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Wall Street History
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04/20/2007
Macau
Back in spring 2004, I took the ferry from Hong Kong to Macau and spent the day at billionaire Stanley Ho’s Hotel Lisboa. At the time it was still basically the only mega-casino in operation there (Ho owns about 20 far smaller operations on Macau), but fellow billionaire Sheldon Adelson was a few months from opening his Sands Macau and there were a slew of other projects to follow. Bottom line, I had to go back to see what kind of progress had been made so on Sunday, April 8, already in Hong Kong for a business trip to the mainland, I once again took the high-speed ferry (50 minutes) to Macau. In just three years the island chain has been transformed into the gaming capital of the world and the plans for the next two years will only add to the fervor.
So what exactly is Macau? It was founded back in 1513 by a Portuguese trader and by the 1550s a colony was established, almost 300 years before the British arrived in Hong Kong. Once Hong Kong took hold, however, Macau suffered.
But while Hong Kong was turned over to the Chinese in 1997, Portugal handed over Macau in 1999 under the same grant given Hong Kong; one-country, two-systems. Today, Macau, like Hong Kong, is known as a SAR, Special Administrative Region of China.
Macau is currently about 11 square miles with a population of 480,000, but through its ongoing reclamation project of taking land away from the sea, it is growing to 12 square miles in just the next few years while the population is expected to hit 610,000 by 2023. In other words, this is one of the most densely populated places in the world.
Macau has been described as “Vegas on steroids” and a more apt description you won’t find. In 1999, there were 7 million tourists visiting the island (it’s actually two islands connected by a causeway), but after the Chinese took over they loosened up travel restrictions so that mainlanders could visit unattended and over 22 million tourists arrived in 2006. Knowing that 20,000 luxury (read 4- and 5-star accommodation) hotel rooms are being added to a base of 11,700 (and in just two years!), business interests are counting on 30 million visitors in short order. I just have to add a personal note here that I was eating lunch at a restaurant on the water, observing the traffic over the causeway, and every fourth vehicle was a tour bus. About every 50th was a cement truck.
What do these folks, almost all native Chinese and curious visitors like yours truly coming from Hong Kong, do? They gamble, of course, to the tune of an estimated $6.9 billion in revenues in ’06 which exceeds the $6.5 billion generated on Las Vegas’ strip.
Macau’s gaming action is also almost solely at the tables as opposed to the slots; 95% of revenues, specifically. By comparison, 52% of the revenues on the Vegas strip are generated at the latter.
One of the key drivers to Macau’s growth potential is this simple fact. 2.2 billion live within five hours flying time (there is an airport) vs. 410 million for Vegas. Now, granted, there is a difference in the kind of visitor from the mainland vs. Vegas in terms of average income and spending power.
But having said that, when I toured the Sands Macau casino on April 8, glancing at the table ‘minimums’ I saw no difference from what you’d see in Vegas or Atlantic City. In other words, the average gambler may be earning 10% of what the average American takes home, but that doesn’t seem to stop them and obviously the gross revenues bear this out. Walking around I just shook my head, thinking, ‘Just how can they afford to do this?’
Further, the average table (comprised of Chinese games I have no clue as to how to play) earns three times the revenue of a comparable one in Vegas.
The Sands Macau is currently the world’s largest in terms of having 740 tables, and some 40,000 gamblers each day pass through its doors. 40,000! I know I had to deal with a crush in the gaming area and to be honest the experience wasn’t a pleasant one. For starters, the cigarette smoke is thick and it’s downright disgusting. But get this; Adelson earned back his $260 million investment in the place in just 8 months.
Well, as I alluded to above, there is plenty of competition; coming from the likes of Steve Wynn, who already has a large casino, Kirk Kerkorian, the late Kerry Packer’s Aussie group, and even the likes of Kung Fu superstar actor Jackie Chan. What’s startling is just how quickly the projects are being built. Adelson, for example, is working on an $11 billion project recreating the Vegas Strip, on reclaimed land known as the Cotai Strip. It will be a replica of his Las Vegas Venetian resort, including a 15,000 seat sports arena. Adelson, by the way, is out to become the richest man in the world, though his health is not the best and he requires the aid of a walker.
As you can imagine, residential real estate here is exploding as well. Small condos are going for $450,000-$600,000, with 34% of the sales being to foreign buyers last year. But, at the same time, the tens of thousands of workers building the casino palaces, making their pittance, live in pretty awful tenements, as I observed from my taxi rides around town.
In other words, Macau has the look and feel of one of America’s mining boom towns of days gone by. It’s going to continue for a while, but major competition looms in the form of Singapore, Japan (which is changing its restrictive gambling laws) and Vietnam, for starters. Plus, in all seriousness, if bird flu ever mutated to allow human-to-human transmission, while the entire region would suffer Macau would even more so. If I were a Sheldon Adelson or Stanley Ho, I’d have nightmares over worst- case scenarios.
Speaking of Mr. Ho, I’ll have a bit more to say about him next time.
Sources:
David Barboza / New York Times Peggy Sito / South China Morning Post William Mellor, Oliver Staley / Bloomberg News Karrie Jacobs / Travel & Leisure
Wall Street History returns next week.
Brian Trumbore
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