January 2006

January 2006

Going With the Gaming Flow

Page 9 ~ Tour of the Contenders to ’s gaming crown

Page 14 ~ Sure Bets 9on Macau gaming stocks?

Page 17 ~ SJM’s14 Home Court Advantage

Page 21 ~ Gaming’s17 A Bit Fishy in Japan

Page 26 ~ Las21 Vegas in Europe?

Page 29 ~ Las Vegas Sands26 to build ’s Island Annex

Page 30 ~ CLSA’s Aaron Fischer looks29 at The Other Side of the Revenue Race

Page 3230 ~ Regional Briefs

Page 35 ~ That’s Entertainment? Our marketing32 guru takes a stab at Macau’s casino entertainment offerings

Page 38 ~ International35 Briefs

Page 40 ~ Las Vegas Style38 Recruitment at 40 Editorial

What Lies Beyond the Tables?

When Cirque du Soleil performed in at the end of last year, there weren’t too many doddery old Chinese ladies in fading blouses and US$1 slippers in the audience. Such ladies are regular fi xtures at Macau’s , and you’ll often spot them hobbling up to the cashier to buy US$25,000 worth of chips. Somehow, the grannies never seem to get mugged on their way home.

When you’ve got a proven market, providing the best offering can prove profi table. It’s no surprise that the Las Vegas-style Sands Macau has proved a hit since opening in May 2004. Its 50-foot ceilings and plush interiors offered a more comfortable gambling environment than those of the erstwhile monopoly casino operator, ’s STDM.

In this issue of Inside Asian Gaming, Stanley Ho’s right-hand man, Ambrose So, admits that his company’s fl agship , which was built in the 60s, obviously falls behind in terms of “hardware.” STDM’s gaming subsidiary, SJM, is busy carrying out renovations and building new facilities to keep up with Macau’s new foreign casino operators. The Lisboa remains the top-grossing casino in the world by a fair margin, but that will change, if only because VIP gamblers brought in by its established networks will soon migrate to the Grand Lisboa being built across the street.

Sands Macau has done well in attracting the mass-market crowd, yet Casino Lisboa continues to earn at least twice as much revenue with a smaller property thanks to the company’s grip on the lucrative VIP market. According to a Bloomberg report, the VIP market consists of about 4,000 gamblers, primarily from Mainland , who bet an average US$1 million per visit.

VIP baccarat accounted for 77% of Macau’s casino revenue in 2003, but made up just 63% in 2005. Core Pacifi c-Yamaichi expects VIP baccarat’s share to fall below 60% this year. There are two explanations for this: fi rstly, the mass market is growing thanks to the lure of new casinos. It is also possible that some of the VIP market has been drawn to Sands Macau’s high quality mass-market facilities.

Still, the issue of credit will keep most VIP gamblers with SJM. The bulk of VIP gambling is done on credit, and the new US-based operators face serious obstacles in extending credit to Mainland patrons, since collection of credit on the Mainland often necessitates resorting to questionable relationships which could jeopardise their gaming licenses in the US.

Gaming revenue will continue rising across Asia, and in Macau in particular. Globalysis, a Las Vegas-based fi rm that tracks Asia’s casino gaming markets, predicts gross casino gambling revenue across Asia will grow 20% year-on-year to US$13 billion in 2006. The biggest revenue gain is expected to occur in the fourth quarter of 2006, following the opening of the Wynn Macau casino resort in September.

The question now, as discussed by CLSA’s Aaron Fischer on page 30 of this issue, is whether non-gaming revenues will rise too. Macau’s gaming revenue could soon overtake that of the , but Macau’s non-gaming revenue lags far behind.

Wynn Macau will be the fi rst full-fl edged Vegas-style resort to open in Macau since the end of Stanley Ho’s 40-year casino monopoly in 2002. Granted, the 600-room Wynn Macau will be a much smaller version of the 2,716-room Wynn Las Vegas, and its entertainment offerings have yet to be revealed, but it will provide an initial indication of whether Chinese have an appetite for more than just Vegas-style gambling.

Ambrose So argues that the US-based casino operators descending on Macau have thus far quietly scaled back their ambitious non-gaming plans, putting in more tables to tap proven demand. The gambling grannies will come if you give them more luxurious casinos, but they will not likely support the other offerings of the grand resorts set to open over the coming two years. Macau will need to attract a new, unproven demographic.

Las Vegas Sands (LVS) Chairman Sheldon Adelson is confi dent that Vegas-style entertainment and dining will prove a hit in Macau, drawing ’s burgeoning middle class. His oft-quoted soundbyte: “If you build it will they come? In my mind, not only will they come, but they’ll come in droves.” LVS is betting hard cash on that vision, with the US$2.3 billion Venetian Macau scheduled to open in mid-2007 featuring a diversifi ed offering of Vegas-style convention and entertainment facilities.

Sands Macau merely proved that Chinese gamblers prefer gambling in more plush surroundings. Mainland Chinese will eventually demand Vegas-style entertainment and dining, but it could take some time. They will surely come. It just might take them a bit longer to get here than LVS hopes.

Kareem Jalal

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5 Letters

A Whine About the Grapevine

The undersigned Chief Legal Counsel of the Philippine Amusement and Gaming Corporation (PAGCOR) writes in response to the article published in the October 2005 issue of your magazine entitled, “From the Manila Grapevine.”

We wish to correct certain pieces of inaccurate and misleading information that you allegedly gathered from the “grapevine.” PAGCOR’s profitability has neither declined, nor has it been tarnished by cheap rumours of corruption and investor mistrust.

Under its present leadership, PAGCOR has flourished into one of the most profitable corporations in the Philippines today. PAGCOR Chairman and CEO Efraim C. Genuino’s visionary approach, coupled with his business savvy and no-nonsense management has propelled the gaming firm to the second highest position in terms of revenues in Asia, next only to Macau.

In 2001, PAGCOR posted over Php17.46 billion total income, exceeding by almost 20% its Php14.6 billion income of 2000. In 2002, the corporation posted Php20.21 billion, which earned it the distinction as the most profitable corporation in the Philippines for 2002, according to the Philippine Securities and Exchange Commission (S.E.C.). In 2003, while most countries with casino gaming industries suffered immensely from the effects of the SARS scare, PAGCOR kept its shortfall to a minimum, earning Php19.43 billion for that year. In 2004, PAGCOR beat all previous income records by posting a record-breaking Php 21.90 billion, the highest ever in its history.

If the issues of corruption and inefficiency bear any trace of trust in them, how does one account for its optimal and unprecedented performance? To mismanage and to register top-notch feats are two ironic and incongruent propositions. One can only make sense of these deviant claims in the context of fierce competition in the region. PAGCOR has undoubtedly earned the envy of its neighbours. What you have featured in your magazine reeks of contrived press releases from PAGCOR’s competitors.

If these “PR lies” prove anything at all, it is the fact that the Philippine competitors are desperate, and they are now resulting to black propaganda. What they claim to be “from the Manila grapevine” is no more than mere “sour-graping”. PAGCOR has, indeed, developed a plan that once realised, will transform the Philippines as the next and gaming hotbed in Asia. And this is what is sending panic ripples all throughout the region. It is a fact that the Philippine gaming experience boasts of an incomparable showcase of extraordinary pleasures, from the scenic landscapes, to gastronomic feats, to the grand hospitality that is distinctly Filipino. These are the real “sweet grapes” that await the hands of gaming enthusiasts. Those who cannot even come close to the real thing, just content themselves to sucking on the grapevine. Who can blame them? We wish, however, to remind you to be more circumspect in devoting precious space in your publication to manipulative excretions from those whose motives are suspect. Their lies tread the thin line between the libellous and the absurd.

Carlos R. Bautista Jr. Chief Legal Counsel PAGCOR

Ed: We thank you for your feedback. We rely on readers better positioned than ourselves in the industry to point out inaccuracies in our articles and flaws in our analyses. However, the article in question made no mention of profitability declining due to “rumours of corruption and investor mistrust.” The article’s focus was on the investor mistrust itself, which is likely supported by such reports as appeared in the March 12, 2005 edition of the Manila Times (a “contrived press release” from one of PAGCOR’s competitors?), stating that PAGCOR Chairman Efrain C. Genuino is facing allegations of plunder and graft from anti-corruption groups. Mr. Genuino’s relationship with President Arroyo’s husband, Mike, is well documented, as are allegations that he may have influenced the Electoral Commissioner on behalf of the President.

The Philippines also lacks two things that are fundamental underpinnings of foreign investment: a stable Government and relative freedom from corruption. On the latter point, the 2004 Transparency International Corruption Perceptions Index ranks the Philippines a dismal 102, down from 93 in 2003. In short, the country does not present much of an attraction for gaming industry investors with a plethora of options, most recently in Macau, Singapore and the UK.

If you check your figures, rather than suffering “immensely from the effects of the SARS scare,” Macau’s gambling revenues actually rose over 30% year-on-year in 2003, while those in the Philippines declined. You are at pains to stress the profitability of a company that enjoys a monopoly position. Monopolies are perhaps better off not trumpeting the profits they derive in the absence of competition. Basic economic textbooks point out that monopolies do indeed simultaneously mismanage and “register top-notch feats.” That is the nature of monopolies.

As a final point, none of the Macau casino operators we spoke to have mentioned feeling the “panic ripples” you allege PAGCOR’s grand plans have sent through the region.

The Future of Machines in Macau

You cannot compare win per table with win per machine as a basis for arguing there is no future for machines in Macau. A typical casino table, say Baccarat, has a footprint roughly equal to that of 10 machines, when you take account of gaming seats. A premium of MOP1,000 per machine p.a. is payable, compared with MOP300,000 p.a. for a VIP table . Tables require dealers; machines don’t. If table win, especially on mass market tables, declines, there will come a point at which the economics favour a switch to machines. There are no “dead” machines, as there may be dead (i.e. non-operational) tables in some properties in Macau as the industry matures.

David Green Head of Gaming Practice PricewaterhouseCoopers (Macau)

Ed: A further point is the different staffing requirements of tables and machines, especially given Macau’s worsening labour crunch. A mere 50 staff are needed to operate 300 machines 24 hours a day. Over 2,000 staff would be needed to operate 300 tables.

Please email all letters and comments to the editor to [email protected]. Letters may be edited for length and clarity.

7 A Tour of the Contenders

Macau will retain its crown as Asia’s top-grossing gaming market for years to come, but other regional jurisdictions developing ambitious casino resorts, most notably Singapore, could draw away the meetings, incentives, conventions and exhibitions (MICE) visitors that have enabled the resorts in Vegas to flourish

redit may not be such a sticking point for The Singapore government has fixed the price of Singapore’s future gaming industry. the Marina Bayfront site at a rather steep S$1.2 billion (US$733 million). Including the land cost, After reversing its four-decade ban on casino Merrill Lynch estimates the Marina Bayfront IR gaming in April 2005, Singapore began accepting will cost the winning bidder around US$3 billion proposals for the first of two planned integrated to develop, making it the most expensive resort in resorts (IRs) on November 15—following a the world. five month delay. Despite the delay, the IRs are expected to be ready, as scheduled, by 2009, and In the last issue of Inside Asian Gaming, Jorge according to media reports, could see winning Oliveira, the man charged with drafting Macau’s bidders commit as much as US$5 billion in gaming legislation, speculated that Singapore investment. would be unable to allow the granting of credit to gamblers, and that doing so would tarnish the The first IR will be situated at the Marina Bayfront, city-state’s reputation as a major financial centre. and the other on the resort island of Sentosa, This would seriously handicap Singapore in any which is linked to the mainland by bridge and bid to take gaming revenue from Macau, where cable car. Singapore is expected to start seeking VIP rooms granting credit account for 70 percent proposals for the latter IR by the first quarter of of revenue. 2006.

9 Who’s Left? The MICE tussle Mr. Green believes Singapore will pose a greater threat to Macau by drawing goals, perhaps it will look at awarding more casino licenses once the ten- However, Mr. Oliveira could be wrong. meetings, incentives, conventions and exhibitions (MICE) visitors, who will year moratorium on further licenses lapses. Singapore’s initial two IRs will be Las Vegas-based and have to come from farther afield. “The conventions business in China is very impressive, but at least three or four locations are needed before critical mass In October, the Singapore government released its Casino Control Bill for public consultation, spelling out ’s Tabcorp had withdrawn underdeveloped. I would doubt very much that you could make a lot of emerges, and Macau has a big head-start in this regard. money running a MICE business just based on China,” he explains. And in any that casinos and their junket operators would be allowed to extend credit not only to foreigners, but also from the bidding in December. The to Singapore citizens or permanent residents who are “premium players” —those who maintain with the case, “by the time people are affluent enough to be operating conventions remaining four bidders for the Marina casino operator a deposit account of at least S$100,000 (US$61,100). like that, they’ll start to look further afield.” Bayfront IR are, in any case, those The bill is not yet final, and the result of the public consultation is pending, but the likely outcome is that thought most likely to win from the “Conventions may move to the biggest and greatest for a while, but there’s a credit will be allowed. The press and public are more focused on measures to limit the social impact of the outset: the consortium comprising finite group of conventioneers and a finite market for conventions,” says Mr. Also in contention… two IRs and ensure they remain free of criminal influence or exploitation. Harrah’s Entertainment Inc (HET) and Green. “The other place that’s doing it is Dubai. I wouldn’t discount Dubai Singapore’s Keppel Land Ltd; Las Vegas either as a potential source of competition for the MICE business here,” he David Green dons his tour-guide hat and takes us on a quick whistle-stop tour A mixed bill Sands (LVS) and City Developments continues. “Kerzner are building a development there that’s probably similar of other Asian jurisdictions that have casinos, or are considering legalizing in quality to the Atlantis in the Bahamas. Plus Dubai has one of the worlds’ The bill proposes a levy of S$100 (US$61.1) a day or S$2,000 (US$1,222) a year on locals visiting the casinos, them. Ltd; Malaysia’s Genting International biggest and fastest growing airlines [Emirates].” even though potential operators have complained that levies would create difficulties in implementation, and Star Cruises Ltd; and MGM Mirage and of course, would deter locals from making casual visits. (MGM) and CapitaLand Ltd. All the Thailand remaining consortiums are those that The bill also contains a clause which may make it difficult for one company or joint venture to win the bid The ambitious casinos resorts planned for Macau and Singapore aim to bring for both sites. Section 41 of the draft bill says any person who has an interest of 20 percent or more in a had secured local partners to boost “stickability” to destinations otherwise lacking in attractions. If a destination casino operator shall not acquire or hold any share in another casino operator. their bids. has existing draws, then the resorts could bring in even more visitors. Thailand is a prime case in point, though legalization of casinos may take longer than Perhaps the most contentious of the proposed clauses calls for a review of a casino’s operations no later many expect. than three years after it opens its doors. The newly-formed Casino Regulatory Authority (CRA) can then LVS, which owns the Venetian in Las “Everyone seems to think Thailand will happen tomorrow. I’m not sure about decide whether to continue the casino’s licence. This proposal is obviously not welcome by bidders who Vegas and Sands in Macau, plans to could sink in US$2.5 billion or more into developing each of the two casinos. that. The government has other issues which are probably more pressing for spend as much as US$2.5 billion on a them, particularly down south with the Muslim issue,” points out Mr. Green. project that includes a Guggenheim The bill also says the government will ensure there are not more than two casinos licenses awarded during the initial 10-year period, but afterwards, more licenses could be issued. More troublesome is the museum and a 1.2 million sq. foot “Bird flu is not great for them either, because you’ve got to attract capital suggested requirement that casinos give regulatory authorities “advance notice” of arriving junkets, even convention centre. Harrah’s, owner that’s prepared to assess the risk as acceptable. If you’re showing signs of though high-rollers can often decide to fly in for an overnight visit on the spur of the moment. of Caesars Palace in Vegas, has hired political instability, or you’ve got externalities like bird flu or serious issues world renowned architect Daniel like that, people have choices about where they invest their money.” On the plus side for potential IR operators, the government scrapped a rule requiring resort operators to Libeskind to design its project. limit 50 percent of total revenue contributions from gaming, saying it was sufficient to make the intention Mr. Green thinks the push for legal casinos in Thailand is aimed more at clear that the IRs should have substantial non-gaming attractions. bringing back money Thais gamble overseas than drawing in tourists, as Singapore hopes to do. “The Thai strategy is probably more defensive, and Macau has no stipulations on non-gaming revenues (just as well, as only 5 percent of casino revenues are that’s to put Cambodia out of business, because most of the players who go currently non-gaming), levies or limits on credit to locals. What it does have is a very high gaming tax rate, to Cambodia are from Thailand. Various figures get thrown around, but I saw Macau’s edge over Singapore is that it will have a lot more critical mass, with equivalent to 40 percent of gross gaming revenue (35 percent goes to the government as direct tax and a report recently that estimated the loss sustained by Thai casino players a string of casinos and resorts present or under development on the Macau an additional 5 percent as compulsory social and welfare contributions). in Cambodia in 2004 was US$2 billion. That’s a couple of percent of GDP in peninsula along Friendship Avenue and on the (of reclaimed land Thailand.” between and Coloane islands). “A whole strip will have more attraction PricewaterhouseCoopers (Macau) Gaming Practice Director David J. Green points out that Singapore has than two isolated resorts,” believes Mr. Green. “In Vegas, people tend to walk decided to not only impose a lower rate, but also to split it. The standard gaming tax rate outlined in the What has not been discussed is whether Thailand’s future casinos would be the strip. They might have a drink somewhere, eat somewhere else, and play bill is 15 percent, but tax on “premium” play, including junkets, will only be 5 percent. The tax on premium targeted at tourists or locals. The Thai King, whose continued opposition is somewhere else. Go to a show. There’s no doubt that a strip of properties is play will be the lowest in the world, and compares to 6.8 percent gambling tax in Nevada and around 8 proving a major stumbling block to introducing casinos to the country, may going to be a lot more attractive than standalone properties.” percent in Atlantic City. Mr. Green explains the reason for the split is the higher cost of bringing in premium be placated if the casinos were made visitor-only, as in South Korea. and junket players. In Singapore’s favour, the city is a global-crossroads for air traffic and appeals to investors seeking a stable, crime-free environment At present, he Macau South Korea Mr. Green does not believe that Singapore will allow profit share between casinos and VIP room/junket airport offers limited international routes, and Mr. Green feels “the airport’s There are 13 casinos in South Korea, only one of which, Kangwon Land, is operators, as allowed in Macau. Still, with the significantly lower gaming tax rate, Singapore’s casinos have going to be critical in that regard. Can they get some major international open to locals. The casinos draw about 600,000 gamblers a year, mostly from arguably greater flexibility in offering inducements to junkets and premium players. airlines to start moving through it?” And while Macau may have shaken off Japan and China, and South Korea’s gambling revenue is about half a billion with conviction its previous image as a gangster’s paradise, Singapore sits US dollars annually—a tenth of that in Macau. Mr. Green says that because Singapore will allow the granting of credit and have lower taxes, the impact of comfortably at the top of the squeaky-clean league. its casinos on Macau gaming revenue could be greater than many think–though he is confident Macau will South Korea’s first casinos were targeted primarily at high-roller Japanese remain Asia’s pre-eminent gaming destination. The consensus view is that gaming revenues in Singapore On stickability customers, but the new ones seek to draw mass market gamblers from China will only ever be a fraction of those in Macau, which is long likely to hold greater appeal to the massive and Japan. mainland Chinese market, not only because of greater geographical proximity (a billion people live within What Singapore lacks is “stickability.” Mr. Green says “people are either in a three hour flight from Macau, compared to 550 million people from Singapore, and a mere 150 million transit, or stay for a short time. There’s not a whole lot to do.” Singapore’s share from Las Vegas), but also cultural affiliation. of the Asia pacific travel market is declining. Tourists coming into Singapore North Korea stay an average of three days, from four days in 1991, and compared to four North Korea’s casinos are aimed exclusively at mainland Chinese, and they Evidence of that view came after one of the bidders, the Melco-Publishing and Broadcasting Ltd (PBL) joint days in Hong Kong, five days in London and almost a week in New York. Still, are suffering in the wake of China’s crackdown on gambling by its citizens. In venture, announced on January 3 that it was pulling out of the bidding for Singapore’s first integrated Singapore has more stickability, for the moment at least, than Macau. Only December 2004, Chinese investigators disclosed that a government official casino resort, bringing the bidding pack, which began at a dozen, down to merely four. PBL head James around 20 percent of visitors to Macau stay overnight, and they average just from Yanbian in China had gambled away almost 3.5 million yuan (US$420,000) Packer explained: “After carefully examining all aspects of the proposed project, we are of the view that the 1.2 nights in the city. It is hoped this will change once Macau’s ambitious new in public money at the Hong Kong-run Emperor Casino located in a North expected returns from the (Singapore casino) resort are insufficient to justify the higher projected capital casino resorts come online from the second half of 2006 onwards. Korean special economic zone, which catered exclusively to mainlanders. A costs of the project.” string of similar cases prompted a Chinese national police campaign against Singapore hopes its IRs will create as many as 35,000 jobs and help more than some 200 casinos operating along China’s borders. Yanbian’s travel agencies Investors clearly prefer Melco-PBL to focus on Macau, with the share price of Hong Kong-listed Melco double its tourist arrivals to 17 million and triple annual tourism revenue to and tour guides were banned from organising gambling tours, forcing the staging a strong rally following the announcement of the withdrawal. S$30 billion (US$18 billion) in the next 10 years. If it doesn’t achieve those Emperor Casino to shut indefinitely since January 2005. 10 11 In the wake of mainland China’s gambling crackdown, two casinos frequented Legalization would permit proper regulation, which can help eliminate by mainlanders in the Russian port of Vladivostok have closed down, and the the influence of organised crime. “The Atlantic City model is probably the The last issue of Inside Asian Gaming discussed how rather than rushing into Chinese state media reports that between 68 and 84 casinos have closed clearest example of that, where they regulate everybody, from suppliers to the Philippines, foreign investors seem more likely to exit a country beset in Myanmar, Laos and Vietnam since Yunnan provincial police launched a employees to operators,” says Mr. Green. Organised Crime had previously with corruption and lack of transparency. Pagcor responded to the article, campaign against border gambling establishments. been infiltrating Atlantic City’s casinos through supply, “charging excessive writing us a letter which appears on page 6. prices for supplying casinos with fish, for example, and that sort of stuff.” Mr. Green adds: “In Atlantic City, to get a casino license, you need to go through Vietnam and Cambodia a higher standard of security clearance than you need to work for the US Indonesia While the Chinese gambling crackdown has not helped, Vietnam, Cambodia government in a security-cleared position.” While there is probably a substantial illegal casino business in Indonesia, the , Myanmar and Laos were hardly on the way to becoming major gaming only official casinos are on the Bataan island, though their revenues are pretty destinations. Their largely unregulated gaming industries are hardly much inconsequential. “As a Muslim country,” Mr. Green feels the industry in appealing to foreign investors. Malaysia Indonesia is “unlikely to go further.” Genting in Malaysia “just keeps growing. It would be very close to the biggest “Vietnamese casinos are small, they’re restricted to hotels and they’re only integrated casino resort facility there is, though the casino itself is not as big for visitors. They’re not destination resorts at all,” says Mr. Green. In any as Foxwood’s in Massachusetts,” says Mr. Green. India case, gaming does not appear high on Vietnam’s agenda, and for historical A Portugese colony until 1961, Goa is the only state in India which currently reasons, Vietnam does not attract many Chinese visitors—the lifeblood of has casinos, with a total of six, including the casino cruise ship Caravela. casinos in the region. Casinos and gambling remain largely frowned upon in India, though the tide could be turning, and other states are considering introducing legal casinos. One of Vietnam’s two casinos, Do Son, is owned by Macau gambling tycoon Stanley Ho. Taking a leaf from the Koreas, in October 2005, a lawmaker in An ethnic-Indian businessman from South Africa is building a 1 billion rupee Vietnam’s commercial hub, Ho Chi Minh, proposed that the city should build (US$22.6 million) casino in the north-eastern state of Sikkim along with his a casino dedicated to serving foreigners. partner, cricket legend Kapil Dev. The 25 hectare property, scheduled to open soon, will include a 400-room, five-star hotel and casino, golf course, theme In Cambodia, Naga Casino, located in the capital, Phnom Penh, “has park and museum. pretensions of being a destination,” reveals Mr. Green. “That apart, the border casinos are just gambling palaces. A couple of them are tied in with hotels.” Featuring vistas of snow-capped mountains, Sikkim lies on the border with A few years ago, the Cambodian government issued a law stating all the China, and is the first state after Goa to issue a casino license. casinos in Phnom Penh had to be relocated to sites at least 200 kilometres away from the capital—it is rumoured this was because the Japanese, concerned about the proliferation of gambling in a poor country, refused to continue their aid programme to Cambodia unless this was done. An exception was made, however, for the Naga Casino. The owners, it has been alleged, are very well connected in government and military circles, but the operation has not escaped the attention of international drug enforcement Macau’s 16.7 million total visitors in 2004 pales in comparison to Genting’s 23 agencies, which in internal reports have mentioned the casino as a centre for million visitors a year, though that figure includes people day-tripping out of the laundering of drug money. Kuala Lumpur. Still, Genting has been around since before gaming in Macau started taking off, and as such, poses no threat to Macau. Genting is not trying At least 13 other casinos operate away from the capital, mainly along the Thai to attract the junket market, but rather, a tourist/local market. border, and cater mainly to Thai clientele. The casinos stand out in contrast to the squalor of their countryside surroundings. Genting International is currently bidding for a license to build an integrated resort in Singapore, and is the only casino that is likely to be allowed to In September 2005, Macau casino operator Greek Mythology Entertainment operate in Malaysia “while current government is in power. It’s been in power Group scrapped its plan to build a Cambodian casino resort in Poipet on the since the 60s.” Thai border on fears that Thailand’s imminent plan to legalize casino gaming would drain the project of Thai customers. The Philippines The Philippines has ambitious plans to develop the country’s gaming industry, Taiwan including a vision of a theme park built on a reclaimed 250-hectare site along Mr. Green points out that India is “no threat to Macau, but by the same token, Taiwan has been considering developing offshore casinos on its Penghu Manila Bay, which is hoped will attract US$15 billion worth of investment it’s an economy that’s performing pretty well. You wonder whether it wouldn’t islands for a while. The casinos would naturally target mainland Chinese within ten years. Thus far, no one has put up the US$1 billion investment have a big home grown market.” gamblers, though mainlanders would have to come via either Hong Kong or needed to jump-start the project. Macau due to the ban on direct air links between Taiwan and China. Mr. Green gives a possible explanation: “To get investors who have got the The Taiwan press periodically reports on the resumption of deliberations clout to do it, you’re really talking about American, Australian, maybe a couple Nepal At the moment, many Indians get their gaming kicks in Nepal. The country on bringing casinos to Penghu, and each subsequent report receives less of other places. If they’re faced with a choice between unstable political has six casinos, all based in five-star hotels in the capital, Kathmandu. attention. Yet a source we are not at liberty to divulge leads Inside Asian environments riddled with corruption and stable governments, where do Gaming to believe that Penghu could sprout casinos in the not too distant you reckon they’ll go?” Nepal’s first casino opened in 1968, and the country has now prepared a future. draft bill to regulate the industry. Clear regulation could bring in foreign Mr. Green continues: “It was recognised that major groups which had licenses investment, though Nepal’s casinos would suffer if more Indian states legalize in the US will only come into an environment which has a reasonably strong gaming. Japan regulatory framework. They can’t afford not to, because if they conduct Inside Asian Gaming ventured to Japan to report on the country’s biggest themselves in a manner that’s objectionable to the Nevada regulators, they’d industry and quasi-national pastime, , which is basically gambling, be under pressure [and could possibly lose their licenses back home].” but because it isn’t recognised as gambling by law, is dominated by organised A former Australian gaming regulator, David Green heads the gaming crime and corrupt police. Gaming in the Philippines is monopolised by the state-owned Philippine practice of PricewaterhouseCoopers in Macau, having originally come Amusement and Gaming Corporation (Pagcor). The trouble is that “Pagcor is to the city in 2001 to conduct the feasibility study on the liberalisation A full report on the moves towards legalizing casino gaming in Japan begins really its own regulator, so the regulatory framework as such is almost non- of the local gaming industry. He also consults for both the Macau and on page 22. existent.” Singapore governments on gaming regulation.

12 13 Sure Bets Melco shares are looking awfully attractive, but remember, share prices can go down as well as up

Citigroup says investors should focus

more on the firm’s net asset value and

completion schedules of its two major

projects in the works, rather than its

immediate earnings.

Baccarat players in Macau’s casinos can often be spotted carrying strips of Melco’s revenue for the time being is largely attributable to Melco’s six The first of those major projects is the HK$2 billion (US$256 million) Crown he house advantage dictates that over the long run, for every dollar you bet paper charting “patterns” of past outcomes (e.g. two banker wins, followed Mocha Slot outlets, through which the company controls 30% of Macau’s slot Macau being developed in a joint venture with James Packer’s Publishing & on baccarat, you will, on average, lose 1.17 cents on each banker bet and 1.36 by a player win, then two more banker wins… the “pattern” dictates the next machines. The number of slot machines in Macau has jumped from 814 in Broadcasting Ltd (PBL). The Melco-PBL joint venture is also building the US$1 cents on each player bet. Play long enough and big enough, and you will lose outcome will be a player win). Statisticians scoff at such behaviour, because 2003 to over 3,000 by the end of 2005. Still, there is much room for growth, billion , an integrated entertainment complex featured with quite a bit. Everyone is aware of the casino caveat, “the house always wins.” future outcomes are independent of what happened before. with the ratio of slot machines to gaming tables in Macau still just over two underwater casino. Melco plans to recoup the entire City of Dreams investment times, compared to over 20 times on the Las Vegas Strip. within “18 months after commencing operation in mid 2008,” according to Unlike casinos, stockmarkets offer what appear to be tantalisingly sure bets. In stockmarket investing, however, charting past patterns is a legitimate way Lawrence Ho. At the beginning of 2006, financial giant Citigroup said it believed each share to predict future outcomes. US funds have been aggressively buying Melco Mocha’s new outlets alone will add 2,500 more machines by the end of 2006, of Hong Kong-listed Macau gaming-play Melco is worth HK$15, when the shares since the beginning of the year, using past patterns as their justification. and by 2010, CLSA predicts Macau will have 14,000 slot machines. Meanwhile, Lawrence Ho’s plan, like the HK$15 price target, is far from assured. However, shares were trading at around HK$9. It seemed like investors had a sure way of They recall that Nasdaq-listed Wynn Resorts jumped 80% in the run up to the PriceWaterhouseCoopers (Macau) gaming practice director David Green when sentiment favours your bet on the stockmarket, you can sometimes score making 67 cents on each dollar. company’s casino resort opening in 2005, and point out Melco will open its predicts there could be as many as 13,000 slot machines by 2008. a sure win. When the likes of Citgroup buy aggressively and convince others to Crown Macau complex in September 2006. follow their lead, the outcome of their bets can become self-fulfilling. Soon after Citigroup issued its call, Melco’s share price began a steady ascent, Though slot revenue could multiply exponentially over the coming years, but and as of mid-January, was trading at around HK$12. Melco has proved a great Melco’s price to earnings ratio of about 120 at a HK$12 share price compares recent growth has been subdued, with Melco’s revenue rising 19% in the first buy, with the share having risen steadily from just over HK$2 in September to P/E ratios of 69 for New York-listed and 24 for Harrah’s. But half of 2005 to HK$250.7 million (US$32.1 million). Citigroup says investors 2004. Still, that’s no guarantee it will continue to rise, and the only sure winner the P/E ratio is based on past earnings, and it is Melco’s future earnings that should focus more on the firm’s net asset value and completion schedules of is your broker, who earns a commission on each of your trades. investors are eyeing as they push its share price ever higher. its two major projects in the works, rather than its immediate earnings. 14 15 The Crystal Palace, Hotel Lisboa Home Court Advantage STDM’s Ambrose So explains why Stanley Ho and Co aren’t exactly sweating the arrival of competition.

tanley Ho’s Sociedade de Turismo e Diversões de Macau (STDM) is Macau’s and Stanley Ho’s right-hand man, Ambrose So, responds: “In the world of biggest business group and employer.STDM subsidiary Sociedade de Jogos competition you can have sympathy for your competitors, but you don’t feel de Macau (SJM) is the city’s dominant casino operator - running 14 of the city’s sorry for them.” So stresses the advantages of STDM’s extensive network, while 17 casinos - and according to investment bank CLSA, SJM will retain a 50% other operators are restricted, at the moment at least, to just one premises. share of gambling revenue by 2008. STDM owns major stakes in the city’s top hotels (the Mandarin Oriental and Westin), several other hotels, flag carrier Air STDM is also Macau’s largest landowner. In the previous issue of Inside Macau, as well as the airport, jetfoil and helicopter services by which over 40% Asian Gaming, Jorge Oliveira, the Commissioner for Legal Affairs of Macau’s of visitors arrive in Macau. Commission for Gaming, explained that STDM’s huge land bank is what has allowed Melco, the Hong Kong-listed company run by Stanley Ho’s son, Passengers on the TurboJET jetfoil from Hong Kong to Macau are bombarded Lawrence, to invest so heavily in gaming machines. “If they have an unlimited with advertisements for the Tiger Slot lounge at STDM’s , offering gaming floor, it makes sense that they try to drive out the competition by HK$50 (US$6.4) “Slots Freeplay” in exchange for their used ticket stubs. reserving a part of that for machines.” Thus, “the only entity that is investing Freeplay of HK$50 and HK$100 is offered for receipts from other STDM-owned heavily in machines is Melco.” restaurants and cafes. STDM’s other advantage is that it is only subject to local regulations, while Through its extensive transport, retail, dining and hospitality network, STDM the Vegas-based concessionaries, Las Vegas Sands and Wynn Resorts, must has a wealth of potential promotional weapons in its marketing arsenal. It’s also adhere to the tough restrictions of Nevada regulators. So points out almost enough to make you feel sorry for it’s competitors. STDM director that Macau’s regulations are being made more stringent, and says, “I guess 17 Personnel Chat

Lisboa’s croupiers are clearly older, on average, than their counterparts at Sands Macau. Some can be downright moody, while others offer grandmotherly advice. Some of the baby-faced dealers at the Sands occasionally wrongly total hands, so keep track and alert them if the miscounting is not in your favour. The old bats at the Lisboa may well be incapable of smiling, but brash young croupiers grinning as they turn up that improbable card to trump the player’s hand could well get an ashtray or HK$100,000 chip to the head.

Another difference is that while there is a chance you could end up having an entertaining conversation and getting sage advice from a croupier at the Lisboa, those at the Sands are instructed by management to avoid conversation with customers. The quality of conversation can vary as much as your bankroll, but that’s a gamble you can decide to take.

Ambrose So admits that the service provided by Sands’ employees is more consistent, explaining that, “They are small, we are big. We have had people working for many years, and theirs are all new recruits. They can have a new set of standards. Our standards change as time requires, so there may be some staff lagging behind. But we also give them refreshment courses to retrain them.”

Asked whether STDM worries the worsening labour crunch will make recruitment more difficult, especially given aggressive recruiting by the likes of Wynn Macau, So replies: “We are recruiting people on a routine basis. We do not put up advertisements as grand as Wynn. The whole issue is whether you feel secure in your job. SJM’s employees have no doubt about their job security, but if they go to a new environment, it’s a little bit uncertain for them.

Oceanus

Who’s adapted?

the American concessionaires would like to lobby as much as possible to When Sands Macau opened its doors in May 2004, many claimed that SJM’s gambling in VIP rooms, while ordinary folk had to jostle for position three or smokers on your wardrobe. Now, the Lisboa has made the entire first floor narrow the gap so they would have a level playing field here.” He adds, “They casinos would have to improve their offerings or lose out to the glitzy five-deep at the big/small tables. The minimum bet at the Sands’ big/small mass gaming area a strict no-smoking zone, restricting smoking to the second are subjected to their home regulations, while they are also complying with Americans. While Vegas has indeed forced Macau to up its game, the enclave tables started out at a mere 50 patacas (US$6.25), compared to the Lisboa’s floor. SJM has also renovated the gaming areas, and added glitzy new room regulations here. At the present moment we have an advantage because we has also made Vegas adapt, with So claiming, “I think they learned more from 100 patacas (US$12.50). A new market was opened up, but it was one the such as the Crystal Palace. are only subject to one set of regulations.” us than we did from them.” Sands - merely Venetian Macau’s provisional foray into the city - was unable or unwilling to deal with. Now, the minimum bet at the Sands’ big/small tables is By bringing more tables to Macau, Sands has eased congestion at the Lisboa. Still, So asserts that STDM’s goal is not to trounce the competition, but rather, When Sands opened its doors to the public, the things that most set it apart a hefty 300 patacas, while the Lisboa retains 100 pataca tables, making it more The crowds are now a more manageable two-deep around the tables of both to secure its niche in the market. “We would like to complement each other, were its windows, providing gamblers a visual connection with the outside low-roller friendly. Only when more gaming floor space opens can the Sands the Lisboa and Sands. The Lisboa has spruced itself up, and offered promotions we are not afraid of challenges. We are not afraid of competition. We have our world. Chinese, reputed to be the most hard-core gambling ethnic group, are hope to realistically bring in people who may still be put off by the 100 pataca including a cash prize lucky draw. What’s more, as a Macau landmark, the Lisboa own market that we can excel in, and we have our own network. I think each known to lose all sense of time as they gamble for days with no sleep, gulping minimum. will always have its draw. It is other old SJM establishments, such as the Jai-Alai, operator will get their fair share in the market in due time.” down bottles of thick black chicken essence to fortify themselves. None of which have seen steep fall-offs in business since the Sands opened. Macau’s other casinos have windows. Sands had also tried to kick-start Macau’s business to attract the STDM also remains focused on its turf, and So emphasises the need to mass market. Slot machines account for close to 70% of total gaming revenue So points out that “when they [the US based gambling licensees] submitted “consolidate our position here” ahead of the arrival of ambitious new casino Sands’ spin-doctors (the same who, no doubt, spread that now forgotten in Nevada, while they make up closer to 2% of revenue in Macau. A cursory their bids, they said they would build convention halls, exhibition centres,” and resorts from Wynn Resorts and Las Vegas Sands by 2007. SJM has no interest, chandelier boast) claimed the exclusion of light is a means to make walk along the idle banks of slots at the Sands, however, indicates that they’ll other dazzling leisure and entertainment facilities. However, “once they settled for now at least, in bidding for casino licenses elsewhere in Asia, and So gamblers dizzy, and keep them gambling away oblivious to their surroundings. have to do more than just install machines with cute Chinese illustrations to in Macau, they said nobody is looking for that, and they all built casinos, table dismisses the threat from Singapore to Macau’s future gambling revenues. “I They said Sands heralded a new era of open and fair . Well, convince gamblers here to feed the “hungry tigers” (as slots are referred to in games.” Sands Macau is scaling down its famous buffet to make way for more think they [Singapore] just want to add in that small gambling element into the spin-doctors offered no explanation of why the windows have now been the Cantonese dialect). table games, and “even Wynn here don’t have a big theatre like the one in the their entertainment business to be more competitive in the region. They see covered with semi-opaque drapes. Bellagio,” he argues. “We’ll have to wait and see if they really bring in these big the success story of Macau and Disneyland in Hong Kong. They do not want One of the drawbacks of the Lisboa used to be that after half an hour on the Las Vegas performances.” For the time being, installing big LED screens and to lag behind. They want to add a little gambling element into their tourism When Sands opened, it consciously sought to tap the neglected mass market floor, your clothes would reek of cigarette smoke, while the more up-to-date running more advertisements is the main way in which SJM has followed the sector. I feel Singapore will not develop that gambling element in a big way.” - knowing three quarters of Stanley Ho’s revenue is derived from high-rollers air circulation system at the Sands mitigated the impact of Mainland chain- lead of Sands Macau. 18 19 So also claims that in installing more tables, the US operators have learnt from SJM, since in Vegas, their gambling halls are dominated by slot machines, not tables, with the tables doing most business with “Oriental people during festive seasons.”

Of course, one of the main strengths of the new operators is that their facilities will be brand new. “In terms of gambling halls, we are lacking in better hardware. Lisboa was built in the 1960s, the ceilings are low, and it’s very cramped. Now people are looking for a more comfortable environment, and so on, which we will provide in the Grand Lisboa.

The HK$3 billion (US$385 million) Grand Lisboa will consist of a four-storey casino and a 44-storey, 600-room hotel in the shape of a giant golden lotus, and at 225 metres high will be the tallest building in Macau. The first phase of the Grand Lisboa is scheduled to open in late 2006.

An even more colossal STDM addition to Macau’s landscape will be the HK$6.2 billion (US$795 million), 3.2 million square foot Oceanus. Slated for completion in 2009, Oceanus will replace the existing jetfoil pier as the city’s eastern gateway, and will include a 600-room, six-star hotel, retail outlets and a casino. SJM-operated casinos will also open in the HK$1.5 billion Crown Macau, the HK$2.4 billion Ponte 16 and HK$1.9 billion Fisherman’s Wharf projects in 2006.

Muted IPO

SJM is conducting feasibility studies on launching an initial public offering (IPO) on the Hong Kong stock exchange. But it’s all very tentative at the A Bit Fishy by Edwin Karmiol in Tokyo moment. “We haven’t reached any concrete conclusions yet. We haven’t even decided the Environmentalists cheer the disappearance of whale meat from supermarket shelves across Japan, but international casino operators are value of the listing,” says So. not so pleased about the disappearance of Japanese ‘whales’ (the highest of high-rollers) from their VIP gaming rooms. However, the With its impressive cash flow, SJM is in the enviable Japanese remain the biggest gamblers in the world - though technically, they’re not gambling. position of being able to finance all of its current investment projects out of it cash flow. “It’s not absolutely necessary, so that’s why we are studying offering “gifts” instead of money in return for Organised crime groups have maintained the feasibility,” comments So. The downside of an t takes balls of steel to gamble in Japan - and winning balls, with prizes including cheap tie their adversarial relationship with the police IPO is that it would involve company restructuring not just because of the pervasive influence of pins, cigarette lighter flints and chocolate. Since by producing fake cards, which are exchanged and make SJM’s operations subject to greater organised crime and crooked cops. The balls cash payoffs exceeding 10,000 yen (US$89) are for balls, which are in turn exchanged for cash. regulation and scrutiny. In the wake of the Banco are the basic element of pachinko, the biggest illegal, players can trade their prizes or specially Meanwhile, the disreputable nature of pachinko Delta Asia fiasco (the Macau bank was accused by industry in the world’s second biggest economy. marked flints for money at covert kankin (prize has left the running of the parlours largely to the US Department of the Treasury of laundering Pachinko revenue is estimated at around US$300 exchange) booths located outside the pachinko ethnic Koreans, and there are allegations that money for North Korea), however, SJM may find billion annually, equal to five times the gambling halls. The kankin booths are predominately run by pachinko funds are funnelled into North Korea. it worth its while to submit itself to scrutiny and industry in the entire United States and 10 times organised crime groups who resell the goods to proclaim its transparency via an IPO. Las Vegas’s gambling revenue. It’s a fishy industry, the pachinko operators. Japan does have legal gambling on horse, bicycle, to say the least. boat and motorcycle racing. Wagering on racing The police have also “cut themselves a piece of was legalized in the late 1940s and early 1950s, a Steel or wooden balls are bought for cash in the the pachinko pie,” claims JapanVisitor.com in national was approved in 1948 and sports pachinko parlours and shot up nail-studded its pachinko guide. “By instituting regulations betting was permitted in 1998. Still, all of Japan’s boards, in a vertical version of pinball. The balls to ensure that the most popular machines can legal gambling combined is worth only a third of bounce around on the way down with about one only be played with pre-paid cards rather than the pachinko industry. in ten landing in winning slots. Balls which fall cash, they have entered into a cosy relationship into the winning holes set off computerised slot with card producers. As a matter of course, There are about 5 million pachinko-type machines machines and three of a kind means a jackpot retired police officers get highly paid jobs with operating throughout Japan, compared to 2.4 delivering a bounty of more balls. Pachinko the companies which profit from selling cards to million slot machines in the rest of the world. parlours get around the ban on gambling by pachinko parlours.” Pachinko employs a third of a million people 20 21 Going straight

Swimming Into the Void - three times more than the steel industry - and In 1999, Tokyo Governor Shintaro Ishihara unveiled leader to replace Ms. Noda, in an attempt to revive Pachinko employs a third of a million people - three times more than it commands roughly 30% of Japan’s leisure his pet project to legalise casino gambling, rallying the casino negotiations.” Chinese gamblers are filling the industry, including restaurants and bars. behind him the heads of 30 Japanese prefectural the steel industry - and it commands roughly 30% of Japan’s leisure void left by diminishing numbers and municipal governments. The interested parties Although the central government rejected the industry, including restaurants and bars. of ‘whales’ and high-rollers in the It would seem logical for the Japanese government shared the view that casinos would improve anticipated casino gambling legislation in 2005, to cast off the pretence that pachinko is not the stalled economies of their cities and create Kimura remains undaunted. “A decision will be rest of the world, particularly Japan. gambling, and replace it with regulated casino new jobs. But with Japan’s recent and gradual taken before long.” “The Japanese underwent a major gaming. This would cut off funding to organised economic recovery as well as the ongoing social, economic upheaval, so they’re no crime groups and provide more wholesome legal and political obstacles, casino opponents A further setback, however, was the announcement longer the high-rollers and the venues for the Japanese to fill their gambling hope that the approval for gambling facilities will that the Tokyo Metropolitan Government (TMG) ‘whales’ that they used to be,” explains desires. It would also prove a boon to government be shelved indefinitely. plans to sell the 11-hectare plot of land intended Las Vegas Sands Chairman Sheldon coffers and perhaps boost tourism. for the construction of a casino-hotel complex Adelson to Inside Asian Gaming. “To Keiichi Kimura, the representative of Casinos at Odaiba. This popular and dynamic man-made us a ‘whale’ is somebody who will bet Osaka University’s Ichiro Tanioka, who has Austria International in Japan, acknowledges that, island in Tokyo Bay, which is a mere 10-minute conducted a series of studies on behalf of Japan’s “99% of Japanese do not have a good image of monorail ride from downtown Tokyo, attracts the maximum. The maximum in Las Liberal Party, believes Japan is on the verge of casinos.” To dispel this unfavourable impression, some 40 million visitors annually, and has been Vegas is about US$150,000 per hand, introducing legal casino gaming, though obstacles Kimura has spent the last two years in countless earmarked as an ideal site for a casino. A rapid sale and a hand takes anywhere from 30 clearly remain. Tanioka estimates that there are discussions with leaders of economic and political would help the Tokyo Metropolitan Government to 60 seconds. Depending on who you 200,000 illegally run underground casino-bars groups, and led them on tours to European (TMG) recover 140 billion yen (US$1.2 billion) of talk to, the estimates of the number of called “shanties” in Japan, that generate over casinos. Following those inspection trips, “most of the 500 billion yen (US$ 4.34 billion) it invested to ‘whales’ in the entire world go from US$10 billion in revenue annually. the participants realised that their initial prejudice develop this waterfront district. 50 to 250. That’s all. High-rollers there toward casinos was misplaced,” claims Kimura. are many.” Adds Adelson, “I would say During a raid on one of those illegal casino-bars run Many officials and political organisations argue by the yakuza (Japanese organised crime groups) The speedy introduction of casinos in Japan that the legalisation of casino gambling would more than 50 percent of the ‘whale’ in Tokyo’s entertainment area of Shinjuku, police nevertheless seems unlikely, as Seiko Noda, a attract more foreign tourists and increase local market is Chinese, and more than 50 discovered that betting in that one establishment former Posts and Telecommunications Minister, business. The TMG estimates that in the early percent of the high-roller population amounted to an estimated one trillion yen and an influential casino promoter, unexpectedly stages, casinos would create about 14,000 jobs [those betting between US$10,000 (US$8.69 billion) annually. That translates to about quit the Liberal Democratic Party (LDP) in and generate an additional 118 billion yen to US$50,000 per hand] I would say is US$500 million in revenue or more going into the November 2005. This temporarily stalled the (US$1.02 billion) in annual taxes. also Chinese. It could be much more, yakuza’s pockets - two of those casino-bars would activities of the association of about 100 LDP and it’s the fastest growing segment equal revenue at Sands Macau, which reached lawmakers that Noda established to pursue Osaka University of Commerce’s Professor Tanioka without a question.” a new high of about US$240 miilion in the third the casino project. But Kimura points out: “I believes that “Japanese casinos, if any, would quarter of 2005. understand that deliberations are presently being be owned by local governments and managed conducted within the government to select a new by private entities. Local governments would therefore own at least 50% of the stock and would not have to impose taxes on it. Both the local governments and casinos would benefit economically.” Opening casinos would also support Prime Minister Junichiro Koizumi’s new national policy to boost tourism. He stresses the importance of doubling the annual number of visitors to Japan to 10 million by 2010.

Legal casinos would also bring back some of the billions that Japanese people spend on overseas gambling trips. It is believed that between 5 and 12% of the 16 million Japanese travelling abroad visit foreign casinos.

Casinos Austria International’s Kimura asserts that “there are many wealthy Mainland Chinese who would come and gamble in Japan if casinos with authentic Japanese themes were established.”

“Japanese casinos would follow the European style and provide higher quality. Casinos in Las Vegas and Macau have the same style and consist of a huge entertainment complex. We want to be different,” states Kimura.

Given pachinko’s gangland affiliations, many fear the underworld will eventually infiltrate Japan’s future casinos too. Inside Asian Gaming asked former racketeer turned TV commentator, Manabu Miyazaki (whose late father was a yakuza), whether he thought criminal elements would infiltrate Japanese casinos. He answered in the assertive, 22 23 It is still unclear when casinos will be

allowed to open in Japan, but this

has not prevented the “Japan Casino

School” from opening in Tokyo and

starting to train croupiers

Manabu Miyazaki adding, “the most vocal opponents of casino legalisation are the police force” because “while the yakuza originally controlled the pachinko parlors, the business has been basically taken over by the police.”

Raisuke Miyawaki, a former director of Japan’s National Police Agency, explains that the reason that the Japanese government is reluctant to allow casinos is “a peculiar cultural concept,” the Japanese sense of responsibility. Passion for Pachinko “If, in the Western world, someone loses his money through gambling, that is considered to be his In Japan, between 40 and 50 million own fault,” he explains. “In Japan, many people people - roughly a quarter of the tend to think that the gambler’s losses are not adult population - play pachinko at his fault. Rather, they believe that it is the fault least occasionally, and as many as 30 of a bad system for which the government is to million are avid players. Pachinko is blame.” Miyawaki currently serves as president said to have been invented sometime of an association of pachinko parlour owners campaigning for legislation to eliminate yakuza after World War II in Nagoya, though interference in their operations. the date is sometimes questioned. Raisuke Miyawaki As with other forms of gambling, It is still unclear when casinos will be allowed to there are some who swear that open in Japan, but this has not prevented the pachinko requires skill. Through skilful “Japan Casino School” from opening in Tokyo and manipulation of the actuating knob, starting to train croupiers. Toshiya Ito, its Chief “veteran” players can supposedly Administrator, says that since its inauguration in control the propulsion of the balls, April 2004, 130 people have graduated from its six-month course. Still, until the government gives influencing where they land. clear word that casinos will be legalised, forking out the 698,000 yen (US$6,069) tuition fee is ‘Accomplished’ pachinko players something of a gamble in itself. can pocket between US$200 and US$1,000 a day, and sometimes a lot Back in 2003, Mayumi Moriyma, the then Justice more. One “veteran” player, Tetsuo Minister, admitted that it would be difficult to Makino, Akino has opened a Pachinko change the penal code that forbids gambling, Museum displaying vintage machines but proposed creating a new law to legalise casinos. The Japan Times quoted her saying: “It in Tokyo. During his youth, he often is possible to enact a special law designed for a skipped classes to play pachinko. specific purpose.” Her attitude reflects a political Between 1985 and 1987, he claims to pragmatism that gives the pro-casino lobbyists have won an average of US$1,739 per cause for cautious optimism. month and, at times, up to US$52,173.

Keiichi Kimura 24 Greece is only around 150km away and though a competitive market, it is nonetheless quite large Kaliningrad, Russia Las Vegas in Europe? and has room for expansion. Upon arrival in Kaliningrad Oblast (region), you get the impression you’ve travelled back 20 years in Combined with general and shopping tourism, time to the Soviet era. In pouring rain, Kaliningrad Macau to the East, Vegas to the West – the world’s hottest gaming destinations lie at opposite ends of the map. Ohrid could emerge as a gambling Mecca for the certainly does not strike you as a place where Southern Balkans. tourists might flock in the near future. Grey is the Kristian Nygaard takes a look at possible future gaming hotspots in the middle. dominant colour. However, the area does have its prospects. Not far from Kaliningrad City you Crimean Peninsula, Ukraine can find the beach resorts of Zelenogradsk and Another well established tourist destination in Svetlogorsk, which are both nice and cosy small middle of Central Europe makes this city a winner. Eastern Europe in the former Soviet Union. The towns. In fact, these are among the very few beach Blackpool, UK Vienna is only half an hour away and a surge in the Crimea used to attract Communist Party officials resorts that are still part of Russia. And since the Already possessing a very clearly defined “fun- number of low-cost flights to and from the nearby and anyone else who could afford it. The area, enclave of Kaliningrad is isolated from the rest of in-the-sun-and-sand” tourism profile, the step airport means that access to future gambling areas known as the Crimean Rivera and compromising Russia, the Russian administration has launched towards gambling in Blackpool is not far away. near Bratislava will be easy, quick and cheap. When such resorts as Simferopol and Yalta, has abundant cheap, subsidised flights from the Russian Recent changes in legislation towards less strict combined with the low cost of doing business in hotels, rest houses and vacation homes as well as mainland. All factors combined, the Kaliningrad everal new gaming hotspots are likely to laws for casinos in the UK favour this. Blackpool Slovakia, Bratislava could in 5-10 years rise to be a other tourism facilities. Combined with the low area could become a major tourism destination emerge in Eastern Europe over the next few years, has a long tourism history and a reputation based real star on the Eastern European tourism scene. cost and the good connections through air and in Russia within the next decade if marketed and thanks to more liberal regulation of gambling in on the beach, piers and the tower located in the rail to other parts of the former Soviet Union, the developed in the right direction. the former Eastern Bloc countries and the lower city. The area also benefits from its proximity Ohrid, Former Yugoslav Republic Crimean Peninsula could with the right marketing costs of setting up shop there. However, don’t to major urban areas such as Manchester and effort become a destination that attracts many Desire’s the determinant discount the West. Favourable laws have recently Liverpool, and already attracts many visitors from visitors within this growing market. been passed in the UK, which should mean more these areas. of Macedonia There is definitely potential in Europe for one or gambling in a less restrictive way. The following Before the war in former Yugoslavia, this was several destinations to develop as future gaming list of likely future European gaming hotspots one of the premier inland destinations in the Jurmala, Latvia hotspots. And although on-line gambling is is by no means authoritative, but I believe these Bratislava Area, Slovakia southern part of the country. Now, it is once again growing and the possibilities of reaching overseas on a winning streak. Situated at one of the most This town, located very close to the Latvian capital gambling destinations are getting easier, the future areas, with certain changes and with the right A true destination for the future – not only beautiful lakes in Europe, the city already boasts Riga, is one of the oldest resorts in Eastern Europe qualities of these destinations should prevail. My guidance, could well end up as new Las Vegases for gambling, but also as an all-round tourist numerous tourism facilities. A strong position dating back to the beginning of the 19th century. It experience as a tourism consultant tells me that in the Old World. destination. Bratislava’s excellent location in the could be obtained within the Greek market. is rumoured that one of the first railways to be built probably the one determining factor more than during Czarist Russia was between Jurmala and anything else is the desire of city officials and local Moscow. Even back then, the 30km long stretch businesses to really succeed. I am convinced that of sand and the fresh water of the Baltic Sea held if any of these places really go for gambling and much appeal. When the Soviet Union collapsed, include it within their local tourism strategy plans, the independent state of Latvia inherited a they can do it. severe pollution problem and its waters became hazardous to bathe in. However, today, with much cleaner water and reduced pollution, the 30km KRISTIAN NYGAARD ([email protected]) stretch is still there. Now construction is underway is a Copenhagen-based tourism and gambling on modern hotel and other facilities. Jurmala has consultant. His company, International Tourist an almost perfect position as a future gambling city. The capital of Riga is only 20 minutes away Consultants (ITC), has worked with casinos in Sweden and from the airport there are connections to the and Lithuania as well as tourism assignments in rest of Europe as well as a growing number of ferry Russia and Denmark. lines to Scandinavia and Germany.

Vienna is only half an hour away and a surge in the number of low-cost flights to and from the nearby airport means that access to future gambling areas near Bratislava will be easy, quick and cheap

Probably the one determining factor more than anything else is the desire of city officials and local businesses to really succeed

Or Europe in Las Vegas? Not-so-sunny Kaliningrad 26 27 Cotai’s Island Annex Las Vegas Sands ventures beyond the Macau frontier in its quest for more space.

Before Macau commenced on its heady tourism and gaming-driven boom in 2003, international journalists describing the city unfailingly drew on the stock adjectives “sleepy”, “seedy”, and “tiny” in their reports.

Macau is now decidedly not sleepy and reports on the city these days are dominated by its dynamic gaming industry, rather than its seedy side, which has become less visible and a lot less violent after China regained sovereignty of Macau in December 1999. However, Macau will always be tiny.

Granted, it’s not as tiny as it was in 1912, when its land area was a mere 12.7 square kilometres. Through tireless reclamation of land from the sea, Macau’s land area has grown to 27.5 sq. km, and the government plans to expand that by a further 13%, or 3.6 sq. km, to 31.1 sq. km over the coming years.

With 482,000 residents and a lot more on the way to staff the ambitious new casino resorts currently under development, Macau will remain the most densely populated place in the world. The government expects the 3.6 sq. km of land it plans to reclaim to accommodate up to 120,000 people.

Much of the recent reclamation went into creating the Cotai Strip between Coloane and Taipa islands, intended to rival the famous Las Vegas Strip. Cotai could eventually house more than 20 resorts with 60,000 hotel rooms, or nearly half as many as in Las Vegas.

US-based Las Vegas Sands (LVS) is spearheading the Cotai Strip with the US$2.3 billion 3,000-suite Venetian Macau, set to open in mid-2007. Yet LVS is keenly aware that more space is needed for holidaymakers seeking more than just Vegas-style shows and gaming.

Sitting strategically adjacent to Cotai in Mainland China is underdeveloped Hengqin Island, with a mere 3,000 inhabitants but three times the land area of Macau to expand into. Hengqin belongs to Macau’s Mainland neighbour, the city of Zhuhai in Guangdong Province.

At the moment, Hengqin’s only notable industries are a rock quarry and oyster farming. If LVS has its way, the island will soon become a fully-fledged convention- based, lifestyle destination resort to complements its entertainment developments on the Cotai Strip.

In October, LVS announced it had been selected by the Zhuhai Municipal People’s Government to proceed with master planning the development of Hengqin, with a projected capital outlay of over US$1 billion. The Hengqin Island Resort development will occupy over 1,300 acres of land and feature a diversified mix of leisure, tourism and convention amenities including top-rate hotels and villas, convention facilities, a marina and yacht club, an outdoor amphitheatre, and golf, tennis, fishing, and other leisure and recreational activities.

LVS President and COO William Weidner has signed a non-binding agreement with officials from the City of Zhuhai and Guangdong Province, the terms of which do not require the company to fork out any significant funds until further, more definitive plans take shape and subsequent agreements are reached with Mainland officials.

A blueprint for the mega resort has started to take shape in anticipation of groundbreaking on the first phase expected this summer, marking the company’s maiden foray into the Mainland. According to Weidner, “The timing of the development fits perfectly with the development cycle as it relates to the construction of the Cotai Strip.”

LVS may have been the victim of a sectoral bear market, with its shares trading at 45% below their highs at the end of 2004, but the company’s approach towards the Chinese market is nothing short of bullish. The opening of the Venetian Macau, adding 3,000 suites to Macau’s current stock of about 10,000 hotel rooms, will be a first indicator of whether that bullishness is prophetic, or merely misplaced.

Where barren rock quarries now stand, Las Vegas Sands envisions a plush tourist magnet 29 average stay of three days, the number of hotels in Las Vegas is 15 times higher than in Macau. Despite Increasing importance of non-gaming revenue Armani, Dunhill, Hermes, Omega, Hugo Boss and the relatively high number of hotel rooms in Las Salvatore Ferragamo. This is a very low number 18,000 (US$m) Non gaming revenue Vegas, the occupancy rate has been averaging Total gaming revenue relative to Hong Kong, where there are multiple Mainland Chinese spend less on hotels 16,000

more than 80% in the past few years. 14,000 sites for each of the major brands.

50 % of total spending spent on hotels 12,000 Although Macau could soon Disproportionately higher number of rooms in Las Vegas 45 10,000 than Macau 40 8,000 inch past the Las Vegas Strip to 35 6,000 Snatching shoppers from Hong Kong 30 4,000 We believe there is significant potential to tap Macau Las Vegas Ratio become the world’s leading gaming 25 2,000 the Mainland Chinese visitors that are currently Average daily no. of tourists 45,683 102,435 2.2 0 20 travelling to Hong Kong to shop. According to the market, it will still trail far behind Average length of stay (days) 1.2 >3.02.5 2004 2005CL2006CL2007CL 2008CL 2009CL 2010CL 15 No. of hotel rooms 9,168 131,503 14.3 Hong Kong Tourism Board, a high level of total Vegas in terms of hotel, dining and 10 Occupancy rates (%) 7690 Source: CLSA Asia Pacific Markets spending is allocated to shopping – 82% for same- entertainment revenues. CLSA’s 5 day visitors and 59% for overnight visitors, with Source: Macau Government, LVCVA, CLSA Asia-Pacific 0 Mainlanders allocating a greater level of spend Aaron Fischer sees potential for Markets USA EuropeAustralia North South Mainland Asia Asia China Good for group margins to shopping compared to other tourists. The most Macau’s non-gaming revenue to Source: Hong Kong Tourist Board, CLSA Asia Pacific Markets The effect of moving into non-gaming activities popular items acquired are ready-made items Taking into account developers’ expansion plans, such as garments, jewellery and watches (50% of accelerate dramatically over the on group operating margins is likely to be there are likely to be more than 30,000 hotel total), snacks and confectionary (28%), cosmetics rooms in Macau by 2010, or three times the positive. In Las Vegas, we note hotel operations coming years Mainland Chinese less inclined to stay in 4/5 star hotels typically generate an Ebitda (earnings before (22%), footwear (17%) and handbags and other current supply. Our estimate appears reasonable leather goods (14%), all of which can be offered from a top-down perspective, based on our interest, taxes, depreciation and amortization) 100 3.2 2.6 in Macau. 4.2 margin in excess of 70%, while food and beverage projection that the number of tourists will jump 90 10.1 18.8 and entertainment is narrower than the gaming from 16.7 billion in 2004 to 36.6 billion in 2010, 80 Guesthouse activities’ margin of closer to 50%. We believe Mainlanders and other tourists will and the average length of stay will approach two 70 28.7 2 star divert their trips from Hong Kong to Macau days. Last year saw an increasing strain on hotel 60 3 satr 36.9 2004 Ebitda margins by division for Las Vegas Sands and for shopping because over time there will not capacity, and with barely any rooms added in 50 4 star 5 star MGM Mirage only be a similar retail offering in the latter, but 40 37.2 2004, the occupancy rate shot up from 64% to also because Macau will offer a wider variety of 76%. However, with the start of a rapid expansion 30 (%) Las Vegas Sands MGM Mirage entertainment choices and better quality and less Non-Gaming Revenue 20 37.5 in rooms available this year, Macau’s hotel Gaming/Casino 52.0 50.3 10 20.7 expensive hotel accommodation. occupancy rate has been dipping again. Hotel rooms 75.2 72.9 0 The Other Side of the Revenue Race Food and Beverage 46.8 44.8 Mainlanders Other Entertainment na 31.9 Many of the casino resorts recognise this Macau occupancy rates surging as supply is tight Source: Macau Government, CLSA Asia Pacific Markets Retail na 34.1 opportunity and are allocating a significant area for retail. We believe the major retail developments 8,650 (No.) (%) 80

8,600 Source: Las Vegas Sands 10-K, MGM Mirage 10-K will be located at the Venetian (Las Vegas Sands), Hotel rooms 75 Non-gaming’s gaining fast 8,550 Wynn Macau, City of Dreams and Oceanus CLSA forecasts Macau’s gaming revenue to Occupancy rate (RHS) Moving up the food and beverage chain 8,500 70 We estimate that 90-95% of revenue in Macau is ournalists have a handful of attention-grabbing increase by 17% CAGR (compound annual growth 8,450 65 Nobody to serve right now Grand Canal Shoppes in the Venetian, Las Vegas 8,400 derived from gaming activities, with hotel, food figures to draw on in describing Macau’s potential. rate) over the next five years, while non-gaming Currently, casinos/hotels offer very little in the way There are the one billion people who reside revenue is expected to increase by 57% CAGR. 8,350 60 and beverages often thrown in for free to attract 8,300 visitors. This is in stark contrast to Las Vegas, where of quality non-gaming activities such as family within a three-hour flight of the city. The more Non-gaming revenue will be the more exciting 55 8,250 gaming revenue represents only around 50% of entertainment and food and beverage, largely than US$12 billion in investment being carried side of the race, not only in terms of growth, but 8,200 50 2001 2002 2003 2004 the casinos’ total takings, with hotel, food and because there is not the demand in the market out by the likes of Las Vegas Sands, Wynn Resorts, also as there seems no real consensus across right now. However, we expect this to evolve over Galaxy Resort and Casino, SJM and MGM Mirage operators — local and western included — as to beverage and entertainment making a positive Source: CLSA Asia Pacific Markets, DSEC contribution. Macau’s current revenue mix is time as the visitor profile shifts from hardcore to create a “critical mass” of tourism and gaming what style of non-gaming activities will appeal players to general holidaymakers. attractions in the city. And of course, then there most to visitors from the Chinese Mainland and similar to that of Las Vegas in the 1960s, when the emphasis was also on gaming, with only a are 16.7 million visitors who last year descended Hong Kong. Mainlanders favour cheap digs In time, Macau will begin to have a similar on the once “sleepy enclave” with a mere 476,000 marginal contribution derived from non-gaming Demand for rooms in Macau is likely to be felt activities. Las Vegas moved on and so will Macau. entertainment offering to Las Vegas, including inhabitants. But perhaps the most attractive figure Will the Chinese trade up to five star hotels? by both the three/four and five-star hotels. In concerts by both Asian and Western popstars, for investors is Macau’s gaming revenue, which is Will there be huge demand for Cirque du Soleil Hong Kong, the rollout of the individual travel Estimated%age of casino revenue by division sporting events such as boxing, trendy nightclubs, on the verge of overtaking that of the mighty Las type attractions? Will French cuisine be the scheme for Mainland Chinese travellers wishing and so on. However, shows like Cirque du Soleil Vegas Strip. most popular? The answer to these questions is to visit China’s two Special Administrative Macau Las Vegas have not performed incredibly well in Asia. probably no, therefore there are barriers yet to Regions has seen strong demand for affordable Gaming/casino 92.5 50 Asians are looking for an experience, but the Source: Pictures copyright (c) Las Vegas Sands Corp. 2005 Some journos jumped the gun by reporting that overcome. accommodation and as a result, three and four- Hotel rooms 5.0 25 entertainment needs to be relevant to them. Macau had already unseated the Las Vegas Strip star hotels have seen the greatest benefits. In We believe the development of resorts in Cotai is in 2004, although the final gaming revenue tally Food and beverage 2.515 Hong Kong, Mainland Chinese spend only 12% of Entertainment 0 5 Similarly, we see potential for a significant likely to be the key catalyst to increase the level for the year came to US$5.1 billion in the former Short Stay Macau of non-gaming activity in Macau, by making total spend on hotels versus around 35-40% for Retail 0 5 upgrading of the variety of restaurants that are and US$5.33 billion in the latter. From January The first challenge is to increase average stay. The available significantly more space for conventions, Americans and Western Europeans. We also note Total 100 100 available in Macau. However, we do believe that to August 2005, the Las Vegas Strip recorded Macau market is a day-trip market, and despite that in Macau in 2004, around 58% of Mainlanders there will be continued strong demand for noodle entertainment halls and retail. US$3.91 billion in gaming revenue while Macau 50% of visitors staying overnight in 2004, only stayed in four or five-star hotels compared to 74% Source: CLSA Asia-Pacific Markets. shops and Chinese fare. For example, Wynn hit US$3.85 billion. With gaming revenue growth 24% used a hotel room. Average length of stay of other tourists. Macau’s largest restaurant will be Chinese, not in both places running at around 13%, the battle is critical to casino operations, given the positive We expect to see a continued shift towards non- French or American. for the year-end number one slot will be even correlation of time spent in a casino to money As a result, we expect to see stronger demand for gaming revenue, particularly as the Cotai Strip more closely followed than the perilous twists on wagered (and lost) and expenditure on other non- affordable accommodation in Macau. However, develops and casinos attract visitors for business The current retail offering in Macau is average the Guia circuit of November’s 52nd Macau Grand gaming activities. with footfall so critical to the financial success conventions and family entertainment as seen in at best. The majority of those visiting Macau for Prix. If Macau does come out ahead, will it mean of casino operations, we expect to see operators Las Vegas. We believe non-gaming revenue will shopping look to acquire antiques, furniture and it is the biggest market? Not by far, since non- The average stay in Macau is 1.2 days, compared offer four and five-star rooms at two and three- increase to at least 25% of total revenue by 2010. other home products. At the high end, there are gaming revenues have a big part to play. Taking to more than three days in Las Vegas. Any increase star room rates, at least over the short run. We do Given the inherent love of gaming in Asia, this will a only a small number of luxury-goods stores these into consideration, Las Vegas would close to in the number of days stayed would have a believe that Mainlanders will trade up, but this is still be below the 50% of revenue derived from located at the Mandarin Oriental hotel including double Macau in terms of total revenue. disproportionate impact on hotel rooms – at an going to take some time. non-gaming activities in Las Vegas. Louis Vuitton, Burberry, Dior, Zegna, Emporio 30 31 permission to build a 475m-spire. LVS has now shifted strategy, announcing a Macau’s Cotai Strip. PBL owns 40% of the Macau joint ventures, with Melco Chinese Gambling Crackdown partnership with six world-famous chefs to develop six destination restaurants Jackie Chan Hosts Casino Opening owning the rest. Mainland Chinese police have arrested nearly 1.2 million illegal gamblers in as a key ingredient of their IR concept. Macau’s 18th casino, the Emperor Palace Casino opened on January 5. About a 10-month crackdown aimed at stopping state officials from squandering 20,000 people visited the casino on its first day of business, where an opening The two fundraisings follow the successful US$600 million bond raising by public funds in casinos in Macau, North Korea and Vietnam. The campaign LVS is still sourcing for the missing cultural component - a requirement under celebration was held with action star Jackie Chan as the host, and other visiting rival Macau casino operator, Galaxy. Galaxy upped its fundraising from an seized 2.3 billion renminbi (US$285 million) in 163,000 cases. Nearly 9,000 the Request For Proposals (RFP) – which can also take the form of a cultural celebrities including Michael Hui and Louis Koo. initial US$500 million after it was flooded with applications for the high-yield party members were punished, among them Cai Haowen, a transport manager centre, an art gallery, contemporary art centre or planetarium. bonds. in Yanbian, in north-eastern Jilin province, who was jailed for 17 years for The hotel-casino, built by Emperor Entertainment Hotel Limited, contains over embezzling and gambling away 3.2 million renminbi. 30 agencies linked to LVS believes its aces in the bidding are its proposed one million square 300 slot machines on three levels of gaming space, which also feature all the Las Vegas Sands is seeking US$2.5 billion, MGM Mirage has secured US$700 casinos and 19 banks were also shut. foot conference and exhibition area, its partnership with Clear Channel classic Macau table games. The casino also has a uniquely glittery entrance: 78 million and Wynn Resorts has signed US$764 million worth of loans, all for Entertainment, a budget of around US$2.5billion, and presence in Macau to gold bars have been placed underneath its lobby floor. Macau projects. act as a conduit for Chinese tourists into Singapore. Harrah’s Taps AEG for Sing Bid Fisherman’s First Harrah’s Entertainment Inc and Singapore property developer Keppel Land Macau opened its first theme park, the Fisherman’s Wharf, to usher in the Ltd have teamed up with US entertainment promoter AEG for their bid to New Year. Located in Macau’s outer harbour area, the theme park features a operate Singapore’s first casino resort. AEG, a wholly owned subsidiary of Los fancy spewing artificial volcano, a Chinese fort, a faux Coliseum, and replicas Angeles-based Anschutz Entertainment Group Inc., brought in singers such as of landmarks from Babylon, Miami, Lisbon, Amsterdam and other world tourist Celine Dion and Elton John to perform at Caesar’s Palace, one of the Las Vegas attractions. The project cost US$325 million and hopes to attract 25 million casinos in Harrah’s stable. This was the second alliance unveiled by Harrah’s visitors a year. The coming second phase of the park will include a large-scale and KepLand in December. The group also said it was joining forces with casino and hotel. Asian conventions organiser Suntec Singapore International Convention and Exhibition Centre to develop convention venues in the resort complex. LVS Macau Budget Balloons According to a filing by Las Vegas Sands Corp. (LVS) with US securities CityDev Leaves LVS’ Singapore Bid regulators, the budget for its Venetian Macau casino resort has now reached US$2.3 billion, from the previous announced US$2 billion. The budget had City Developments Ltd, Southeast Asia’s second-largest property group, has originally been set at a mere US$500 million. The most recent plans for the withdrawn from a joint bid with Las Vegas Sands Corp. (LVS) to build Singapore’s resort, set to open in the third quarter of 2007, indicate 3,000 hotel rooms, a first casino resort. CityDev said it chose to pull after further requirements one million square foot mall, 1.8 million square feet of meeting space and a related to the bid were announced after it announced on December 15 that it Hordes Descend on Macau casino with 700 tables and 5,300 slot machines. would take a 15% equity stake in the project. Visitor arrivals to tiny Macau, which has a mere 480,000 residents, jumped 12% year-on-year in 2005 to 18.7 million. Some 56% of visitors came from Mainland According to a report in Hong Kong daily The Standard, “The Venetian’s CityDev said in a statement released on the Singapore Stock Exchange China on the back of eased travel restrictions on Mainlanders wishing to visit budget excludes land costs, which will likely exceed US$100 million, based that it would continue to provide advice to non-gaming aspects of Sands’ the two Special Administrative Regions, Hong Kong and Macau. on estimates made by Galaxy Entertainment Group for a similarly sized resort proposal, especially in areas relating to design, development and construction development next door.” planning. The record arrival figures conceal a worrying decline in the length of stay by tourists, however, from 1.2 to 1.1 days per visit. LVS – the world’s biggest casino operator by market capitalization – is one LVS also said in its filing that it expects to spend US$590 million on a resort to of four bidders vying to build Singapore’s first casino resort, to be located on be built next to the Venetian and likely managed by Four Seasons Hotels and the city-state’s downtown Marina Bayfront.. Some analysts have said that the Resorts. Meanwhile, LVS officials have said the company plans to invest at least LVS Strikes Far East Deal bidders’ chances of clinching the project, to be decided by mid-year, would be US$1.5 billion more in other casino resorts to be set up around the Venetian Las Vegas Sands Corp announced in December that it had reached a deal with stronger if submitted with a Singapore-based partner. LVS’ two US rivals in the and US$1 billion in a non-gaming resort complex on Hengqin Island, which sits the Far East Consortium International Ltd. on all commercial terms necessary Singapore race, MGM Mirage and Harrah’s Entertainment Inc, have teamed up adjacent to the Cotai Strip on which the Venetian Macau is located. for Far East to build a multi-hotel complex on the Cotai Strip in Macau. with local developers for their bids. The complex will include an Intercontinental Hotel, Holiday Inn and Far East’s Macau Fund-Raising Binge hotel brands Cosmopolitan and Dorsett. Under the terms of the deal, Far East Chefs In Place of Guggenheim MGM Gets Grander in Macau Publishing and Broadcasting Ltd (PBL) is seeking to raise more than US$1 Consortium will develop the complex and manage the five hotels on the Las Vegas Sands (LVS) said the company’s earlier pledge to feature a MGM Mirage announced expansion plans for its Macau casino resort and billion to fund the construction of its two casino projects in Macau. property. Las Vegas Sands will own and operate the casinos and showrooms Guggenheim museum in its proposed Singapore integrated casino resort is said it has secured US$700 million in financing for the project. MGM Mirage within the complex. on hold. “We’re still in talks, but basically the Guggenheim’s proposed building said MGM Grand Macau - which it expects to cost about $1.06 billion and Crown Macau, a joint venture between PBL and Melco International design exceeds the Marina Bay height requirements,” said LVS President and is scheduled to open in 2007 - will now have a larger casino and a new Development, is seeking about US$240 million for the US$260 million Crown The deal is the second for Las Vegas Sands in Macau. On November 1, the COO William Weidner. entertainment venue and hotel atrium. It said that a group of eight financial Macau casino and six-star hotel now under construction. company said Shangri-La Hotels and Resorts will operate the Shangri-La Hotel institutions has committed to financing the project, a joint venture between Macau and the Traders Hotel Macau in a Las Vegas Sands-owned building The height restriction at the bayfront promontory has been set at 265m. the casino operator and Stanley Ho’s daughter, Pansy. The MGM Grand Macau PBL is also set to raise more than US$800 million for the US$1.5 billion City across from The Venetian Macau. Peermont Global had dropped out of the IR bid earlier citing a failure to get will operate on a gambling sub-concession from Stanley Ho’s SJM. of Dreams casino, hotel and apartment project, another JV with Melco, on 32 33 That’s Entertainment? Casino marketing guru Novo Chang explains that when East meets West, you sometimes get in a muddle.

Sure, the Mainland Chinese have a thing for turning Vegas into a major entertainment centre, ballroom dancing in the streets, but there’s a with stories of pumping oxygen or fragrances here are many examples where literal difference between a social past-time and a casino through the air, mood music, colouring and other translations of concepts between cultures do not spectacle. What next? A cooking lesson on stage? stimulants. Surely, given the salary packages they result in the expected outcome. Prime examples Maybe a Sands version of iron chef? are splashing around, you’d think they would have are the English signs all over China. And it works done better in that department. (or doesn’t work) both ways. Anyone spotted a These are the things that the good people in beauty salon in Macau promoting its “Eyebrow most casino marketing/PR departments have to In the meantime, the mob over at the Galaxy Amputation” service at a special price? Things that determine: probably doesn’t even have a marketing the more feminine of us will endure for the sake department. Not unless you call those big neon of beauty. 1. What their own individual preferences are versus signs front and back marketing. that of the target crowd. Talking about amputation, I believe the On the other hand, I will award a bouquet to the 2. What’s popular and what appeals to the target entertainment department folks down at Sands people at Greek Mythology. Every time I see a group. For instance, should the background could perhaps do with a little amputation around public bus drive past in Macau, I keep thinking music be the top of the pops or that which will the cranial region. Can anybody figure out their it’s a GM bus. Any newcomer would think that GM actually appeal to the target age group? entertainment objective? I have seen solo singers is the biggest casino in the place. And the crowd performing to canned music. And what’s with 3. What will best stimulate the crowd to behave in milling about the statues and fountains out front the ballroom dancing? With all that money they the expected manner. day in, day out would appear to suggest they have are making, surely they can hire better and more done the best out of all the SJM franchises. One of interesting talent. Greek Mythology seems to do a It’s hard to do unless they are focused. I expected the better examples of exposure marketing I have much better job with theirs. more of the Americans, given their reputation for seen in the region for a while.

35 A couple of elderly Chinese ladies prayed to Zeus before they went into the casino - just in case!

Why have GM done so well? As far as I can tell, Heard the people over at Wynn have a slightly they are extremely targeted in their marketing. different approach. Out of 8 to 9 possible food Their theme was carried through from the interior outlets, only one is tipped to be Western. They and exterior design and their entertainment must have learnt from the Sands lab. and service offering through to their external promotions. It appeared as though it was almost Even Coca Cola was not spared the hubris of done with the Mainland Chinese market solely American corporations’ failure to adapt their in mind. I do think, however that they could product and/or concept to other cultures. Coke’s send their grumpy Eastern European waitresses first foray into China in 1928 was with a product for further training on customer service. Their name which while sounding phonetically like entertainment is probably the best in town in Coca Cola, actually translated into either “female the absence of the Crazy Paris Revue (bring them horse fastened with wax” or “bite the wax tadpole”, back!), simple as it may be. Maybe Sands can take depending on your preference. a leaf from their book? Pepsi went one better. They promised immortality By the way, heard an amusing story the other day. if you drank their product. When they started A couple of elderly Chinese ladies prayed to Zeus marketing their products in China, they translated before they went into the casino - just in case! Very their slogan “Pepsi Brings You Back to Life” pretty typical, I must admit. I have met many Chinese literally. The slogan in Chinese really meant “Pepsi who are steadfast Christians but will nevertheless Brings Your Ancestors Back from the Grave.” continue to observe some old Chinese religious Picture the Chinese putting bottles of Pepsi on rituals. Well you never know, do you? their ancestral graves on the annual tomb spruce- up day. Coming back to my opening paragraph. Can somebody please tell the people coming to Macau I think I would prefer coming back from the dead from the States that the high rollers in Macau are to biting a wax tadpole, and yes, they do taste Chinese and not on the whole given to regular different. Pepsi is less sickly sweet and, well, you penchants for steaks and cigars? When a senior never know, do you? exec was sent out by Showboat to set up Sydney Harbour Casino, he was alleged to have made the Melbourne’s Crown has its own home grown statement that he knew what high-rollers wanted, beauty. They had a “Chase the Lucky Dragon” and that was a big juicy steak with a nice fat cigar. competition a few years back until someone from So, the one and only restaurant they had was the local Chinese/Vietnamese community advised a steakhouse. What’s that restaurant up on the them that it was also slang for getting high on 3rd floor of the Sands? You know, the one that’s cocaine. always empty except for the senior expats dining up there on their privilege. Happy Chinese New Year! I am looking forward to the next batch of Macau marketing beauties that But they have a Chinese restaurant, you say. are sure to come out soon. Who let the dogs out… So they have, except they went upmarket but woof! without the correct product. I have been reliably informed that even the players who stay in the (Any amusing anecdotes or observations of the VVIP suites prefer the buffet and the noodle house marketing variety, please feel free to forward to downstairs. Perhaps, again a lack of familiarity with [email protected]). the customers and their preferences. But “we are making money,” they say. So can a chimpanzee in a raging bull stock market. 36 Gambling Mogul Passes Away UK Plans Summit The UK government plans to hold an international summit on online gambling In Europe, the report found 14 million Internet users visited gambling or Under Mayor Ray Nagin’s proposal, a U-shaped section encompassing several Kerry Francis Bullmore Packer, head of Publishing and Broadcasting Ltd (PBL) this year. The summit’s goal is to devise a set of international standards that sweepstake sites, with Germany having the largest number of users. As a blocks of the city’s downtown area would allow large hotels to convert part died on December 26, aged 68. Packer amassed US$5 billion by building his can be applied to the industry to promote business, while at the same time percentage of Internet users, however, France and Sweden top the list. of their properties into Las Vegas-style casinos. Only one casino is currently family’s newspaper company into an empire encompassing everything from protecting consumers. Britain was one of the first countries in the world to operating in that area, and Nagin said as many as seven new ones could open. casinos to chemicals. legalise online gambling. The existing casino - Harrah’s - has stirred bitter political battles and suffered Nevada Waiting to Go Handheld from financial problems in recent years. A gambling fanatic, Packer is rumoured to have once lost almost US$20 million The conference will bring together governments, regulatory agencies and Nevada casinos are waiting to hear if a new law will be passed to allow them at a Las Vegas casino, but his generousity is equally legendary. When a casino legitimate gambling operators to ensure that consumers are protected and to introduce handheld wireless gambling devices. Supervising bodies expect waitress told him she worked nights to keep a roof over her children’s heads, he that the market for reputable services can flourish. the law, which was signed in June by Governor Kenny Guinn, to be approved Harrah’s Goes Global left her a cheque for the balance of her mortgage as a tip. On another occasion, as early as February or March. In December, Harrah’s Entertainment Inc. announced plans to co-develop a Packer encountered a Texas oilman being rude to another waitress. The Texan Controls are also needed to ensure that organised crime does not move into Caesars casino resort in the master-planned El Reino community of Ciudad bragged he was worth US$100 million, so Packer told him, “I’ll toss you for it.” the online gambling field, that advertising is legal, decent, honest and truthful The handheld devices are to be connected to a main casino server and would Real, 118 miles south of Madrid. Harrah’s acquired the Caesars brand in June The Texan didn’t take the bet. and that the vulnerable are protected from the consequences of gambling be checked out by patrons who can set up an account and put limits on how 2005, as part of its US$9 billion buyout of Caesars Entertainment. addiction. much they would want to spend in advance. Packer was a sickly child who spent nine months in an iron lung after an Harrah’s has recently seen a flurry of international development activity. attack of polio. He worked all hours and lived on a diet of burgers, milkshakes Several companies have already shown interest in developing the wireless Also in December, the company signed an MOU with Slovenia’s largest and cigarettes. His weight ballooned and his health began to fail. He had a Israel Discusses Casino Plans device, including Cantor G&W (Nevada) LP, a financial services business that casino operator to develop a luxury casino resort in Nova Gorica, Slovenia. In heart attack at a polo game in Sydney in 1990 and only survived because an The Israeli Government is discussing plans to allow Israel’s first casino to be has already created an interactive bond-trading device. November, Harrah’s announced plans to enter the Bahamas, signing a letter ambulance with a defibrillator machine happened to be passing. built in Eilat, the country’s most popular vacation destination and seaside of intent with Baha Mar Resorts and Starwood Hotels to create a 1,000-acre resort. Abraham Hirshenzon, Israel’s Minister of Tourism, is in favour of the destination beachfront resort. Packer had a second heart attack in 1995, and in 2000, after falling ill with casino, saying that it will draw tourists from all over the world to Israel, and that Blackpool Lobbies for UK Super Casino Blackpool is taking its campaign to be named as the venue for the UK’s cancer, he received a new kidney. The transplanted organ began to fail in it will stop Israeli citizens from taking money out of the country and gambling In all three developments, which total almost US$3 billion in investments by first super casino to the House of Commons. The resort city is already the December, and Packer ordered his doctor not to try to keep him alive, saying in casinos abroad, most notably in Sinai and Cyprus. Harrah’s and its partners, the casino complexes will be the largest of their kind favourite to win the licence from the government to build a Las Vegas-style “this is my time.” in each country. Harrah’s is also currently bidding to develop one of Singapore’s development. two planned integrated casino resorts. He died in his sleep at his Sydney mansion with his wife and family at his The government has said there will be only one licence offered, after backing bedside. Packer is survived by his wife of 42 years, Ros, daughter Gretel, 39, and down on plans for eight super casinos around the country. Manchester son and heir James, 38. City Council still has plans to build a super casino next to the Sport City development in the east of the city. Atlantic City Gambling Revenue Tops US$5bn Atlantic City casino gambling revenue rose 7.3% year-on-year in December, while annual revenue was up 4.4% to US$5.02 billion – the first time the total exceeded US$5 billion.

According to a Reuters report, “Atlantic City is working to become an entertainment destination like Las Vegas, adding hotel rooms, shopping and dining to a mix still dominated by gambling. Nevada topped $10.5 billion in casino revenue in 2004, as Las Vegas has transformed itself into an Online Gambling Boom entertainment centre.” Worldwide online gambling revenues will top US$10 billion in 2005 for operators of virtual casinos and bookmaking, according to market research firm eMarketers. The firm said the figure represents only the “Vig,” or house cut – which means there was likely well over US$200 billion in play over the year. “Fuelled by a craze, the growth of broadband and television coverage, online gambling is quickly moving to the mainstream,” says Ben Macklin, an Russia’s Ritzio Plans London IPO analyst at eMarketer. Russian gaming giant Ritzio Entertainment Group, owner of a chain of casinos and gambling parlours in republics of the former Soviet Union, plans to put Online gambling is considered by US authorities to be illegal, but that does not 15% of its capital up for sale on the London Stock Exchange. If the offering is prevent many Americans from visiting Internet gaming sites, which are mainly successful, Ritzio could put up more shares for sale. based offshore. Mayor Seeks Gambling to Rebuild New Orleans New Orleans’ Mayor proposed building a casino zone near the historic French Ritzio Entertainment Group, founded by millionaire Russian businessman Oleg The eMarketer report said research shows 20 to 30 million US Internet users Quarter to jump start the hurricane-ravaged city’s economy, saying a bold Boiko, runs a vast network of gaming facilities, bars, nightclubs and restaurants visited gambling or sweepstakes sites in February 2005, representing about 15 move was needed to restore lost tax revenue. New Orleans is struggling to in Russia, Ukraine, Kazakhstan, the Baltic States and Romania, including more to 18% of all US Internet users. “US consumer spending on gambling is roughly rebound from Hurricane Katrina, which in August fractured flood walls and than 35,000 slot machines. The gaming sector is undergoing a boom in the 20 times the amount spent on digital music downloads,” the report noted. flooded 80% of the city. region and the company reported turnover last year US$ 325 million.

38 39 Vegas Style Recruitment Wynn Macau seeks to tap Macau’s top talent to staff the city’s first Vegas-style resort.

t Macau’s most heavily trafficked junction between Avenida Almeida Ribeiro and Avenida da Praia Grande towers Wynn Macau’s recruitment ad, proclaiming “A new stage to show your talents and shine.”

Macau’s unemployment rate stood at a mere 4.1% in the third quarter of 2005, equivalent to just 10,000 people without jobs. Most of the remaining unemployed are so lacking in skills that they are virtually unemployable. With several casinos and resorts set to open over the coming months and looking to hire thousands of workers each, a recruitment rumble is on the way, with the competition for staff likely to become as intense as the competition for customers.

Wynn Macau will open the city’s first full Vegas-style resort in the third quarter of 2006, and to ensure the service matches the facilities, has embarked on an ambitious recruitment drive. The visible side of that drive involves bold advertisements placed in key media around the city.

During his interview with Inside Asian Gaming, Ambrose So, director of the city’s erstwhile monopoly casino operator, STDM, questioned whether such a bold strategy would prove effective in Asia, where running of casinos and recruitment have traditionally been conducted in a decidedly low-key manner. Well, Wynn Macau feels the strategy has been hugely successful in capturing the imagination of potential recruits, and this bodes well for the company’s coming resort.

Wynn Macau’s goal is to fill 4,200 positions for the resort’s first phase, which will feature 600 rooms, 100,000 square feet of gaming housing 200 table games and 350 slot machines, seven restaurants and 28,000 square feet of retail space, a spa and entertainment facilities. Located opposite STDM’s landmark Hotel Lisboa, work has already begun on phase two of the property, which will add another 85,000 square feet of casino space, enough for 150 more table games and 500 more slots, a sports bar, two restaurants, a theatre and a front-of–property attraction believed to be similar to the tree-covered and waterfall-equipped artificial mountain at the Wynn Las Vegas resort. Phase two is expected to open in the first half of 2007 and will bring Wynn’s Macau investment to just over US$1 billion.

In order to hire 4,200 people for 500 types of positions, Wynn Macau had hoped to receive 40,000 applications within three months of the start of its recruitment drive in mid-November (the Wynn Las Vegas recruitment had targeted 110,000 applications for 10,000 jobs). Within a month, Wynn Macau had already received 37,000 applications, some 80% which were from locals, and the remainder largely from expatriates based in Macau and Hong Kong.

Wynn Macau is serious about recruitment, and its campaign goes beyond the inviting ads on bus shelters and billboards. The company has set up a dedicated recruitment centre with banks of computers for potential employees to fill out online applications, and a line of booths at which those seeking front-line positions can attend 10-15 minute first-round interviews. Applications are processed using the same pricey Recruitmax software used by the company for its Vegas recruitment drive, with customisation of the software and the creation of a Chinese version.

Offering applicants a glimpse of the new style of management that awaits them, the centre’s walls are adorned with pictures of Wynn Resorts’ top staff demonstrating the positions on offer. Steve Wynn dons a cleaner’s uniform to illustrate that even the lowest level employees have a vital role to play in creating the Wynn Macau experience.

Ambrose So claims he hasn’t seen any of his staff leaving following Wynn Macau’s recruitment drive, but since Wynn Macau has only just started inviting applicants for interviews, and will only hire the bulk of positions six to eight weeks prior to opening its resort, that could change. Wynn Macau will not divulge how many applications it has received from staff of its competitors, but it did tell us that about 40% of applications are for gaming related positions, and a fair number of those, either through employment or graduation from training courses, are experienced.

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