space LVS is developing at Venetian Macau, will give the company a combined expo capacity greater than most countries in the region. With LVS Chairman Sheldon Adelson’s track record in cultivating hugely popular trade shows, the company could quickly gain Av. da Praia Grande, No. 886, Centro Com. “Iat Teng Hou” Teng da Praia Grande, No. 886, Centro Com. “Iat Av. a significant lead in tapping Asia’s huge trade show potential. LVS could perhaps even drive a boom in the region’s convention and exhi- bition industry if the supply-creates-demand theory posited for gaming in Macau also ap- plies to trade shows in Asia. By winning the bid for Singapore’s first Back view of Marina Bay Sands integrated resort (IR), LVS will also gain an unrivalled network of casino properties in hectare site on the resort island of Sentosa the capability of bidders as more important Asia and Las Vegas, enabling it to combine – the 20.6 hectare site at the downtown Ma- than their Temasek-linked status (following its casino marketing efforts between Macau, rina Bay will cost S$1.2 billion (US$754 mil- the selection of LVS, which has no Temasek Las Vegas and Singapore. This will boost its lion). While the Marina Bay integrated resort links, at Marina Bay). The Genting syndicate ability to attract players, and perhaps more will focus on the meetings, incentives, con- has teamed up with Universal Studios, which importantly, to influence junket operators. ventions and exhibitions (MICE) business, is seen as bringing strong tourism-appeal to No other casino operator will – for the time Singapore has said that it wants the Sentosa its Sentosa bid. being at least – operate such a strategic net- resort to focus on providing family-friendly Competition for the Sentosa site also work of properties, giving the reputedly wily leisure attractions. looks set to be less intense than for Marina LVS unprecedented negotiating power over The Singapore Tourism Board said bids Bay. Apart from the Genting syndicate, Baha- junket operators. for the Sentosa site, due on October 10, will mas-based Kerzner International, in partner- LVS is also expected to aggressively be judged mainly on their tourism appeal ship with Temasek-affiliated CapitaLand has pursue other casino opportunities as they – which receives a 45% weighting in the pro- announced it would bid for the Sentosa site, as emerge in Asia – perhaps in Thailand and cess of deciding the winning Sentosa bidder. will privately-owned resorts developer Eighth Japan. This will further add to the company’s Architecture, design and concept excellence Wonder with Starwood Hotels and Resorts unique position relative to companies lack- hold a 25% weighting, the amount invested and Isle of Capri Casinos Inc. Meanwhile, South ing in regional diversification. another 20%, while the strength of the con- Africa’s Sun International is undecided and sortium will have a 10% influence on which the participation of the Keppel Land-Harrah’s group wins the Sentosa bid. consortium in Sentosa appears increasingly in The Second Site Genting International and its sister com- doubt after it announced it would only decide Singapore has formally invited bids for the pany Star Cruises are seen as frontrunners “in due course” whether to proceed with the second of its two planned IRs, setting a price for the Sentosa site, especially now that it Sentosa bid. The winner of the Sentosa bid will of S$605 million (US$380 million) for the 49 has become clear the government regards be announced this year. 29 Tour of the Properties

Sparkle in the City It was local entrepreneur David Chow, not the new arrivals from Las Vegas, who introduced themed casinos to Macau. In 2003, Mr. Chow – who also conceived the city’s first theme park, Macau’s Fisherman’s Wharf – opened the Egyptian-themed Pharaoh’s Pal- ace Casino along with the VIP Legend Club at The Landmark Ma- cau. Inside Asian Gaming paid a visit to The Landmark Macau, tak- ing a turn at the tables operated by Stanley Ho’s SJM, and enjoying the property’s other facilities. Here we showcase some of the lat- est high-end fashion and jewellery available in the city against the backdrop of The Landmark Macau.

Photography: Ike Coordination: Ricardo Carvalho Models: Pauline; Grace Choi Hair: Mike Tam Landmark Macau Lobby Make-up: Karen Yiu Grace’s top: Just Cavalli Clothes courtesy of Rainbow Group Jeans: Barbarossa Jewellery cortesy of Emphasis Jewellery Silver necklace and bracelet: Calgaro Pharaoh’s Palace Casino Pharaoh’s Palace Casino Lobby Pauline’s outfit: Chloé Dress: Boss Pearl necklace and bracelet: Hodel Gold head ornament: Emphasis Jewellery Indoor Swimming Pool Pauline’s outfit: Patrizia Pepe Grace’s top: Patrizia Pepe Grace’s shorts: See by Chloé Noble Club Lounge Royal Orchid Chinese Restaurant Outfit: Chloé Top: Viktor & Rolf 18k white gold necklace with onyx Trousers: Boss and mother-of-pearl: Daniela Raccanello 18k gold necklace: Emphasis Jewellery Richard-Henessy Cognac cortesy of Riche Monde Ltd The Landmark Macau Entrance Pauline’s outfit: Patrizia Pepe Grace’s jacket: Barbarossa Grace’s top: C’N’C Grace’s shorts: See by Chloé

Italy Presidential Suite Outfit: Patrizia Pepe 18k gold necklace: Emphasis Jewellery The Landmark Macau Entrance Pauline’s outfit: Patrizia Pepe Grace’s jacket: Barbarossa Grace’s top: C’N’C Grace’s shorts: See by Chloé BMW 630 Coupe and R1150R Roadster cortesy of BMW Concessionaires (Macau) Ltd Regional Briefs

concession stands. The design of the theatre and creative and artis- The group will pay the government about HK$6 billion for a 14 cense is worth between US$865 million under a worst case scenario, SJM IPO Postponed hectare site. The partners, with working capital of about US$800 mil- and as much as US$1.928 billion. Without the license, the JV’s casinos Sociedade de Turismo e Diversões de Macau (STDM) will post- tic decisions surrounding all show elements will be the domain of lion, will raise the remainder of funds for their project from other would have had to be operated by Stanley Ho’s SJM, and the valua- pone until July the launch of the HK$15 billion initial public offer- Cirque du Soleil. sources, including high-yield bonds. tion assumes that by purchasing its own license, the JV will be able to ing (IPO) of its gaming subsidiary, Sociedade de Jogos de Macau In addition to the new Cirque du Soleil theatre, the Cotai Strip The partners are currently in negotiations with Macau gaming retain 12% more of its revenue. (SJM), according to Hong Kong-daily South China Morning Post. is expected to feature five other entertainment venues including a concession holders to operate their planned casino. Under the usual American Appraisal estimates the Melco-PBL JV will earn 10-17% The newspaper cited unidentified market sources as saying that 15,000 seat arena that LVS hopes will stage performances by some of arrangement in Macau, companies give about 20% of their gross of Macau casino revenue, which is forecast by the appraisal firm to STDM, controlled by Macau gambling magnate Stanley Ho, is the world’s biggest stars. gaming revenue to concession holders operating their casinos, with grow around 18% each year for the next four years, easing off to 5% also reviewing plans to inject all the gaming unit’s 16 casinos LVS also announced it had negotiated and signed contracts for almost 40% going to the government as tax and the companies a year until 2022. The valuation also assumes no new casino licenses into a Hong Kong vehicle, 20% of which will be sold to the public. five multi-year trade shows representing 13 separate events tobe retaining the remaining 40%. Mr. Friedman claimed the partners will be issued by the Macau Government. The IPO will be delayed by a month because of court proceedings hosted on Cotai. The multi-year trade shows include the Asian Auto- would be seeking a different arrangement, but did not offer further concerning the legitimacy of the offering. The newspaper reported motive Aftermarket Products Expo, the CMP Asia Jewellery and Watch details. that Stanley Ho’s estranged sister, Winnie Ho, challenged STDM’s deci- Show and the Global Gaming Expo Asia. Additionally, LVS said it has sion to proceed with the IPO after her representatives were barred received several new letters of intent from other trade show organiz- from attending a meeting of shareholders in March that approved ers and is working with a large pipeline of shows which it expects to sign up by the end of 2006. LVS Gets US$2.5 Billion Macau Loan the offering. Las Vegas Sands Corp (LVS) has secured a US$2.5 billion financ- ing package to fund its gaming projects in Macau. The loan, which Philippines Steps Up Jueteng Crackdown is provided by six different banks, is regarded as the largest single Philippine National Police Chief Director General Arturo C. Lomi- credit facility ever granted to a non-government entity in China. bao ordered a massive strike against all forms of illegal gambling in Hong Kong daily The Standard reported it took LVS six months to the country in the wake of persistent reports that jueteng (an illegal secure the loan. numbers game popular in the country) had resumed in some parts The loan will be used to fund the expansion of Sands Macau and of Luzon. construction of the US$2.3 billion Venetian Macau. The Sands expan- From January 1 to May 18 this year, the Philippine police arrested sion is due for completion this year, while Venetian Macau is sched- 2,698 people for involvement in illegal gambling, and at least 30 po- uled to open in mid-2007. A portion of the funds will also go towards lice unit commanders including three provincial directors, 22 chiefs building a 400-room Four Seasons hotel next to Venetian Macau on of police and five police-community precinct commanders have lost the Cotai Strip. their jobs during the course of the crackdown. The loan package consists of a US$1.2 billion seven-year term Jueteng relies on having a large number of wagers, and there is loan, a US$700 million six-year term loan, a US$100 million five-year no limit to the amount of bet. Gamblers select two numbers from 1 term loan and US$500 million in a five-year revolving credit line. Gold- through 37, and the winning number is determined by selecting a man Sachs Credit Partners was the lead provider of the loan package, pair of numbers from a set of 37 numbered balls – putting the theo- and was joined by Lehman Brothers, Citigroup Global, Canada’s Bank retical odds of winning on any one play at 1 in 666. of Nova Scotia, Portugal’s Banco Nacional Ultramarino and Japan’s Despite the efforts of the government and community leaders Sumitomo Mitsui Banking Corp. to stamp out jueteng in the Philippines, the game remains pervasive It appears LVS will easily secure financing for its Marina Bay Sands due to its vast popularity, the poverty which cripples the country, and project. The International Herald Tribune reported LVS has received the wealth and power of the jueteng operators. between six and nine lending proposals for the project, which will Fairmont and Raffles Join Cotai Line-Up Las Vegas Sands Corp (LVS) announced the addition of properties Jueteng was brought to notoriety in 2000 during the impeach- include a 2,500-room hotel, and 1 million square feet each of con- operated by Fairmont Raffles Holdings International to its develop- ment proceedings of deposed Philippine President Joseph Estrada, vention and retail space. LVS plans to finance the Marina Bay project ments on Macau’s Cotai Strip. LVS will develop and own a resort com- who was accused of receiving illegal payoffs from gambling profits. without help from the Singapore government. plex slated to feature 1,500 rooms that will be managed by Fairmont Another political scandal erupted in June 2005 involving allegations Hotels & Resorts and Raffles Hotels & Resorts, two of the luxury brands that relatives of Gloria Macapagal-Arroyo received payouts from owned by Kingdom Hotels International and Colony Capital. jueteng operators. Melco-PBL JV Valuations The casino sub-concession purchased by the joint venture be- Additionally, approximately 300,000 square-feet will be allot- tween Australia’s Publishing and Broadcasting Ltd (PBL) and Melco ted for a Raffles-branded residential product. The complex will also eSun Takes on Partners International Development from Wynn Resorts for US$900 million, feature entertainment and casino gaming facilities as well as retail Silver Point Capital, a US fund with US$5 billion under manage- has been valued at about US$1.36 billion by Hong Kong firm Ameri- space connected to adjacent retail malls being developed by LVS. ment, in partnership with David Friedman, a former aide to Las Ve- can Appraisal, ahead of Hong Kong-listed Melco’s raising of HK$1.2 The casino and entertainment facilities will all be owned and oper- Cirque du Soleil Coming to Cotai gas Sands Corp (LVS) Chairman Sheldon Adelson, will invest up to billion through a share placement on June 1 to fund the JV’s Macau ated by LVS. Las Vegas Sands Corp (LVS) and Cirque du Soleil announced they HK$2.97 billion for a 40% stake in a project controlled by Hong Kong- projects. The Cotai Strip is a master planned development of resort and will create a one-of-a-kind show to be featured on the Cotai Strip. The listed eSun Holdings, the media and entertainment arm of property The Melco-PBL JV is also currently negotiating with international casino properties on Cotai, an area of reclaimed land between the new show, conceived and created solely by Cirque du Soleil will open group Lai Sun Development. banks to raise US$500 in loans, and is pursuing an initial public offer- islands of Taipa and Coloane. LVS previously announced plans to in the Spring of 2008 in a theatre built to their specifications and will The partners plan to invest about HK$15 billion in a casino resort ing (IPO) on the US Nasdaq stock exchange to raise further funds. The develop other hotel projects including The Venetian Macau, which have a capacity of approximately 1,800 seats. on Macau’s Cotai Strip. The planned casino is expected to open in consensus market view is that an expected 20% listing of the JV on is currently under construction, a Four Seasons hotel, Starwood’s The deal outlines plans for Las Vegas Sands to develop and own 2009 with up to 500 gaming tables, 4,000 hotel rooms, a film studio Nasdaq will raise US$1-1.6 billion. Sheraton and St. Regis brands, a Shangri-La hotel, a Traders hotel the 1,800-seat theatre as well as operate the food and beverage and exhibition facilities. According to the valuation report, the Melco-PBL JV’s casino li- and Hilton hotel. 42 43 International Briefs

Bella Condominiums high-rise tower in the city’s rapidly developing get approval for gambling on mobile devices in its Nevada casinos. New Jersey Investigators to Probe MGM’s Macau Venture South Inlet area. Morgan Stanley is tipped to work with Hard Rock LVS plans to offer mobile gaming at The Venetian and the Palazzo, New Jersey investigators are preparing to take sworn statements International on the project. which is scheduled to open in late 2007. The bill allowing mobile from MGM Mirage executives about their US$1 billion casino project gambling in Nevada’s casino resorts was signed in June 2005. in Macau, following two trips to the city in March and April to meet Cantor Gaming, an affiliate of financial services company Cantor with American, Chinese and local gaming regulators about the deal. Fitzgerald, will be the exclusive provider of mobile-gaming systems at MGM Mirage is building a 28-storey casino and hotel, scheduled Foxwoods and MGM to Team Up on Casino Projects Foxwoods and MGM Grand joined forces to develop gambling LVS properties. LVS plans to begin field trials of the system at The Ve- to open in late 2007, in partnership with Pansy Ho, the daughter of ventures around the globe and market a US$700 million hotel-casino netian late this year or early 2007. Once state regulators approve the Macau gambling magnate Stanley Ho, who has been investigated complex under construction in Connecticut. The deal gives Las Ve- system, casino visitors will be able to play blackjack, roulette, video several times over the past 20 years for alleged ties to organized gas’s MGM Grand access to the Northeast market and Indian gaming, poker and slots on handheld devices. crime – though no proof of any such ties has ever been unveiled. and provides an experienced partner for the Mashantucket Pequot Under Nevada law, the devices can only be used in public areas of The investigators plan to take statements from Pansy Ho, and tribe. The complex, expected to feature a hotel, casino, 5,000-seat con- a resort casino, such as restaurants, nightclubs and poolside. Playing in to determine whether her business interests are tied to her father. cert theatre, spa, and nightclubs, is expected to open in 2008 and be hotel rooms, or other private areas that aren’t supervised is banned. They also plan to interview Ms. Ho’s sister, Daisy, who is involved in operated by the tribe, which is trying to diversify its operations in the the Macau project face of rising competition in New England. New Jersey regulators launched a probe into the partnership last MGM Grand and Foxwoods also said they expect to jointly devel- year because MGM Mirage is part owner of Borgata casino in Atlan- op gaming and non-gaming operations and share data for market- tic City. Depending on the outcome, the New Jersey Casino Control ing purposes on the millions of gamblers who visit their respective Commission could force the company to sever ties with Pansy Ho. properties. MGM Grand said it would provide a loan of up to US$200 New Jersey investigators have also travelled to Nevada sev- million to finance the gambling projects. eral times since last year to meet with MGM executives and gather The deal is a reflection of the rapidly consolidating gambling documents related to the deal. They also seized a computer from the Maxim Casino Project company’s Nevada office so forensic specialists could search its hard business. Foxwoods faces intense competition from the Mohegan US property developer Concord Wilshire Partners has licensed drive and retrieve any e-mails related to Macau. Investigators hope to Sun casino in Connecticut and may face a powerful new rival if the name of racy British men’s magazine Maxim for use in a US$1.2 conclude their probe by the end of 2006. Harrah’s, the leading casino operator in the US, succeeds in winning billion Las Vegas hotel and casino. The Maxim Hotel and Casino, due MGM controls about half of the casinos on the Las Vegas strip, approval for a casino it is trying to build in Rhode Island with the to open on the Las Vegas Strip in 2010, will have 2,300 rooms and a and filed an application with Nevada regulators in February to clear Narragansett Indian Tribe. 60,000 square foot casino, as well as a luxury spa, conference facilities, its Macau project under the state’s stringent licensing standards. Ne- MGM Grand, the number two casino operator in the US, has tradi- restaurants overseen by celebrity chefs and assorted luxury shops. vada’s regulators are famously strict, but New Jersey regulators are tionally built and operated its own properties, but is starting to realize The property will also feature a “Maxim Lounge,” a fledgling chain of regarded as taking a harder line on investigating alleged ties to or- that it needs to partner with other players if it is to bring new gam- nightclubs that the magazine is developing with Rande Gerber, hus- ganised crime. blers to its casinos. band of international fashion model Cindy Crawford. Showboat Casino US Casino Gaming Revenue Rises 5% in 2005 PBL to Run Russian Casino Gambling revenue at US casinos rose 5% year-on-year in 2005 to Australia’s Publishing and Broadcasting (PBL) is set to become the a record US$30.3 billion as more visitors flocked to a growing number first foreign group to run a casino in Russia, after reaching an agree- of casinos. The number of Americans who gambled on the Internet ment with Russian developer Crocus to manage a 164,000 sq m ca- also doubled to about 4% of the population last year, according to sino, hotel and shopping complex on the outskirts of Moscow. the 2006 “State of the States” report by the American Gaming As- Marketed as “Las Vegas in Moscow” and due to be completed in sociation, the trade body representing casino operators and related 2007, Crocus City will feature a 24,300 sq m casino and 80,000 sq m companies. five-star hotel. Industry sources in Moscow said PBL’s involvement Gambling revenue increased in 10 of the 11 US states that are was focused on the entertainment and hospitality part of the project, home to the country’s 455 commercial casinos, the report said. Only which will also include expanding an exhibition centre and develop- Mississippi – where the industry was badly hit last year by Hurricane ing office buildings on the site next to the Moscow river. Crocus City Katrina – saw a drop. Encore at Wynn Las Vegas is due to receive a direct metro link from central Moscow within the Poker was the most popular game on the Internet, where more Wynn Resorts broke ground on its newest expansion, Encore, on next three years as part of a project to extend an existing line. Americans are gambling now for its convenience despite confusion the site of the original Desert Inn. The resort will be erected adjacent The venture is the latest in a series of overseas projects pursued about the legality of wagering online, according to the report. Al- to Wynn Las Vegas on the north side of the property and is scheduled by PBL Executive Chairman James Packer, who became head of PBL though the US Justice Department says a 1961 law that forbids inter- for completion in December 2008. and Australia’s richest man following the death of his father Kerry at state telephone betting also applies to the Internet, the report said Encore will be developed and will mark the second full-scale hotel the end of last year. James Packer has sought to aggressively expand only 19 percent of the 552 Internet gamblers polled thought it was to occupy a portion of the company’s 240-acre assembly of real estate PBL’s gaming and entertainment interests following the stagnation of Morgan Stanley to Develop Atlantic City Casino illegal in the US. in Las Vegas. The expansion of the resort will be fully integrated with the company’s Australian media interests. PBL has also formed a joint The gambling subsidiary of Morgan Stanley paid US$74 million to neighbouring Wynn Las Vegas, containing all the usual resort ameni- venture with Hong Kong-listed Melco International Development. purchase 20 acres of land on the Atlantic City Boardwalk to develop ties including additional rooms, convention and meeting space, more The JV is developing high profile casino projects in Macau, and hopes the city’s 13th casino. The company plans to build and operate a US$1 LVS Gets Approval for Mobile Gambling casino space, restaurants, nightclubs, spa and salon, retail outlets and to pursue projects elsewhere in Asia. billion casino hotel on a site adjoining the Showboat casino and the Las Vegas Sands Corp (LVS) became the first casino operator to swimming pools. 44 45 More neon at Grand Waldo

Less Than Stellar Galaxy Entertainment Group made a strong debut in Macau with its high-roller focused Waldo casino in July 2004, but the company has since seen its gaming revenue and market share plunge. Still, analysts remain bullish on Galaxy’s stock price, pinning hopes on an imminent sale of a stake in Galaxy to US-based casino operating giant Harrah’s Entertainment Inc

Guanxi – a Chinese term defined roughly as “relationships” – is and thwarted analysts’ expectations by raising its share of that mar- regarded as vital to doing business in China. Analysts had predicted it ket from 2% at the start of 2005 to 9.8% by the end of the year. Waldo’s would take many years for new US-based gambling licensees arriving revenue concurrently plunged. Even though Galaxy’s sole Macau ca- in Macau to penetrate the market of mainland Chinese high-rollers sino had only operated for less than six months in 2004, revenue for served by the well-established networks of local (Macau and Hong that year reached HK$1.299 billion. Revenue for twelve full months of Kong) junket and casino operators. It appears, however, that in the operation in 2005 was HK$1.292, suggesting a more than 50% decline gaming world at least, guanxi can be fickle, with Las Vegas Sands Corp in average monthly revenue. (LVS) having made strong inroads into the high-roller market with its Galaxy clearly feels the need to diversify from its focus on high- first property in the city, Sands Macau. rollers. It made a modest first effort to court low-rollers by opening Of all the local operators, Galaxy Entertainment Group appears the 90-table Rio Casino in February and the 75-table President Casino to have suffered most from LVS’ cultivation of high-roller guanxi. Gal- in April, both of which are located in independently-operated hotels, axy’s first property in Macau, the Waldo Casino, opened in July 2004 as is Waldo Casino. In May, Galaxy unveiled Macau’s twenty-first ca- with a mere 38 tables. Sands Macau had opened two months earlier sino, the Grand Waldo, which is the first casino to open on the Cotai with 277 tables. In 2004, the modestly-appointed Waldo outgrossed Strip – a dubious honour since the rest of the Strip is still a big con- The Landmark (澳門置地廣場), Macau Tel: (853) 785008 the spacious Vegas-style Sands thanks to its focus on VIP gaming. struction site with building work carried on late into the night. Mandarin Oriental Hotel (文華東方酒店), Macau Tel: (853) 701551 Sands began courting high-rollers from the beginning of 2005, Grand Waldo features 16 VIP gaming rooms, 166 tables and 350 www.zegna.com 47 slot machines, and largely continues the company’s focus on the Kong property tycoon Lui Che-woo. Galaxy secured a backdoor list- high-roller market. Apart from lacklustre customer traffic, the com- ing in Hong Kong through the sale of 97.9% of its shares to the Lui mon feature across all of Galaxy’s properties to date is a surfeit of family’s K. Wah Construction Materials Ltd, a subsidiary of the family’s gaudy neon on their facades, the only benefit of which seems to be K. Wah International – a mid-sized Hong Kong property developer – to providing illumination for pedestrians at night. Fortunately, the in- which retains an 18.7% stake in Galaxy. K. Wah International recently teriors are more tasteful. announced it was discussing the possible sale of part or all of its stake Galaxy first major mass-market property will be StarWorld, sched- in Galaxy. The Luis have ample financial resources and experience in uled to open in August with 300 tables and 300 slots, as well as 500 developing property, but know little about managing a gaming busi- five-star hotel rooms. StarWorld will thankfully be spared the retro ness. Analysts believe Galaxy would benefit greatly from enlisting a charm of 20-foot high neon chips and playing cards on its exterior, major casino operating partner. The most prominent possible buyer though our marketing columnist Octo Chang points out the building mentioned is Harrah’s Entertainment Inc., the world’s largest casino is somewhat reminiscent of a children’s Lego project. StarWorld aims operator by revenue. to provide what Galaxy refers to as “affordable luxury,” adhering to Harrah’s has so far been excluded from the exploding Asian gam- the company’s concept of an “Asian price point.” ing market. It was beaten by Vegas-based rivals LVS and Wynn Re- Arguing there is only one price that Asians are willing to pay ig- sorts in securing a Macau gaming concession in 2002. Another rival, nores the clear market for high-priced luxury offerings being pursued MGM Mirage, has since secured a presence in Macau through a joint by other operators such as Wynn Resorts. Furthermore, if Galaxy really venture with Pansy Ho, daughter of Macau gaming tycoon Stanley believes the foreign casino operators developing new properties in Ho. Harrah’s is clearly itching to get into Macau, especially after hav- Macau will focus solely on providing pricey attractions, it could find ing just lost out to LVS again in the bidding to build Singapore’s first itself unprepared for competition in the lower-end market segment it casino-centred integrated resort. A partnership between Galaxy and is pursuing – Sands Macau’s successful high-traffic noodle shop dem- Harrah’s would be mutually beneficial. onstrates LVS Chairman Sheldon Adelson’s intention to “maximise ev- Analysts have taken a rosy view of Galaxy, which until recently has ery opportunity” by targeting several price points. underperformed other soaring Macau casino stocks, such as Hong Galaxy’s most ambitious mass-market project is the Cotai Mega Kong-listed Melco International Development. Galaxy’s share price Resort, slated to open in 2008. The Mega Resort will be completed had surged to HK$8.3 on June 1 on speculation of a possible stake in four phases by 2009, and will house 450 tables and 1,000 slots, in sale to Harrah’s, but declined to HK$7.35 by June 7. addition to providing a full array of dining, retail and entertainment Goldman Sachs retains an outperform rating on Galaxy with a facilities. price target of HK$8.7. Goldman argues the stock’s valuation does Galaxy believes its local experience and affordable prices will se- not take into account Galaxy’s Cotai Phase 2 casino project, adding cure it a niche and perhaps even an edge over foreign casino opera- “we believe the likelihood is high that over the next 9 to 12 months tors in the booming Macau tourism and gaming market. It’s perhaps Galaxy might bring in a partner to develop Cotai Phase 2,” though ironic, then, that the recent strong showing of the company’s share the partner will not necessarily be Harrah’s. Goldman Sachs does feel, price is based on speculation that it is close to securing a foreign stra- however, that by partnering with Harrah’s, Galaxy would receive a tegic partner. boost in branding its gaming operations, facilitating the realisation of Galaxy Entertainment Group is controlled by the family of Hong its mass market ambitions.

President Casino 48 53