Sands’ Macau haul lures Harrah’s, MGM Mirage

Jasmine Yap

Wednesday, Nov. 17, 2004 | 11:03 a.m.

At the $265 million Sands Macau, the first Las Vegas-style casino in Asia, gamblers spend $1.37 million on average each day. Profit equals an annual 100 percent return on investment for owner Las Vegas Sands Corp., according to gaming analyst Jonathan Galaviz.

"Those kind of returns are unheard of in any other casino gaming business," said Galaviz a partner at Las Vegas-based equity research company Galaviz, Ong & Co.

Galaviz's assessment is based partly on Las Vegas Sands filings to the U.S. Securities and Exchange Commission. Sands opened in Macau in May and wants to raise $350 million in an initial share sale to expand in Asia.

Harrah's Entertainment Inc. and MGM Mirage are following Sands to Asia, where Singapore is weighing its first casino. Local operators such as Australia's Tabcorp Holdings Ltd. and Malaysia's Genting Bhd. may struggle to thrive amid increased competition, investor Lynn Cheah said.

"The U.S. companies will definitely be a threat to the local casino operators," said Cheah, who helps manage $680 million at Prudential Unit Trusts Bhd. in Kuala Lumpur. Cheah sold most of her Genting stock after Singapore announced in March it was considering a casino, she said.

Sydney-based Publishing & Broadcasting Ltd., which runs Australia's largest casino in Melbourne, announced its first investment in Asia yesterday. The company will pay $168 million for 28 percent of the 6-star Macau Park Hyatt hotel-casino, due to open in 2007.

Las Vegas-based MGM Mirage sold its only Australian casino, the MGM Grand in Darwin, in December.

It's now awaiting approval from U.S. gaming authorities to build a casino in Macau, and may also submit a proposal to open in Singapore, MGM Mirage spokesman Alan Feldman said.

"We are very interested in Asia, especially in Singapore and Macau," Feldman said in a telephone interview. "Asia is a very dynamic market place."

Asia will generate $19 billion in gross gaming revenue by 2006 from an estimated $13 billion this year, analyst Galaviz said. Cambodia, the Philippines and South Korea also operate casinos in the region.

Harrah's is making Singapore a priority in Asia, said Richard Mirman, senior vice president at the Las Vegas-based company.

"Singapore represents tremendous opportunity for us," Mirman said in an interview in Singapore.

Harrah's so far has expressed no public interest in Macau, where Las Vegas-based Wynn Resorts Ltd. is due to complete its first $704 million hotel-casino by the third quarter of 2006.

Macau has 15 casinos, 13 of which are run by Hong Kong-born Stanley Ho, who held a 42-year gambling monopoly until this year. More than 20 casinos will be operating by 2007, according to Macau Gaming Control Board Director Manuel Joaquim das Neves.

The Singapore government is still studying the possibility of a casino and hasn't set a date for proposals, the Trade Ministry said in an e-mailed statement on Nov. 1.

"Singapore has the benefit of being the stopover point for people going between Australia and Europe," said Scott Hetherington, who heads the Asian hotels unit of Chicago-based real estate broker and adviser Jones Lang LaSalle Inc.

Shares in Kuala Lumpur-based Genting, Asia's largest publicly traded gambling group, have fallen 8 percent since Singapore announced its plan in March.

More than a fifth of visitors to company's mountaintop casino resort outside Kuala Lumpur are Singaporean, according to Lee Choong Yan, the executive vice president of Resorts World Bhd., Genting's casino unit. Genting declined to comment further.

Shares in Star Cruises Ltd., a Genting subsidiary, have declined 6 percent since March. Hong Kong-based Star Cruises, the world's No. 3 cruise line, uses on-board casinos as a selling point for trips around Asia.

Six companies run a total of 13 casinos in Australia. Increased competition from Asia means they'll have to work harder to attract the so-called high-roller gamblers, said George Clapham, who helps manage $310 million at ABN Amro Asset Management in Sydney.

Melbourne-based Tabcorp, Australia's largest gaming company, operates Sydney's lone casino and last year paid $1.3 billion for Jupiters Ltd., which runs three casinos in Queensland.

The company has "no plans" to expand into Asia, said spokesman Bruce Tobin. He declined to comment on competition from U.S. operators. Shares have risen 45 percent since Jan. 2.

"I don't think high rollers care about where they go when they are winning, but they don't want to fly too far," said Clapham, who doesn't disclose his stock holdings. "Clearly there's an issue in adding new capacity."

Publishing & Broadcasting, controlled by Kerry Packer, Australia's richest man, made a successful takeover bid for Perth's Burswood casino in July. It will develop the Macau Park Hyatt in partnership with Ho's Hong Kong-listed Melco International Development Ltd. Publishing & Broadcasting spokeswoman Jill Campbell didn't reply to requests for comment.

MGM's Macau casino will be developed in partnership with Pansy Ho, the managing director of Hong Kong-listed Shun Tak Holdings Ltd. and one of Ho's 17 children.

It costs about $1 billion to build a quality hotel-casino resort in Asia compared with more than $2 billion in Las Vegas, analyst Galaviz said.

He estimates a return on investment of more than 12 percent in Asia, compared with about 8 percent in Las Vegas, because of lower labor costs and taxes.

Macau's gaming revenue rose 50 percent to $4.12 billion in the first 10 months of this year from 2003, said das Neves of the Gaming Control Board.

"The Sands is different from the existing casinos, and that has attracted many people," he said in a telephone interview.

With revenue increasing, new casinos may not affect existing operators, said Geoff Aw, who manages $160 million, including Genting shares, at Uni.Asia Life Assurance Bhd. in Kuala Lumpur.

"Las Vegas Sands is taking a bit of the growing pie that's available," Aw said. "On the whole, everybody grows."

Las Vegas Sands' Macau casino had revenue of $60 million and adjusted earnings before interest, taxes, depreciation and amortization of $22.9 million in 44 days to June 30, the company reported.

It pitched a $12 billion, 20-casino plan for Macau, including an $800 million duplicate of its Venetian Hotel Resort in Las Vegas. The company also wants to open in Singapore, Thailand and Japan, it said in filings to the Securities and Exchange Commission. Casinos are illegal in those countries.

Ron Reese, a spokesman for Las Vegas Sands, said he couldn't comment because of the pending share sale.

"It's increasingly becoming a more competitive sector to be in," said Mike Moran, a regional economist at Standard Chartered Plc in Hong Kong. "The marginal benefits may not be as great as before."