MACAU
- By every measure, Macau is booming. The
former Portuguese colony at the mouth of China's
Pearl River saw its economy grow 28% last year.
Tourism arrivals and gambling revenues both surged
more than 40% to new highs, and will set new
records again this year. Construction projects,
foreign investment and government tax revenue are
all up. Every indicator is pointing north, except
one: stock prices.
Share prices for the
companies at the forefront of the casino boom, Las
Vegas Sands (LVS) and Wynn Resorts, are each down
more than 40% from their highs of the past year.
High gas prices, rising interest rates and bad
weather have all weighed on
the
stocks. But with Macau's 2005 gaming revenue and
tourist arrival growth slowed to 14% from 40%,
analysts say investors are disappointed, even
though those figures handily beat growth rates for
Las Vegas.
It's not just the US market
that's gone bearish on Macau. Hong Kong companies have
gotten hammered after jumping on the Macau
bandwagon. The poster company is Medtech Group,
whose main business is watches. It paid HK$1.25
billion (US$161 million), a then-record HK$3.22
million per room, for the Casa Real hotel after
spending HK$500 million for the Grandview in
Taipa, and its share price was sliced in half.
Second thoughts or second
wind? Other investors are having second
thoughts, or at least pausing for breath. LVS will
share a bigger chunk of the bill for Cotai,
Macau's version of the Las Vegas Strip to be built
on landfill between the islands of Taipa and
Coloane.
According to recent filings with
US stock market regulators, in addition to the $2
billion - and climbing - cost of its flagship
Venetian Macao resort, LVS will finance at least
one other Cotai hotel at a cost of $200 million
and may foot the construction tab for two more
properties. LVS wanted hotel owners to fund their
own properties, but some developers are reportedly
having trouble raising money quickly enough to
satisfy LVS's plan for critical tourism mass in
Cotai by 2007. LVS promised the Macau government
it would open the Venetian by June 2006, but that
date has already been pushed back.
In
early September, Hong Kong's Regal Hotels canceled
plans to build three properties as part of the LVS
Cotai master plan. Industry insiders say the
sticking point was LVS offering a flat rent to
operate Regal's casino, rather than a percentage
of winnings. Regal now plans to build the hotels
elsewhere on Cotai and use a different casino
operator.
Macau's stock of hotel rooms
grew 14% last year, bringing the total to just
over 10,000. Projects already under construction
or on the drawing board will more than double that
number to 24,000. Tourist arrivals this year will
top 19 million, almost double the 2002 and 2003
figures. But more than half the visitors are day
trippers from mainland China or Hong Kong who
don't stay in hotels. Convincing just half of the
day trippers to stay over would add another 13,000
hotel guests every night of the year.
But
this year visitors' average length of stay has
declined slightly, and hotel occupancy rates have
fallen below 70%. Experts interpret the figures to
mean that mainlanders who came last year to see
the sights and gamble,
now on their repeat visits, just gamble. This has
disturbing implications for Macau's long-term
outlook, given the dependence of future profit
projections on mainland tourism. On the other
hand, much of the new Las Vegas-financed
development is intended to give the former colony
more non-gambling attractions, which will
encourage longer stays. Table for none If you want to find a quiet
place at the Sands Macao casino, head for the
third floor and pick one of the four gourmet
restaurants featuring Cantonese, Shanghai
and Macanese cuisine, plus good old American
steaks. The empty seats are another indicator that
mainland Chinese tourists, who make up at least
55% of Macau's visitors, aren't interested in
spending big money on anything but gambling.
Macau developers hope to entice them using
the Las Vegas model of extravagant properties
featuring shopping malls, epicurean delights,
luxurious accommodations and spectacular
entertainment that have made Vegas a favorite
vacation and business meeting destination.
Non-gambling activities now contribute half of the
income for Las Vegas properties. In Macau, food,
beverage, entertainment and lodging revenues
comprise a meager 3% of the take from tourists,
and no one really knows if the Vegas model will
work in Macau.
"If the Las Vegas model of
integrated resort development has proven anything,
it is that ... the creation of new entertainment
supply will actually create demand," Jonathan
Galaviz of gaming industry research and advisory
firm Globalysis says.
But Macau will
likely have to look beyond greater China, the
source of nine out of 10 current visitors, for
that demand. In August, Macau Government Tourism
Office (MGTO) officials and representatives of the
tourism industry staged Macau Week in Las Vegas to
boost Macau's international profile. "Macau has a
lot more to offer than casinos," MGTO director
Joao Costa Antunes said. "We want to let the
American people know about this." The 4 million
Macau pataca ($500,000) promotion featured
Macanese food, Chinese paper cutting, lion dances
and photos of Macau's World Heritage sites.
Tourists who travel farther in search of
culture and cuisine tend to stay longer. But if
Macau wants to attract long-haul Western visitors,
it will need more English-speaking employees, and
they're already hard to find. Mainland workers
currently fill the labor shortages. (Macau's
unemployment rate of 4.1% means an idle labor pool
of roughly 9,000 overwhelmingly low-skilled
workers.) A decade ago, English-speaking
mainlanders may have been delighted to take hotel
staff jobs in Macau; today they have much better
opportunities at home or elsewhere.
Mickey MICE Asia is a better bet
for Macau, but competition is stiffening. Hong
Kong's new Disneyland gives Macau's neighboring
rival another key advantage, along with better
shopping and superior air connections.
Macau hopes for a piece of the Disney
action by bringing bargain airlines not yet
welcome in Hong Kong to its underutilized airport.
Instead of visiting Hong Kong and perhaps day
tripping to Macau, tourists could stay in Macau,
where hotels are far cheaper, and day trip to
Disney. More importantly, Disneyland Hong Kong may
be short on rides but, as you'd expect from
Mickey's company, its facilities for MICE -
meetings, incentives, conventions, exhibitions -
are top notch. Macau needs to attract that segment
to fill its planned hotel and exhibit spaces.
On the gambling front, Macau's virtual
monopoly in the region won't last. Singapore is
taking proposals to build a pair of casino
complexes, Thailand, the Philippines and Japan are
seriously considering legalized gambling, and
Malaysia and South Korea may expand their small
operations to international standards.
Consultant Galaviz says there's no need to
fear competition. "Integrated resort entertainment
in Asia, with a casino gaming component, is not a
zero-sum game. The market can accommodate several
players that develop and maintain an outstanding
reputation in Asia on the development and
operational aspects of the business." He adds that
only $20 billion of Asia's estimated $100 billion
total gambling activity is legal. While not every
illegal bet will seek a legal home, the figures
indicate vast, unmet demand for gambling
opportunities.
So today's investor jitters
about Macau may simply be a combination of
irrational exuberance, unrealistic expectations
and a lull in openings until next year, when Wynn
Macao and four other five-star hotel casinos are
due to start dealing.
Las Vegas Sands
remains bullish. The company sold its Grand Canal
Shoppes mall at the Venetian Las Vegas for $766
million last year. LVS chief operating officer
William Weidner cited a simple reason for the
sale: "To take all that money and dump it over in
Cotai." That could turn out to be a winning
business decision - or a regrettably accurate
choice of words.
Gary LaMoshi
has worked as a broadcast producer and print
writer and editor in the US and Asia. Longtime
editor of investor rights advocate eRaider.com,
he's also a contributor to Slate and
Salon.com.
(Copyright 2005 Asia Times
Online Ltd. All rights reserved. Please contact us
for information on sales, syndication and republishing
.)
