Photo: Portuguese colonial architecture in foreground, high-rise living in mid-ground, Wynn and MGM casinos in the background. Below: Sands Casino behind Portuguese colonial architecture.
The growth in the Macau gaming industry has been staggering. In the first quarter of 2011, for instance, gaming revenues in Macau were 43% above the same period the year before, and year 2010 Macau gaming revenues of $23.5 billion are about 4 times the 2010 gaming revenues of the Las Vegas Strip. April revenues were 45% higher year-over-year and roughly 5 times Las Vegas Strip gaming revenues. Macau gaming revenues are predicted to increase another 35% this year, according to Asian securities analysts at CLSA Asia Pacific. The last time the two gambling destinations were on a par in revenues was 2006.
It was not long ago that I was frequently sent to Las Vegas to appraise yet a new or proposed luxury condo tower featuring million-dollar-plus condos. “Who are the prospective buyers?” I asked. The standard response was that Las Vegas would become the preferred casino tourist destination of the world and that multi-millionaires from Asia and the Middle East would be clamoring for second homes in Las Vegas for their gambling holidays. The ultra-luxurious Turnberry Towers near the Strip had sold out their first two phases by 2006 while construction continued on the third and fourth phases, but by late 2006, it was apparent that many Turnberry buyers had actually just been speculators, and at the time of my inspection in November 2006, 25% of the units acquired in the first phases were listed for resale at significant discounts. Most had never even had their interiors finished, as the condos were sold in shell condition.
The American casino industry
The decline in U.S. casino gaming revenues in general (down 10% from 2008 to 2009), as reported in the American Gaming Association’s last State of the States report in July 2010, is partly explained by the economic recession. The top four gaming states by gaming employment in 2008, Nevada, New Jersey, Mississippi and Louisiana, saw respective decreases in gaming revenues of 10.4%, 13.3%, 9.4% and 5% from 2008 to 2009, and Las Vegas saw a 20% decrease in gaming revenues from 2007 to 2009. Despite the lessened demand for gaming in Las Vegas, one huge project hit the market, adding to the oversupply:
City Center, Las Vegas
This is a 16.8 million square foot mixed-use project in the heart of the Las Vegas Strip, developed at a cost of $11 billion and partly owned by Dubai World. Opening in December 2009, only 550 out of 2400 condos have been sold, the Aria Resort & Casino has lost $161 million in the first three quarters of 2010 and the Mandarin Oriental Hotel has lost $23.6 million in the first three quarters. In my visit to City Center in October 2010 I saw a spacious indoor retail mall with high-end retailers and few customers.
For Asian, Middle Eastern and European gamblers, Macau is more accessible than Las Vegas, and numerous flights are available to Hong Kong, with Macau being a one-hour ferry ride away. There are 100 million people within three hours driving time to Macau and 1 billion people within 3 hours flying time.
Colonial section of Macau
The 89-year-old Hong Kong billionaire Stanley Ho is the pioneer of the Macau gaming industry as the founder of SJM Holdings, but the major U.S. casino operators, Las Vegas Sands, MGM and Wynn, have also established large presences there, and both Sands and Wynn now receive the majority of their profits from Asia. As Mr. Ho declines into senility after having had brain surgery, there has been a highly public controversy over which of his four wives woul inherit his casino empire. The recent winner has been his fourth wife, Angela Leong, who was once a dancer and aerobics instructor and met Mr. Ho through a shared interest in ballroom dancing, but now controls a $1.2 billion empire of 20 Macau casinos; she now plans a $1.3 billion theme park resort with six hotels, an equestrian center, and an indoor beach, all while serving in Macau's legislature. Mr. Ho’s extended family controls about 30% of Macau gaming, with about 20 casinos.
SJM's flagship property, the Grand Lisboa
A recent Wall Street Journal article (4/18/11) on Macau gaming seemed to place the highest hopes on Hong Kong-listed SJM Holdings, a local favorite that has strong political connections and a price-to-earnings ratio of only 11 in this rapidly growing Macau gaming market.
Meanwhile, a joint venture between MGM Resorts International and Pansy Ho, daughter of Stanely Ho, is being prepared for an IPO on the Hong Kong Exchange as MGM China Holdings, as MGM tries to catch up with Wynn and Sands in capturing the rapid growth of Asian gaming. MGM Holdings plans to issue 760 million shares in the range of HK$12.36 to HK$15.34 per share (or about $1.60 to $2 USD per share.
I visited Macau during the weekend of the grand opening of the 2200-room Galaxy Macao resort, the most spectacular yet in Macau, which cost almost $2 billion to build on a manmade peninsula of reclaimed land called the Cotai Strip. Nearby is the Venetian, now the world’s largest hotel building, owned by Sands. The Cotai Strip is poised to become the high-end area of Macau, including some of the highest price condos in Macau.
Sands plans to open an even-larger casino in Macau next year.
The Chinese government has eased visa requirements for travel to Macau, opening the floodgates for China’s many nouveau riche gamblers. 75% of Macau’s gaming revenues come from high rollers from China. Ms. Leong, heir apparent to SJM, has specialized in lending gambling money to these high rollers, and Wynn also estimates 80% of its revenues and 60% of its earnings are due to high rollers. Moreover, planned bridges to Macau from Hong Kong and the mainland are estimated to expand the number of visitors to Macau by 50% in the next 5 years. High speed trains will transport gamblers from Guangzhou to Macau in less than hour, reducing travel time by about 70%.
Macau's government recently imposed a limit on gaming tables to 5500, though, a limit which has already been met with the opening of the Galaxy. Unlike Las Vegas, the Macau gaming industry gets more than 90% of its revenues from table games rather than slot machines. This is due in part to the large number of high rollers and in part to the different ratio of slots to tables, about 2.4 to 1 in Macau as opposed to 17.2 to 1 in Las Vegas.
Macau has emerged in the last five years as the world’s top gambling destination now, perhaps taking Las Vegas down a notch as it struggles with its own temporary oversupply of casinos and condos. The fortunes of Las Vegas may be more limited to domestic tourism in the future.
Luxury condos being marketed in Macau's Cotai South neighborhood