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Macau
Brian
Trumbore
President/Editor, StocksandNews.com
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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