Betting Big on China's Vegas

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Unfortunately for shareholders of Las Vegas Sands, that has not yet translated into higher earnings from Macao. After deducting expenses for junket operators who bring in the high rollers in exchange for a hefty percentage from net house winnings, first-half earnings before interest, taxes, depreciation, and amortization (EBITDA) at the 740-table Sands Macao (the downtown Adelson casino that opened in 2004) fell $2 million, to $228 million, due to what Executive Vice-President Bradley Stone described as "aggressive program" sharing of revenues with operators to pull in VIPs to its casinos. The Sands has seen its total market share fall from about 23% a year ago, to 17%-18% now.

Competition is certainly heating up. Las Vegas-based Wynn Resorts (WYNN) opened the first phase of a $1.2 billion casino and luxury hotel last September, and Melco-PBL (MPEL) started taking its first bets at the Crown Macau in May. MGM Mirage (MGM) will open a property before the end of the year. Already the pickings are thinning out. Daily gaming revenue per table has been steadily declining since peaking at $10,000 in 2002, when billionaire Stanley Ho's gaming monopoly had not yet expired. In 2006, the average take was just $3,200 because of the rapid overall expansion of gaming tables. It's going to get worse: As ever more properties come on stream in the next few years, that figure could fall as low as $1,800 by 2010, Morgan Stanley (MS) gaming analyst Rob Hart said in an interview earlier this year.

More Like Asia's Atlantic City

Macao also attracts a big-spending clientele. Whereas Las Vegas casinos earn more than half their gaming revenues from small-time players feeding coins into slot machines, in Macao one-armed bandits only contributed to 4.1% of the take in the first six months of this year. Baccarat, where the minimum bid in VIP rooms can start at $40,000, accounted for 85% of total Macao gaming revenues.

Wynn and Adelson won their gaming concessions from the Macao government in 2001 largely on the promise they would help transform the former colony, with an image as "sin city," into a family-friendly multipurpose destination. That transformation is well under way. This fall the Venetian arena will host an exhibition basketball game between the NBA's Orlando Magic and China's national team, as well as a match between tennis legends Roger Federer and Pete Sampras. The Wynn Macao is sponsoring the musical Cats. In the spring, Las Vegas Sands will open a dedicated, 2,000-seat theater for Cirque du Soleil.

Another challenge of the Macao market for operators building big properties is that it has a lot more in common with Atlantic City than with Las Vegas. Most visitors, of whom more than 50% now come from mainland China, stay less than a day, but even those who do stay the night are more likely to spend most of their time at the gaming tables or in massage parlors, not sipping champagne in the Jacuzzis of luxury suites or browsing the marble-inlay malls selling Prada handbags and Gucci shoes. "Here in Asia, you will have a bit of imbalance because Asians like to game," says Weidner, who expects gaming to account for as much as 70% of gross revenues, compared with 50% in Las Vegas. "Ethnically and culturally, they are more comfortable with gaming as a form of recreation."

Balfour is Asia Correspondent for BusinessWeek based in Hong Kong.