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Wall Street History
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04/27/2007
Macau, Part II...Stanley Ho
Following up on last week’s story on Macau, gambling capital of the world, until the past four years, $billionaire Stanley Ho had a monopoly on the action, though today, even with greatly increased competition, he is still taking in about 55% of the total action there.
Ho was born in 1921 to a wealthy Hong Kong family, but his father abandoned them and fled to Vietnam amidst the depression of the 1930s. Then, during World War II, when Japan invaded Hong Kong, Stanley, now 21, fled to neutral Macau, where he married the first of his four wives. [Ho has 17 children.]
Ho established a trading company, making a fortune by swapping goods with Japan for much needed food. He returned to Hong Kong after the war and in 1962, formed an investor group that won the monopoly franchise for casino gambling in Macau; gambling’s roots there going all the way back to the 1840s. Ho promised to promote tourism and tackle infrastructure issues and in 1972, he built the garish Hotel Lisboa where back in 2004 I had one of the best lunches of my life but I digress.
Casino gambling didn’t take off in a big way, though, until the 1980s after China’s economic reforms began to take hold. With new wealth, especially in Hong Kong, there was a need for VIP rooms, which Ho subcontracted out for with tour operators, who in turn shared the revenues generated with him.
As you’d expect, and as Ho has never denied, this led to a lot of organized crime activity (more so than already existed), and the VIP operators have links to the bad guys who are called triads.
David Barboza of the New York Times explains the success of the VIP room system.
“Gambling experts say that Mr. Ho’s subcontracting of the VIP rooms was an inspired business move because it required little investment on his part. It also essentially outsourced the collection of huge gambling debts. By subcontracting the VIP rooms, Mr. Ho’s casinos had only to provide the rooms, chips and dealers; the casino did not have to search for big customers, do background checks or ensure that the high rollers paid their debts.”
But things began to change with Portugal’s return of Macau to Chinese control in 1999 after more than 440 years of colonial rule. Before the turnover, however, there was a vicious gang war as the triads fought for control before the Chinese moved in. One of Mr. Ho’s right-hand men was murdered in Hong Kong and a senior Portuguese official shot in the face. The violence didn’t end until China brought the army in.
Everyone knew it was impossible to run a casino in Macau without having some ties to organized crime but Ho has always maintained he was isolated from it. What he couldn’t prevent, though, was competition as the Chinese felt Ho was too powerful. He then lost his monopoly in 2002, with Americans Sheldon Adelson and Steve Wynn being granted two of the three major gambling concessions, and Stanley Ho getting the third. Others then followed.
While Ho sees his empire dwindle with each new opening that he’s not part of, he doesn’t want to give up the game just yet. He set up his son Lawrence at the helm of a Hong Kong-listed company he controlled, Melco International Development, which is building several large casinos and hotels in the city and went public in the United States last year. Daughter Pansy has formed a joint venture with MGM Mirage, giving her a 50% stake in some of Macau’s biggest projects.
Stanley Ho also still owns a 33% stake in the airport, a 14% ownership in the main local airline, Air Macau, plus he owns the highly successful TurboJet ferry service that zips you from Hong Kong to Macau in less than an hour. [I’ve taken this a few times and it’s very comfortable. Only about $35 roundtrip.]
But there are fears the underworld is muscling in again. Just this week I learned that the day after I visited Sheldon Adelson’s Sands Macau, a man fell from the third floor to the lobby after he “was seen being chased around the casino shortly before his death. Police said it was not a suicide.” Glad I didn’t see that or have the guy land on me.
On April 14, a junket operator from Taiwan “hacked the neck of his middleman, who was sleeping in a Macau flat. The victim narrowly escaped death.” A man arrested for the crime said it was the result of a partnership dispute. Another junket operator was arrested for hiring a killer to gun down a high-roller from the mainland. And it turns out two casino managers were mysteriously murdered eight months ago. It’s all about the increased competition and the pressure to get the VIP room action.
Speaking of which, I found this remarkable. In a story from about ten days ago in the South China Morning Post on the continued surge in revenues roughly $2.3 billion in the first quarter a full 65% of it comes from VIP baccarat, the game of choice among Chinese high-rollers. Walk-ins, those wagering cash and mostly on tour bus excursions, accounted for 30%, and the other 5% was from slots. In Vegas, 52% of the revenues on The Strip are slot related.
You can be sure local officials, and the operators, are watching the crime issue. [It’s not exactly great in Vegas, either.] There is all manner of competition on the planning boards around the region, like in Singapore, and Macau isn’t preordained to always be number one.
In the meantime, though, development continues to explode. In the third quarter, for example, Sheldon Adelson is set to open the $2.4 billion Venetian Macau, a mammoth complex that will feature 3,000 hotel rooms and a casino with 850 tables (the world’s largest).
And that’s the last I’m likely to write about casinos for some time, aside from updates in my “Week in Review” column. Remember, bet with your head not over it.
Sources:
David Barboza / New York Times Neil Gough / South China Morning Post William Mellor and Oliver Staley / Bloomberg News Fox Hi Yu / South China Morning Post
Wall Street History returns next week.
Brian Trumbore
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