82 TheWorld’s B l o o m b e r g M a r ke t s February 2007 83 Biggest Jackpot By William Mellor, Macau gambling patriarch Stanley Ho is squaring off Oliver Staley and against billionaires Sheldon Adelson, Steve Wynn Le-Min Lim and Kirk Kerkorian—not to mention members of his own family—for dominance of the casino market on the doorstep of mainland China. Macau gambling czar Stanley Ho’s 35-year-old casino, the Lisboa, has new neighbors, courtesy of Americans Adelson and Wynn, among others. PHOTOGRAPHS BY NATALIE BEHRING B lo o m b e r g M a r ke t s 84 February 2007 MACAU JACKPOT ‚The Hotel Lisboa used to be the only game in Macau. The billion people can gamble in casinos. In total, 2.2 billion peo- birdcage-shaped casino has welcomed Chinese playing bacca- ple live within five hours’ flying time of Macau, according to rat, blackjack and sic bo—an Asian dice game—amid smoke- CLSA Asia-Pacific Markets, compared with 410 million in stained walls and frayed carpets for 35 years. the same radius of Las Vegas. “They like retail, they like to Now, the Lisboa and other casinos in Stanley Ho’s gaming gamble, their income is rising and they’re being offered company, Sociedade de Jogos de Macau (SJM), are facing a something they’ve never had before,” Summers says of the horde of competitors. Ho, who had a government monopoly on Asian gamblers. Macau gaming for four decades until 2004, has seen his share of Macau is already the biggest single gambling market in the gambling revenue dive to 55 percent from 100 percent—and it’s world. In 2006, Macau’s casinos raked in an estimated $6.8 bil- ‘Forget about dating services,’ jokes Las Vegas Sands’ Adelson. ‘You can’t make a better match than bringing casinos to Asians.’ still shrinking. All around the Hotel Lisboa, crowded into a ter- lion, probably overtaking the Las Vegas Strip, says Rob Hart, a ritory measuring just 10 square miles (26 square kilometers), Hong Kong–based gaming and property markets strategist for U.S. gambling billionaires Sheldon Adelson of Las Vegas Sands Morgan Stanley. The Strip took in approximately $6.5 billion. Corp., Steve Wynn of Wynn Resorts Ltd., and Kirk Kerkorian of “Forget about the dating services,” jokes Adelson, 73, chair- MGM Mirage are building new resorts complete with artificial man of Las Vegas Sands. “You can’t make a better match than canals, singing gondoliers, luxury shopping malls and celebrity bringing casinos to Asians.” Adelson’s 740-table Sands Macau, chefs. Local investors who have joined the fray include Hong which opened in 2004, is doing such good business that he re- Kong–based Galaxy Entertainment Group Ltd. and kung fu film couped his $260 million investment in eight months, he says. star Jackie Chan. At the Sands Macau, the world’s biggest casino when ranked by Blurring the battle lines is the maneuvering and feuding the number of tables, as many as 40,000 gamblers a day, almost within the sprawling Ho family. Patriarch Stanley Ho, 85, a bil- all of them casually dressed Chinese, besiege the croupiers. On lionaire in his own right, says he wants to sell as much as $1.9 a stage above the throng, Western bands belt out pop numbers. billion worth of shares in closely held SJM to raise funds to go Next door, in the relative calm of the Paiza Club VIP suites, high head-to-head with the Americans. That plan has so far been rollers, again mostly Chinese, relax in leather armchairs be- blocked by a lawsuit brought by his sister, Winnie Ho, 84, who tween $10,000 games of baccarat. Out in the lobby, a yellow holds a minority stake in SJM’s parent company and says she Lamborghini is being raffled. At the curbside, convoys of cour- wasn’t consulted about the share sale. tesy buses drop off new customers, some of them lured by text Meanwhile, two of Ho’s 17 children have formed joint ven- messages sent to their cell phones. “Want to be a millionaire?” tures with his Western rivals. Pansy Ho, 44, chief executive offi- reads one. “Take the direct bus from China to Sands and you cer of the family’s conglomerate, Shun Tak Holdings Ltd., has immediately qualify for the instant millionaire draw.” used her own money to form a 50-50 partnership with Kerkori- The gambling frenzy goes beyond Macau. Foreign investors an’s MGM Mirage, which is building the $1 billion MGM Grand are also targeting Singapore, Japan, Vietnam and other Asian casino-hotel within walking distance of her father’s flagship countries, as governments move to lift decades-long restrictions Lisboa. And Lawrence Ho, chairman of Hong Kong–listed on casinos, says Sean Monaghan, a Singapore-based analyst Melco International Development Ltd., has teamed up with with Merrill Lynch & Co. “The breadth of change is going to be Australian tycoon James Packer to invest as much as $3.3 bil- monumental,” Monaghan says. lion in three casinos in Macau. Lawrence, 30, and Packer, 39, The next gambling venue that will open up is Singapore, raised $1.4 billion by selling shares in their joint venture, where in May the government issued its first casino license to Melco PBL Entertainment (Macau) Ltd., on the U.S.’s Nas- Adelson’s Las Vegas Sands. He will spend $3.6 billion building daq Stock Market in December. a casino and a 2,500-room hotel and convention center on re- In all, foreign investors are staking $20 billion on making claimed land in Marina Bay, near Singapore’s downtown. In Macau, a former Portuguese colony that’s now a special December, Singapore authorities announced that a second administrative region (SAR) of China, into the gambling cap- license—the last to be granted for at least 10 years—had been ital of Asia. “In 10 years, Macau will resemble Vegas on ste- awarded to Asia’s biggest casino company, Kuala Lumpur–based roids,” says Brian Summers, who helps manage $28 billion at Genting Bhd., controlled by billionaire Lim Kok Thay, 55. Santa Fe, New Mexico–based Thornburg Investment Man- Across Asia, casino companies will spend as much as $71 agement Inc., including $240 million worth of Las Vegas billion over the next five years, according to Monaghan. An- Sands shares. Summers points to the demographics. Macau nual gaming revenues for the region could double to $23 bil- (population: 500,000) is the only place in greater China— lion in 2010 from $11.9 billion in 2005, according to a 2006 the mainland, Hong Kong, Macau and Taiwan—where its 1.3 PricewaterhouseCoopers LLP report. B l o o m b e r g M a r ke t s Month 2007 85 I nvestors are buying into the plan to clone Vegas across its position to the British city across the Pearl River estuary. Asia. As of Dec. 13, Las Vegas Sands’ New York Stock Ex- Today, a visitor arriving by air sees acres of construction change–listed shares had more than tripled, to $91.56, amid the dreary Hong Kong–style apartment blocks and re- since its initial share sale in December 2004. Wynn Resorts’ stored Portuguese colonial architecture. The Macau govern- stock rose sevenfold, to $93.54 as of Dec. 13, since it listed on ment is expanding the airport and has opened a second border Nasdaq in 2002. MGM Mirage stock hit a 52-week intraday crossing, called the Lotus Bridge, with mainland China. That high of $56.88 on Dec. 4, and closed at $55.39 on Dec. 13. As of makes Macau an even shorter bus or car ride for many of the 110 Dec. 13, shares of Melco International were up 22-fold to 22.30 million Chinese who live in neighboring Guangdong province, Hong Kong dollars from their price on Dec. 31, 2003. And Hong 1.2 million of them in the city of Zhuhai adjacent to Macau. In Kong–listed Shun Tak Holdings, Ho’s Macau-focused conglom- all, a total of 250 million Chinese living in Guangdong and 28 erate, has quadrupled in value since Dec. 31, 2003. cities across China are allowed unfettered individual travel to Even though Stanley Ho is losing market share in his casi- Macau, according to the Macau government tourism office. The nos, his web of business interests ensures that gamblers visiting rest can visit on organized tours. Macau can’t help putting money into his pockets. He still owns Macau now earns 70 percent of its revenue from casino 16 of the 23 gaming houses in Macau. Through Shun Tak and taxes. The economy has doubled in four years to $12 billion, or other companies, Ho owns a controlling interest in ferry and $24,000 per capita, making the enclave the fourth-richest re- helicopter services that carry passengers between Hong Kong gion in Asia after Japan, Singapore and Hong Kong, according Island and Macau. He also has a 33 percent stake in the airport to Macau government figures. In the third quarter of 2006, and 14 percent of the main local airline, Air Macau. Ho owns gross domestic product rose 11 percent compared with the the biggest department store, New Yaohan, and the second- same period in 2005. biggest bank, Seng Heng Ltd., and has property investments Stanley Ho was born into a wealthy Hong Kong family of that include the five-star Mandarin Oriental and Westin Re- mixed Chinese and European descent. His family’s fortunes sort hotels, plus a theme park complete with artificial explod- changed for the worse before and during World War II, when ing volcano. Among his latest projects: a new budget airline, the Japanese invaded Hong Kong. At age 21, he fled to neutral Macau Asia Express Ltd. Macau, where he set up a trading business and married a well- connected Portuguese-Macanese woman, Clementina Leitao. W hile Ho held a monopoly, Macau casinos catered Casinos had been operating in Macau since the 1930s. In to hard-core gamblers who spent most of their 1962, the monopoly franchise was awarded to Ho and a group money at the tables. Adelson, Wynn, Kerkorian of partners. Back then, the territory’s most noticeable land- and Packer, CEO of Australia’s Publishing & Broadcasting mark was the 17th-century hilltop facade of ruined St. Paul’s Ltd. and son of the late tycoon Kerry Packer, are all betting church. In 1972, Ho contributed the Hotel Lisboa. that gamblers from China will be able and willing to pay for Change began in 1999, when Portugal handed Macau back fine dining, cabaret shows, shopping trips and other extras to China under a Hong Kong–style one-country, two-systems that lure nongamblers to Las Vegas. arrangement that gave Macau administrative authority over That’s a risky assumption, at least in the short term, says An- many local issues not related to defense and foreign affairs. thony Carter, CEO of Galaxy, which is investing $1 billion in the The first major decision of the new Beijing-appointed local territory. “Adelson and Wynn are visionaries,” Carter, 61, says. government was to end Ho’s monopoly in a bid to attract fewer “In Macau, I’m not sure the timing of their vision is correct.” professional gamblers and more entertainment and conven- Galaxy’s founder, Hong Kong billionaire Lui Che-woo, 75, tions. At the same time, the Chinese government eased travel has opened five casinos in Macau meant to appeal to Chinese restrictions for mainlanders. Tourist arrivals shot up to 18.7 who want to spend most of their budget on gambling. That million in 2005 from 12 million in 2002, with 60 percent of means no designer shopping or Western food. Jackie Chan, the the visitors from the mainland. The number for 2006 was ex- Hong Kong–born actor who has starred in hit martial arts mov- pected to top 20 million, according to Hong Kong–based ies including Rush Hour and Rumble in the Bronx, meanwhile, CLSA Asia-Pacific Markets. has taken a 5 percent stake in the $80 million Emperor Grand Ho says he is determined to rise to the challenge posed by hotel and casino. “It’s one of my wisest decisions,” Chan, 52, says Adelson and company. “All my life I love challenges, and I of his investment. Hong Kong entertainment mogul Albert never accept no as an answer,” he says. A Hong Kong tennis Yeung, 62, is the principal owner of the Emperor, which fea- champion (he’s won the Chinese Recreation Club doubles tures cheaper rooms than those offered by Wynn and Adelson. competition for older players every year since 2002), Ho also Its most ostentatious adornment: 78 one-kilogram gold bars in- swims daily and says he has no thoughts of retirement. He was laid in the lobby floor. scheduled early this year to open his new $625 million Grand The frenzy of casino development is rapidly transforming Lisboa, a 40-story hotel-casino shaped like a golden lotus Macau. Portuguese traders set up the colony of Macau in 1557— petal that will tower over the original birdcage. “Unlike the 284 years before the British arrived in Hong Kong. By the late others, which are replicas of their Vegas models, our Grand 19th century the enclave had become a trading backwater, losing Lisboa is unique and original,” he said in e-mail answers to B lo o m b e r g M a r ke t s 86 February 2007 MACAU JACKPOT questions. “Our company will have a definite edge. As the pie Melco International, one of the joint venture partners, and is growing bigger and bigger, I believe there should be enough also owned 7 percent of its shares. In March 2006, he resigned for every player in the market.” as chairman, saying he wanted to avoid a conflict of interest. First, Ho needs to make peace with his sister. Winnie Ho In November, he announced in a term sheet sent to investors owns a 7.3 percent stake in Sociedade de Turismos y Diversões that he would sell 4.3 percent of the shares. He still owns 2.6 de Macau, or STDM, which owns 80 percent of Sociedade de percent of Melco, according to Bloomberg data. Jogos de Macao, the firm that controls Ho’s casinos and that I Ho wants to take public. In her suit, filed in March, she claims n August, the VCGR approved the joint venture, saying in the board meeting that approved the share sale was invalid. a statement, “Our investigations have satisfied the VCGR She told Bloomberg Television in an interview broadcast on that Dr. Ho is not in a position to exert any influence with Dec. 11 that her brother had tried to get her to sign away her respect to this venture.” Peter Cohen, CEO of the commission, shareholding for less than it was worth. She says the company, said in a December interview that because Stanley Ho had re- which she helped run for 25 years, owes her unpaid dividends signed as chairman, the commission concluded he wouldn’t amounting to HK$3 billion ($386 million) and that SJM play a “significant” role in the management of the company, so should not sell shares until she’s paid. it called off its investigation of his suitability as a joint venture “We don’t need all these lawyers if he plays by the rules and partner. Asked if the VCGR had tracked Ho’s business history, the law and pays me back the money he owes me,” Winnie Ho Cohen, 49, said, “We did not check, so we don’t know.” said in the interview. “But that’s just Stanley, always thinking Both Pansy and Lawrence say they are in competition with he can just walk over anybody.” She said she was prepared to their father—Pansy through her interest in the MGM Grand buy out her brother, adding: “The most important thing is for and Lawrence through Melco PBL, which is scheduled to open Stanley to give up control of the company and get out. We’ll its first casino on the Macau island of Taipa in April. find competent people to run the business.” “Stanley Ho’s kingdom is unraveling,” says Michael Back- Ho’s casinos depended on gamblers brought in by junket operators. Now the junketeers are being steered to the Sands and the Wynn. Through his law firm, London-based Herbert Smith man, 39, a London-based author of books on Asian family LLP, Ho refused to respond to his sister’s specific charges. business networks. “Within the family it looks like it’s every “Suffice to say, we are instructed that our client and STDM man for himself.” refute entirely all of Madame Winnie Ho’s allegations,” Others are not so sure. “It looks like a family strategy,” says managing partner Herbert Smith wrote in a letter to William Eadington, 60, professor of economics at the Universi- Bloomberg News. ty of Nevada at Reno and a consultant to the U.S. and other gov- The arrival of outside gaming interests in Macau has ernments on the gaming industry, when asked about Stanley brought Stanley, Pansy and Lawrence Ho under the scrutiny of Ho’s continuing investment in Melco and Pansy’s position as overseas gaming regulators. Under the laws of New Jersey and managing director and CEO of Shun Tak Holdings. Nevada—the two biggest casino gambling venues in the U.S.— Pansy, a regular on the Hong Kong social circuit, says family casino owners, their employees and vendors must be licensed. members are not collaborating in their casino operations. She To renew their licenses, casinos have to demonstrate they and says she didn’t even know her brother had acquired a casino con- their business partners are free of ties to crime anywhere in cession until she read it in the newspaper. “When we go home the world. and gather together, we only talk about family matters,” she says. The MGM–Pansy Ho joint venture still has to be approved Stanley Ho agreed to be interviewed only by e-mail. by the gaming control commissions of the two states, where When asked about his children’s ventures, he wrote: “Their MGM owns casinos. In mid-December, spokesmen for the partnership with international players will bring in new casinos commissions said they were still investigating Pansy Ho’s and gaming-related facilities, as well as recreational and hospi- background. “This is not out of the ordinary,” says New Jersey tality facilities, which will help bring more tourists to Macau.” Casino Control Commission spokesman Daniel Heneghan. “If Ho’s Macau casinos have traditionally depended on a partic- you look at our prior licensing investigations, our investigators ular kind of tourist: gamblers who arrive on organized junkets have traveled the globe.” from elsewhere in Asia. It was the junket operators who brought Last year, Australia’s Victorian Commission for Gambling the high rollers to Macau’s casinos, lent them money and collect- Regulation (VCGR), whose rules are modeled on those of New ed their debts. They used to work exclusively for Ho, delivering Jersey, launched a routine investigation of Melco PBL Enter- gamblers to the Lisboa’s VIP rooms, which are run by franchise tainment and its principals, including Stanley and Lawrence owners who share the house’s winnings with Ho and pay the jun- Ho. When the investigation started, Stanley was chairman of ket operators a commission for each chip a junketeer buys. B l o o m b e r g M a r ke t s February 2007 87 ���������� ������������������������������������������������ ������������������������������������������ ���������������������������� ���������������������������������� In 1999, before Macau was handed over to China, 40 clude a $1.8 billion replica of his Las Vegas Venetian resort, a people died in what Portuguese law enforcement authori- 1.2 million-square-foot (110,000-square-meter) convention Chinese organized crime ties called a gang war among���� ������� center and nine hotels, he says, including a Four Seasons. All groups, called triads, over control of some VIP room fran- ���� ����������� together, Adelson’s properties will comprise 19,000 rooms and chises at the Lisboa. ����� ���������� 3 million square feet of retail space. Now, Ho says junket operators are bypassing the Lisboa Wynn, 64, is matching Adelson chip for chip. His 600- and its franchises and are bringing some of their best custom- room, $300-a-night Wynn Macau offers a 220-table casino, ers to the Sands and Wynn casinos. Referring to his own casi- seven restaurants and 26,000 square feet of luxury shopping. nos, Ho told Bloomberg: “Smaller VIP halls, which may not be In the casino’s opening weeks last year the gambling czar as competitive as others, are faced with some problems.” pulled in thousands of potential customers by hanging paint- Says the Sands’ Adelson of Ho’s complaint: “I find it ings by Renoir and Matisse in the hotel lobby and placing a startling. Apparently he hasn’t got to the point where he $10 million Ming vase in the Wynn Club, a 100-room VIP realizes there’s competition.” annex for high rollers. Wynn is building an extension, sched- Adelson has ridden his casino investment to a huge for- uled to open in February, that will almost double the size of tune. His 69 percent stake in Las Vegas Sands stock had a the casino. And he has plans for three more resorts on the value of more than $22 billion on Dec. 13. Though slowed by Cotai Strip. “I’ll be building here for the next 10 years,” he told Skeptics say the breakneck growth in Macau will slow when competing gambling resorts open in Japan, Singapore and Taiwan. a nervous-system ailment that forces him to use a walker, Bloomberg television in September. Adelson said in an interview in Las Vegas that he aims to There are obstructions in the path of the new casinos’ overtake Bill Gates to become the world’s richest man. Gates’s long-term success. Among the possible pitfalls: an oversup- 9.54 percent stake in Microsoft Corp. is worth $28 billion, ply of hotel rooms and gaming tables. There are currently according to Bloomberg data. 13,000 hotel rooms in Macau, and occupancy rates are only Adelson also has 50-story ambitions for Macau. He plans 75 percent, according to the Macau Tourism Association. By to spend as much as $11 billion re-creating the Las Vegas the time Adelson and his rivals finish their current projects Strip on what he calls the Cotai Strip, a 1.2-kilometer-long in 2009, there will be 30,000 rooms. In addition, while more (0.7-mile-long) isthmus of reclaimed land linking Coloane than 50 percent of Las Vegas’s tourism revenues come from and Taipa, the two islands that together with the Macau pen- nongaming activities, most Chinese still come to Macau only insula make up the Macau SAR. That development will in- to gamble, according to the tourism association. The average B lo o m b e r g M a r ke t s 88 February 2007 MACAU JACKPOT ����������� ���������������������������������������������������������������������������������� ��������������������� ����������������������������� ������������������������� �������������������������� ���� ����������� �� ������������ ���� ����������� �������������������� �� �� �� �� �� �� �� � �� �������� ����� �������� ����� �������� ����� ��� ��� ��� ��� ��� ��� ��� ��� ��� ����������������������������������������������������������������������� length of stay is 1.17 nights, compared with 3.5 in Las Vegas. houseCoopers, agrees. “The way it’s developing in Macau is And half of those who do stay overnight don’t take rooms in encouraging, but sooner or later growth will slow,” says Green, hotels, preferring to rest up for a few hours in Macau’s ubiq- 53, a former gaming regulator in Australia. “My concern is uitous saunas. that capital will then move on to the next big thing. It will be Singapore, then Taiwan, and so on.” S Ke, kifengFILE who helps manage $21.5 billion for Edinburgh- macstk11 A visit to Macau demonstrates both the potential and the based Martin Currie Investments, says he won’t be buying challenge facing the Las Vegas investors. SIZE 31p10 X 15p7 any Macau-related casino stocks, partly because of the in- Engineer Yau Jing Long, from Shanghai, says he and his NOTES tense competition and partly because he thinks a recent Chinese wife love the Sands, where they’ll spend $3,000–$4,000 over government clampdown on corruption could scare mainland- three days, playing baccarat until 4 a.m. “It’s intense—you re- ers away from the enclave. “You’ve got competition, you’ve got ally feel the gambling atmosphere,” Yau, 56, says. “The aisles the anti-corruption campaign,” says Ke, who’s based in Shanghai. are wider and the tables posher than at the Lisboa.” “In the short term, business will be affected.” On Dec. 6, Ao Man The Yaus are staying with friends, however, and aren’t in Long, Macau’s secretary for transport and public works, was de- the market for a hotel room. Neither is Hao Sheng, a Beijing tained on bribery charges, according to a statement posted on ceramics company executive who’s on his way to the Wynn Macau’s government Web site. Ao, 50, also engaged in “irregular from the Lisboa. With an income of 350,000 yuan ($40,000), financial activity,” the statement said, without giving details. His he’s rich in a country where middle class is defined in terms of attorney could not be contacted for comment. $6,000 a year. Yet he says he prefers to gamble at Ho’s Lisboa. Adelson and Wynn say Macau’s demographics are too “It’s a symbol of Macau, and my friends and I like to go there,” good for their ventures to fail. Sitting at his Las Vegas Sands Hao, 44, says. “We joke that we’re trapped inside the birdcage. boardroom table, a pitcher of iced tea and a bucket of ice Everyone in China knows the Lisboa, but many of them still before him, Adelson rattles off the number of potential vis- haven’t heard of the Sands or the Wynn.” itors from Asian countries: 250 million from China, 128 Hao says he visited Macau three times in 2006 and spent million from Japan, 24 million from Taiwan, 75 million up to 100,000 yuan each trip. Yet he balks at even the $200 a from Thailand. “Ya get it?” he asks. “How much rocket science night discounted midweek rate at the Wynn. He prefers to stay do you need, and how much arithmetic do you need, to say across the border in the Chinese city of Zhuhai and walk into that the amount of the market I need is so infinitesimal? It’s Macau to gamble. “It’s much cheaper and almost as conve- just like a person in the desert needs water. These people need nient,” he says. entertainment. There’s no question in my mind we’re going to Hao’s refusal to tailor his gambling habits to the Las Vegas achieve the level of success we’re shooting for.” model suggests that, at least for the short term, the American Still, Eadington has doubts about the gaming entre- billionaires may not have made the sure bet they say they preneur’s huge investment. “Adelson is betting the bank on have.„ Asia,” he says. “He may be right, but when you are moving as fast as he is, you can make significant strategic errors.” WILLIAM MELLOR is a senior writer at Bloomberg News in Beijing. OLIVER STALEY covers the hotel and casino industries in New York. LE-MIN LIM writes One mistake, he says, would be to discount future features in Hong Kong. With additional reporting by KELVIN WONG in Hong Kong competition from competing locations like Japan, Taiwan and MATTHEW BROOKER in Shanghai. firstname.lastname@example.org and Thailand. email@example.com David Green, head of the Macau practice of Pricewater- firstname.lastname@example.org For more informat ion on people ment ioned in this ar t icle, type a name and then <Hel p> 7 <Go>.