Inside Asian Gaming

INSIDE ASIAN GAMING | November 2008 4 Editorial Editor and Publisher Kareem Jalal Director João Costeira Varela Business Development Manager Matt Phillips Operations Manager José Abecasis Contributors Michael Grimes, Desmond Lam Steve Karoul, I. Nelson Rose Richard Marcus, Shenée Tuck Andrew MacDonald William R. Eadington Graphic Designer Brenda Chao Photography Ike Inside Asian Gaming is published by Must Read Publications Ltd Suite 1907, AIA Tower, 215A-301 Av. Comercial de Macau - Macau Tel: (853) 6646 0795 For subscription enquiries, please email subs@asgam.com For advertising enquiries, please email ads@asgam.com or call: (853) 6646 0795 www.asgam.com Printed by Unique Network Printing Factory Ltd. Tel: (853) 2828 2832 Fax: (853) 2828 2830 E-mail: unique@macau.ctm.net Easy Come, Easy Go Last year, Sheldon Adelson ranked third on Forbes magazine’s US Rich List. According to last month’s issue of Forbes, as of end-September, Mr Adelson’s net worth stood at around US$15 billion—down about $13 billion over the course of this year, and taking the 75-year-old billionaire down to 15th place on the list of 400 richest Americans. Mr Adelson has suffered the steepest drop among those on the list who lost $1 billion or more during the current credit crisis. Mr Adelson’stratospheric climb up the Forbes rankings can largely be attributed to the success of his first Macau property, Sands Macao, which opened in May 2004 and famously recouped its initial investment within ten months of operation. This led to visions of a similarly speedy return on investment from the string of further casino resorts, and perhaps also from the one he was developing in Singapore. Even though Mr Adelson’s Las Vegas Sands Corp (LVS) only operated two major properties— Venetian Las Vegas and Sands Macao—prior to the Venetian Macao opening, bullishness on the prospects of the properties on the way drove up its stock price to the point where it had the largest market capitalisation of any casino operator in the world. That market cap was heavily reliant on Macau’s future promise. A weaker than expected start at Venetian Macao from August 2007, worsening fears of over- capacity and a coming slowdown in Macau’s casino sector had led to LVS shares plunging 94% year-to-date as of end-October, while those of Wynn Resorts had dropped 67%. This led to Wynn Resorts—headed by Mr Adelson’s arch rival Steve Wynn—taking over from LVS as the largest US casino operator by market cap. Meanwhile, MGM Mirage, which has one joint-venture property in Macau, has seen its stock price fall 85% during the period, with its majority shareholder, the 91-year-old billionaire Kirk Kerkorian, seeing his wealth decline by $1.2 billion to $10 billion. What Macau giveth, it can also taketh away, with astounding rapidity in either direction. To a large extent, Macau’s prosperity derived from Mainland China’s munificence, and that seems to work quickly in both directions too. Beijing’s easing of travel restrictions on Mainland Chinese wishing to travel to Macau and Hong Kong from the second half of 2003 was a major factor behind the massive visitor influx fuelling the casino boom. Many believed the restrictions would continue to be progressively eased. Almost nobody foresaw the trend could go in reverse, as first happened in June last year, and continued with increasing severity over the past few months. The evolution of the visa issue is discussed in detail in“Shut That Door,”starting page 13 of this issue. Visa restrictions, combined with the global financial crisis, have finally halted the juggernaut of Macau’s casino revenue growth. Gross casino revenue declined 0.8% in September and 3.5% in October—a sharp reversal compared to the 51.6%year-on-year growth recorded over the first eight months of the year. According to a report in Hong Kong-daily South China Morning Post, the sharp slowdown is almost entirely due to declining revenue and betting volumes from VIP gamblers in Macau’s private baccarat rooms.VIP gambling revenue will be further hit by the imposition of a cap on commissions on VIP chip sales at 1.25%, down from the current maximum of as high as 1.4%. There is one other factor behind the drop in casino revenue. Over the past four years since the opening of Sands,Macau has seen visitor arrivals and casino revenues spike following the unveiling of major new casino properties. The gap in the new openings pipeline in 2005 led to a relative slowdown in growth that year, with growth only resuming in the third quarter of 2006 following the opening of Wynn Macau. Now, the last big opening was that of Venetian Macao in August 2007, and there is another temporary lull in openings. The pipeline will resume in earnest in 2009 with the opening of other resorts on Cotai. Those openings could be delayed, however. Melco Crown’s City of Dreams just pushed back its scheduled opening by three months to July. The soon-to-openmega resorts on Cotai will require thousands more imported staff and put an even greater strain on the city’s infrastructure. The new resorts will likely also exacerbate Macau’s acute labour crunch, which has left many small- and medium-sized enterprises struggling to operate.The benefits of the recent casino-driven economic boomhave not been evenly distributed and the development has created a raft of social problems that have led to mounting political dissatisfaction. Political stability has for the first time become a concern for businesses looking to set up in Macau. Beijing has slammed the brakes on Macau’s breakneck casino revenue growth, but that is not all bad. The city now has a little breathing space to improve its infrastructure and alleviate other social problems ahead of the next wave of openings and growth.Without those improvements,the gains could be easily lost. Michael Grimes