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Liz Benston

Business Booming in Macau as Venetian Owner Plans Expansion

11 August 2004

Executives for Venetian owner Las Vegas Sands Inc. said Tuesday the company is moving quickly to cash in on a small part of the world that is expected to surpass Nevada in a few years as the world's largest gambling destination.

Macau, a Chinese coastal territory that is less than an hour by boat from Hong Kong, has attracted major U.S. investors including Wynn Resorts Ltd. and MGM MIRAGE. They broke a decadeslong monopoly held by casino boss Stanley Ho whose casinos catered to high-rolling gamblers who were known to obtain credit from Asian gangs.

Executives at Las Vegas Sands, which opened its Sands Macau casino May 18, said they are flouting conventional wisdom by catering to an emerging mass market of Chinese who have newfound wealth and a desire to travel but who aren't dropping thousands at the baccarat tables.

And they say they will expand the Sands Macau -- as well as build a previously announced resort there similar to The Venetian -- as fast as they can.

"There's a billion people within a two-hour travel time already," Las Vegas Sands President Bill Weidner said during the company's second quarter earnings call Tuesday. "I don't know if Macau has enough room to handle capacity. I don't know if you can (have) enough (gaming) tables."

The company isn't waiting for Macau regulators to pass expected rules allowing casinos to extend credit to gamblers -- an event that some experts said was a near requirement for doing business in Macau.

"We are (glad) we got there early because the market in Macau is pretty phenomenal," Las Vegas Sands Executive Vice President Brad Stone said during the conference call.

Profit at the company more than doubled from a year ago, in part because of the opening of a new hotel tower at The Venetian as well as early results from the Sands Macau casino.

"There's well over a billion dollars' worth of opportunity on the mass market side with little or no cost of acquisition," Weidner said. "What we saw was a good, high margin business without extending one dollar of credit."

Casino boss Steve Wynn originally said he wouldn't move ahead in Macau without credit legislation in place but has since begun development, saying he is confident rules will pass allowing casino credit as well as the ability to offset taxes on casino winnings by deducting uncollectible debt.

Visitor volume in Macau is increasing about 50 percent a year, with each person bringing about $6,000 in cash, Weidner said.

By the end of this month, Sands Macau will open a series of amenities aimed at cash-paying tourists, including 49 high-end suites, four restaurants, karaoke bars, a cigar bar, tea tasting rooms and spas.

There's another billion dollars' worth of market potential in a high-end segment of customer who brings cash and doesn't need credit, Weidner said. Other tourists avoid Macau altogether because they're not big gamblers, he said.

Macau is largely a locals' market fed by nearby Chinese zones that have become well-to-do under recent free trade policies, analysts say.

"The mass market is what's growing," said Scott Fisher, a managing director with Innovation Group, a New Orleans-based consultant for gaming and hotel companies.

"There's relatively wealthy communities and cities in the southern Guangdong province where everything's brand new. These are people with newfound wealth and going to Macau is an opportunity they now have but they're not serious gamers," Fisher said.

"People enjoy the whole resort concept just like they enjoy the resort concept in Las Vegas," he said.

The company's Macau business can stand on its own without serving as a feeder market to Las Vegas, Key Banc Capital Markets analyst Dennis Forst said.

"They don't need to bring one customer over here (to Las Vegas) to have it make economic sense in Macau," Forst said. Any cross-marketing with The Venetian "is kind of whipped cream on top of the cake."

Both Las Vegas Sands and Wynn have a track record of catering to Asian gamblers in Las Vegas and have indicated a desire to market their Vegas casinos in Macau.