Bad times good for Macau mogul Ho
By Muhammad Cohen
MACAU - These are tough times in Macau, but good times for gaming mogul Stanley
Ho. Macau's first decline in gross domestic product (GDP) in five years, global
gaming gloom and continued restrictions on China mainland visitors to the
gambling enclave are proving that the octogenarian remains the savviest
operator in the territory, where he's done business for seven decades.
Often called Doctor Ho, thanks to his decades-long string of honorary degrees,
the former gambling-monopoly holder received the Asia Visionary Award at the
opening session of the Global Gaming Expo (G2E) trade show this month. The
great and good of gaming and Macau came to praise the chairman and managing
director of Sociedade de Jogos de Macau (SJM), scant months after rivals
thought they'd buried him.
G2E organizer Reed Exhibitions Asia Pacific president called Ho "a true pioneer
of the gaming industry". American Gaming Association president and CEO Frank
Fahrenkopf declared: "Without Doctor Stanley Ho, the Asian gaming industry
would not be what it is today."
Macau Business magazine founder and publisher Paulo Azevedo, introducing the
guest of honor at the ceremony, said: "In Macau, everything changed because of
the vision of this one man. Stanley Ho may be outspoken, he may be feisty [Ho
admits to fathering no fewer than 17 children by four women], but he has never
said no to this tiny town."
Ho's roster of Macau investments include high-speed ferry connections to Hong
Kong and the mainland, plus redevelopment of the neighborhoods around the
terminals; Macau International Airport; the Friendship Bridge connecting
Macau's downtown with outer island Taipa; and Macau Tower, a landmark and
tourist attraction that served as the territory's first convention center. Ho's
legendary generosity and philanthropy also include gifts to his birthplace Hong
Kong and mainland China, and promoting Chinese culture and studies globally.
No gambler
"Gaming should never be a win-lose proposition," Ho said in his G2E keynote
address. "There can be multiple winners: casino operators, government [which
takes a nearly 40% tax bite in Macau] and society," Ho claimed. "From society
to society: this is my long-term vision. Although I'm not a gambler, I would
wager that this is one of the best bets that you can make." It's the first part
of that sentence that should get your attention.
Macau chief executive Edmund Ho (not related to Stanley) presented the award to
the casino magnate and joined him in the ribbon-cutting that formally opened
the G2E trade show. Macau's two leading Hos were flanked onstage by officials
representing Beijing, Britain, Australia and the US, the latter two
jurisdictions where Stanley Ho or his children have run afoul of gaming
regulators.
After accepting the award, Ho posed for pictures with his children in the
audience, Lawrence and Pansy Ho, the latter recently deemed an "unsuitable"
partner for US gaming giant MGM Mirage (at its MGM Grand Macau) by New Jersey
state regulators' preliminary investigation. The real headline in that family
photo is that it represents stakes in three of Macau's six gaming licenses.
Last July, Ho finally succeeded in listing SJM shares on the Hong Kong stock
exchange. (His Shun Tak property and transport group has long been a Hong Kong
blue chip). The listing gave SJM access to public capital markets that its five
Macau rivals already enjoy. Perhaps as important, the stock listing in an
international financial capital, in Ho's words, "helped clear up misconceptions
about the industry".
Misconceptions come easily in the murky world of junket agents used widely by
Macau casinos to bring in high rollers, who still account for more than 65% of
gambling revenue. Players from mainland China in particular often need credit
to beat currency restrictions and mainland courts won't enforce gambling debts.
That makes brute force the best bet to collect. Ho may have played ball longer
with shady characters and their methods, but his rivals also face the same
collection dilemma, so it's difficult to single out Ho for "unsuitable"
associates.
Sands storm
Perhaps sweetest for Ho, his Asia Visionary Award was presented at the Venetian
Macao, Asian flagship of rival Sheldon Adelson's Las Vegas Sands Corp (LVS).
The gaming monopoly that cost Ho a reported US$410,000 in 1962 - that extra
$10,000 apparently the winning margin - ran for 40 years. After Macau returned
to Chinese rule in 1999, authorities declared Ho's monopoly would end with a
trio of licenses (later expanded to six) to be offered in 2002.
Ho retained one license, with Vegas heavyweights Wynn Resorts, MGM Mirage and
LVS joining the fray along with Australia's Crown casino group in a
Nasdaq-listed partnership with Ho's son Lawrence called Melco Crown
Entertainment Group.
Five years ago, when LVS opened the Sands Macao, it looked as if the future
belonged to Adelson and his compatriots. Asia's first casino with true Las
Vegas style and scale earned back its $265 million cost in less than a year and
heralded the beginning of Macau's extraordinary boom. Ho seemed like
yesterday's man, a symbol of the old Macau, if not a fossil. His flagship Hotel
Lisboa opened in 1970, and SJM's other casinos were mainly small gaming floors
tucked into what were perceived as second-rate hotels once the foreigners began
working their magic.
The Sands was just the beginning for LVS. Next came the Venetian Macao - it
opened in August 2007 with 3,000 rooms, a 15,000-seat arena, 1.2 million square
feet of convention space, another million square feet of retail space, plus the
world's largest casino floor. The Venetian is the anchor for LVS's $12 billion
master plan to develop the 5.2 square kilometer Cotai landfill, linking Macau's
outer islands of Coloane and Taipa, about a 20-minute cab ride from downtown
Macau, as Asia's Las Vegas Strip. Last August, LVS opened the Four Seasons
Hotel and Shoppes adjacent to the Venetian, tossing another $1.1 billion into
the pot.
Asia's Las Vegas
The underlying business theory for LVS and its compatriots was simple: build it
and tourists will come, a formula that worked for 60 years in Las Vegas. As
supply expands, demand will follow. It's hard to argue with the numbers.
Macau's annual visitors grew from less than 10 million during monopoly times to
30.2 million last year. Gaming revenue nearly quadrupled from 28.7 billion
patacas (US$3.6 billion) to 108.8 billion patacas last year.
Indeed, the foreigners built it and the tourists came. They were right and Ho
was wrong, except that supply of gaming tables has increased more than tenfold
with last week's opening of Melco Crown's $2.1 billion City of Dreams complex,
with its 500-plus tables. The number of hotel rooms has more than doubled from
less than 9,000 at the start of 2003 to the present 18,134, and retail space
has more than tripled. Demand for convention facilities, high-end restaurants
and retailing, and hotels in a market where more than half the visitors don't
stay overnight, has failed to emerge as strongly and quickly as the foreigners
wagered.
Over-building has been especially tough for the heavily leveraged, quarterly
results-driven foreigners, further squeezed since Beijing imposed visa
restrictions on mainland visitors a year ago. Meanwhile, shares in
conservatively run SJM have weathered the economic storm better than its rivals
- they were trading this week at around HK$2.95, up more than 146% from last
October. In a recent interview with Macau Business, Ho noted that SJM was the
only Macau gaming company to propose a dividend for shareholders for its most
recent financial year.
"The success of one market model cannot be repeated [in] another market," Ho
said in his G2E acceptance speech. In Macau's competitive, multi-licenses
environment, Ho's 30% market share of today's gaming pie is worth more than his
100% of the pre-monopoly take. While SJM has built Grand Lisboa, its own
mega-casino hotel across from the original Lisboa, Ho opened it in phases. The
casino debuted in February 2007, the 430-room hotel 20 months later in December
last year, and the complex was built at a fraction of the cost of his rivals'
mega-resorts. Ho even mothballed a widely publicized plan to redevelop the
original Lisboa until market conditions are more favorable.
"Slow was the way to go," Michael Siu, coordinator of the University of Macau's
gaming management program concluded. "Stanley Ho was right and his competitors
have been suffering."
Excessive competition has been among Ho's key complaints about the newcomers'
impact on the market. He has complained in particular about commissions
surpassing the accepted norm of 1.25% on paid to junket operators bringing VIP
customers. Last year, the casino operators and Macau government agreed to limit
commissions to that level, as Ho has long advocated, protecting casinos' thin
margins.
This year, licensees announced the formation of a gaming association to foster
cooperation between casino operators and present a united front on issues of
shared interest. The leader of association is Stanley Ho, of course. Even at
86, Ho is thinking long term and knows the market better than his rivals.
"My wish is that you see Macau as I do, as a thriving society that absorbs the
full share of benefits that gaming can bring," Ho told the G2E audience
assembled in his honor. Tough times over the past year have reiterated that in
Macau you can't go wrong seeing things Stanley Ho's way.
Macau Business special correspondent and former broadcast news producer Muhammad
Cohen told America's story to the world as a US diplomat and is author
of Hong Kong On Air (www.hongkongonair.com), a novel set during the 1997
handover about television news, love, betrayal, financial crisis, and cheap
lingerie.
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