How Macau became a powerhouse (with a little help from Las Vegas)

When this Chinese peninsula’s gaming market opened in 2002, Las Vegas moguls pounced, creating an opulent gold mine

Ulf Buchholz

Macau

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MGM Grand Macau

The MGM Macau. Launch slideshow »

MACAU -- The cylinder-shaped hotel tower housing the Casino Lisboa was what defined gambling for decades in this 17-square-mile former Portuguese colony parked on the shore of the South China Sea. Lacking amenities, flash and class, it lived in Las Vegas’ shadow. But all that changed over the past decade after Las Vegas got a piece of the action.

Steve Wynn built Wynn Macau across the street from Casino Lisboa. MGM Grand Macau moved in just down the block from Wynn.

As Las Vegas companies began upping the ante, Casino Lisboa owner Stanley Ho knew he had to respond competitively. So he built a 58-story lotus-shaped tower — the tallest building in Macau.

That’s the way things have gone since 2004, when Sheldon Adelson’s Las Vegas Sands opened the first American-owned casino in Asia’s new Las Vegas: As Las Vegas companies build, local players respond with something new. Analysts said it was only a matter of time before Macau would begin generating more gaming revenue than Las Vegas and become the leading casino market in the world. Not only were the analysts right, they underestimated just how explosive the growth would be. Last year, Macau’s gaming revenue grew to $23.4 billion, dwarfing Nevada’s $10.4 billion for the year.

Now, Macau has a new goal: To unseat Las Vegas as the premier destination resort in the world, accommodating conventioneers and a growing Asian mass market as well as the notorious, high–rolling whales the region is famous for.

Macau is off to a good start, thanks to some excellent teachers. They came from Las Vegas.

Much of the credit for Macau’s growth ­— some may call it the blame — goes to the three Las Vegas companies that have invested in Macau. Las Vegas Sands, owner of the Venetian and Palazzo on the Strip, Wynn Resorts, owner of Wynn Las Vegas and Encore, and MGM Resorts International, owner of resorts including MGM Grand, Mirage and Mandalay Bay, have developed casino resorts in Macau. They aren’t simply knockoffs of the originals on the Strip but, by many measures, have surpassed the genuine article in terms of size, amenities and luxury.

Indeed, they have collectively raised the bar in Macau, the new world stage for gambling excess, and have forced competitors to keep up.

Venetian Macao

The Venetian Macao Launch slideshow »

An examination of Macau’s fast fortunes, of course, invites comparison to Las Vegas. The mob was involved in Las Vegas casinos in their infancy; the Chinese triads were involved with Macau’s casinos. Nevada lawmakers passed legislation to encourage corporate investment and respectability in Las Vegas casinos; governments overseeing Macau had a competition to award concessions — known as casino licenses in the U.S. — to gaming companies worldwide beginning in late 2001 to encourage the development of resorts.

Las Vegas has a historic downtown area and the famous Strip of luxury resorts; Macau has a peninsula attached to the Chinese mainland where casinos were built in the historic part of the city, and the more modern Cotai Strip ­— a broad boulevard where narrow cobblestone streets are the norm — under development on islands off the coast.

So how did Macau get so fat so fast?

Gambling was legalized by the Portuguese in 1847, but it wasn’t until 1937 that the government awarded a casino license. The face of gaming changed in Macau in 1962 when a syndicate of Hong Kong and Macanese businessmen, which eventually came under the leadership of Chinese entrepreneur Stanley Ho, was awarded a monopoly on the industry. Known as “the King of Gambling,” Ho is Steve Wynn, Sheldon Adelson, Kirk Kerkorian and Howard Hughes all rolled into one.

A 15-year extension of the monopoly was granted in 1986, but that came to a close at the end of 2001 when the government opened the industry to competition.

In a competitive bid, concessions were granted to Ho, Galaxy Entertainment Group, which partnered with Las Vegas Sands, and Wynn Resorts.

Ho’s Sociedade de Jogos de Macau had a head start on the Las Vegas companies and today runs 16 of Macau’s 33 casinos, including his flagship Casino Lisboa near the southern tip of the peninsula.

Sands drove the partnership with Galaxy and was intent on beating the pack in opening the first casino. He did so in 2004, with Sands Macao. (Sands prefers to use the Chinese government’s spelling of the city’s name.)

With its dandy location, it is the first big building visitors see when arriving by ferry from Hong Kong to Macau’s main ferry terminal on the eastern edge of the peninsula. By opening quickly, Sands gave Macau a taste of what was on its horizon with a Las Vegas-style casino. And it was successful — it made enough money to cover construction costs in a year. Meanwhile the company’s signature property, the Venetian Macau, was under construction miles away.

City of Dreams

City of Dreams on the Cotai Strip in Macau. Launch slideshow »

At the same time, Las Vegas Sands wanted out of its partnership with Galaxy. Because it had already invested so much, the Macau government decided to allow Las Vegas Sands to have its own “subconcession” and allowed the other two licensees to sell their subconcessions.

Ho sold his subconcession for $250 million to his daughter, Pansy, who used it to partner with what is now MGM Resorts International, an important move for MGM to enter into the market after its unsuccessful bid for a concession.

Wynn managed to sell his subconcession for $900 million — just shy of what it cost to build Wynn Macau — to Ho’s son, Lawrence, who partnered with an Australian company, Melco Crown Entertainment. Industry observers noted that for Wynn, it was like setting up shop in the world’s best gambling market with minimal capital outlay. The race to build a resort that would be better than everybody else’s was on.

The six license holders secured property, drafted plans and brought in the construction cranes. In the late 2000s, Macau looked like Las Vegas in its boom years of the late 1990s. It bustled with such developments as:

■ Expansion of Stanley Ho’s Casino Lisboa with the 1,000-room lotus-shaped tower.

■ Construction of the 600-room Wynn Macau, a scaled-down version of the sweeping bronze-skinned Wynn Las Vegas.

■ The late 2007 opening of the 583-room MGM Grand Macau.

Meanwhile, 10 minutes away, the area that has become known as the “new” Macau has begun to take shape.

Built atop a massive public works infill project that began two decades ago are resorts including Venetian Macau, the largest casino in the world, in what is believed to be the sixth-largest building on Earth. The 40-story structure has a 1.6 million-square-foot retail center reminiscent of the Las Vegas Canal Shoppes at the Venetian, 1.2 million square feet of convention space and a 550,000-square-foot casino — twice as big as the gaming space at the Venetian and Palazzo combined.

Also on property is a resident Cirque du Soleil show, “Zaia,” a pitch-and-putt golf course and a 15,000-seat arena that has hosted a tennis match between Andre Agassi and Pete Sampras and a National Basketball Association exhibition game.

Galaxy Macau

The Galaxy resort in Macau. Launch slideshow »

Other projects include a luxury Four Seasons Hotel and Melco Crown’s City of Dreams resort, a 2,200-room development comprised of a 1,005-room Grand Hyatt Macau, a 366-room Hard Rock Hotel and a Crown Towers Hotel with 295 suites.

Although the recession has slowed development for some companies, the building boom on the Cotai Strip ­— the name of the infilled area housing the “new” Macau — is expected to last through the decade. Asia’s version of Las Vegas Boulevard will extend west to the Lotus Bridge, the gateway to mainland China. Near that bridge is a golf course, of note because it is owned by Caesars Entertainment. Caesars has no gaming license, but the company is positioned in the event of a public policy change that would enable it to enter the market.

When Macau’s government awarded concessions, Caesars was left out, and it also was shut out when licensees sold their subconcessions. Most observers don’t think Macau’s government is going to grant new concessions anytime soon.

About a block off the Cotai Strip is the site of Wynn Resorts land for a new property. Last month, Macanese authorities approved the site for development, but it was no secret that a Cotai development for Wynn would happen — Wynn signs marked the site before the announcement.

The Chinese lust to gamble in a Las Vegas environment resulted in the explosion in gaming revenue that overtook the teacher. What more is there to gain? Plenty.

Macau started out as a dingy, creepy place. In addition to all the revenue that Las Vegas-based companies have generated for Macau, arguably just as vital, if not more so, is how the Las Vegas branding of Macau has extended much-needed credibility to the peninsula’s gaming industry.

“It was a scary, gambling den kind of place that had very little tourism from mainland China or any other place in the world except those people who wanted to play, not only in a casino, but in some of the massage parlors,” said Mike Leven, president and chief operating officer of Las Vegas Sands and the company’s resident expert on the Macau property. “Macau had a reputation for being unsafe.”

Wynn Macau

The Wynn Macau is seen Aug. 17, 2011. Launch slideshow »

But today, he said, even children visit the Venetian Macau because — just like its Vegas counterpart — it’s much more than a casino. It’s an integrated resort, with several attractions. And that’s what the Chinese government had in mind when it invited foreign competition.

Although the Venetian Macau casino is the centerpiece of the resort — 80 percent of the resort’s profitability comes from the gaming area — the strategy of serving a mass market interested in shopping, entertainment and corporate meetings will broaden the company’s revenue streams. It’s a business plan playing out successfully in Las Vegas, although there are some differences between the tastes of gamblers in the two markets.

The Venetian Macau’s casino houses 800 table games, dominated by baccarat with $300 Hong Kong-dollar minimums ($38.50 U.S.), in the heart of the house with 3,400 slot machines along the periphery. It’s around these tables that thousands of Asian visitors, mostly from mainland China, gather day and night.

You won’t hear machines screaming out “Wheel! … of! … Fortune!” But there are occasional yelps from the table games when a player beats the bank. On a busy night, the casinos are as wild and boisterous as any place in Las Vegas. In the big casino, the action is frenetic. In the private parlors, it’s more subdued and businesslike.

Leven estimates that 90 percent of the property’s guests are from mainland China, Taiwan and Hong Kong. The remaining 10 percent are Japanese and Indian, with about 0.25 percent coming from the United States.

The biggest surprise to Leven has been the enormous growth of slot machine play.

“When we first got here, slots were not really the acceptable way to play,” he said. “I think the electronic nature of the slot machine becomes very interesting to a player. We’re seeing it in Singapore too. The Asians are technologically competent and electronically competent and they see the electronics and how it works and it’s exciting. And it moves very fast, even faster than a roulette table or a baccarat game.”

Loren Stout, a sales representative for Shuffle Master in Macau, said the transformation occurred when slot machine makers recognized the need to incorporate representations of images significant to Chinese culture onto the machines.

“Lemons, oranges and cherries really didn’t mean anything to the players,” he said. “But that changed when we started putting dragons, butterflies and Chinese symbols in them.”

“A lot of the slot machines were still in English,” Leven added. “In order to maximize interest, more people have to understand it. The common way people who speak English feel is that everybody speaks English, but the reality is that the majority of the market coming into Macau speaks no English.”

That’s a point Grant Bowie, CEO and executive director of MGM Macau, makes when talking about the right way and wrong way of entering into a foreign market.

“When the West started this notion of globalization, I don’t think they understood that they were going to have to change,” Bowie said.

He explained that many viewed China and Macau as underdeveloped nations and that the American way of doing things would work there. But they quickly found the Chinese market to be more sophisticated and that they would have to change their focus to attract customers.

Now that Macau has commandeered the dominant share of gaming revenue, it’s going to work to enhance entertainment, convention and dining offerings. Like Las Vegas, the competing companies in the market are trying different things to see what appeals and catches hold. And, as Bowie noted, the avenue to success will be discovering what appeals to Chinese tourists, not necessarily using formulas that worked in the United States but are marginally adapted to Chinese tastes.

Several properties also offer free entertainment, à la Mirage’s erupting volcano, Bellagio’s fountain show and T.I.’s pirate show performance in Vegas.

Millions of square feet of retail, luxury, fine dining and nightclubs also are part of the successful mix. In addition, casino companies have capitalized by drawing major conventions and meetings, including the Asian Global Gaming Expo and Asia’s Adult Expo, a gathering of purveyors of adult films and sex toys. Nowhere close to being as racy as the Las Vegas version, the Asian Adult Expo was devoid of nudity and there wasn’t an unclothed porn star to be found at any of the booths.

So where will things go from here?

Analysts say Macau will continue to grow with the Las Vegas-based properties taking the lead. Cotai will continue to expand, and analysts are anticipating what Wynn will do there.

The Chinese government isn’t expected to offer any more gaming concessions in Macau, which means Caesars Entertainment may be left on the outside looking in. That company recently announced plans to build a 1,000-room luxury nongaming resort on China’s Hainan Island, about 100 miles west of Macau.

Like Las Vegas facing challenges from Atlantic City, riverboats and tribal casinos, Macau will likely see competition from other places. Where?

“On the basis that I never thought Singapore would ever have gaming, my comment would be: Anywhere,” MGM’s Bowie said.

“It’s already legal in Korea and Vietnam, but I think we’ll see it in Japan and Taiwan,” Las Vegas Sands’ Leven said. “I don’t think any of these countries wants to miss the opportunity to get the integrated resort concept because they see what it does for tourism and keeping some of their own capital in the country. I don’t think there will be massive amounts of proliferation, but the Asian market is so huge.”

Count on Las Vegas companies being there to foster the expansion, Leven said.

Just more than seven years ago, there was no Las Vegas presence in Macau. Today, Las Vegas companies operate 4,665 rooms and suites and have about half of the market’s 15,000 slot machines. Steve Wynn has famously said that his is now a Chinese company with a Las Vegas presence.

And Macau will only continue to overshadow the Las Vegas Strip.

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  1. Is Macau's influence why we're seeing more and more Asian-themed slot machines popping-up in Vegas casinos? "Choy Sun Doa", "Panda Riches", "Wild Panda", "Lucky Panda", "Jade Monkey", "Fortune Dragon", etc.? Like the article also mentions, slots have shifted from fruit symbols over to icons, as well as card symbols too. Since these machines started appearing I just wondered if this was the case. I can see where it's easier to just make a somewhat universal theme (especially ones for such a supersticious culture as China) where other than extra money for back glass that's printed with some characters on it, you just have to tell the internal software to change it's default language and currency in relation to it's new location.

    Another question too:
    I keep seeing all these financial reports about how Macau is raking in so much profit, but I what I haven't seen is how much they've been paying out in relation to that. What are their actual tourism numbers (instead of percentages)? What are the official payback percentages on their slots? What is the procedure for machine & gaming disputes? Are they anything like the Nevada Gaming Control Board's Policies?

    Do they actually play as fair with the guests as Las Vegas does?