Aug 2007 • MOP 30

Macau Bottlenecks The Walls Have Eyes Crown Revisited Out of Australia

Facilities to draw a new breed of visitor Changing Macau’s Profile

Aug 2007

Changing Macau’s Profile

Page 6 ~ Changing Macau’s Visitor Profile 4 Page 12 ~ Macau Development Bottlenecks 12 Page 19 ~ The Walls Have Eyes 18 Page 26 ~ Vendor Profile - Videobet 22 Page 28 ~ Destination Singapore 26 Page 32 ~ Crown Revisited 30 Page 34 ~ Riding Asia’s Slot Wave 32 Page 36 ~ Out of Australia 34 Page 40 ~ Regional Briefs 36 Page 42 ~ International Briefs 40 Page 4442 ~ Online Briefs Page 4644 ~ Going Global 45

2 3 4 Editorial

Changing Macau’s Profile

Sands Macao may have become the biggest table-gaming casino city. When Sands Macao opened, it had a slot to table ratio of 1.46, but in the world, and generates more gaming revenue than many coun- Venetian’s ratio at opening will be 5.06. High returns from putting in tries—last month, Inside Asian Gaming visited the Philippines (report more tables had previously discouraged investment in slot machines to appear in next issue), and while the various casinos were hives of in Macau, but the tide is clearly turning as both table and slot capacity activity, the entire country’s gaming revenue was less than half the show explosive growth, but wins per slot have remained steady while revenue of Sands Macao. wins per table have declined. The properties opening to date in Macau have concentrated pri- The capacity increase has boosted overall casino revenue, which marily on gambling. Sands Macao famously scaled back its high-end jumped 47.5% year-on-year in the first half of 2007 to US$4.7 billion. dining venues to make way for more tables and its 700-seat theatre The Venetian Macao opening could help drive revenue towards or has yet to stage a performance, over three years after Sands’ opening. even past the US$10 billion mark for the year. Wynn Macau closed down its Tryst nightclub, and plans to replace it Ever-bullish Las Vegas Sands Corp (LVS) says it expects full occu- with more VIP gaming space. MGM Mirage CEO Terry Lanni, mean- pancy at the 3,000 all-suite Venetian Macao soon after opening. Ac- while, told Inside Asian Gaming that MGM Grand Macau, scheduled to cording to LVS President William Weidner, occupancy is expected to open later this year, will not have any significant entertainment com- reach 85% to 95% about a month into business ponent, taking a “wait and see approach” to installing such facilities “We expect the hotel to be wall-to-wall by October,” said Mr once proven demand appears for them. Weidner, adding that the property isn’t targeting just gamblers, but The US$2.4 billion Venetian Macao, when it opens on August 28, other vacationers and business visitors as well, thus lengthening the will take the bold step of offering expansive and diversified entertain- duration of each stay. Visitors to Macau currently stay a mere 1.1 days ment, dining, retail and of course convention and exhibition facilities. on average, and increasing the length of stay would have an expo- It will give an important first indication of whether Macau can evolve nential impact on hotel demand and occupancy. into a diversified tourism hub in the Vegas mould, or will remain driv- Mr Weidner expects the average guest at Venetian Macao to stay en solely by hardcore gambling. three to four days, He also predicts the property will draw 40,000 visi- The new demographic of visitor drawn to Macau by the com- tors per day in its initial phase. In addition to the casino, the property ing wave of mega resorts will dramatically alter the tourism and also will feature 1.2 million sq. ft of convention and exhibition space, and gaming landscapes. Slot machines contributed a mere 4.2% of casino almost a million sq. ft of retail areas. Venetian Macao also boasts a revenue in Macau in the second quarter of 2006, compared to close to 15,000 seat stadium for staging sporting and entertainment specta- 70% in Vegas as a whole (and over 50% on the Strip). cles, and a 1,800-seat theatre, which will host a permanent Cirque du Macau’s slot revenue is already showing explosive percentage Soleil show from next year. growth as traditionally table-loving Chinese gamblers finally start Including Venetian Macao, LVS has a combined US$12 billion trusting and becoming familiar with gaming machines—slots made worth of investment in progress on Macau’s Cotai Strip. LVS plans to up a mere 0.8% of revenue in 2003. Hyperlinks and jackpots have stock Cotai with 20,000 high-end rooms in various hotels, along with proved especially popular with Chinese players seeking a big win. hundreds of restaurants and shops, a labyrinth of expo facilities and While slots will continue to consolidate their following among Chi- performance stages. nese players, the rise of gaming machines in Macau will be fuelled by Other operators also have big plans for Cotai, with Melco PBL the arrival of more international tourists, drawn by the mega resorts. Entertainment planning to unveil the US$2.47 billion City of Dreams “While Macau’s gaming market today is predominantly driven by complex by the end of 2008, and the US$2 billion Macao Studio City mainland China and Hong Kong, what will be interesting to see is the set to open in 2009. influence players from different countries will have on the market as Several bottlenecks stand in the way of the massive development the Venetian opening on Cotai drives an influx of convention visitors underway, as outlined on page 12, but once the mega resorts arrive to the city,” says Aristocrat General Manager Asia Pacific Ken Jolly (in- in Macau, the big money is betting that the new facilities will indeed terviewed on page 34 of this issue). draw a new breed of visitor to the city. The half-million sq. ft casino at Venetian Macao will devote a lot Kareem Jalal more of its floor space to slot machines than any other casino in the We crave your feedback. Please send your comments to [email protected]

Editor and Publisher Kareem Jalal

Inside Asian Gaming is published by Director Must Read Publications Ltd João Costeira Varela Suite 1907, AIA Tower, 215A-301 Av. Comercial de Macau - Macau Business Development Manager Tel: (853) 6646 0795 Ricardo Carvalho Operations Manager For subscription enquiries, please email [email protected] Jos Abecassis

For advertising enquiries, please email [email protected] Contributors Gavin Ho, Gary Pinge, Richard Marcus, Tom Skotnicki, Charles Anderer or call: (853) 6646 0795 Photography www.asgam.com Ike Graphic Designers Brenda Chao 5 Changing Macau’s Visitor Profile Macau’s tourism market is currently dominated by day-tripping gamblers. The Venetian Macao-Resort-Hotel will kickstart the push to extend the average length of stay, and draw a more diversified visitor demographic to the city. In his recent comprehensive report on Macau’s gaming industry, Macau Mania II—Battle Royale, CLSA’s Gavin Ho discusses the impact the opening of sprawling integrated resorts such as the Venetian, Macao Studio City and City of Dreams will have on Macau’s tourism and gaming market

One of the major differences between Importance of repeat travel in Las Vegas a Las Vegas and Macau casino property to- day is scale. While a typical property on the Las Vegas Strip would offer a variety of activi- ties and choices beyond gambling and lodg- ing (including fine dining, entertainment and shows, golf, spa and other resort activities), the basics are almost all that the Macau prop- erties have on offer presently. This could be part of the reason for the currently short visits to Macau; another is the much stronger affinity for gambling among the Chinese. An average visitor will spend 3.5 nights during a trip to Las Vegas; while more than 50% of Macau visitors are same-day travellers, and report an average stay of 1.2 nights per visit. With the opening of the 3,000-suite Ve- Source: Las Vegas Visitors and Convention Authority netian Macao on August 28, the IRs will soon prove if they are able to take Macau to the next level, as they did to Las Vegas in the To become another prominent gaming business. This complements the vacation and 1970s to 1990s. The next growth driver will and entertainment hub like Las Vegas, Macau holiday travel and helps fill the rooms during have to come from either expansion of mar- needs repeat travellers. Today, 82% of the Las weekdays and of course the casinos and oth- ket segment or extended visits by existing Vegas visitors are repeat travellers, and the er entertainment venues at night. Macau’s visitors, or both. results from our survey point to a similar 83% coming IRs will narrow the hotel occupancy To examine the first driver, we examined for Macau. To keep that ratio high, even Las gap between Macau (about 70%) and Las Ve- the statistics on China tourism, and found visi- Vegas needs to erect new and state-of- the- gas (about 90%), with convention and enter- tor growth to Macau has been rising at a faster art properties from time to time. tainment adding to the value proposition. Conventions are a major component of pace than China’s outbound travellers, indi- The pipeline of new IR launches will cating the territory is more and more an easy Las Vegas visitors and revenue, with six mil- sustain Macau for at least another decade. choice of destination for mainland visitors. lion delegates in 2006 accounting for 16% Another major back-up is China’s Individual New and modern casino properties have of total visitors to Las Vegas. Meanwhile the Visitor Scheme (IVS) that will continue to proved to be success formulas to stimulate US$8 billion economic impact brought about repeat travels. While we have witnessed a add additional cities to its coverage—which by conventions represent 21% of the total strong 24% year-on-year visitor growth in again has the potential to bring first time and visitor contribution, according to the Las Ve- the first quarter of 2006 after the opening of then repeat visitors to Macau. gas Conventions and Visitors Authority. Wynn Macau in September, Hong Kong visitor Las Vegas generated US$8 billion rev- growth (36%) surpassed growth of mainland The convention push enue from convention space of 6 million sq visitors (16%)—most, if not all, of the Hong Another key thrust in the historical de- ft. (This compares to 1.5 million sq. ft in Hong Kong visitors are repeat visitors to Macau. velopment of Las Vegas is the convention Kong.) While only Las Vegas Sands Corp (LVS) 6 China’s Individual Visitor Scheme has a good appetite for trade shows and convention business. Macau’s geographical location, entertainment and gaming com- ponents will make it one of the top choic- es in China for hosting events. Other than trade shows and conventions, Macau also has great appeal as a place to hold meetings and incentive trips because of its upcoming amenities and offerings, albeit still under development at the moment. Las Vegas brought in six million delegates in 2006; if Macau is able to eventually attract three million, with an average stay of three nights, nine million visitor-nights demand will be created, out of the 13 million visitor- night capacity from the 36,000 rooms that Source: CLSA Asia-Pacific Markets will be available over the next few years No other place can challenge Macau on has announced detailed plans for convention on neighbouring Hengqin Island in mainland gaming—six renowned local and interna- business in Macau, with 1.2 million sq. ft of China (located adjacent to the Cotai strip tional casino operators showcasing their convention and meeting space at the Vene- across a narrow stretch of water), and other best in more than 10 world class properties. tian, this is by no means the limit if the model operators are set to open facilities of their Entertainment and shopping are building works well in Macau. LVS has announced own even before Hengqin is developed. up. More than 70% of visitors to Las Vegas plans to build extensive convention facilities Being a large export economy, China attended some entertainment events, and

7 Macau same day travellers as % of total visitors Average nights of stay per visit

Source: Census and Statistics Services of Macau, Las Vegas Visitors and Covention Authority

China outbound travellers vs Macau visitor growth from mainland Oversupply of hotel rooms? According to the latest government statistics, Macau had 13,052 hotel rooms at the end of May this year, with an additional 24,000 rooms under construction and an- other 15,000 in the application pipeline. This represents a 299% increase. The 24,000 hotel rooms could come to the market over the next 3-4 years, while those in the application pipeline may come later. Using the 24,000 as incremental supply over a horizon of four years, it would require 29% compound annual growth rate (Cagr) in visitor arrivals to maintain the current 74% occupancy rate. However, the mix of same day and multi-day travel and the average Source: China Statistical Yearbook, Census and Statistics Services of Macau stay per visit could change this. For instance, a doubling of the average stay per visit from the current 1.2 nights to 2.4 nights (still be- on average they saw multiple shows during on the Cotai Strip. Deploying top artists in low Vegas’ 3.5 nights) would cut the required their visits. While this may not be the primary HK and Asia, this composite property will visitor growth by half. reason for visiting Las Vegas, entertainment boast 6 million (up to 6.6 million) sq. ft GFA Our sensitivity analysis shows that if inte- certainly gives it a big added attraction. comprising casino, hotels, apartments, retail grated resorts and convention models could This will also be a big driving force for and entertainment. Strategic partner New bring the multi-day travel percentage to 60%, Macau. While the Venetian Macao will fea- Cotai, LLC (a company led by the Las Vegas and average stay per visit to two nights, then ture Cirque de Soleil and City of Dreams and Macau gaming veteran David Fried- it would require 15% Cagr in visitor growth will host Dragone shows, local content en- man) and Capital Land of Singapore own till 2010 to get the rooms filled at 90% oc- tertainment should be a bigger excitement 40% and 20% respective stakes in the proj- cupancy. An interesting point to note is that to visitors from mainland China, Hong Kong ect. Taubman Asia will be the retail manage- while hotel occupancy was at an average of and the rest of Asia. Today top Hong Kong ment partner to the 1.4m sq. ft GFA shop- 74% in Macau in 1Q07, the Wynn Macau has artists could easily pull a full house con- ping space and Ritz Carlton and Marriott the been able to achieve 85%. cert in major cities in the mainland, with hotel-management partners. However, with the sudden supply of top-end tickets easily selling for Rmb1,000 Another major entertainment company 3,000 rooms from the Venetian Macau this (US$132). With Media Asia (a Lai Sun Group in HK, Emperor Entertainment Group also has year, soon to be followed by another 1,500 company) and Emperor Entertainment on its hotel casino flagship in Macau—Grand from Crown Macau, MGM and Grand Lisboa, the scene, Macau would not be short of ex- Emperor Hotel. While this is a property on a we anticipate some ramp-up time and will citing entertainment events. much smaller scale, Emperor Entertainment not be surprised to see some lower occu- eSun’s Macau Studio City will be a sig- could well deploy its talent across different pancy and/or promotional packages in the nature property, blending world-class infra- properties in Macau and enrich the enter- early days, starting from the latter half of structure and local content entertainment tainment scene. 2007. The impact, however, should be lim- 8 Room stock and hotel occupancy in Las Vegas ited on the hotel casino operators given the low share of non-gaming revenue (around 20%) in the Macau model.

Hengqin Island—A complement, not threat The day LVS announced its plans on Hengqin Island, its share price jumped 10%. While demonstrating how exciting the con- cept could be, it has also led to some con- cerns about whether the hospitality market in Macau might be cannibalised. Our view is that it should not. Hengqin Island has a lot of potential to be developed into a vast resort, entertainment and conven- Source: Las Vegas Visitors and Convention Authority tion area. Only 200 metres away from Cotai and under the jurisdiction of the Zhuhai mu- nicipality in Guangdong province, Henqgin Delegates and economic impacts from covention has a total land area of 86 sq. km, three times the size of Macau. But Macau will remain as the only region in China legalized for gaming. As gaming in the context of the Chinese mar- ket will account for the bulk of the revenue stream, Hengqin Island will be a complimen- tary extension of Macau for non-gaming ac- tivities, given the scarcity of land in Cotai and the Macau SAR in general. One of the criticisms about Macau’s transformation to the Las Vegas model is that it lacks the attractions to keep people for a multi-day itinerary. Hengqin will help address that. Other than presenting HK with all its attractions within an hour’s ferry ride, Macau will then also be able to offer visitors

Source: Las Vegas Visitors and Convention Authority a wide variety of recreational and resort fa- cilities, such as golf courses and spas, built on this large island just minutes away. The announcement from Las Vegas Sands New hotel room supply from 2007 stated that the Zhuhai Government has es- tablished a Project Coordination Committee specifically related to the Hengqin project in Zhuhai. The formation of a Project Coordina- tion Committee is a positive step forward, though the project remains subject to gov- ernmental approvals customary for projects of this scale in China. The Macau press also quoted a positive comment from the Zhuhai government, stat- ing it would give its full support to make this US$2 billion-plus convention and resort-fo- cused project happen as soon as possible. The inclusion of the Hengqin development in the agenda of the General Meeting of the Guang- dong Province last November also signalled the consent from the provincial government. Although LVS has taken the lead in an- Source: CLSA Asia-Pacific Markets nouncing plans on Hengqin, we understand 9 The experience with the Cotai Strip, where a lot of the land was granted in the early days, leaving little for oth- ers, could suggest to the authorities more thorough planning for Hengqin Island. The coming City of Dreams, pictured here, was one of the early projects to secure a plot on Cotai.

Rendering of Macao Studio City the other hotel-casino operators in Macau will unlikely appear over the next 3-5 years, are also talking to the Chinese government to thus allowing more time for planning. The participate in the Island’s development. By vir- experience with the Cotai Strip, where a lot tue of its size and current undeveloped state, of the land was granted in the early days, Hengqin offers lots of possibilities. However, leaving little for others, could suggest to we do not expect a swift decision as the proj- the authorities more thorough planning ect involves the higher-level provincial gov- for Hengqin Island. ernment, and may at some stage require the Notably, our earlier meeting with Macau approval of the central government as well. government officials reveals that instead Although on a longer term outlook the of seeing Hengqin as a threat or competi- 5 sq. km Cotai Strip would not be able to tion, they consider the development would accommodate the potential demand for offer possibilities for Macau to expand its entertainment and resort facilities from service industries and further integrate the the mainlanders, the capacity constraint two regions.

Hengqin Island

Source: CLSA Asia-Pacific Markets 10 11 Macau Development Bottlenecks Macau’s coming mega resorts will change the city’s gaming and tourism landscape, but in addition to worrying about potential overcapacity, investors also fear growth will be held back by several bottlenecks. Macquarie Securities Conglomerates and Gaming analyst Gary Pinge addresses the three major bottlenecks—labour, China’s infrastructure and Macau’s infrastructure Labour demand

Macau is facing a significant labour crisis through its casino-led boom. The la- bour pressure is being felt not only in the ca- sino industry (i.e., casino staff) but also in the construction industry. This has recently driv- en numerous casino operators to report cost blow-outs as they complete the construction of their casinos. For instance, Las Vegas Sands Corp (LVS) recently noted that the cost of construct- ing its properties on Cotai anchored by the soon-to-open US$2.4 billion Venetian Ma- cao, would increase by 40% to US$12 bil- lion. Similarly, Melco-PBL recently stated that construction costs for Crown Macau came in US$71 million above budget, while the mar- ket is awaiting a further update on cost over- runs at the City of Dreams project. Similarly, the pressure is being felt with regard to casino labour staff (particularly croupiers). Over the last 12–18 months, the raft of new casinos opening has increased the demand for experienced croupiers signif- icantly. The limited labour force, coupled with the restrictions placed by the Macau govern- ment on hiring non-residents, has driven the average wage cost of casino staff 26% higher in 2006 alone. Expected crunch The pressure on labour costs is not sur- prising given the demographics of Macau and its labour force. To gain some under- standing, Macau has a population of 520,000 with unemployment running at a historical low of 3.2% in the first quarter of 2007, when

12 Macau Development Average daily wages of construction workers Average monthly wages of dealers Bottlenecks Macau’s coming mega resorts will change the city’s gaming and tourism landscape, but in addition to worrying about potential overcapacity, investors also fear growth will be held back by several bottlenecks. Macquarie Securities Conglomerates and Gaming analyst Gary Pinge addresses the three major bottlenecks—labour, China’s infrastructure and Macau’s infrastructure

Labour demand Source: Macau census service, Macquarie Research, June 2007 Source: Macau census service, Macquarie Research, June 2007

a mere 9,300 workers out of an estimated further 55,000 dealers in the market by 2010. as free healthcare to the parents and families Macau is facing a significant labour workforce of 293,300 were without jobs. The This excludes general service and hospitality of the dealers in an effort to recruit. crisis through its casino-led boom. The la- run rate of employment has continued to staff, which we estimate could add demand With the tight labour market, the reli- bour pressure is being felt not only in the ca- track lower, driven largely by increased re- for a further 40-50,000. We expect that over ance of the Macanese government on gam- sino industry (i.e., casino staff) but also in the cruitment in the casino industry. The remain- 100,000 new employees (over a third of the ing revenues and the significant investment construction industry. This has recently driv- ing unemployed are so lacking in skills as to current workforce) could be required by 2010 being made by gaming operators, we be- en numerous casino operators to report cost be virtually unemployable. as the new casinos open. lieve that a change in government policy is blow-outs as they complete the construction With every gaming table needing 10–12 With the ever-increasing demand for inevitable. This should further be the case of their casinos. staff, we estimate that there are over 20,000 staff in Macau, it is of little surprise that sev- given recent citizen protests regarding work For instance, Las Vegas Sands Corp (LVS) dealers currently hired in Macau. We esti- eral casinos are complaining about staff be- conditions in Macau. These changes would recently noted that the cost of construct- mate that with a further 5,500 tables open- ing poached. Anecdotal evidence suggests be a significant positive driver of sentiment ing its properties on Cotai anchored by the ing, there would be potential demand for a that some casinos are giving incentives such for the sector. soon-to-open US$2.4 billion Venetian Ma- cao, would increase by 40% to US$12 bil- Macau’s labour force at ~ 100% participation rate lion. Similarly, Melco-PBL recently stated that construction costs for Crown Macau came in US$71 million above budget, while the mar- ket is awaiting a further update on cost over- runs at the City of Dreams project. Similarly, the pressure is being felt with regard to casino labour staff (particularly croupiers). Over the last 12–18 months, the raft of new casinos opening has increased the demand for experienced croupiers signif- icantly. The limited labour force, coupled with the restrictions placed by the Macau govern- ment on hiring non-residents, has driven the average wage cost of casino staff 26% higher in 2006 alone. Expected crunch The pressure on labour costs is not sur- prising given the demographics of Macau and its labour force. To gain some under- standing, Macau has a population of 520,000 with unemployment running at a historical low of 3.2% in the first quarter of 2007, when Source: Macau census service, Macquarie Research, June 2007 13 CHINA’A INFRASTRUCTURE

The current mainland Chinese traf- fic growth into Macau is driven primarily by one province—Guangdong. While Shanghai and Beijing are home to a significant pro- portion of the wealthier Chinese population who would look to travel to Macau, only a very small proportion do so currently. This is supported by statistics from the Hong Kong Tourism Bureau, which show that only 15% of Hong Kong’s mainland China tourism comes from Shanghai and Beijing, while over 60% comes from Guangdong. We expect the case would be similar for Macau. We believe that this is driven mainly by inadequate outbound tourism-based infra- structure in China. Looking at rail transpor- tation, the table on the next page shows the time it takes to travel from various provinces in China to the capital of Guangdong (the closest province to Macau). Generally, travel would take at least 12–26 hours. The considerable journey times, together with the quality of the current trains, would be a major discouraging factor for travel from many of the Chinese provinces into One of the next generation of Chinese trains Macau. This would be especially true for the compound annual growth rate of 11–12% in China (CAAC). This is occurring more at ma- wealthier mainland Chinese who would look passenger volume in recent years. The rapid jor hubs such as Beijing Capital International for ease, convenience and luxury in travel rise in aviation demand has put pressure on Airport (BCIA). Not only is the airport facility choice. capacity supply. operating at overcapacity, but airplane load Our infrastructure analyst Anderson Currently, 30% of Chinese airports are factors are also already over 70% on average. Chow, in his report, China Airports—Bigger is operating at overcapacity, according to the Furthermore, air space capacity limits the Better, said the Chinese airport industry saw a General Administration of Civil Aviation of number of flights that can come into many of the Chinese airports—China does not have an ‘open sky’ policy, so air space capacity is tightly controlled and influenced by the mili- tary. This can, often without warning, cause lengthy delays to departure and arrival times at different airports. Air space capacity, which is allocated by CAAC, can also constrain pas- senger growth for airports. For example, BCIA currently has air space capacity of 1,100 flights per day, but the actual aircraft movement was over 1,200 on a few occasions in the second half of 2006. We understand the limits are not strictly applied as long as safety standards are not compromised.

China’s infrastructure playing catch-up Recognising the significant constraints on travel and the pent-up demand, the Chi- nese government has indicated in its 11th A typical sleeper berth in a Chinese train

14 Five-Year Plan that it will be dedicating signif- Travel time by rail from Chinese provinces into Macau icant capital for infrastructure development to enhance inbound and outbound tourism. All of these projects will allow a greater proportion of the population to come to Ma- cau, certainly greater than currently available. However, with most of these projects sched- uled for completion by 2010, we believe that in the near term, infrastructure will be a con- straining factor for growth of Macau’s tour- ism industry. Some of the projects slated by the Chi- nese government include: • Railways: 17,000km of passenger railway lines from Beijing to Guangzhou to Shen- zhen, Zhengzhou to Xian, and Shijiazhuang to Taiyuan. China will build the high-speed railway between Beijing and Shanghai. • China will build 1,000km of light rail lines from Tianjin to Hebei, Yangtze River Delta Source: China Highlights & Macquarie Research, June 2007 and Pearl River Delta. trunk roads. By 2010, China will have 2.3m km secondary provincial cities. • Highways: The nationwide highway of new county and provincial roads, which will Additional airline capacity will also network will be completed by ensuring the include 65,000km of high-speed highways. come on-stream with the opening of Air following cities are linked from start to fin- • Airports: The Beijing, Shanghai and Asia Express. This discount airline, currently ish with new, high-speed highways: Beijing Guangzhou airports will be expanded. Over- in partnership with Air Macau, Shun Tak to Shanghai, Beijing to Fuzhou, and Beijing all, China’s 11th Five-Year Plan will see the to- and CNAC (China National Aviation Corpo- to Hong Kong and Macau. China will build tal number of airports increase from 142 to ration), will further mobilise tourists from village-to-village roads and provincial level 186. Most of the new airports will be built in farther away provinces.

MACAU’S INFRASTRUCTURE

The Macau government has worked Expansion of Macau International Airport expected by 2015 increasingly well to expand the capacity of each of its immigration gateways, in order to increase the capacity to bring people into the city. For instance, the Gongbei Gateway was upgraded in early 2006 and can now accommodate more than 200,000 visitors daily. In late 2007/early 2008, a second ferry terminal will be opened in Taipa to increase capacity for tourists wanting to enter in order to go to Cotai. But while the border point immigration gates have been upgraded, infrastructure within Macau remains a constraint. Ma- cau has not prepared well for the explosive growth in tourism within its borders, and this could hinder movement of tourists within the city. Specifically, we have looked at two statis- tics: Population per taxi and total vehicles per km of road in Macau. On both metrics, Macau registers significantly worse ratios than Sin- gapore or Hong Kong. To make things more Source: Macau International Airport & Macquarie Research, May 2007

15 Macau’s ratio of population to taxis is high Macau struggling on vehicles per km of road

Source: Country census service, Macquarie Research, June 2007 Source: Country census service, Macquarie Research, June 2007

complicated, Macau does not have a rail net- Hong Kong-Macau-Zhuhai bridge work to move tourists/citizens around. This substantially worsens the infrastructure issue within the city. With a number of new casino venues opening and with limited infrastructure within the Macau Peninsula and between Macau and Cotai, we expect that getting tourists around the island will remain a chal- lenge until infrastructure is built out. Infrastructure build-out In order to deliver on its goal of trans- forming Macau into an integrated resort destination, the Macau government has committed to building out infrastructure to improve the flow of tourists and traffic. The timing of many of these projects remains uncertain and, to some extent, increases the risk for the new venues if construction is not completed on time. Some of the projects that are current- ly being discussed or have been complet- ed include: • Macau second ferry terminal. This Source: Hopewell & Macquarie Research, May 2007 terminal is on the Cotai side (i.e., near The • Macau cross-harbour tunnel. Macau rent airport is reaching its design capacity Venetian and City of Dreams) and was com- currently has two one-lane bridges connect- with over 5 million tourists having transited pleted in early 2007. However, the ferry ser- ing the Macau Peninsula to Cotai and one through it in 2006. As such, there are plans vice connecting Hong Kong/Shenzhen to recently completed (typhoon proof) two- for a massive airport expansion to accommo- this terminal has not commenced with the lane bridge. However, to improve traffic flow, date 10 million passengers per year. The proj- main concession holder (Shun Tak) suggest- the government is proposing a tunnel to be ect is expected to cost HK$4 billion (US$513 ing it is unlikely to deploy ferries until de- completed by 2009/2010. million) and be completed by 2015. mand is sufficient. • Macau airport expansion. Macau’s cur- • Light Rail Transit System. This project

16 is currently in an evaluation phase but will cess. If it were to be put out for tender this involve the construction of a rail system that year, the estimated completion date would circles the Macau Peninsula, as well as a sepa- be 2012/2013. rate line that goes into Taipa and Cotai. In addition to the above projects, Shun • Hong Kong–Macau–Zhuhai bridge. Tak is establishing a discount air carrier in This project is still in its consultative stage, partnership with CNAC (China National Avia- Macau cureently has two one-lane but when completed, should cut the travel tion Corporation). The carrier will have land- bridges connecting the Macau Pen- time between Hong Kong and Macau by ing rights into Chinese cities. This will signifi- around half, from the current one hour by cantly improve the prospects for tourism into insula to Cotai and one recently com- high-speed ferry. We believe the project Macau from geographically farther away Chi- pleted (typhoon proof) two-lane bridge. has entered the final phase of the planning nese provinces and allow for a vast majority However, to improve traffic flow, the stage with the Chinese central government of China’s provinces to be within a 3–5 hour government is proposing a tunnel to be stepping in to speed up the decision pro- reach of Macau. completed by 2009/2010. Macau’s future infrastructure plans

Source: Colliers International, October 2006 17 18 The Walls Have Eyes Richard Marcus details a recent high-tech poker scam worthy of James Bond and Ocean’s Eleven

In the first week of June, eight mega- running parallel to the tournament. high rollers arrived in style at the ritzy Bor- But the most lucrative game of all was The allure up there The eight high rollers could not resist. gata Casino in Atlantic City. They were all high above the Borgata’s poker room, its ex- There was nothing better than an organized packing, loaded to the gills with cartridges istence revealed by two classy grifters who high-stakes private game. First, there was no of cash, and ready to attack the high-stakes carefully selected these eight high rollers to Texas hold ‘em games spread across the be their victims. One by one they told them rake to pay the casino. Then there was the floor of the Borgata’s giant poker room. of a super high-stakes cash game taking freedom for each high roller to do whatever Their plan was to fatten up their bankrolls place in a penthouse suite. The game was he liked between hands, unhindered by ca- and then invade the tables at Atlantic City’s open to those select players who had both sino regulations. That may have meant a richest poker tournament, the Borgata the requisite bankroll (at least $500,000 quick indulgence, a boost of narcotic energy Summer Open, which was to begin in two cash) and the good sense to keep their or even a visit from a high-priced call girl to weeks, with an entry fee of US$5,000 and a mouths shut—after all, high-stakes poker is relieve the tension. cool half-million going to the winner. There legal on the casino floor, but not in the hotel The suite was certainly large enough to would also be other lucrative side games rooms above it. satisfy each of the high rollers’ whims. But the 19 the action the way they did downstairs in the poker room. Even though the three ro- tating dealers hired for the game were legit, the cards they dealt were not. The tens, jacks, queens, kings and aces were marked. The two crooked players wore special contact lenses that allowed them to see the markings. Even if the eight intended victims suspected any of this in their wildest dreams, they would have had trouble imagining what was going on next-door. Next-door was not a fancy suite. It was a regular hotel room, but large enough to house the equipment needed by the other two cohorts, both high-tech geeks, to pull off the biggest poker scam of all-time. They huddled like cops working a stakeout in a van, surrounded by their high-tech arsenal. They had five laptop computers. On four of their screens appeared images of the players’ hole cards, each screen taking the feed from The Borgata Summer Poker Open a camera shifting between two hands at the greatest allure was the privacy of the game. were told that the casino had supplied ev- poker table next-door. And just in case peek- No onlookers. No curious eyes. No eyes that erything on the house because the suite had ing at their opponents’ hole cards wasn’t were more than curious—both those of lurk- been given to friends who were high rollers in enough of an advantage, the fifth computer ing criminals looking to part the high rollers the main casino with million-dollar credit lines. ran automated simulation programs adapted from their cash and IRS agents looking to Nothing was more believable in the big-time to poker probability. do the same in the name of the US govern- casino world. The game itself had been going The techies’ fingers scrambled over their ment. The federal currency law requires the on and off for weeks, the eight were told, but keyboards processing information, which reporting of any cash transaction of $10,000 several of its players had busted out and gone they transmitted back to their two cohorts at or more to the IRS—a major nuisance to broke. A new influx of cash was needed. The the poker table. The cohorts at the table wore high-stakes cash players. There is also its newcomers were glad to oblige. tiny, undetectable earpieces through which sister law that requires the reporting of the Another added sweetener to the big they received the information. Even when same amount of cash carried into or out of private game was room service. They could the techies could not furnish all their oppo- the United States. Players winning millions in order whatever they wanted whenever they nents’ hole cards, the cohorts at the table still cash in a private game can evade both the wanted it. During the course of play, every- had the advantage of being able to read the IRS and potential thieves. thing from pineapple boats, lobster tails and marked cards They also used key “team-up” Although the eight players were fa- bottles of Cristal champagne arrived with the playing strategies when they had to, careful miliar with luxury hotel suites, they had chime of the suite’s majestic doorbell. They not to overdo it as they already had a huge to notice that this one at the Borgata was poured the sparkling wine into Lalique crys- advantage going in. bathed in opulence. Extremely large, it was tal glasses and toasted and sipped between the plushest of the plush, used only for hands. One player even enjoyed a cham- Easy money super high rollers. Baroque double-doors pagne bubble bath with a pair of lovelies The four grifters had everything going opened into a marbled foyer underneath who had come into the suite during a break. their way. It was the perfect scam. The dealer a garish chandelier. Magnificent leather dealt another round. While their opponents and teak furnishings regally graced the Inside but out at the table carefully peeked at their hole beige velvet carpeting. The walls sported Everything ran according to plan. But like cards, the two cheats at the table paid close artworks encased in gold frames. The living in any international spy operation, not ev- attention to the soft voice in their ears. They room beyond boasted a regulation pool eryone was privy to the plan. In this case, it listened to the methodical report of the eight table, a Steinway piano and a mini-theatre was the eight high rollers who were left out players’ hole cards, even the ones that had with state-of-the-art sound system. in the cold, ignorant to what the other two been tossed in the muck as that knowledge Amidst this splendor sat a very ordinary players in the game were aware of. Embed- was still valuable information. It came across green-baized poker table with eleven chairs. ded in the room’s four walls, camouflaged like the recital of stock quotes: “Position- by artworks and strategic lighting, were tiny One, ace-king; Position-Two, pocket threes; Suspicions allayed cameras whose lenses zoomed in on the Position-Three…” They processed it quickly, Naturally, the eight players invited to the players’ hands as they picked up their hole added the marked cards that flashed in their game had some questions that needed an- cards. More often than not, the unsuspecting eyes, then made their decisions. They played swering before they would play: Who had set victims exposed them. They felt comfortable loosely, as they could afford to. They knew all this up? Who was paying for the suite? They as there were no “peeping toms” watching that the more hands they played, the quicker

20 they’d get their suckers’ money. Their plan was to fatten up their bankrolls Within hours the two cheats were and then invade the tables at Atlantic City’s ahead fifty grand. The stakes had started at $300/$600, then after an hour gone to richest poker tournament, the Borgata Sum- $500/$1,000. After two hours, they were mer Open, which was to begin in two weeks, $1,000/$2,000. The thieves had the money with an entry fee of US$5,000 and a cool half- to cover it; but more importantly, so did their million going to the winner. marks. All eight were packing large. Each had a hundred grand cash on his person, and hundreds of thousands more in safe deposit boxes in their hotel rooms or at the casino cage. A few had already made round-trips to fetch more cash. The grifters had told their marks that they had the suite at their dis- posal for the entire summer, which would have been true if they needed it. But it was expensive; they were secretly paying three grand a night to set up their marks in its lav- ish confines. They did not have the whole summer to burn on these unlucky pigeons. The victims would run out of money and leave Atlantic City without ever seeing the tournament. But what did the grifters care? There would be plenty more well-heeled suckers to take their places. If enough of them continued hitting the beachside gambling town, they would stay there all summer, maybe even into the fall. Who knew? All they did know was that this was their big score, the one that made hustling their entire lifetimes worth it. For the mastermind of the scam it was the ultimate risk, for he was the most well-known and respected anti-cheating consultant to the casino industry. Casinos worldwide had been paying him tens of thousands to teach them how to thwart cheaters. This guy wrote the books. He even authored a chapter on how people could protect themselves in high-stakes private games. Talk about the ultimate betrayal. So it had to be worth it. They would all get rich and then retire to a velvety white beach somewhere. Maybe Rio. Maybe Tahiti. Wher- ever, it would all be over, no regrets. Just bags of cash under the sun. And if ever they got too lavish and spent too much of their booty, there was always another palatial suite wait- ing for them in a hotel staging a major poker tournament. There was always the World Se- ries of Poker in Las Vegas, always more big ac- tion and suckers. Like a house of cards But something unforeseen was about to happen. The scam would soon come tum- bling down, though no sign of the end was yet evident at the poker table inside the posh suite. In fact, at the very moment the

21 scam was about to meet its demise, one of electronic equipment, the security lock on the tives eager for his lessons on how to protect the scammers was in the process of raking in next-door suite’s double-doors gave way, and their casinos from cheaters and thieves. a huge pot. Sweeping piles of gold-flecked into the living room crashed a dozen more The alleged mastermind’s name is Steve $500 chips and $5,000 packets of cash, the cops and guards waving their guns. Forte and I know him quite well. I was cer- winner gave his cohort a surreptitious glance tainly shocked to learn that he had been ac- with a barely perceptible smile. Busted cused of being at the helm of this ultra-tech In the room next-door, the second pair The high-tech cheating quartet was poker scam. It made headlines the world over, of scammers smiled deliciously as they busted. They hadn’t realized that one of their and descriptions of it evoked the exploits of watched their cohort on the screen stack the marks was not really a mark at all. Yes, he was James Bond and Ocean’s Eleven. regal chips and packets of cash into a tower- a poker player and had plans to enter the Only difference is that Bond and Ocean ing fortress on the table in front of him. But Borgata’s Summer Open tournament, but got away with it. suddenly their smiles disappeared. There was he also had recognized the mastermind be- the click of the keycard opening the lock to forehand and knew that he’d been busted in Richard Marcus, a former baccarat dealer and their room from the corridor. It took them that same casino town two decades earlier. recognized authority on numerous aspects a second or two to comprehend, and in the His crime that time had been switching in a of Asian gambling and cheating, now offers next second they realized with desperate “cooler” on a blackjack game, which meant detailed training and seminars to casino staff, relief that they had bolted the security lock switching in a shoe filled with prearranged including dealers, floor personnel and surveil- shut. No way could anyone come crashing cards to take off the casino. The dealer had lance. His engaging and authoritative insights through the door. been in on that scam and testified. The mas- have been featured at The World Game Protec- But that’s exactly what happened. The termind ended up doing a two-month stint tion Conference, the Asian Casino Executives security lock collapsed under the prying of in the slammer, then managed to turn his Summit, the Peru Gaming Show as well as a special tool. In poured a dozen New Jersey misfortune into a successful career as the many international TV segments about casino State police officers and Borgata security men, world’s numero-uno casino anti-cheating surveillance and the armies of cheaters who some with guns drawn. Before the first wave consultant. He has since conducted numer- battle against it. http://www.richardmarcus- entered the room and got a gander at all the ous seminars for casino surveillance execu- books.com/protection.htm

Texas Hold ‘Em is the most popular form of poker world- else has access to their deposited funds and the player simply wide, at both casinos and on the Internet. The game has been visits the cashier desk, provides identification, and a new card brought to Macau casino players for the first time by Galaxy will be instantly printed. The advantages for casino operators Entertainment Group at its flagship StarWorld Casino. using the PokerPro™ tables include faster play (50-60% faster, Hold ‘Em at the StarWorld is available on the third floor according to Aristocrat)—and hence more revenue—and re- at four PokerPro™ tables—the world’s first fully automatd duced labor costs because human dealers are not needed. poker tables, manufactured by PokerTek™ and distributed by Aristocrat Leisure. The 10-seat PokerPro™ tables feature a touchscreen at each seat for players to see their chip stacks A full poker room system PokerPro™ offers casinos a full poker room system in- and hole cards, and to make their bets. There is an additional, larger, touchscreen in the middle for all players to see the pot corporating a waitlist system, extensive reporting and player and community cards. tracking utilities, a customer management system, and wire- The PokerPro™ tables are completely chip free, so players less floor manager’s tablet controlling all tables. need not worry about their chips being In addition to Texas hold ‘Em, a range of other games misplaced or pilfered. Players flip can be played at PokerPro™ tables, includ- the edges of their digital hole ing Omaha Hi/Lo and Omaha Hi. cards by touching the No limit, Pot Limit and Limit screen at their seat, and variants are available for can use their palms each, as are single-ta- to shield their cards ble and multi-table from prying eyes. The tournaments. poker scam detailed A two - seat above, involving cam- variant of the eras spying on hole cards table, dubbed Pok- held up by players could erPro Heads-Up™, is also likely not have been perpetrated available, offering players a fast if the players were sat at a PokerPro™ table, with the only view of the cards available from paced head-to-head alternative to the above the individual players’ seats. 10-seat game. StarWorld also has two PokerPro™ also protects the money in PokerPro Heads-Up™ tables, with one cur- players’ accounts with a personalized 4-digit PIN and rently in use on the first floor, offering tutorials photo identification. If a player ever loses their card, no one to players in “free play” mode. Hold ‘Em Heads-Up Hold ‘Em

22 23 2624 2525 Life Changing Link Videobet offers players at land-based casinos access to huge online jackpots

L eading server-based gaming solutions provider Videobet recently announced it will provide land-based casinos the ability to offer players progressive games with links to huge online progres- sive jackpots. Videobet, a subsidiary of Playtech, the world’s largest publicly traded online gaming software supplier, will use Playtech’s unique online WinAJackpot.com network to give land-based opera- tors the ability to offer the “life changing” jackpots previously only available at online casinos. WinAJackpot is a progressive game network designed to broaden the appeal of hit progressive jackpot games and generate additional traffic for its clients. Videobet players can choose from 8 progressive jackpot games—including video poker and video slots like Cinerama, Fruitmania, Safe Cracker and more—featuring multiple bonus stages and offering millions of dollars in prize money. One of WinAJackpot’s popular games, Beach Life, recently paid out a multiple multimillion dollar jackpot totaling US$4,801,507. Videobet’s link to the WinAJackpot network uses patented tech- nology to deliver the industry’s first integration of online and land- based progressive jackpots. With minimal setup costs, land-based operators will be able to connect their players to a network of mil- lions of online players —all playing for the same huge progressive jackpots.

More on Videobet Videobet designs, develops and deploys complete cutting-edge solutions for the land-based gaming industry. With its connection to Playtech, Videobet brings a strong background in online gaming to the server-based gaming market. The Videobet gaming system, already installed in server-based configurations throughout Europe and South America, has proven a hit in a wide range of sectors. Videobet offers a dynamic portfolio that includes a huge range of downloadable content supported by multiple RNG (Random Num- ber Generation) levels and system configurations. Videobet has also developed live game video broadcasting and a real-time back office called the MCS which provides operators with unparalleled control down to each terminal. Videobet works closely with customers to im- prove its systems and tailor them precisely to the customers’ needs.

Games Videobet’s games package provides large-scale operations with the perfect tool to attract a diverse customer base. Operators ben- efit from a wide range of games providing entertainment for every gaming taste through a suite of assorted table games, video poker, video slots, progressive jackpots, live games, FOBTs and Real Time 3D games. Each Videobet game is created to allow for maximum flexibility and operator control through various configuration options such as games’ paytables, limits and denominations. Just a few of the addi- tional configuration possibilities include casino branding, a games menu that can be modified to cater to a variety of target audiences through dynamic marketing promotions, and a customizable display.

26 Vendor Profile

All games are developed following thorough market research, and feature the latest animation and sound technology, game history, dual screen modes and an optimized touchscreen interface in addi- tion to bonus and multiply-win levels.

MCS The core of the Videobet Gaming System is the Monitoring and Control System (MCS), a fully integrated data backend system which optimizes the day-to-day management of an operation. The MCS en- ables remote configuration of individual terminals—a big advantage for large-scale, multi-site operations looking for maximized perfor- mance from each terminal. Additional advantages include dynamic game and promotional scheduling to customize terminals to target audiences, comprehensive reporting, optimized operator controls, real-time alerts, and hierarchy geographic structure navigation.

Asia’s promise The server-based gaming market in Asia holds huge potential and is in a constant state of development, with exponential growth in demand for server-based terminals in places like Macau and Singa- pore. Videobet has focused its efforts on capitalizing on this lucrative market and built a suite of unique Asian-oriented server based games that integrates live games, table games and video slots. Among the highlights of Videobet’s Asian games package are live games which recreate the thrill of the casino experience, transporting it directly into the terminals via a live video stream featuring real deal- ers at actual casino tables. Player bets, which are transmitted to the live dealer, initiate instantaneous dealer-action such as dealing the cards or spinning the wheel in order to determine the outcome of the bet. The player can chat directly with the dealer via a touchscreen keyboard or even tip the dealer to enhance the live gaming experience. “We initiated development of our live games concept after thor- ough market research showed that Asian players found live games highly attractive and more personal when compared to other types of games”, said Videobet CEO Shmuel Weiss. “The Videobet live games suite offers Live Roulette, with Live Baccarat currently under develop- ment. Additional games finding success in the Asian market include Baccarat and Asian themed video slots such as Chinese Kitchen. Each of the Asian games was built in hand with local Asian gaming enthu- siasts to create a suite of games that have been tailored to suit the Asian gaming style and preferences.”

27 Destination Singapore

Despite distractions, increased construction costs and ongoing concerns about long-term success, both Las Vegas Sands and Genting International have progressed on their massive US$3 billion resort projects in Singapore

Squeaky-clean Singapore is on track to up with partners affiliated with Singapore Marina Bay resort, a track record in attract- unveil the world’s most expensive casino-re- state investor Temasek Holdings on their ing all segments of visitors, and no prob- sort in 2009. Its low gaming tax rate and es- bids—Harrah’s with Keppel Land and MGM lems with probity. tablished international air connectivity could Mirage with CapitaLand. The odds of LVS win- Monaghan was among the minority of see the city long renowned for its ban on ning the bid were seen as having plunged analysts who realized the Singapore govern- chewing gum emerge as one of Asia’s lead- after the withdrawal of its proposed equity ment would choose the bidder offering the ing gaming and convention hubs. partner, Singapore property firm City Devel- greatest long-term value to Singapore than Las Vegas Sands Corp (LVS) won the bid opments Ltd. one with a Temasek-link, and ahead of the to build and operate a casino at Marina Bay, By choosing LVS over one of the Temas- announcement had tipped LVS as the favor- the first of Singapore’s two planned casino- ek-linked bidders, Merrill Lynch analyst Sean ite according to these criteria. centered integrated resorts (IRs), in May last Monaghan said the Singapore government year. The ever-efficient city-state reversed its showed a sense of accountability missing in A MICE edge four-decade ban on casino gaming in April many other nations in both Asia and the rest Las Vegas Sands Chairman Sheldon Adel- 2005, and released its draft casino regulation of the world, where lesser bidders are often son highlighted his company’s edge in the bill six months later, paving the way for the able to secure contracts by marshalling po- Marina Bay bidding in April 2006, when he opening of bids for the Marina Bay site in No- litical influence. said that conventions, rather than gambling vember that year. The Singapore government had listed machines, will be the biggest tourist draw for The selection of LVS surprised many who the selection criteria for the operator of the Singapore. Adelson founded the Computer believed that companies submitting joint Marina Bay resort as knowledge of Asia, a Dealers Exposition (Comdex), and made it bids with government-linked local property proven track record in the meetings, incen- the most successful trade show the world developers were much more likely to win. tives, conventions and exhibitions (MICE) has ever seen—during its peak in the 1990s, LVS’ Vegas-based rivals, Harrah’s Entertain- business, experience developing proper- Comdex drew 2,480 exhibitors and 212,000 ment Inc and MGM Mirage, had both teamed ties of the scale and quality of the planned attendees each year to Las Vegas. 28 The Marina Bay Sands will have around The theme park at Genting’s Resorts World at Sentosa will feature 22 attractions, 1.2 million square feet of convention and ex- with 15 designed specifically for Singapore, along with an animation studio. The hibition space, giving Singapore the largest installed base of expo space in the region. theme park will take up roughly half of the site. The resort will have 1,830 rooms in In addition, LVS is set to unveil 1.2 million six hotels and the world’s largest marine park, spanning 20 acres and including a square feet of expo space at its Venetian whale shark lagoon. Macau casino resort on August 28, and has already announced plans to raise its expo space in Macau to 2.4 million square feet. This will give the company a dominant position in the burgeoning Asian MICE sector. The Marina Bay Sands will also feature 2,500 hotel rooms, a 1 million-square-foot re- tail mall, and a 200,000-square-foot arts and sciences museum. With these plans in hand, LVS broke ground on the property in February, and immediately ran into some well-publicized problems. To start, the groundbreaking itself had been delayed for about three months in order to clear embedded rocks found at the site. Then soon after the project’s construc- tion start, Indonesia imposed a ban on sand exports, pushing up the cost of importing the vital construction material—a major compo- nent of concrete—by 15 to 30 percent. Despite the additional cost and time delays, LVS President and COO William Weidner said the Marina Bay Sands will be completed by the original target of 2009. LVS Chairman and CEO Sheldon Adelson said the greater cost of importing sand would not affect the project’s US$3.6 billion budget, because “we always include a 5 to 10 percent increase in the budget as con- tingency for unforeseen events.” Still, by the time it opens in 2009, Marina Bay Sands will likely become the most ex- pensive casino resort ever developed. Island hopping Despite fielding a proposal that some criticized as “uninspired,” Genting Interna- tional was the odds-on favorite to win the bid for the second IR, to be located on a 49- hectare waterfront site on the island of Sen- tosa—which means “peace and tranquility” in Malay. The island is connected to the main- land by a 710-meter causeway. In December 2006, Genting did indeed emerge as the license winner by meeting the government’s criteria for the site — namely, tourism appeal, design, level of investment and strength of the bidding consortium and partners. Genting provided “the most compelling proposal overall that best meets our eco- nomic and tourism objectives,” said Deputy Prime Minister S. Jayakumar. “In particular, the 29 proposal reflects our vision for the Sentosa integrated resort as a large-scale family re- sort with its host of world-class family leisure activities and other strong offerings.” Each of the bids for the Sentosa Island license exceeded US$3 billion, suggesting the contenders saw significant potential in the site. Genting’s proposal was worth US$3.4 billion, and included a Universal Stu- dios theme park. The theme park at Genting’s Resorts World at Sentosa will feature 22 attractions, with 15 designed specifically for Singapore, along with an animation studio. The theme park will take up roughly half of the site. The resort will have 1,830 rooms in six hotels and the world’s largest marine park, spanning 20 acres and including a whale shark lagoon. It will also have meeting facilities, retail stores and a 1,600-seat theatre for a resident show produced by members of the creative team behind Cirque du Soleil. Although Genting International eventu- ally won the Sentosa Island integrated resort rights, the project has not been devoid of controversy. Genting had submitted its win- ning bid with cruise-operator Star Cruises Ltd, which is also part of the Genting Group. Genting International has since assumed full control over the Sentosa project in order to avoid issues with Singapore authorities. Rendering of the ArtScience Museum at Marina Bay Sands The reason for the change: Following the awarding of the Sentosa bid, Genting Inter- rector David Green pointed out that Singa- national and Star Cruises had announced a pore will have a major chip in its corner—a planned casino project in Macau with Stan- much lower gaming tax rate than neighbor- ley Ho. Pro-government Singapore daily ing casino jurisdictions. The gaming tax rate Straits Times reported that the deal with Ho in Singapore will be 15 percent, but the rate had “raised a red flag” with Singapore author- on “premium” play, including high-rollers and ities, given Ho’s alleged links to organized players brought in by junkets, will only be 5 crime groups—even though the allegations percent. Neither Malaysia nor Macau offers have never been proven. As a quick-fix, Star separate rates for “premium” play, and tax Cruises announced in March that it would gaming revenue at 28 percent and 39 per- take over Genting International’s stake in the cent respectively. Macau project, while Genting International Green said Singapore’s explanation for would assume Star’s entire stake in the Sen- offering the split is the higher cost of bring- tosa project. ing in premium players, but of course, the re- sult is that operators of Singapore’s coming Macau challenge casinos will have the flexibility to offer higher The consensus view is that gaming rev- commissions and greater incentives to draw enues in Singapore will only ever be a frac- junket operators and premium players. tion of those in Macau, which is likely to hold The “premium” play drawn by Singapore greater appeal to the massive mainland will likely have a greater impact on casino Chinese market, not only because of greater operators in Macau with U.S. interests, than geographical proximity (a billion people live the “local” operators. Las Vegas-based LVS within a three hour flight from Macau, com- and Wynn Resorts need to ensure all junket Genting International Chairman Lim Kok Thay pared to 550 million people from Singapore), operators they work with are registered with stands in from of a model of ResortsWorld at but also cultural affiliation. Nevada gaming regulators. As such, while Sentosa shortly after his company won the Despite this disadvantage, Pricewater- the “locals”—Stanley Ho and Hong Kong- rights to develop in Singapore last December houseCoopers (Macau) Gaming Practice Di- listed Galaxy Entertainment Group—depend

30 Friendship Avenue and on the Cotai Strip (of reclaimed land between Taipa and Coloane islands). “A whole strip will have more attrac- tion than two isolated resorts,” said Green. “In Vegas, people tend to walk the strip. They might have a drink somewhere, eat some- where else, and play somewhere else. Go to a show. There’s no doubt that a strip of proper- ties is going to be a lot more attractive than standalone properties.” What Singapore lacks is “stickability.” Green explained. “People are either in transit, or stay for a short time. There’s not a whole lot to do.” Singapore’s share of the Asia pacif- Rendering of Genting’s Resorts World at Sentosa ic travel market is declining. Tourists coming mainly on junket operators from Southern Green also pointed out that Singapore into Singapore stay an average of three days, China for their VIP business, LVS and Wynn could, however, give Macau a run for its from four days in 1991, and compared to four primarily work with junket operators from MICE money. While Macau currently suffers days in Hong Kong, five days in London and the rest of Southeast Asia—including Ma- from limited air connectivity, Singapore is a almost a week in New York. Still, Singapore laysia, Thailand and Indonesia—rather than global-crossroads for air traffic, and is also an has more stickability, for the moment at least, mainland China, where gambling debts are appealing MICE destination because of its than Macau. Only around 20 percent of visi- not legally enforceable. MGM MIRAGE will be stable, crime-free environment. tors to Macau stay overnight, and they aver- similarly restricted, as will the Melco-PBL joint A major MICE business needs visitors age just 1.2 nights in the city. venture, given PBL’s U.S. interests. Southeast from beyond China, observed Green. “The Casinos are part of the Singapore gov- Asian junkets may in future favor Singapore conventions business in China is very under- ernment’s plan to increase the city-state’s both for proximity and higher commissions developed. I would doubt very much that you stickability and double visitor arrivals to 17 enabled by the lower tax rate. could make a lot of money running a MICE million and triple annual tourism revenue Green said Singapore’s effect on Macau business just based on China,” he explained. to S$30 billion (US$18 billion) over the ten might be great because of its lower gaming And in any case, “by the time people are afflu- years. If Singapore doesn’t achieve those tax rate. Singapore also holds an appeal to ent enough to be operating conventions like goals, perhaps it will look at awarding more mainland Chinese—it is the third most popu- that, they’ll start to look further afield.” casino licenses once the ten-year morato- lar outbound destination for Chinese tourists “Conventions may move to the biggest rium on further licenses lapses. after Hong Kong and Macau – the latter two and greatest for a while, but there’s a finite Singapore’s initial two IRs will be impres- are special administrative regions of main- group of conventioneers and a finite market sive, but at least three or four locations are land China and are accessible by land from for conventions,” Green added. “The other needed before critical mass emerges, and major mainland population centers. place that’s doing it is Dubai. I wouldn’t dis- Macau has a big head start in this regard. Still, Green echoed the consensus view count Dubai either as a potential source of that Macau will remain Asia’s pre-eminent competition for the MICE business here.” This article, by Kareem Jalal, editor and gaming destination. He also added that he Macau’s edge over Singapore is that it publisher of Inside Asian Gaming, originally did not believe Singapore would allow profit will have a lot more critical mass, with a string appeared in International Gaming and Wa- share between casinos and VIP room/junket of casinos and resorts present or under de- gering Business (IGWB) magazine. Reprinted operators, as allowed in Macau. velopment on the Macau peninsula along with permission from IGWB.

Rendering of the Marina Bay Sands

31 Ying Chinese restaurant Crown Revisited With its hotel rooms and VIP salons now fully operational, Crown Macau has the potential to become a serious contender in Macau’s increasingly competitive VIP gaming market

Just about every new casino opening while Wynn Macau has 600 rooms. Crown to “to get a feel of what we’re aspiring to be.” is accompanied by claims that the property Macau CEO Greg Hawkins explains “we are Apart from the spa (on levels 15 and 16) sets news standards in the market. In the case trying to position ourselves as more bou- and dining, Crown Macau has no entertain- of Crown Macau, that claim is justified. tique, more personal.” ment or retail offerings, focusing instead As discussed in earlier issues of Inside High-end dining is available on levels 10 on providing an exceptional VIP gaming Asian Gaming, the stock price of Crown Ma- and 11. One of the signature restaurants is a experience. cau operator Melco PBL Entertainment took branch of Tokyo’s exclusive Tenmasa tempura Particularly impressive were the three a tumble when the six-star facility opened restaurant, where the family of Macau casino deluxe VIP rooms—dubbed “super salons” by before its VIP and hotel rooms were opera- tycoon Stanley Ho—including son Lawrence, Crown—on level 37 (directly below the ho- tional. As of 14 July, however, all 216 hotel who runs Melco—regularly dine. tel lobby on the top floor). The super salons rooms, four signature restaurants, a buffet are available to players bringing front money restaurant, noodle bar and world-class spa Ready to be rated of HK$30 million (US$3.85 million), and are were up and running. The market has already punished Melco frankly the best-looking such facilities IAG Crown’s relatively small number of ho- PBL for opening Crown before the vital VIP fa- has seen. tel rooms (including 8 villas and 12 suites), cilities were ready. Now that they are, Crown Crown declined to provide IAG pictures stands in contrast to other new casino prop- Macau CEO Greg Hawkins took Inside Asian of the super salons for publication, “in order erties. Venetian Macao boasts 3,000 suites, Gaming on an extensive tour of the property that the exclusivity of the area be main- 32 tained.” Fair enough, perhaps, given it could be one of the property’s key competitive advantages. The super salons are intended primarily for direct customers, and are part of Crown’s plan to cut out the junket operators who currently deliver the bulk of high-rollers to Macau’s casinos. In addition to having access to the super salons, Mr Hawkins believes many high-roll- ers will prefer to come to Crown directly rath- er than via junkets in order to enjoy “more of a seamless experience.” According to Mr Hawkins, customers “at the very top end of the market, in my experi- Swimming pool ence, like to have more of a direct relation- ship with the operator.” we enter into contracts with are capable of draw the region’s high-rollers to the prop- While junkets might offer higher commis- providing significant volumes of business. If erty, now that the facilities are ready. Mr sion rates, the cream of the high-roller crop a fixed operator has a fixed room available Hawkins claims occupancy has already “are potentially less fussed about a percent- to them, and their business is poor, we need reached as high as 90% on the weekends, age point difference in what they’re earning. to have the ability to move them on if the and expects it will reach 100% in the near A lot of these guys like a personal direct ex- business is not there.” Still, Mr Hawkins adds: future. perience and are prepared to pay a bit more One of Crown’s purported disadvantages for that premium level of direct service, in- “We’ll probably look at doing some more is its location on Taipa Island, away from the stead of going through a middle man. You’re conversion works to add a couple of other dealing with the operator and the team who fixed operator spaces.” current hub of mass-market gaming activ- know you well and directly, instead of a third Crown currently has around 70 VIP tables ity on the Macau Peninsula, especially along party who is liaising on your behalf.” operating, with plans to shortly raise that fig- Friendship Avenue, where Sands, Galaxy’s Mr Hawkins continues: “That’s why the ure to 80 (the complex includes an additional StarWorld, Wynn and the new and old Lis- sales team is very important. A lot of these 142 mass-market tables and 550 electronic boas sit. level players have a direct and loyal relation- gaming machines). Around 49 of the 80 VIP Friendship Avenue is adjacent to the cur- ship with a sales person.” tables will be earmarked for direct customers, rent ferry terminal, through which about 35% That’s not to say Crown will not work with including the tables on level 9, which “bal- of visitors to Macau arrive. The other main junket or VIP room operators, with level 8 de- ances some communal areas with a number point of entry, the land border with Zhuhai, signed specifically to provide space for fixed- of breakout salons around.” is about twice as far from Crown as it is from room operators. Crown currently works with Friendship Avenue. five fixed-room operators, with a sixth about Better days ahead Only 5.5% of visitors arrive by air, with the to start soon. Mr Hawkins says “our approach The Crown International marketing airport located on Taipa. Arrivals by air could with fixed operators is to make sure those network has only just begun its efforts to rise considerably following the airport ex- pansion (detailed on page 16) and opening of mega resorts drawing more international tourists to the city. When Venetian Macao opens later this month on the Cotai Strip, next to Taipa, it “could drive traffic south from Macau, which from our point of view is not such a bad thing,” points out Mr Hawkins. Crown’s location will also be bolstered by the opening of the Pac On New Ferry Termi- nal (pictured in the map on page 17), which is expected to take over from the existing terminal on the Macau Peninsula as the main port of entry for visitors arriving by sea from Hong Kong. Crown shuttle buses will be waiting out- side Pac On to take customers “just down the road” to Crown’s mass market tables. So while Crown stresses it is first and foremost a VIP gaming facility, the main hall should not be Entrance to level 9 VIP gaming area discounted just yet. 33 Riding Asia’s Slot Wave Australian slot machine manufacturer Aristocrat Technologies has established market dominance in Macau and much of Asia by working to develop products that are “more suitable and more sensitive to local markets,” according to Aristocrat General Manager Asia Pacific Ken Jolly

When Inside Asian Gaming started order to “look more like a casino.” covering Macau’s gaming market in 2005, the Although tables still dominate Macau ca- drafter of the city’s gaming legislation, Jorge sino revenue, slot earnings are showing ex- Oliveira, described slot machines as “mere plosive growth, and machines are taking up a decorative elements,” and predicted casino greater proportion of the casino floor. operators would be reluctant to invest in ma- When Sands Macao opened in May 2004, chines, given the much higher returns to be it had 277 tables and around 405 slot ma- derived from putting in more gaming tables. chines (a slot to table ratio of 1.46). Wynn At the time, the city’s string of trendy Macau opened in September last year with Mocha Slot clubs were slowly gaining in 200 tables and 350 slots (a ratio of 1.75). popularity, with founder Lawrence Ho de- Large casinos in the US often have fewer termined to make slots—known as “hungry than 100 tables but thousands of slots, with tigers” in the local Cantonese dialect—more the bulk of US casino revenue deriving from popular among Chinese players. Mr Ho slots. Las Vegas Sands Corp’s Venetian Macao, claimed that before he launched Mocha in when it opens later this month, will not only 850 tables and 4,300 gaming machines, but 2003, the city’s casinos only installed slots in become the biggest casino in the world with with its 5.06 slot to table ratio, will increase Macau’s slot count by over 50%. MGM Grand Macau will be unveiled to- wards the end of the year, and while it will not match Venetian’s slot ratio, with 300 tables and 1,000 slots, it will have well over twice as many slots per table as Las Vegas Sands Corp’s preceding property, Sands Ma- cao, featured at its opening. Macau had 8,234 slot machines at the end of the first half of this year, but analysts predict the city will have as many as 50,000 new slots by 2010. On the Cotai Strip alone, Las Vegas Sands Corp plans to add 16,000 slot machines in the next decade as it builds out seven different hotel sites. Asian appeal Aristocrat Technologies is benefiting most from Macau’s slot boom, with over 45% market share in the city as a whole and pro- viding more machines to the soon-to-open Venetian than any other manufacturer. Aristocrat is the world’s second largest supplier of slot machines, after IGT, but has the market share lead in casinos and slots

34 Past and future performers The Cash Express jackpot game and Jackpot Carnival clown theme are Aristo- crat’s most successful linked products in Macau. Other consistent earners in the mar- ketplace include 5 Dragons, 50 Dragons and Choy Sun Doa. “Also, we’re trying to bring in other themes in the jackpot products to suit the market,” reveals Mr Jolly. “For instance, Gold- en Goals, the soccer-themed game, suits Asia, where soccer’s a very big game.” Among the recently released Aristocrat products Mr Jolly believes could prove suc- cessful in the market are 5 Koi, “a game with beautiful art,” and the 100 line games. Other potential hit products which only started clubs in Australia and much of Asia, includ- here, including Water Margin, Monkey Chal- rolling out last month include Cheeky Mon- ing the Philippines, Malaysia, and Singapore, lenge, and 50 dragons, that were released key and Spring Festival. Aristocrat is also wait- in addition to Macau. first in Macau, and on the back of the success ing for approval from Macau gaming regula- There are differences between the vari- here we’ve taken them into some other mar- tors to release Mr Woo, a game with lots of ous Asian jurisdictions, however. While hy- kets,” points out Mr Jolly. exciting bonus features. perlinks have done tremendously well in Macau, they are not available in Singapore due to regulations there. Aristocrat Gen- eral Manager Asia Pacific Ken Jolly expects those regulations will soon change as the city’s first proper casinos become opera- tional from 2009. Singapore currently has around 100 slot clubs with a combined 2,000 machines. Mr Jolly puts his company’s success down to focusing “our R&D efforts on producing good games that roll out around the world, and produce good results. We’ve been fortu- nate with our jackpot range of products and hyperlinks over the last decade, and that’s given us a lot of dominance globally.” Jackpots and hyperlinks perform par- ticularly well in Macau, which is still a rela- tively immature slot market—as recently as 2003, all of Macau had fewer than 1,000 slot machines. In more mature slot markets, such as Australia, “people are looking more for en- tertainment. They would probably be look- ing for smaller wins over a longer period of time, whereas in a market where players like to gamble, they are more inclined to put on bigger bets for a bigger win,” explains Mr Jol- ly. In Macau, by contrast, “players are looking for a bit more of a win, rather than a flutter.” Still, Mr Jolly adds that “the good games that Aristocrat has in this [the Macau] market, are coming up as the good games in other mar- kets as well.” Aristocrat has chosen Macau as the launching pad for several new games. “For in- stance, last year we brought out some games 35 “PBL is now a higher-return, higher-risk The investment has since proven a god- Once the direction James Packer in- proposition,” Atul Lele of White Funds Man- send, however. Publishing & Broadcasting’s tended on taking PBL became apparent, agement told The AGE newspaper. “If you gaming division, which includes Crown Ca- speculation arose that various non-gaming look down a few years, PBL Gaming is up for sino and Perth’s Burswood Casino (added in businesses within PBL were on the block. a lot of development costs, and people will 2005), generates yearly EBITDA of A$523 mil- These assumptions became reality last Octo- be wary of any blow-outs.” lion (US$445 million), up from A$300 million ber, when PBL sold 50% of Nine Network to This strategy is a departure from the one the group generated in 2003. From modest investment group CVC Asia Pacific for A$4.5 that made PBL one of the largest and most beginnings, the gaming division became billion (US$3.8 billion). In May, Packer an- successful companies in Australia, and Kerry the highest grossing business within PBL’s nounced his intention to split PBL into two Packer a rich and powerful business icon in vast empire, and the relatively predictable distinct operating entities—Crown Limited, his own backyard. The basis of the Packer earnings of these Australian casino assets which would oversee the company’s gaming fortune was the publishing empire estab- will provide the long-term cashflow to fund interests, and Consolidated Media Holdings, lished by Kerry’s father, Sir Frank Packer, who James Packer’s global gaming aspirations. which would run PBL Media. In June, it was launched Australian Women’s Weekly in 1933 The first real indication of James’ larger announced that 25% of PBL Media was sold and then built a publishing and broadcasting casino ambition came in 2004 when he to CVC, for a further A$515 million. network around it. By the time of his death forged an alliance with Lawrence Ho, the son These sales have provided Crown Lim- in 1974, the family owned a thriving group of Macau’s casino king, Stanley Ho, to estab- ited with the equity needed to pursue both of newspapers and the Nine Network. But lish Melco PBL Entertainment, a joint venture international ground-up gaming resort de- it was Kerry Packer who essentially created company that will pursue casino develop- velopment and revenue-producing casino PBL—consolidating the media empire while ment opportunities in Macau and through- management agreements. building the family’s wealth through a wide out Asia. The company made a splash last The Packer initiative to separate the me- range of businesses in Australia and overseas. year when it purchased a Macau casino sub dia and gaming aspects of the company and These included investments in pay television, license from Steve Wynn for US$900 million, focus on gaming has generally met with the heavy engineering, petrochemicals, mineral a move that cleared the way for it to own and approval of stock analysts who believe the exploration online services, cinemas and operate additional gaming establishments in gaming sector provides far more opportuni- large tracts of rural land. the Chinese enclave. ty for growth than the mature media sector. Despite these purchases, PBL’s core busi- Since that purchase, Melco PBL Enter- “If anything, James is more of an investor ness remained Australia-based communica- tainment has opened a casino in Macau than his father,” Greg Fraser of Shaw Stock- tions, where by the mid-1980s Kerry Packer (Crown Macau), is in the process of building brokers told the International Herald Tribune had emerged as one of the country’s most another gaming property (City of Dreams) newspaper. “This was a great opportunity influential businessman. His biggest business and has committed to developing a third for Packer to release the capital and use the coup came in 1987 when Perth-based entre- establishment. It is expected that the final money elsewhere.” preneur Alan Bond (who won the America’s cost of the three casinos will be upwards of Publishing & Broadcasting executives, Cup in 1983) offered to pay A$1.05 billion US$3.5 billion. although unwilling to go on the record, ex- for the Nine Network. Bond had originally in- tended to sell Packer his Perth television sta- tion before being convinced by Packer to pay an extraordinarily high price for the Packers’ television interests. Kerry Packer would later Out of Australia remark that an Alan Bond only comes along once in a lifetime. By 1990 the Bond empire Under James Packer, mighty PBL looks to expand its casino empire offshore had collapsed and the remaining Packer eq- uity in the company translated into a 37% controlling interest in the Nine Network. It was the deal that established Packer as Aus- During his lifetime, Kerry Packer had a To accomplish this goal, James, 39, has beginnings and into a gaming company that tralia’s richest man. reputation of betting hundreds of thousands restructured PBL into separate gaming and can play on the world stage. “He wants to be of dollars on a single hand of blackjack or a toss communications businesses, and is in the out of the media which he sees as being tra- Rolling the dice of the dice at a craps game. In a classic case of process of selling off some of the company’s ditional low growth business and he wants Although Kerry Packer had an apparently the apple not falling far from the tree, James most prized possessions, including portions to be in the high growth area of gambling life-long love affair with casinos and high- Packer has proven himself no less a risk-taker of the lucrative Nine Network—Australia’s and the Internet,” media analyst Peter Cox of stakes wagering, his entry into gaming came than his illustrious father. Indeed, if anything, largest commercial television system—in Cox Media told ABC News Online. relatively late in his business career. His first the son has raised the stakes—wagering the order to generate funds to invest in gaming Some claim the elder Packer would nev- foray was a failed attempt to capture the sole future wellbeing of Publishing & Broadcast- projects. At the time of this divesture, the er have considered such daunting moves. Sydney casino license in 1994. ing Limited (PBL), the multimillion dollar con- normally tight-lipped Packer said the move Make no mistake about it; PBL’s current Shortly after that defeat, Packer and glomerate bequeathed to him upon his fa- was made as “part of a broader reallocation focus on overseas gaming development is PBL took control of Melbourne’s Crown Ca- ther’s death two years ago, on a risky business of capital within PBL.” a radical departure from the primarily do- sino complex, initially developed by his close strategy that emphasizes growth through in- Packer’s ultimate goal: evolve PBL be- mestic diversified portfolio approach the friend Lloyd Williams, for the then exorbitant James Packer and PBL hope to emulate the success they have had with Crown Casino ternational casino resort expansion. yond its Australia-based communications company previously followed. price of A$2 billion (US$1.7 billion). Melbourne (pictured here) in other gaming markets around the world 36 “PBL is now a higher-return, higher-risk The investment has since proven a god- Once the direction James Packer in- proposition,” Atul Lele of White Funds Man- send, however. Publishing & Broadcasting’s tended on taking PBL became apparent, agement told The AGE newspaper. “If you gaming division, which includes Crown Ca- speculation arose that various non-gaming look down a few years, PBL Gaming is up for sino and Perth’s Burswood Casino (added in businesses within PBL were on the block. a lot of development costs, and people will 2005), generates yearly EBITDA of A$523 mil- These assumptions became reality last Octo- be wary of any blow-outs.” lion (US$445 million), up from A$300 million ber, when PBL sold 50% of Nine Network to This strategy is a departure from the one the group generated in 2003. From modest investment group CVC Asia Pacific for A$4.5 that made PBL one of the largest and most beginnings, the gaming division became billion (US$3.8 billion). In May, Packer an- successful companies in Australia, and Kerry the highest grossing business within PBL’s nounced his intention to split PBL into two Packer a rich and powerful business icon in vast empire, and the relatively predictable distinct operating entities—Crown Limited, his own backyard. The basis of the Packer earnings of these Australian casino assets which would oversee the company’s gaming fortune was the publishing empire estab- will provide the long-term cashflow to fund interests, and Consolidated Media Holdings, lished by Kerry’s father, Sir Frank Packer, who James Packer’s global gaming aspirations. which would run PBL Media. In June, it was launched Australian Women’s Weekly in 1933 The first real indication of James’ larger announced that 25% of PBL Media was sold and then built a publishing and broadcasting casino ambition came in 2004 when he to CVC, for a further A$515 million. network around it. By the time of his death forged an alliance with Lawrence Ho, the son These sales have provided Crown Lim- in 1974, the family owned a thriving group of Macau’s casino king, Stanley Ho, to estab- ited with the equity needed to pursue both of newspapers and the Nine Network. But lish Melco PBL Entertainment, a joint venture international ground-up gaming resort de- it was Kerry Packer who essentially created company that will pursue casino develop- velopment and revenue-producing casino PBL—consolidating the media empire while ment opportunities in Macau and through- management agreements. building the family’s wealth through a wide out Asia. The company made a splash last The Packer initiative to separate the me- range of businesses in Australia and overseas. year when it purchased a Macau casino sub dia and gaming aspects of the company and These included investments in pay television, license from Steve Wynn for US$900 million, focus on gaming has generally met with the heavy engineering, petrochemicals, mineral a move that cleared the way for it to own and approval of stock analysts who believe the exploration online services, cinemas and operate additional gaming establishments in gaming sector provides far more opportuni- large tracts of rural land. the Chinese enclave. ty for growth than the mature media sector. Despite these purchases, PBL’s core busi- Since that purchase, Melco PBL Enter- “If anything, James is more of an investor ness remained Australia-based communica- tainment has opened a casino in Macau than his father,” Greg Fraser of Shaw Stock- tions, where by the mid-1980s Kerry Packer (Crown Macau), is in the process of building brokers told the International Herald Tribune had emerged as one of the country’s most another gaming property (City of Dreams) newspaper. “This was a great opportunity influential businessman. His biggest business and has committed to developing a third for Packer to release the capital and use the coup came in 1987 when Perth-based entre- establishment. It is expected that the final money elsewhere.” preneur Alan Bond (who won the America’s cost of the three casinos will be upwards of Publishing & Broadcasting executives, Cup in 1983) offered to pay A$1.05 billion US$3.5 billion. although unwilling to go on the record, ex- for the Nine Network. Bond had originally in- tended to sell Packer his Perth television sta- tion before being convinced by Packer to pay an extraordinarily high price for the Packers’ television interests. Kerry Packer would later Out of Australia remark that an Alan Bond only comes along once in a lifetime. By 1990 the Bond empire Under James Packer, mighty PBL looks to expand its casino empire offshore had collapsed and the remaining Packer eq- uity in the company translated into a 37% controlling interest in the Nine Network. It was the deal that established Packer as Aus- During his lifetime, Kerry Packer had a To accomplish this goal, James, 39, has beginnings and into a gaming company that tralia’s richest man. reputation of betting hundreds of thousands restructured PBL into separate gaming and can play on the world stage. “He wants to be of dollars on a single hand of blackjack or a toss communications businesses, and is in the out of the media which he sees as being tra- Rolling the dice of the dice at a craps game. In a classic case of process of selling off some of the company’s ditional low growth business and he wants Although Kerry Packer had an apparently the apple not falling far from the tree, James most prized possessions, including portions to be in the high growth area of gambling life-long love affair with casinos and high- Packer has proven himself no less a risk-taker of the lucrative Nine Network—Australia’s and the Internet,” media analyst Peter Cox of stakes wagering, his entry into gaming came than his illustrious father. Indeed, if anything, largest commercial television system—in Cox Media told ABC News Online. relatively late in his business career. His first the son has raised the stakes—wagering the order to generate funds to invest in gaming Some claim the elder Packer would nev- foray was a failed attempt to capture the sole future wellbeing of Publishing & Broadcast- projects. At the time of this divesture, the er have considered such daunting moves. Sydney casino license in 1994. ing Limited (PBL), the multimillion dollar con- normally tight-lipped Packer said the move Make no mistake about it; PBL’s current Shortly after that defeat, Packer and glomerate bequeathed to him upon his fa- was made as “part of a broader reallocation focus on overseas gaming development is PBL took control of Melbourne’s Crown Ca- ther’s death two years ago, on a risky business of capital within PBL.” a radical departure from the primarily do- sino complex, initially developed by his close strategy that emphasizes growth through in- Packer’s ultimate goal: evolve PBL be- mestic diversified portfolio approach the friend Lloyd Williams, for the then exorbitant James Packer and PBL hope to emulate the success they have had with Crown Casino ternational casino resort expansion. yond its Australia-based communications company previously followed. price of A$2 billion (US$1.7 billion). Melbourne (pictured here) in other gaming markets around the world 37 Publishing & Broadcasting’s gaming press confidence that Packer will prove suc- ment capital—it was Melco PBL Entertain- division, which includes Crown Casino cessful in establishing a worldwide casino ment that listed on NASDAQ last December network. One told IGWB magazine that the and raised US$1.15 billion toward its Asian and Perth’s Burswood Casino (added younger Packer was genuinely inspirational casino projects; neither partner had to bear in 2005 and pictured here), gener- and had a vision for Crown as a major player the full weight of procuring equity. ates yearly EBITDA of A$523 million in international gaming. Subsequent Crown/PBL entrees into new (US$445 million), up from A$300 mil- gaming markets have been accomplished International reach through risk-sharing joint ventures, such as lion the group generated in 2003. From Meanwhile, James Packer has not been with Macquarie in Canada, Aspinalls in the modest beginnings, the gaming divi- idle with this money. In April, PBL/Crown an- United Kingdom and a host of other compa- sion became the highest grossing busi- nounced it had agreed to purchase a 19.6% nies in the United States. interest in Fontainebleau Resorts for US$250 ness within PBL’s vast empire, and the In addition, Packer has also been careful million. The company is developing Fontaine- in limiting his exposure to any single market. relatively predictable earnings of these bleau-Las Vegas, a US$2.8 billion, 63-story re- His strategy of seeking out investments in ju- Australian casino assets will provide sort located on 24.5 acres on the Las Vegas risdictions across the world provides financial the long-term cashflow to fund James Strip. It is also spending US$500 million on a stability, especially given the uncertainty of makeover of its famed Fontainebleau Hotel Packer’s global gaming aspirations. markets like Macau. Indeed, the Chinese gov- in Miami Beach. ernment in May announced new restrictions Packer and PBL also announced the for- on the issue of individual travel permits that mation of Crown Las Vegas, a joint venture limit the ability of mainland Chinese to travel with IDM Properties of Texas and the New frequently to Macau’s casinos. The fact PBL York Capital Management. The group has in- has development eggs in numerous other vested US$22.5 million on an option for Las regional baskets helps to alleviate investor Vegas Strip land adjacent to Fontainebleau- angst. Packer recognizes the importance of Las Vegas. Preliminary plans call for the de- achieving a geographic spread in his gaming velopment of Crown Las Vegas, which would interests with solid positions in stable markets include a 5,000-room hotel, 250,000 square such as the United States, Australia and Britain feet of casino space and 625,000 square feet as well as investments in developing markets. of retail, dining, entertainment and conven- By pushing PBL all-in on a casino devel- tion space. Packer and Crown Limited will opment/management future, James Packer have to obtain a Nevada gaming license be- has shown he is willing to wager big. In fore the project can commence. Melbourne’s Crown Casino, his company al- Money from PBL sales has also gone into ready has one of the world’s most success- a joint venture between Crown Limited and Macquarie Bank, which spent A$855 million ful resort properties. But it is likely how well to purchase Canadian Gateway, the owner Packer manages PBL’s entry into various and operator of nine casinos in Alberta and international markets that will ultimately British Columbia. Crown/PBL has also pur- determine if the big gamble develops into chased a 50% interest in Aspinalls, a UK-based a historic payoff. gaming company that owns casino facilities in London, Newcastle and Swansea as well as By Tom Skotnicki. Reprinted with permis- a proposed development in Cardiff. sion from International Gaming and Wager- Publishing & Broadcasting is also re- ing Business (IGWB) magazine. ported to be involved in casino projects in Hungary, Russia and other nations. Risk management On paper, such a heavy investiture in competitive international gaming markets appears risky, but Packer has done a judi- cious job in minimizing PBL’s exposure. One way he has accomplished this is through the use of joint venture partnerships. For example, the Macau arrangement Packer struck with Melco let Crown/PBL tap into the local expertise provided by the Ho family. It also provided a platform to share the risks associated with raising develop-

38 39 Regional Briefs

WPT Signs China Agreement Foreign gaming operators will eagerly await the legalization deci- Tournament poker is coming to China—where the card game has sion—the lack of local casino development expertise likely to open been gaining popularity since it was declared a sport five years ago. up a wide range of opportunities for lucrative joint ventures. But the World Poker Tour Enterprises Inc. signed an agreement on August Japanese government will likely be proactive about establishing tour- 6 with the China Leisure Sports Administrative Center to promote ism-generating amenities, and will almost certainly require operators “the sport of poker, by helping to create, expand and commercialize to develop resorts with a wide range of entertainment facilities along China’s first ever national poker competition.” Former lawyer Steve the lines of the Singapore model. Lipscomb, WPT’s founder, president and CEO, attended the signing ceremony at a Beijing hotel. A statement from WPT said the partnership agreement would run for five years, with an option to extend. Additional details weren’t Melco PBL Secures More Macau Funding given and it wasn’t clear what stakes participants would play for. Interest in poker has exploded in the United States in the past few years with the advent of televised tournaments such as the WPT and the World Series of Poker. Los Angeles, California-based WPT Enterprises Inc. signed a licensing deal earlier this year with Game Show Network LLC for the sixth season of its World Poker Tour television series. The game, called Traktor Poker in the US and Tua La Ji in China, was declared a sport in China in 2002. There will be no betting on the game in China, where the Com- munist Party has banned all forms of gambling, categorizing it as a form of criminal, anti-social behaviour along the lines of prostitution and drug use.

Melco PBL Entertainment Ltd has secured funding for the com- pletion of its City of Dreams casino resort in Macau, including the ex- pansion of the serviced apartment complex at the site, located on the burgeoning Cotai Strip The credit facility of US$2.75 billion has a seven-year term and will replace a US$1.6 billion facility obtained last September. As it is currently planned, the serviced apartment complex fea- tures 650 units with views of the Cotai Strip. It is budgeted to cost US$393 million up from US$96 million. The first phase of City of Dreams, scheduled to go live in March 2009, will consist of a 420,000 sq. ft casino, approximately 85,000 sq. ft of retail space, a 366-room Hard Rock Hotel and a 295-suite Crown Towers Hotel. The 1,005-room Grand Hyatt Macau twin-tower hotel is scheduled to open in September 2009. In May, Melco PBL opened the six-star Crown Macau, the com- pany’s first casino property in the city. Melco PBL plans to acquire a Japan Casino Decision Likely 2008 third casino site on the Macau Peninsula. It recently announced it had The middle of 2008 is shaping up as the time when the Japanese extended the completion deadline to buy the peninsula site through Diet will decide whether to legalize casinos. July 2008. The ruling Liberal Democratic Party is moving toward allowing The company said it needs the extra time to review development casinos, in response to the success of Macau and the decision of Sin- plans and evaluate market conditions on the peninsula in light of gapore to establish casinos. recently imposed travel restrictions by authorities in neighbouring The decision to legalize casinos will likely hinge on government Guangdong province on mainland Chinese visitors coming to Macau desire to encourage resort development in areas outside the major on individual travel permits. The new restrictions set limits on the urban centres and the need to increase tourism. It is no secret that Ja- amount of times residents can travel to Macau and in some cases, de- pan, with about 7.3 million visitors a year, wants to increase the num- nies permits altogether. bers of tourists by about 30% in the next three years. Melco PBL agreed to purchase the site in May of last year by ac-

40 quiring the shares of Sociedade de Fomento Predial Omar, Limitada. contributed 42% of the company’s operating income. Wynn Las Ve- Other than the extension, all other provisions of the agreement gas almost tripled its operating profit by drawing more gamblers and remain in force. No fees were associated with the extension. filling more of its US$300-a-night hotel rooms with overnight guests. Wynn Resorts, which was founded by billionaire Steve Wynn, re- ported a loss of US$20.1 million, or 20 cents a share, in the second quarter of 2006, when the Macau property had yet to open. Korean Conference Attracts US Interest The company increased its estimate for costs to build a new re- Casinos and the employees who run them were among the sort in Las Vegas called Encore, which is slated to open in early 2009. topics discussed when the world’s leading gaming experts, includ- Spending on the project may total US$2.2 billion, compared with an ing two from the University of Houston, gathered in Seoul, Korea, earlier estimate of about US$1.7 billion. the past July for the International Conference on Casino Develop- Wynn Las Vegas reported operating profit of US$63.4 million on a ment and Strategy. 40% year-on-year increase in net casino revenue. The occupancy rate John Bowen, dean of the UH Conrad N. Hilton College of Hotel at the casino’s hotel rose to 97%t from 95.7% in the year-ago period, and Restaurant Management, and Ki-Joon Back, associate professor and the average daily room rate climbed to US$301 from US$293. with the college, were presenters at the conference sponsored by Operating income at Wynn Macau was US$53.2 million on net Kangwon Land Resort & Casino, 7Luck Casino and the Asian Academ- revenue of US$352.5 million. Hotel occupancy averaged 86.2%, and ic Network on Commercial Gaming. rooms cost an average of US$258 a night. “It’s an honour to represent the University of Houston, and more Wynn Resorts plans to continue expanding in Macau, with a generally, the American gaming perspective at this prestigious con- 123,000-square-foot addition to its current property. Wynn Resorts ference,” Bowen said. “The commercialization of gaming is becoming has development rights to 54 acres on Macau’s Cotai Strip, where it more and more international, and our faculty and our country are may build as many as three casinos in the next five years. providing the expertise at critically early stages of development.” The company also provided its first estimate for costs to build Bowen discussed a comprehensive approach to the gaming in- a new complex in Macau called Wynn Diamond Suites, scheduled dustry when he presented, “Current Trends in Casino Marketing.” He to open in 2010. Construction may cost US$550-600 million, the argued that gaming must be part of a larger tourism package that company said. must include restaurants and commercial retail options to provide a Gaming revenue in Macau has surged since 2004, when the gov- rich tourist experience. ernment ended the four-decade monopoly of billionaire Stanley Ho “Communities are often concerned when gaming initiatives be- by awarding licenses to companies including Las Vegas Sands Corp. gin,” Bowen said. “With respect to Korea, this conference is an impor- and Wynn Resorts. Total gambling revenue rose 50% in Macau during tant step in establishing a plan to maximize the obvious economic the second quarter. and entertainment benefits of a viable gaming industry, while mini- Steve Wynn, 65, had a net worth of $3.4 billion as of March, ranking mizing consequences like problem gambling.” him 264th among the world’s billionaires according to Forbes maga- Back’s lecture, “Internal Relationships in Marketing: Casino Em- zine. He took Wynn Resorts public in 2002 and opened the Wynn Las ployees, Job Satisfaction and Organizational Commitment,” discussed Vegas in 2005. He owns about a quarter of the company. employee retention and satisfaction, which he argues has a residual effect on customer retention and satisfaction. “The Asian casino industry is booming right now,” Back said. “There’s a real chance to establish a communications channel that yields a mutually beneficial exchange of ideas.” In addition to the University of Houston, 14 presentations were delivered by faculty and representatives from University of Nevada – Las Vegas, University of Nevada – Reno, University of Colorado, Colo- rado State University, the Hong Kong Polytechnic University, Osaka University of Commerce, Kyunghee University and the Problem Gam- bling Foundation of New Zealand.

Wynn 2Q Profit on Macau Performance Wynn Resorts Ltd reported second quarter profit and revenue that exceeded analysts’ estimates after it opened a new casino in Ma- cau, and drew more gamblers to Las Vegas. Net income was US$89.6 million, or 82 cents a share, 30 cents more than analysts estimated. Revenue more than doubled to US$687.5 million, beating estimates by more than US$100 million. LVS 2Q Profit Drops on Expenses Wynn Resorts’ Macau casino, which opened in September 2006, Las Vegas Sands Corp (LVS) said its second-quarter net earnings

41 fell as higher revenue from operations in Las Vegas and Macau was Net revenue rose to US$612.9 million from US$517.0 million a year offset by higher costs. The company said net income fell to US$34.4 earlier as Las Vegas casino revenue grew by nearly 20% to US$85.4 million, or 10 cents per share, from US$109.3 million, or 31 cents per million and Macau casino revenue rose nearly 22% to US$373.5 mil- share, a year earlier. lion. Revenues from hotels, restaurants and retail also were strong. LVS’ expenses have risen sharply ahead of casino openings in Ma- Executives said their short-term focus is getting the Venetian cau, Singapore and the US. Macau up and running, as LVS develops further casinos, condomini- Excluding special items, the company earned 23 cents per share, ums, high-end hotels, shopping malls and entertainment venues compared with the average Wall Street forecast of 25 cents per share. along the Cotai Strip.

International Briefs

Harrah’s Requests Slovenia Liberalization Plans for a US$1 billion resort casino in Slovenia have taken a step toward reality amid reports that lawmakers in the country are con- sidering lowering the tax on gambling win and relaxing ownership restrictions. Las Vegas-based casino giant Harrah’s Entertainment re- quested the changes as conditions for proceeding with the massive development in the city of Nova Gorica on the Italian border in part- nership with HIT Group, Slovenia’s largest casino operator. The Caesars-branded property would be one of Europe’s larg- est and most extensive, with 2,000 gambling machines, table games, 1,500 hotel rooms, restaurants, bars, a spa and convention and meet- ing facilities. Located within driving distance of Trieste and Venice in an area already favored by large numbers of tourists from Italy, the casino could attract more than 4 million visitors a year, according to Harrah’s projections, and upwards of 90% of them are expected to come from abroad. “We believe Europe is an excellent opportunity to bring a destina- tion to a market that has high population and discretionary money,” said Jan Jones, Harrah’s senior vice president of government relations. “We intend for the project to serve as the tourist and entertainment center for the region,” said HIT CEO Niko Trost. The problems is, Harrah’s wants 49%of the project, while current law permits foreign companies no more than 20% ownership, and the country’s 60% tax on revenues is too high for Harrah’s. Lawmakers have agreed to take up the issues. “The government has a desire to see an increase in tourism,” Jones recently told the Las Vegas Review-Journal. “They also realize they need partnerships to realize that goal.” She said the resort would take about 30 months to complete if a deal can be struck. About 4,500 people would be employed in the con- struction phase. About 3,200 jobs would be provided on opening. HIT Group, which is partially owned by government entities, op- erates seven of the country’s 18 casinos, among them the 1,008-slot predecessor about the economic benefits, not to mention the social Hotel Casino Perla in Nova Gorica, and casinos in Serbia, Montenegro impacts, of new large-scale casino development in the country, and and Bosnia and Herzegovina. that appeared to be borne out as the new prime minister indicated in the House of Commons that cities might want to look elsewhere to regenerate areas in need. In response to a question from fellow Labour MP Andy Reed Brown Affirms Opposition to ‘Super Casinos’ about the proposed regional casino and its 1,250 unlimited-prize Is the super casino “dead in the water?” It looked that way last slot machines and the dangers of gambling addiction, Brown re- month. ferred Reed to a much-anticipated nationwide prevalence study It had long been surmised that Gordon Brown disagreed with his due for release next month—which also happens to be when most 42 of the 2005 Gambling Act comes into force. ter’s selection was struck down in the House of Lords by a contingent Brown also said, speaking of the regional casino, the “super ca- of clerics led by Archbishop of Canterbury Rowan Williams. sino” as it’s known: “I think … we are amazed and a bit shocked about what Mr. “This is an issue on which there is no consensus found in the two Brown has said,” stated Chris Fletcher, director of the Greater Man- Houses of Parliament. And it is an issue now subject to reflection over chester Chamber of Commerce. “These areas are desperately in the next few months. … I hope that during these summer months we need of significant investment to kick-start crucial regeneration can look at whether regeneration in the areas for the super casinos work. If we are hearing it’s not going to happen, what has Mr. Brown may be a better way of meeting their economic and social needs than got to replace it?” the creation of super casinos.” The Blair Government had envisioned large-scale U.S.-style ca- Don Foster, a high-ranking member of the opposition Liberal sino development as an important tool to provide jobs, investment Democrat Party, told Reuters, “This is the clearest indication yet of a and promote the revitalization of economically deprived urban areas. change of heart by the Government over super casinos.” Plans originally called for dozens of regional casinos to be built, and News reports quoted a Whitehall source who stated in more this had spurred interest from major casino operators from around blunt terms: “The concept of a super casino being built in the UK is the world. But Britain’s existing casino and amusement industries dead in the water.” were opposed, as was most of the press, and there was opposition Brown urged Government to press ahead with plans for 16 small- from community and religious groups. This translated into political er casinos authorized by the Gambling Act—facilities permitted 150 opposition in the House of Commons, both from the Conservative and 80 limited-prize slot machines each — but sources indicated that and Lib Dem parties and from a considerable number of Labour nothing is likely to happen on that front before Parliament returns backbenchers. In the end, an 11th hour deal was struck with the Con- from summer recess. servatives on the eve of the 2005 General Election to permit only one For Manchester officials it was only more bad news. Earlier this year, regional casino. the city had been selected for the sole regional casino by a Govern- What this resulted in was a long and costly battle among cities ment-appointed panel. That decision foundered on political opposition vying for the project, and this probably ensured that a politically ac- in the Commons, which favored Blackpool for the casino, and Manches- ceptable solution at the national level would be impossible.

Vegas Meets London’s West End

It was billed as “a touch of Vegas in London,” and the recent open- ing of London Clubs International’s new Casino at the Empire in Leicester Square certainly had a sense of glamour about it. Rugby international star Laurence Dallaglio, girl group Sugarb- abes, and soap star Louisa Litton were among the 2,000 who turned out for the lavish opening night party. This being the UK, all the guests had to have their memberships processed before entering the £16 million Paul Steelman-designed venue. But the staff were well- briefed, the technology functioned perfectly, and the wait was only a few minutes. Once inside the former Empire Ballroom, a London landmark, it soon became clear why it took 18 months to get the casino ready: The interior of the building has been completely rebuilt with the city’s largest gaming floor on the ground floor and two restaurants, a disco and a VIP lounge on the upper floor. The 30 gaming tables were busy all night, and entertainment in- cluded a Las Vegas-style floor show, complete with showgirls, singers and magicians. Complimentary champagne flowed, and a good time was had by all, and popstar “Sugababe” Keisha Buchanan won £500. — Simon Banks

43 Hard Rock Biloxi finally enjoys grand opening MGM Profit Jumps on Asset Sales MGM Mirage Inc., operator of the MGM Grand, Bellagio and other casinos, announced its second-quarter profit more than doubled, boosted by a gain on the divestiture of some properties and sales of Las Vegas condominiums. The company, majority owned by billionaire Kirk Kerkorian, saw record profits at several of its Las Vegas hotel-casinos, but had an un- lucky run at the baccarat tables and said it suffered as competitors with casinos in Macau were able to attract new high-end gamblers from China to their properties in Las Vegas. MGM Mirage will open its own joint venture Macau property later this year. Earnings soared to US$360.2 million, or US$1.22 per share, in the three months ended June 30 versus US$146.4 million, or 50 cents per share, in the same period the previous year. The latest results include a US$263.9 million pretax gain on the sale of Primm Valley Resorts and MGM’s Colorado Belle and Edgewater properties in Nevada. While 07-07-2007 proved to be a “lucky” day for thousands of Income from continuing operations rose to US$182.9 million, people—couples rushed to get married, superstitious gamblers or 62 cents per share, compared with US$143.3 million, or 49 cents flocked to casinos, etc—the day was perhaps even more symbolic for per share. the owners and operators of the Hard Rock Biloxi Hotel & Casino. July 7 marked the grand opening of the property after more than four years of planning, preparation, heartbreak and delays. The original $235 million project was just days away from its grand opening in late-August of 2005 when Hurricane Katrina washed ashore and destroyed the property. Nearly two years later, after wad- ing through insurance and rebuilding issues, the resort finally opened its doors. The revamped project cost owners an additional $75 million more than the original price tag. The new property features a 12-story hotel tower with 318 rooms and suites. There are 1,445 slots and 50 table games in the Hard Rock’s casino. Additional features include The Rock Spa, a full-service Aveda Concept Spa; a fitness center; a unique pool with underwater music features, five restaurants; Rande Gerber’s Rise Lounge, a Hard Rock Live® entertainment venue; and several retail shops. “We have always known the Hard Rock Brand would be some- thing truly unique,” said Joe Billhimer, the property’s president. “To- day, it’s an even more special project and we are honored to finally show guests what we have built for them.”

Online Briefs

year was ordered by the appeals court to suspend its operations in France’s High Court Rules for Zeturf France or face daily fines of €50,000. The judgment had been issued France’s highest court has overturned a decision that banned in response to a complaint by Pari Mutuel Urbain, the government- a Maltese company from offering online betting on horse races sponsored monopoly operator of race betting. in France. PMU said in a statement that the “debate remains open.” But In a ruling of immense significance for France and the European the ruling is certain to put renewed pressure on the government Commission’s ongoing campaign against protectionist gambling to modify its stance against foreign competition in France’s various policies throughout the EU, the Cour de Cassation stated that restric- gambling sectors. tions on competition, even those “stemming from limits on gaming The European Commission in June ordered France to amend its as a special or exclusive right, cannot be justified” under EU treaty policies to put an end to obstacles to the free movement of betting conventions. services within the country and has threatened to refer the case to The decision sends the case against Zeturf back to a Paris appeals the European Court of Justice. The Commission is investigating mo- court for a rehearing, a process that could take up to a year. Zeturf last nopoly practices in several Member States. 44 Gambling Portals in Terrorism Probe A report by Gaming Intelligence Group said the AUC (Asociación de Usuarios de la Comunicación) believes current Spanish legislation Three men found guilty in Great Britain last month of using the renders online gambling services illegal in Spain, and so the promo- Internet to incite terrorism were alleged to have laundered money tion of such services is also illegal. The PP also has called for govern- through at least 12 online gambling portals to fund their activities. ment action. A report in the Washington Post cited by Gaming Intelligence Group stated that investigators in the United States and Great Brit- ain had tracked financial transactions of the three men across thou- sands of merchants in more than a dozen countries and discovered Neteller to Pay Gambling Penalty thousands of dollars allegedly laundered through sites including Ab- Neteller, the online payment processor, admitted on Wednesday solutePoker, Betfair, BetonBet, Canbet, Eurobet, NoblePoker and Para- that it broke US laws and agreed to pay a US$136m penalty to settle disePoker using accounts set up with stolen credit card numbers and its part of the US crackdown victims’ identities. on internet gambling. The report alleged the group conducted 350 transactions at 43 The Isle of Man-based different online gambling sites, using more than 130 compromised company said it hopes to credit card accounts. Winnings were withdrawn and transferred to relist shortly on London’s online bank accounts the men controlled. Aim. Its shares were sus- pended in January after its cofounders, Steven Lawrence Spain’s Online Policy Challenged and John Lefebvre were ar- The European Commission was preparing a legal challenge last rested. Both men pleaded month to Spain’s policy of taxing winnings paid by foreign lotteries guilty to criminal conspiracy while exempting Spanish lotteries. earlier this month. The progressive-rate income tax is discriminatory, the Commis- The company and the US sion claims, and violates trade protections guaranteed EU Member attorney’s office in New York States. Spain has responded that it exempts its own lottery organiza- announced last month that tions because they are charitable, not because they are Spanish. they had signed a “deferred The country’s Ministry of Finance, meanwhile, has launched an prosecution agreement”. investigation into Spain’s burgeoning Internet gambling industry for The company acknowl- possible tax liabilities. Law enforcement officials are studying whether edged conspiring to operate to prosecute Web opera- an unlicensed money transmitting business and agreed to co-operate tors for violating a statute with the US probe. Prosecutors agreed to drop the charges in 2009 if that forbids gambling ac- the company complied with all the terms of the agreement. tivities run by unlicensed The gambling industry had been waiting to see whether the foreign entities. non-US portion of Neteller would survive and the agreement fu- Issues surround- els hopes that the sector could start to draw a line under a dif- ing the growth of Inter- ficult period. net gambling also have Two listed gambling firms, PartyGaming and 888, have also held made their way to the talks with the Department of Justice. national legislature. The Under Aim rules, the window to resume trading expired on Mon- Senate, the upper house day, six months after the shares’ suspension. However, the company of the Cortes Generales, said it was in discussions with the junior market’s authorities and recently passing a bill presented by the governing PSOE to legitimize hoped to return to trading after finalising its accounts. and regulate online gambling. According to US officials, Neteller processed more than US$10bn PSOE (Spanish Socialist Workers Party) garnered the support of in gambling payments for US customers between 1999 and 2007 and smaller parties such as Entesa Catalana del Progrés, a coalition of derived about 75% of its profits from those transactions. mostly Catalonian Leftist parties, and the Catalonian-based CiU co- As part of the settlement, Neteller will provide details of transac- alition on language in the bill essentially calling on government to tions between its customers and online gambling companies. take formal control of an industry in which Spaniards are spending an It has also agreed to return US$94m of funds belonging to US cus- estimated €500 million a year. tomers and intends to repay them over the summer. The US$136m to The main opposition party, the pro-business Partido Popular, vot- be paid to the US includes a sum of US$60m already seized. ed against the measure. The PP has labeled all foreign online opera- “We anticipate within the next few weeks that we will have fully tors illegal. implemented the plan for the return of funds to our US customers AUC, the country’s communications watchdog, has in the mean- and are hopeful that, by that time, we will have restored the compa- time filed a formal request with the Ministry of Economy and Taxes for ny’s shares to trading on Aim,” said Ron Martin, chief executive. an investigation into online operator Bwin’s sponsorship of football “We can now begin to refocus our efforts on building and powerhouse Real Madrid and sponsorships of the Seville and Figue- strengthening the Neteller business in the growing markets of the res clubs by 888 and Miapuesta. European and Asia Pacific regions.” 45 Going global Under Bill Nader’s watchful eye, the Hong Kong Jockey Club looks to push its racing product into new markets

A fter 20 years of executive-level ex- What does director of racing at the erybody really except for the trainers. perience with racing organizations in the Hong Kong Jockey Club entail? I’m excited; I have never experienced United States, Bill Nader joined the Hong Nader: It’s a very big job. It’s a lot different anything like it. Kong Jockey Club as executive director, rac- than what people in North America would ing, this April. Widely recognized for the ex- relate to. There are 1,400 people that work What are some things you are working cellence of its racing product and operations, in this division and 11 eight direct reports. on right now? the Jockey Club brought Nader in from the It’s a big team. We have clubhouses in Sha Nader: There will be some small things New York Racing Association (NYRA) to help Tin, Happy Valley and we’re building one in that we’ll be able to implement based on broaden its appeal both at home and abroad, Beijing that report up to here. Handicapping my first two months here including possi- as a casino gambling colossus grows next and race planning report to this position. bly introducing a new bet type. You have to door in Macau, and as the Jockey Club works The lab, the chemists, the veterinarians who identify and respect the culture the way cus- to reverse a falloff in wagering levels that tend to the horses, the complete in-house tomers choose to participate and enjoy rac- began in 1997. In the following Q&A, Nader drug testing services that we have on-site at ing. Turnover here for the 78 race meetings discusses the challenges of his new position Sha Tin. Almost every employee in the stable will be over HK$63 billion, or about HK$105 and the strategies that the Jockey Club is area is an employee of this department, the million per race meeting or over HK$11 mil- likely to deploy. grooms; who are called mah-foos here; ev- lion per race (US$1 = HK$ 7.8). About 49% of 46 the turnover was on quinella-based wager- What can the Jockey Club do to pre- ing, and there is no exacta. You look at the pare for competition from Macau? four bet types here; win, place, quinella and Nader: One of the things we will do is quinella-place is over 80% of total turnover. undergo a master plan to spend hundreds of So the Triple Play, which is a concept that I’ve millions of US dollars in capital investment in put forward, is a multi-leg wager, three con- Sha Tin and Happy Valley. It will take 5 to 10 secutive races whereby the selection would years to complete but it will be an investment have to place in the first leg, place in the sec- in our future. These are pretty good facilities ond leg and win in the third leg. We try to to begin with but we need to make further get people more comfortable with the idea investment to solidify our future and appeal of looking two races ahead. This could be in to a wider customer base. place by the end of the year. We also need to make our business a 365-day-ayear operation as there are only It has been said that the Asian finan- 78 race meetings a year between the two fa- cial crisis and the handover of Hong Kong cilities. Given our location, in Happy Valley in to China in 1997 are factors that began a particular, if we are successful in making the downturn in race wagering for the Jockey facility attractive on non-race days, we’ll be Club. What other factors contributed to able to position ourselves for our customers the fall-off in wagering levels in the past as world-class thoroughbred racing and a lot decade? more. What that “more” is will be important Nader: We went from HK$100 billion for us. We have a lot of members at different The Happy valley race course in 1997 down to HK$60 billion in 2006. This levels that have access to the facilities and the is the first year we’ve had positive growth; clubhouses and we can build on that. We can pride and I hadn’t even started the job yet, we’ll be up about 6%, so I came at a good reach out to a new target audience and bring so you can imagine what it was like in Hong time. The one thing we can point to that def- them into the facility on non-race days. We’re Kong. Horses like Viva Pataca and Medic Pow- initely affected our business was when the just about to open a restaurant at Happy Val- er are also top-class horses. For a country that lottery started offering fixed-odds betting ley that will be tremendous; it will be part of has a thoroughbred horse population of less on soccer three or four years ago. Soccer will the racing club. The racing club will be part of than 1,200, it’s impressive. There’s enormous do about HK$30 billion this year and the lot- a three-horse syndicate that will also have use pride; there was an invitation-only event last tery does HK$6.5 billion, so total wagering is of this dining. It will be open five or six nights night at the Hong Kong Country Club held back over HK$100 billion. Sports betting will to racing club members almost on an exclu- by the owners of Medic Power, which is a be slightly down this year because of the sive basis. We’ll be creating an experience that syndicate led by a doctor . He wanted to give World Cup last year. is not restricted to “X” days-per-year. back to the people who were close to Medic Power and to racing in Hong Kong. Will the growth of Macau impact the What is the potential for increasing the Jockey Club? Jockey Club’s racing product’s exposure to Would racing Hong Kong horses in- Nader: It’s going to; we’re just too close. global markets? ternationally be a positive for the Jock- There are some tax and marketing restric- Nader: Right now, the interest is more in ey Club? tions here that limit growth opportunities seeing how our horses compete international- Nader: Yes, and for Hong Kong. When and to have Macau become such a huge ly. We have 6.9 million residents in Hong Kong you a look around Hong Kong you see the presence is a challenge that is there today and 1.3 million wagering accounts, which is HKJC stamp everywhere, whether it be edu- and will be bigger tomorrow. phenomenal. There is not a single race that cation, hospitals, or charitable contributions. doesn’t generate huge coverage and interest. We have an HK$8 billion to cover and we’re Each of the 726 races that comprise a season the biggest taxpayer; about 9% of all revenue here is an event. The races that don’t generate generated for the government. In addition to the most interest are those where you have that, there’s a separate contribution for chari- horses coming in from out of the country ties; we’ve spent at least HK$1 billion per year to participate. In this market, the wagering for as long as we can remember. profile is to bet on the horses you are famil- As a not-for-profit we are such a big part iar with. If you put two horses from America of Hong Kong, when you can get a horse to and two horses from Europe in with 10 horses make the journey to Dubai and win a $5 mil- from Hong Kong in a Class 1 race, that race will lion race like the Sheema Classic, it’s time to generate less interest than a Class III race with have a parade on the street. It really is a cel- all local horses. We still want to bring horses ebration. in to showcase the best possible competition A lot of the initiatives that the Jockey and to let the outside world know that Hong Club takes are to do what’s best for the rac- Kong racing has really arrived. ing industry. Bringing competition to the in- When Vengeance of Rain went to Dubai dustry is what really needs to be done. The The Sha Tin race course and won the Sheema Classic, I could feel the Breeder’s Cup bills itself as an international 47 competition but it’s not really a world cham- because the Hong Kong horse will be more pionship; it’s a specific region. As an industry, heavily backed here, so, by definition, you’re we need to really open up the lines of com- going to get a shorter price and a lesser divi- petition and to really have global participa- dend. With simulcasting, you have uniform tion in races. I’ve talked to a lot of owners odds and uniform payout, that’s the beauty and trainers here who would love to go to of it. So we need to be able to import and ex- We also need to make our business a America and race in the Breeder’s Cup. We’ll port in that framework, so we can watch and get more horses from America to come here; wager into the host track’s pools. The taxa- 365-day-ayear operation as there are people need to see that. tion issue needs to be solved. only 78 race meetings a year between the two facilities. Given our location, How does the industry get there? How do you create that global iden- Nader: Eventually, we have to create a tity? in Happy Valley in particular, if we commingled experience where people can Nader: A long time ago, D. Wayne Lu- are successful in making the facility watch and wager. There are a lot of ways to kas, who was called “D. Wayne on the Plane,” attractive on non-race days, we’ll be it, and the Internet can help. People worry rocked an old school mentality that found it able to position ourselves for our cus- about the time of day/time zones. But the unconscionable to fly a horse from New York one thing that Hong Kong can of- to California. He started winning a lot tomers as world-class thoroughbred fer is robust pools. You’re not go- of Grade 1 races, winning a lot racing and a lot more.” ing to get a more level play- of purse money and pro- ing field than here. Pool ducing a lot of disciples. sizes, good field sizes; He was a pioneer. Now, it’s anything that anybody not such a shock to see wants, we have it. a horse fly from Cali- We don’t know fornia to New York their horses and they and vice-versa. don’t know ours. We’ve got to The only way to knock take that to the next level. We’ve that down is to open up the made progress. Horses will go where there markets and give people a chance to is big money and they’ll travel. But, with- participate by buying parimutuel tickets, out the ability to watch and wager on a whether they do it at a racetrack, a parimu- regular basis, these isolated examples will tuel betting facility or online. Online, espe- pique curiosity and we’ll only be looking at cially knocks down that wall. There are some a one- or two-day opportunity. We need to taxation issues that have to be solved, but take that to an experience where people that is where we really need to go to grow can follow horses from different parts of the internationally. world yearround.

Where does the Jockey Club go for tax By Charles Anderer, International Gaming relief? and Wagering Business (IGWB) magazine’s Nader: It’s government, and, I think, as director of trade events. Reprinted with permis- Macau applies pressure to Hong Kong, and as sion from IGWB. we’re such a big part of Hong Kong from the standpoint of generated tax revenue, there will be, I think, a willingness to work with us so that we’ll be OK.

When you interact with other racing organizations internationally, is the com- mingled betting pools issue a top prior- ity? Nader: Yes, and avoiding double taxation remains a challenge and that’s something that needs to be addressed quickly. Simul- casting has been limited in a lot of countries, but I think the growth opportunities can be huge. If we wager on another country’s races with our horses in it we can’t commingle with an independent pool. That creates a problem

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