Inside Asian Gaming

INSIDE ASIAN GAMING | June 2009 4 Editorial Publisher Kareem Jalal Director João Costeira Varela Editor Michael Grimes Business Development Manager Matt Phillips Operations Manager José Abecasis Contributors Desmond Lam Steve Karoul I. Nelson Rose, Richard Marcus Shenée Tuck, James J. Hodl 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 Here’s to another ‘bad’ year At a recent lunch meeting with a very senior gaming executive in Macau, one of the guests raised his glass and proposed a toast—to failure. It was an industry in-joke, and a timely reminder. Amid the doom and gloomabout the credit crisis and accompanying global recession and fears of swine flu, Asia remains a vibrant, exciting and potentially hugely profitable collection of gamingmarkets. Gross gaming revenue for all games of fortune in Macau grew by 30.9% year on year in 2008 to 108.77 billion patacas (US$13.62 billion). The figures served to reiterate the fact Macau is the biggest casino gaming market in the world by revenue and that dollar for dollar she appears to be more resilient to economic shocks than Las Vegas. Macau’s sterling performance was achieved despite the second half triple whammy of a credit squeeze on VIP players, a tightening of arrival permits issued under China’s Individual Visit Scheme and regional economic contraction. Although much of the 2008 revenue growth was produced by credit-based VIP baccarat, the slots sector has been takingmajor forward steps. Revenue from slots inMacau reached the equivalent of US$710 million in 2008—up 57.2% on 2007 (5.65 billion patacas from 3.59 billion patacas a year earlier) according to Macau’s regulator, the Gaming Inspection and Coordination Bureau (DICJ). Some of the boost in productivity on a per slot machine basis was due to a reduction in the total number of machines on casino floors—from 13,267 at the end of Q4 2007, to 11,856 at the end of Q4 ’08.Those that remain though are bringing inmore cash than ever.The gross revenue fromslots in Q1 ’09 was 1.53 billion patacas, up 3.72% quarter on quarter and up 13.2% year on year. This bullishness on slots is reflected in Melco Crown Entertainment’s (Nasdaq: MPEL) decision to inject 1,350 newmachines into the Macau market when the company’s City of Dreams project on Cotai opened its doors in early June. The arrival of thousands of delegates fromaround theworld toattendG2EAsia2009 thismonth is another reminder of howMacau and Asia has captured not just the imagination but also the investment dollars of the world. Major challenges remain in the effort to nurture the new Macau through its infancy to adolescence and adulthood, but a huge amount has happened in a very short time. The skyline of the Macau peninsula is almost unrecognisable even compared to 2004when the SandsMacaoopened as the first foreign-owned and operated property. Back then Cotai didn’t even have skyline. So here’s to failure. Let’s hope Asia in general andMacau in particular hasmanymore lean years like 2008. A little local difficulty? It may be that Pansy Ho’s troubles with State of New Jersey lawyers over her 50:50 Macau joint venture with MGM MIRAGE will turn out to be a storm in a regulatory teacup. Something similar happened during probity hearings for her brother Lawrence in Australia. Mr Ho junior was put through themill DownUnder when his companyMelco International Development Ltd announced in November 2004 it planned to operate a joint venture with James Packer’s Publishing and Broadcasting Ltd (PBL) for casino gaming in Macau. The sticking point, as in New Jersey, was Mr Ho’s father Dr Stanley Ho. The Australian authorities have never accused Dr Ho point blank of triad links in the manner of the US authorities, but they have threatened in the past to refuse Dr Ho a gaming licence, and they have threatened to reveal the reasons publicly. It took gaming regulators in Victoria and Western Australia—where PBL (now Crown Ltd) has casinos— nearly two years to complete a probity investigation into Lawrence Ho. PBL’s link with Mr Ho junior was not approved until September 2006. Part of the price of that approval was that the joint venture had to spend US$900 million to buy a Macau sub-licence from Steve Wynn, rather than relying—as was first planned— on a cheaper sub-licence from Mr Ho’s father. Dr Ho also resigned as chairman of Melco to ease the way for Lawrence with the Australians. Whether it would be sufficient in New Jersey’s eyes for Pansy Ho to resign her directorship of her father’s investment company STDM and/or her role as managing director of Dr Ho’s ferry and property conglomerate ShunTak Holdings Ltd is anothermatter. Ms Ho and her partners do have a clear connection toDr Ho’s gaming empire in the formof a gaming sub-licence acquired directly fromhim for US$200 million. And this brings us to the regulatory punchline.The US State Department’s International Narcotics Control Strategy Report in 2007 made the following statement regarding Macau’s VIP gambling trade: “Under the old monopoly framework, organized crime groups were, and continue to be, associated with the gaming industry through their control of VIP gaming rooms and activities such as racketeering, loan sharking, and prostitution.” Even if the State Department’s assertion were true, it would be a brave commentator who asserted that a triad criminal had never set foot in a foreign-owned casino in Macau. Indeed, in a recent case involving the murder of a former policeman and convicted drug runner from Hong Kong, police sources in Hong Kong said the killers had taken their victim from The Venetian Macao, where he had been gambling. There was no suggestion that the management or staff of the casino had any foreknowledge of, or complicity in, the incident. American law enforcement authorities cannot have it both ways. If the US accepts that Macau is a legally constituted casino jurisdiction, then it must accept that Dr Stanley Ho is a legally sanctioned player in that market. To suggest it does not accept Dr Ho’s status as such is tantamount to saying the US regards Macau as an illegal gaming destination. If that’s the case, then the US federal government, as well as the Australian federal government, should order their citizens’gaming companies to withdraw from the Macaumarket. Let’s see what happens. Michael Grimes We crave your feedback. Please email your comments tomichael@asgam.com Stanley Ho’s Grand Lisboa towers over the old Lisboa