HONG KONG - Macau has rejected an application by Sands China for land the
casino operator claims it can use based on a handshake agreement with the
government years ago. After talking and nipping around the edges for a year,
Chief Executive Fernando Chui Sai-on's government seems to be trying to
diversify the economy away from the casino business and its slowing growth.
Yet, aside from its world-renowned East meets West cuisine, nothing in Macau is
that easy to swallow. "The only developer
who has actually built significant assets beyond casinos is Sands China, and
the government appears to be actively restricting its operations," HSBC
regional senior consumer and gaming analyst Sean Monaghan said. "It's a strange
world."
Sands China announced last Thursday that the Macau government had denied its
formal request for parcels seven and eight in the Cotai resort district. The
rejection came as a shock, even though Macau officials warned they were
reconsidering longstanding informal land grants for undeveloped lots. Macau
media reported that Sands China has already filed an appeal against the
decision with the Macau chief executive. If that fails, the company can take
its case to local courts.
In Macau we trust
For years, like every other developer in Macau, Sands China treated the
adjacent building lots as its own based on an unofficial agreement with the
government. Formal land concessions are often granted after construction is
underway, and the entire land-grant process routinely takes place behind closed
doors, even though land is the most valuable public commodity in this city with
550,000 people crammed into 29.5 square kilometers, much of it landfill.
Acting Sands China chief executive officer and Las Vegas Sands president
Michael Leven said the company had spent US$162 million preparing lots seven
and eight, even though a casino resort was not projected to open there before
2016. The property was part of Sands' master plan to invest upwards of US$12
billion in the landfill that joins Macau's outer islands of Coloane and Taipa
with the aim of developing the "Cotai Strip" as Asia's Las Vegas, terms LVS
applied to copyright.
Sands China opened the first resort in Cotai, the Venetian Macao, patterned
after its Las Vegas namesake, in 2007 and the adjacent Four Seasons a year
later. The vast complex - Venetian Macao is the world's second-largest building
- includes two luxury shopping malls, a 15,000 seat indoor arena that has
hosted stars from Roger Federer and Lebron James to Beyonce and Black-Eyed
Peas, a million square foot convention center, and Zaia, a $200 million Cirque
du Soleil production.
Company officials scoffed at suggestions the government might have other plans
for parcels seven and eight, even after Sands China rival Sociedade de Jogos de
Macau (SJM) announced in September that it had written to the government to
express interest in the land.
Big brother is watching
Since taking office last December, Chief Executive Chui has talked about
limiting the growth of the gaming industry and diversifying the economy, as
Beijing, which regained autonomy over the former Portuguese colony in December
1999, has publicly urged.
More than half of Macau's tourists, and likely a higher percentage of its
gaming revenue, comes from mainland China. This year's revenue at Macau's 33
casinos is estimated to rise 55% from last year's record to reach 185 billion
patacas (US$23 billion), more than double the comparable revenue of Las Vegas
and the rest of the US state of Nevada.
Earlier this year, Chui's government announced a three-year cap of 5,500
gambling tables - the current total is 4,800. However, with two more massive
casino properties due to open next year in Cotai - Galaxy Resort with 2,200
rooms and Sand China's new complex with 6,400 rooms - few took the table limit
seriously. ( see Macau
Chief Chui talks the talk, Asia Times Online, June 26, 2010.)
In late 2008, the global recession and visa restrictions on mainland Chinese
traveling to Macau interrupted four years of meteoric growth following the
liberalization of the gaming market. The government of previous chief executive
Edmund Ho cracked down on non-resident workers to address marginal unemployment
problems.
Rules have remained strict in the construction sector, with projects obligated
to hire one local worker for every imported worker. Both Sands China and
Galaxy, a Hong Kong-based company that runs StarWorld resort on the Macau
peninsula, have reported delays in their Cotai construction schedules due to
labor shortages, and the Galaxy site has faced numerous raids by the
authorities seeking out illegal workers. Some analysts see labor restrictions
as a subtle government effort to restrict casino growth.
Obviously obscure
There's little subtle about rejecting Sands China's application for parcels
seven and eight. The government finally looks serious about limiting the growth
of gambling and encouraging economic opportunities beyond casinos. But looks
may be deceiving.
"The government is actively preventing the development of new mega-resorts
which would further enhance the tourism sector," HSBC's Monaghan said. "The
decision to take back sites seven and eight from Sands China will only give it
to another company, most likely SJM, which will build a poorer asset that will
attract fewer tourists."
SJM, the monopoly casino interest for 40 years before the market was
liberalized, has two small plots at Cotai, one with shovel-ready development
plans according to chief executive officer Ambrose So. This is reportedly for a
James Bond-themed casino hotel, to begin development when the company believes
market conditions warrant construction.
SJM, controlled by 89-year-old Stanley Ho, maintains the leading market share
in Macau at 31% last month, while its rivals' shares are in the teens. SJM
lifted its game in response to competition, upgrading its casino and hotel
offerings. But earlier this year, SJM's vice president for public relations,
John Cott, said in response to a question about adding retailing to SJM
resorts, "Ninety-eight percent of our revenue is from gaming and we're happy
with that. We're China-centric and gaming-centric." Don't look to SJM for
economic diversification.
Several other Cotai plots lie fallow, so there's a question of why the
government targeted parcels seven and eight. Partners in the long-delayed Macau
Studio City project, just south of the Four Seasons, are mired in dueling
lawsuits in Hong Kong; taking back their land would settle those disputes once
and for all.
Sands trapped?
Some believe the government aimed to punish Sands China, usually the market
runner-up to SJM. "Sands' further development will be crippled. [LVS chairman
and chief executive officer Sheldon] Adelson is too loud and hard to deal
with," said a regional gaming expert with deep China market knowledge who
requested anonymity.
Macau and Chinese government officials have routinely refused to meet with
Adelson, according to court papers filed by former Sands China chief executive
officer and president Steven Jacobs, contesting his firing in July. Jacobs also
claims that Adelson ordered him to secretly investigate Macau officials and use
business relationships with Chinese banks to pressure authorities for a
favorable decision regarding selling flats at the Four Seasons.
Adelson has publicly complained about the government's refusal to allow Sands
China to sell the Four Seasons apartments, claiming Chui's government broke a
promise made by Edmund Ho. The government contends Cotai resorts shouldn't
include residential properties. Melco Crown recently announced that it was
dropping plans for condominiums at its City of Dreams resort, across the street
from the Venetian/Four Seasons complex.
Ho, Ho, Ho
Another theory is that the government isn't taking a stand against Sands China
only but against all outsiders. While none of the six gaming licensees are
controlled by Macau natives, SJM's Stanley Ho is a revered long-time Macau
resident with a local street named after him. His son, Lawrence Ho, is chief
executive officer of gaming licensee Melco Crown, while his daughter and heir
apparent, Pansy Ho, is a partner in MGM Macau.
Hong Kong-based Galaxy Entertainment, Sands China and Wynn Macau, with a single
casino that's the highest revenue property in town, are the three licensees
without a link to Ho. All three have Hong Kong stock exchange listings, but
Sands China and Wynn have their roots in Las Vegas and are ultimately
controlled by Americans, Adelson and his arch-rival Steve Wynn respectively.
"They wanted the US guys there so they would build things that would drive
tourism," HSBC's Monaghan observed. "So the US guys did, they spent billions.
However, they have been too successful at doing this. So is the government now
introducing biased policies?"
Monaghan offered his own answer along with more questions: "The problem is that
there is no transparency, no open bidding program, no clear development plan
for the market. What decisions are being made behind closed doors, and on what
basis are they being made? How are investors meant to assess this market, and
what is the level of risk for financing new projects?"
The answer to that last question is pretty simple: as long as gaming revenue
keeps booming, investors will keep betting on Macau. The unelected,
unaccountable government knows it, so it can just keep doing its unusual brand
of business as usual.
Macau Business magazine special correspondent and former broadcast news producer Muhammad
Cohen told America’s story to the world as a US diplomat and is author
of
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