Two Way Hard Three | Las Vegas Casino & Design Blog

July 11, 2005

Macau Gaming Update: Wynn Macau and More

Posted by Hunter

This was previously posted in the comments but deserves front page status.

An article from the Las Vegas Sun on the progress of new casino construction in Macau, China.

Will Macau be the next Las Vegas? Wynn and Las Vegas Sands shareholders sure hope so!

Macau: The Next Vegas?

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Read archived comments (2 so far)
July 11, 2005 10:42 AM Posted by tom

Great article on Macau. I am very interested to see how this all turns out and hope to visit there sometime in the future. Looks like Addelson has a big leg up on the competition, except for the local guy Ho. I can't believe how much money Macau is going to make and to think about all of those people so close, it will only get much bigger. I am curious how the gaming is regulated there and whether the rules are similiar to Nevada.

July 12, 2005 7:48 AM Posted by detroit1051

Interesting article on the possible nationalization of Macau's casinos in 2022. The market potential of Macau makes the reward worth the risk. This is from the 7/11/05 Las Vegas Business Press


Even the distant threat of nationalization is not discouraging Las Vegas casino companies from ploughing ahead in the Macau market, so great are the rewards.

In a June 21 research note, Jefferies & Co. analyst Lawrence Klatzkin highlighted a little-remarked aspect of Wynn Resorts' Macau casino pact. The concession granted by the Communist Chinese government sunsets on June 26, 2022, at which point China can nationalize Wynn's casino.

Starting in 2017, the Chinese government can purchase Wynn's concession, with one year's notice, for "fair compensation" which, Klatzkin noted, "is at the discretion of the Macau government."

MGM Mirage spokesman Alan Feldman indicated that similar provisions govern his company's ongoing Macau project. "The end of the first concession agreement has just taken place and the government did not take control but renewed the agreement and initiated two new agreements," he wrote in an e-mail to the Business Press.

According to Australian gaming consultant Sudhir Kale, all foreign entrants into the Macau market will be subject to nationalization clauses. "That is a prerequisite to gain entry," he wrote, also in an e-mail to a reporter.

Why, then, would publicly traded casino companies risk multibillion-dollar investments in a jurisdiction where their assets could be seized by a Communist government? "Currently, casinos in Macau provide the very best (return on investment) of all the casino markets I know," Kale noted.

"The lure of that market is such that I'm sure, by their calculations, they're protected," added Charles Anderer, former publisher of International Gaming & Wagering Business, a casino industry trade publication. "I'm sure they see themselves pulling out far more money than they've invested, even if the worst happens and they are offered a dollar or they do get nationalized."

As both Anderer and Klatzkin stressed, in separate conversations with the Business Press, the concessions have many years to run before the buyout and nationalization clauses can be invoked. "By 2022, who knows what the world is going to be looking like? I'm sure it'll be far more integrated than it is today," said Anderer.

Kale seconds Anderer's assessment of Macau, adding: "In China, the political climate can change very fast. So, the risk of nationalization always exists. Lure of money can cause people to look the other way from the political environment of the markets they operate in."

UNLV Professor Bill Thompson, who studies the casino industry, points out that playing the nationalization card could be counterproductive to Macau's economic health, both in the long term and the present. His argument is that a likely government takeover would discourage moguls Steve Wynn and Sheldon Adelson -- both of whom are presently operating in the "special administrative region" -- from upgrading their casinos and cultivating high rollers. Without long-term assurance, "they won't care if the floor wears out in 10 years."

Already the Macau market generates $5.4 billion in gambling revenue, comparable to the Las Vegas Strip. "But they're doing nothing compared to Las Vegas in terms of non-gaming revenue," Anderer noted, "and that's where a lot of the investment is going to be: resorts that generate huge revenues on the hotel side."

Having seen the energy level in the Macau casinos, Anderer returned amazed by the volume and intensity of gambling activity. He described the Chinese market as "phenomenal; 1.3 billion people. Fifteen percent of them hold university degrees right now and that number is expected to double. Last year, China graduated more people with engineering degrees than we had graduates in the United States. The relevant market on the Mainland could be as high as 700 million people within five to eight years.

"Our little industry," as Anderer calls the casino business, "is on the leading edge of what's going to emerge as the biggest story of the first part of the 21st century, which is U.S.-Chinese economic relations."

One lingering concern about the Southeast Asian market is a perceived climate of corruption. According to Klatzkin's report, Stanley Ho (who previously enjoyed a monopoly on Macau's casinos) "used the (organized crime) Triads to enter mainland China to force some sort of collection" of gambling debts.

"It's good to have the Chinese government on your side," Thompson noted of American entrants like MGM, Wynn and Adelson. "They have the power to stop the Triads whereas the (Portugese) colonial government had neither the power nor the inclination."

That inclination may also extend to Nevada, according to Anderer, who observed a regular Nevada Gaming Control Board presence in Macau, one that might become permanent. "But that should only happen if they're invited," he added.

Thomas Golden, an expert on corporate fraud for PricewaterhouseCoopers, cited subtler threats than Asian Mafia. "In environments where corruption is part of the culture ... the risk is extremely high. You can bet the Justice Department is just waiting in the wings for that whistle blower call."

For instance, "faciliation payments" are permissible under the Foreign Corrupt Practices Act. This means if a U.S. company is having difficulty getting supplies from the airport it can purchase vehicles for the local transport company. It could also compensate local officials for time spent reviewing corporate documents.

But, Golden noted, it's a slippery slope from a "facilitation payment" to an outright bribe. "There's a fine line and it's not a bright yellow line," he said, adding that laissez-faire overseas business cultures and Wall Street's appetite for profits can push otherwise law-abiding executives over that fine line.

"We're not talking Michael Milken and Ivan Boesky here. Maybe when your negotiators are passing out the garbage contracts you may rationalize in your mind that you're not breaking the law," Golden said.

"What we're seeing now is the Macau authorities are well aware of (regulatory concerns) and are sensitive to it," Anderer said. "It's being handled about as well as could be expected right now. But we'll see."