Ten minutes by helicopter or one hour by hydrofoil from Hong Kong, the former Portuguese colony of Macau is crammed onto a couple of tiny islands and a peninsula jutting from the Chinese mainland.
Only half the size of Sydney Harbour, it has just overtaken the Las Vegas Strip to become the gaming capital of the world. But the boom has only just begun.
Cranes crowd the skyline as new casinos and hotels spring up on reclaimed land. And high-speed ferries stream across the Pearl River estuary from Hong Kong like trucks down a busy freeway.
Macau has made its living from gambling for years, but it is only since its return to China in 1999 that it has hit the jackpot.
In 2001, the laws were changed to allow foreign casino operators. In 2003, the Chinese Government relaxed travel restrictions from the mainland. This year, 27 million people are expected to flood across the border – roughly four times as many as in 1999 – with just one thing in mind: to try their luck.
Australia’s James Packer is also there, making bigger bets than his father Kerry ever did, joining a gold rush in which everyone except the punter is expected to win.
Packer’s company PBL (soon to be renamed Crown) is spending AUD 6 billion to build three huge casinos, in partnership with Lawrence Ho, 28-year-old son of Hong Kong businessman Stanley Ho, who monopolised gaming in Macau for 40 years.
Their first casino, the Crown Macau, opened in May.
In late June, I took a look for The Sunday Telegraph.
The world’s biggest casino, the Sands Macau, was chock-a-block, with some 2000 people spread across four floors.
Ten minutes away on Taipa Island at Packer’s Crown Macau, it’s a very different story. There is hardly anyone playing. There are roughly 140 tables spread over five floors in the non-VIP area and maybe 150 customers all up.
The punters are easily outnumbered by dealers, waiters and other staff. The top floor is almost deserted.
The entire room has only one of its 30 tables in operation, with five people gathered around. Another roped-off section has, perhaps, a further dozen tables of which just two or three are in play. It’s always like this, the barman tells me.
The poker machines are no busier. There are supposed to be 479 in Crown Macau – I don’t bother to count them – but, that afternoon, at least 90 per cent appear to be idle.
The next day I get a guided tour from Crown Macau’s Australian CEO, Greg Hawkins, and there are more people playing but it’s certainly not busy. It’s hard to believe the casino is making money.
One problem is that it’s in the wrong place, the locals say: „A six-star hotel in a three-star location“.
Packer’s gleaming glass tower is a 10-minute taxi ride from the main strip, surrounded by cheap apartment blocks. It’s also the wrong design, according to the experts, because gamblers hate going up stairs.
„It’s a horrendous mass-market destination,“ one analyst tells me. „Crown said they were going to concentrate on VIP gamblers, then they open five floors of mass-market tables and – surprise, surprise – they’re all empty.“ I ask if the mass-market section will get busier in time and the answer is: „No. I reckon they’ll end up gutting it“.
Crown opened too early, the locals tell me and its opening was a „disaster“. It was a hot night and the party was held off site, so guests had to walk 200m to the casino. Then the rooms, restaurants and VIP suites weren’t fully operational until mid-July and its reputation suffered.
But, despite these problems, Crown Macau does live up to its six-star billing. The 38th floor lobby of the hotel is breathtaking, and there are superb views from every room, including the 24 luxury suites and eight presidential „villas“. The four restaurants, too, are world class.
And it will almost certainly attract the VIP gamblers who are supposed to make it pay, not least because Packer’s people are experts at that part of the business. As one casino rival puts it: „Crown will make money. We’re all going to make money. The question is how much“.
The short answer is lots. So far this year, Macau’s casinos are winning 50 per cent more than in 2006 and on track to take AUD 11.5 billion off punters. And operators with the right product, like American casino king Steve Wynn, are making a killing. Wynn’s Macau, which published its results for the second-quarter of 2007 last week, is making AUD 1 million in pre-tax profit every day. As is the Sands Macau.
The style at Wynn’s, which opened in September, 2006, is Vegas-meets-Versace with a touch of China thrown in. The foyer has a 2m crimson chandelier hanging from the gold-vaulted ceiling, suspended over an acre of crimson, pink, orange, blue and green carpet, which sits flush into the honey-coloured marble floor. And people can’t get enough of it.
The casino has only 7 per cent of the tables in Macau, but it rakes in 17 per cent of the win.
The shops in the arcade read like a roll call from brand heaven: Bulgari, Tiffany, Dior, Prada, Louis Vuitton, Chanel and Armani. There’s also a Steve Wynn Signature watch shop with diamond-studded Rolexes at AUD 110,000 a piece. That’s the sort of customer they’re after.
Packer and Ho won’t make as much money as Steve Wynn or Sheldon Adelson because they had to fork out USD 900 million (AUD 1060 million) to Wynn for a gaming sub-concession (without which they would not be able to operate casinos). And also because they were late into the market.
Their flagship City of Dreams casino, which is under construction on Macau’s Cotai Strip – a big patch of reclaimed land that links two islands – won’t be open until March, 2009. Originally billed as „underwater“ but now merely „underwater-themed“, it will cost AUD 3 billion and be more than twice the size of Sydney’s Star City, with 450 gaming tables, 2500 pokies, 2200 hotel rooms and its own 1700-seat theatre. Like everything else in Macau, it is behind schedule and over-budget.
When it finally opens, it will have to compete with Adelson’s extraordinary new Sands Venetian resort, across the road, which opens in two weeks time.
Dominated by a hotel block that can be seen 20km offshore, the Venetian appears to be recreating half the ancient Italian city. The Bridge of Sighs is there, as is the Grand Canal and the famous bell tower, Campanile di San Marco. There are also a couple of blocks of 16th-century houses.
God knows how many visitors will be needed to make it pay.
In its first stage, the Venetian will have 750 gaming tables, 4000 pokies and 3000 hotel rooms. But that’s just the start.
Adelson is building another 11,500 hotel rooms on the Cotai Strip in 10 new hotels run by Hilton, Four Seasons, Shangri-La and all the other top chains. These will contain another five casinos with 2150 tables and 12,000 pokies. There will also be two million square feet of convention space and three million square feet of shops – the equivalent of almost three new Westfield Bondi Junctions.
You need huge nerve to bet on this scale – it will cost more than AUD 10 billion – but Adelson got rich by taking such gambles.
Galaxy is also building in Cotai, with its Mega Resort also due to open long before Packer’s City of Dreams. Wynn and MGM have plans, too. And a shiny new (all gold) MGM Grand is set to open in old Macau this November.
The scale of expansion is just colossal. And here lies the danger. Back in 2004, before the Sands opened, there were 424 gaming tables in Macau – the equivalent of two Star City casinos. By the end of 2009, there will be 6700 – or 34 Star Citys – operated by six concession owners, all in an area half the size of Parramatta.
By then, Adelson will have also opened a huge new casino in Singapore, which will be competing for business.
So can they all make money? Six months ago, most analysts were saying yes, arguing that demand was unlimited, and that new Chinese millionaires were being made every minute. But now the doubts are growing.
Stanley Ho’s new Grand Waldo casino, which opened on the Cotai Strip in May, 2006, has been struggling and some of Ho’s smaller franchisees are said to be in difficulty.
David Green, gaming director at PriceWaterhouseCoopers in Macau, says: „Not every operator is going to win. The big question is how hard will the losers fall. The risk to PBL is that it may not do as well as everyone expects and that disappointment will hurt the Crown brand‘.‘
Some of the blue sky has already fallen in for Packer’s backers. People who bought shares in the Macau joint venture when PBL-Melco was launched on the US Nasdaq in December, 2006 have lost almost half their investment. Yet it is still valued at around AUD 6 billion, and Packer is showing a fat profit on the money he has put in.
There are other risks on the horizon. One is that the Chinese Government will be tempted to allow gaming on the mainland or on Hainan Island, south of Hong Kong, to grab a share of the tax revenue from Macau, which is currently raking in around AUD 4 billion a year. That would take away Macau’s monopoly.
Other countries in the region are likely to license casino gaming because it’s such an easy way of raising revenue. And if they charge lower tax rates (as Singapore is already doing), junket operators (who currently bring Chinese punters to Macau) will make more money by taking their business there, instead.
But Packer and PBL are expected to build more casinos under the Crown brand – in Vietnam, Japan, the Philippines and Thailand for starters – if the laws allow.
By selling the TV and magazine empire created by his grandfather, Sir Frank Packer, James has raised more than AUD 5 billion in cash for PBL, which is busy borrowing more to spend in casinos around the world.
PBL already has AUD 7 billion of other casino projects on the drawing board, including two huge new resorts in Las Vegas at the unfashionable end of The Strip (which some see as another risk). One of these will feature the tallest tower in the US at more than 500m high, if it gets the go-ahead. Packer will have American majority-partners in both ventures.
PBL is also bidding AUD 1.4 billion in a joint venture with Macquarie Bank to buy Gateway, which owns a number of casinos in western Canada. And he has ambitions to establish new super-casinos in Europe.
Once again, the size of these bets is beyond anything his father ever contemplated. Kerry liked his businesses to operate in a regulated market with the minimum of competition. James is prepared to slug it out with the biggest and best in the world to prove himself and, perhaps, to show he is better than his father. If his bets come off, Crown could become one of the world’s biggest gaming companies.
If they do not, it’s hard to see what might happen. But neither Packer nor PBL is putting up the likely AUD 20 billion cost alone. International bankers and partners have been persuaded to dig deep, too, with the deals cleverly engineered so that they take two-thirds of the risk, while the bulk of the profits (if the bets come off) go to Packer and his shareholders.
It’s too early to be sure that Packer’s play will succeed. He has already had losing hands in Singapore (where his consortium failed to get one of two licences on offer), in the UK (where a last-minute change of mind by the Brown government has blocked his expansion plans), and in Russia (where a big project outside Moscow has apparently been squashed). But these are still early days. The game has only just begun.
So, ladies and gentlemen — place your bets. Australia’s richest man is at the table.