Las Vegas Sun

March 28, 2024

Macau follows Vegas’ lead

Gaming regulators in the Chinese enclave of Macau, which is overtaking Las Vegas as the world's hottest gambling destination, want to distance their casinos from mob influence, just as Las Vegas did decades ago.

So for help, Macau turned to the experts: the Nevada Gaming Control Board.

Not that state regulators needed an invitation to weigh in. For the past two years, the Control Board has been investigating whether the daughter of Macau's most notorious businessman would be a suitable partner for a Nevada casino company.

That explains the unprecedented scene in a crowded hearing room this week, when MGM Mirage won the blessing of Nevada regulators to enter into a partnership in Macau with Pansy Ho, the daughter of Stanley Ho, one of the world's richest men.

The 85-year-old Ho held a decades-old monopoly on gambling in Macau. His businesses were reputedly steeped with shady characters who operated private gambling salons inside his casinos and loaned money to high rollers. Ho has withstood law enforcement probes and never been charged with a crime.

The question now was whether Nevada would allow one of its companies to sidle up to his daughter, who wanted to invest $80 million - much of it her father's - in an MGM Mirage casino that is set to open late this year in Macau.

The much-anticipated decision was fraught with controversy because it signals Nevada's willingness to allow international partnerships in lucrative areas vulnerable to corruption.

The Nevada Gaming Commission casts its final vote on the deal next month, while New Jersey regulators are still investigating the partnership.

The Gaming Control Board's investigation of Pansy Ho marked the first time the board, which had obvious concerns about her ties to her father, had challenged a business deal in a foreign country.

The Macau government had invited such scrutiny.

In 2001 Macau officials - wanting to transform the province from a seedy, rough-and-tumble gambling port to resort destination - asked foreign investors to submit bids to operate casinos. And it asked for Nevada's advice on how to improve regulatory oversight to cultivate international confidence and investment dollars.

When Nevada regulators looked inside Macau's casinos, they didn't like what they saw.

They found, for instance, casino VIP rooms run by third-party "junket operators," who arranged trips as well as credit for gamblers. Gamblers depended on the junket reps for their bankroll because Macau casinos weren't legally permitted to extend credit. Like the mob enforcers of Las Vegas' early years, loan sharks resorted to violence to enforce debt collection, beating up their victims and, in some cases, killing rivals.

And at the urging of Nevada regulators and casino companies, Macau's government in 2004 allowed casinos to issue credit in an effort to flush out loan sharks.

By then, Las Vegas Sands and Wynn Resorts had won rights to build casinos there. MGM Mirage, Nevada's largest employer and its biggest Strip operator, lost its bid, hurting its ability to compete in Asia and cultivate high rollers. The company then found an opportunity to do business in Macau through Pansy Ho, forming a partnership that acquired casino development rights from her father's gaming company.

Even after instituting its reforms, Macau's gaming control system in some ways still resembles Nevada's in its formative years. Macau now registers casino bosses entering the market but doesn't require background investigations of longtime managers and others who do business with them - effectively allowing people with criminal histories or connections to operate under the radar.

"The Macau market is still evolving," Gaming Control Board Chairman Dennis Neilander said in an interview. "It's like watching the past 40 years in Nevada occur over five years."

As recently as last year, the State Department's annual report on the international narcotics trade red-flagged Macau as "particularly vulnerable" to money laundering, noting that organized crime groups "were and continue to be associated with the gaming industry through their control of VIP gaming rooms and activities such as racketeering, loan-sharking and prostitution."

Macau outpaced the Las Vegas Strip as the world's largest gambling market last year and has become a crucial market for Las Vegas properties aiming to attract millions of future customers from mainland China and other Asian countries.

With the entry of Nevada companies, Macau is moving in the direction regulators want.

Case in point: Las Vegas Sands' Sands Macau, which opened in 2004 as the first U.S.-owned casino, began to pay junket operators more money for recruiting gamblers than the competition. The trade-off was that operators were vetted by the casino, a requirement imposed by Nevada for casinos doing business abroad.

The 2006 State Department report noted that Sands Macau "does not cede control of its VIP gaming facilities to outside organizations ... imped(ing) organized crime's ability to penetrate" casino operations.

Some Nevada officials, old enough to remember how better-funded corporate casinos outperformed those with mob connections, believe free-market capitalism and Nevada-style regulation will allow bigger and better casinos to flourish, overtaking criminal influences.

Nevada's casino companies were prohibited from doing business outside the state until the 1980s, when Nevada said the companies could expand if they could prove that the other jurisdictions were up to Nevada standards. That requirement was removed in the 1990s, which allowed casinos to expand more easily around the globe.

At this week's hearing, regulators focused on whether the MGM Mirage-Pansy Ho deal would sully Nevada's image. They noted Pansy Ho's clean background and said there had been no evidence that her father, legally separate from the partnership, had any undue influence on his daughters. MGM Mirage and Pansy Ho pledged to make all decisions jointly and investigate employees, including junket reps, before hiring them. The partnership also hired top security and marketing officials from several countries and will be following Nevada and Securities Exchange Commission compliance policies for public companies.

In an interview after the hearing, Neilander said regulators will be watching the partnership closely, including quarterly compliance reports filed with the board, but noted that "we're not (in a position to) judge whether Macau is a good place to do business or not."

Stanley Ho is not likely to exert influence on the partnership now that his daughter has become a major competitor to his casino empire, Neilander added.

A competitor with a Las Vegas partner.

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