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Best of Liz Benston
Liz Benston

Catching up to Las Vegas

1 October 2007

When the Macau government opened its gambling market to foreign investment a few years ago, it sought companies that could help transform the Chinese seaport from a seedy outpost into a top luxury resort destination where gambling is but one of many popular attractions.

The former Portuguese colony wanted to accomplish what it had taken about 40 years to achieve in Las Vegas, where at least half of the Strip's revenue is generated beyond the casino floor.

One of Macau's top choices for the job was Las Vegas Sands, a company officials wanted so badly they created a new ownership system, called a subconcession, to accommodate it. The subconcession with Galaxy Entertainment, a Hong Kong construction supplier with political contacts, would pave the way for Las Vegas Sands to begin work on the Asian equivalent of the Las Vegas Strip.

Although tourists might not be booking shopping trips soon, experts say the Sands' Venetian Macau, the $2.4 billion replica of its Las Vegas resort that opened last month, already is accelerating Macau's Vegas-like transformation by growing that market.

That growth has big implications for Las Vegas, where the Venetian and competitor Wynn Las Vegas are using Las Vegas attractions together with their Macau operations to cultivate a new crop of Asian high rollers.

With 3,000 rooms, a 550,000-square-foot casino floor, 1 million square feet of retail and a 1.2 million - square-foot convention center, the Venetian Macau is the second - largest building in the world and boasts the world's largest casino.

The Venetian Macau's convention center is about as big as the Las Vegas version (excluding the company's adjacent Sands Expo Center) but has a mall that's more than twice as large - in a region with little convention or retail space.

Venetian Macau drew more than 500,000 people in its first week, with daily foot traffic surpassing that of the largest and most profitable resorts on the Strip.

"This property completely changes the market," said Bill Lerner, a stock analyst with Deutsche Bank.

Historically, Macau has been a high roller market, attracting the rich from Hong Kong, less than an hour away by ferry, and mainland China.

A few years ago the Chinese government loosened travel visa restrictions to Macau, boosting tourism to the special administrative region.

What has most surprised Wall Street in recent months isn't the boom in mass-market gamblers but the rise in high roller play, which is growing from a much larger base. (Unlike Nevada, Macau's government separates mass market from high roller gaming revenue.)

Some of these high rollers - those willing to gamble from tens of thousands to millions of dollars per trip - are among China's newly minted millionaire entrepreneurs. Others are players from Japan, Taiwan and Korea - who might have previously avoided Macau's dingy casinos for more luxurious resorts in Australia and Malaysia.

"Two years ago people thought there would be no more growth in high roller gambling. You now have five-star properties with the opening of Wynn and Venetian and they're attracting new customers," Lerner said.

That's good news for Las Vegas resorts.

There's clear evidence that, more than ever before, high rollers familiarized with the Wynn and Venetian brands in Macau are being wined and dined on the Strip.

Revenue from baccarat, the game of choice for Asian high rollers, was up 22 percent on the Strip in July from a year ago. Baccarat revenue over the past year was $916 million, growing twice as fast as revenue from blackjack, which generated $1.5 billion. Revenue for pai gow, another game favored by Asian players, grew 37 percent, faster than that of any other card game measured by the state.

If Macau's new resorts rival the Strip's, why would Asian gamblers bother making the trip halfway around the world?

For the same reason domestic players do, so they and their entourage can take advantage of a wider variety of amenities, intended as high roller freebies, a mere walk or short car ride from the casino.

For Asian players, visits are usually triggered by special events such as Chinese New Year or a title fight. Events centers such as the Venetian Macau's 15,000-seat arena will bring more Las Vegas-style events to the region. One example is a series of exhibition games with NBA players and tennis pros held in conjunction with the resort's debut. But for variety and number of events, Las Vegas is king.

In that respect, the Wynn and Venetian casinos in Macau, destined to be more profitable than their Las Vegas counterparts by virtue of sheer gambling volume, also serve as superior marketing offices for the companies' Las Vegas resorts.

"That's where the fish are and you have to fish where the fish are," said Larry Wolf, who runs the casino management company Navegante Group and has worked in Macau. "It's about staying close to your customer. The more you're with your customer the more you find out their wants and needs, like whether their wives love Elton John or take special shopping trips."

With more amenities to offer, Las Vegas becomes an added attraction for big players cultivated in Macau, he said.

How closely Macau will eventually resemble Las Vegas isn't clear. On a revenue basis, analysts say , the addition of more non gambling amenities will never catch up with the growth in gambling revenue, which now tops $7 billion - including the value chips the casinos give to high rollers that they play with and lose - and is expected to exceed $10 billion by 2010. At least $5 billion of that is now generated by high rollers. Excluding given-away chips , the Strip generated $6.8 billion in gambling revenue over the year that ended July 31.

Non gambling revenue in Macau is negligible today but might eventually become 20 percent of the total, Lerner said.

Some experts say Macau visitors might eventually stay for two days - less than the typical four-day, three-night stay for Las Vegas visitors.

Longer visits may be elusive for Macau because many customers are factory owners who don't have the kind of free time to which Americans are accustomed, Wolf said. Many gamblers take the ferry trip from Hong Kong and return the same day.

The rapid transformation of Macau, with more than $20 billion in casino resorts in the pipeline, can't be understated.

The slew of recent openings might be something like witnessing, within three years, the rise of 20 or so of the modern mega-resorts built in Las Vegas over nearly two decades.

Families have flocked to the Venetian Macau in recent weeks. Analysts also noted some vacant slot machines and tables. Such details are part of the Las Vegas landscape but newer to Macau, where gamblers will stand two to three people deep waiting for a seat to play.

"What's amazing is that there are so many other things to do at Venetian Macau besides gamble," Morgan Stanley stock analyst Celeste Mellet Brown said.

"You used to go into a property and see almost everything that's happening by standing in the middle of the gaming floor. I saw buses full of people lined up to go to the Venetian and when they got there they kind of disappeared, dispersing inside the property."

Much like they do in Las Vegas.