Gambling's Biggest Prize

Gambling's Biggest Prize
Donald Frazier, 03.28.12
Forbes Asia Magazine dated April 09, 2012
Who will have the better hand in China, Steve Wynn or Sheldon Adelson?

It’s a big day for billionaire casino mogul Steve Wynn. Just off a flight from the U.S., he greets me at his posh Wynn Macau resort in rumpled jeans instead of his usual custom suits. He’s charged up that four Qing dynasty vases he won at auction for $12.7 million have safely arrived. The vases are to be installed in the lobby, and ­carpenters, electricians and security experts bustle about, building a sumptuous altar for them. “These vases have been out of the country since the 18th century,” he says. “Now they’re back where they belong.”

Wynn is famous for his art collector’s sensibility, but the vases also earn him chits in his quest for Beijing’s favor--and all that may bring. For now he runs the classiest joint in Macau, opulent to the max and drawing the city’s largest share of lucrative high rollers, most from the mainland. Any day now he could win a license for a second casino, out on the Cotai Strip, away from downtown.

All the while he maintains a tight grip on his company, Las Vegas-based Wynn Resorts, ousting a partner who had become a thorn in his side, Japanese billionaire Kazuo Okada, and forcibly buying back his stake in February (see box, opposite).

But at age 70 Wynn has built an Asian team that can see this effort through to what one day could be the ultimate casino jackpot. He’s anointed the Taiwanese-American executive who runs the Macau operation, Linda Chen, as his likely heir apparent.

As Wynn expands his Asian footprint, he must grapple with how much the Chinese government will indulge its people’s zeal for gambling. He must also deal with canny regional rivals in the betting business--and with the even grander designs of his Las Vegas counterpart, überbillionaire Sheldon Adelson.

What they are all stalking is not just the mother lode of Macau, rich as that has become at $33.5 billion in wagers last year, by far the world’s largest such destination. It is also the mainland itself, kept clean of casino gambling since the revolution.

About China, where it’s not even legal to collect gambling debts, most are reluctant to talk--Wynn won’t at all. But with a seemingly insatiable craving for games of chance in China, the sense is that the show must come home to the bettors, somehow and somewhere, over the next decade or so. “Legalized casino gaming in China is inevitable,” says a longtime Macau consultant. “There is already some sports betting, lotteries and video lottery terminals, and talk of gaming being offered in [the southern Chinese island of] Hainan in the near future. When push comes to shove, the Chinese Communist Party has generally been guided by pragmatism more than ideology, to ensure its survival.”

Beijing is in no rush. It has many factors to weigh, from the lure of taxes and jobs and its aversion to glamour and glitz, to Macau’s ability to handle any more growth.

When Beijing does decide, Wynn will be ready. Doing everything to jockey into position as a friend of the Chinese people, he’s learning Mandarin and spending millions on that Chinese classical art. Four years before he bought the Qing vases, he paid $10 million for a 650-year-old red vase from the Hongwu period, which he promptly donated to the Macau government’s cultural affairs bureau. He had his company give $135 million to the University of Macau last year.

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Wynn does not actually live in Macau, but he makes six to eight trips a year there, staying for up to a week each time. One glance around his office in the Wynn Macau suggests he feels perfectly at home. In fact, it’s hard to call Wynn Resorts an American business anymore, with 72% of its 2011 sales of $5.3 billion coming from Macau. And the company made all of its net profit last year in Macau--$613 million--making up for the money it lost on its economy-addled Las Vegas casinos.

For all his efforts, however, Wynn is the underdog in this historic contest. Adelson, 78, and his Las Vegas Sands are also wise to Chinese sensibilities. Describing design themes for his Sands Cotai Central casino project opening Apr. 11, Adelson is careful to avoid the word “Tibetan,” choosing “Himalayan” instead. His company is even more heavily focused on Asia than is Wynn’s, with Las Vegas Sands collecting 82% of its $9.4 billion in revenue last year in Asia. His resources are greater, with Forbes Asia putting his net worth at ten times Wynn’s $2.5 billion fortune. (Wynn’s 2010 divorce was costly--his ex-wife, Elaine Wynn, is now worth $1.4 billion.)

More important, the older man has stayed a few steps ahead of Wynn. After Stanley Ho’s 40-year monopoly on Macau casinos ended in 2002, Adelson struck first. While the meticulous Wynn planned, Adelson quickly and cheaply built Sands Macao, opening a small casino hotel--it had just 50 rooms--in 2004. For two years before the Wynn Macau opened, Adelson was collecting his winnings. In 2007 he launched the Venetian Macao on the Cotai Strip, with a gambling hall nearly five times as large as the one in his first Venetian, on the Vegas Strip. Another Cotai entry, the Plaza Casino, opened in 2008, and the $4.6 billion Sands Cotai Central will be his fourth property. Meanwhile, ­nobody expects Wynn’s second ­property to begin making money ­before 2016.

Adelson has been a big hit in Singapore, whose market economy and tightly controlled society is admiringly viewed by Beijing. The iconic Marina Bay Sands opened in 2010, and already Merrill Lynch forecasts that it and the city’s other new casino will generate more cash this year than all of Las Vegas’ venues-- $6.5 billion last year. (Macau passed Las Vegas in 2006.)

Wynn does top Adelson when it comes to wooing rich Chinese who love high-stakes gambling, deriving a larger share of his business--80%-- from Macau’s VIP gamblers than anyone else. For Macau overall, the VIP share was 73%. The result: Wynn’s casino churns out profits at a rate of $6,940 a table each day, compared with $3,860 at the Adelson properties, ­according to Jake Fuller of Lazard Capital Markets in New York.

Unlike Wynn, Adelson doesn’t have an obvious successor. And he has had his embarrassments. In December 2010 the Macau authorities launched a prostitution raid on his flagship while he was there for a board meeting. In gangbusters style, 70 police officers charged in and arrested 132 women and their pimps. No one working for the Venetian was charged.

Wynn describes their relationship as amicable, and Adelson says the same. Over the years, and as recently as four months ago, they’ve been out to dinner together with their wives (Wynn remarried last year). Today neither will talk about their competition. “The growth here is stupendous, and there’s more than enough business to go around,” says Wynn.

If there’s one test the two must pass to enter the mainland, it’s proving they can draw visitors to Macau who do more than just bet. China covets a Las Vegas-style economy for Macau, with resorts, entertainment, shopping and restaurants, driven by a robust business in conventions, corporate meetings and family vacations. Wynn early on proved himself a master at this type of enterprise after opening the Mirage and the Bellagio on the Strip, changing the nature of Las Vegas in the 1990s. A diversified, more wholesome Macau would also pose less risk to the ­official value system, easing the politics of introducing casinos to the mainland.

Macau is far from realizing this model. Tens of thousands of gamblers from the mainland arrive by bus, ferry and plane every day, and few spend much time away from the tables. Many don’t eat in the restaurants, go to the shows or shop. And they get there by signing up with “junkets,” middlemen who organize the trips, lend the gamblers money and sometimes have criminal ties. But efforts to diversify by the locally owned casinos haven’t gotten far.

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In Asia it is hard to trump Adelson’s moves on this front. From the Venetian Macao’s signature restaurants, 330-store shopping mall and gondola rides to its 15,000-seat arena for acts such as Cirque du Soleil and Taiwanese pop singer Jam Hsiao, it’s no coincidence the hotel’s 3,000 rooms enjoyed an occupancy rate of 91% last year. And Adelson is bringing in other Asians. For example, there’s a sixfold increase in visitors from India, many for large, costly weddings, says Charlie Greco, a former Sands senior manager and now chief executive of Universal Event Management in Macau. He’s opened an office in New Delhi to sell them travel packages. “These are not gamblers,” he says.

Adelson has even more afoot as he positions Sands Cotai Central to be a veritable resort city on its own.

Wynn doesn’t disparage any of this. He put up a second tower on the Wynn Macau in 2010, expanding the capacity to 1,014 rooms, but the complex collects less than 10% of its revenue from nongaming sources. (The Venetian Macao got 23% from ­nongaming sources in the last quarter of 2011, the highest of any hotel in the city.) His big entry in the integrated resort sweepstakes will be the 51-acre Wynn Cotai.

His people, though, won’t go into specifics, not as long as the local authorities might regard it as a “preannouncement” that could jeopardize the project’s final approval (he won preliminary approval last September). But Wynn is so enthusiastic about his plans for an outdoor ­entertainment spectacle there that, forgetting there’s a reporter in the room, he talks all about it in a brainstorming session with his Las Vegas creative team in his office. Then he catches himself, turns aside and says, “This is all off the record, right?”

What could be holding things up? Some 28 million visitors came to Macau last year--up from 7.4 million in 1999, the last year of Portuguese rule--and China may be realizing that the 11-square-mile Special Administrative Region can no longer handle the breakneck growth. Macau International Airport, opened only in 1995 but well before the casino boom, doesn’t have enough space for airplanes ­between flights. A lack of parking severely limits private auto traffic from China. Ferries from Hong Kong take just an hour, but they have little room for luggage, and congested docks can mean long waits at each end. Plans for a rail link from China and a bridge to Hong Kong haven’t gotten past the drawing board.

The bottlenecks work against China’s goal of broadening Macau’s economy. Corporate meeting planners are especially wary. “Sheldon is ­working to re-create the Las Vegas experience here,” says one, “but this is not yet recognized as a place to do business.” The Venetian’s convention hall has been dark much of the past year, say observers.

And where will the workers come from? Macau’s fast-growing population is still only 560,000, with a rock-bottom unemployment rate of 2.1%. Cotai Central alone will require 6,000 room cleaners, waiters and other service staff--and other big resort projects will also open soon. The workers won’t come from the mainland: The Macau authorities are dead set against it, worried over the impact on the local culture. And Macau and China are equally averse to large cohorts of guest workers from places such as the Philippines and Thailand.

These sorts of constraints might get Beijing thinking about a casino or two onshore--or at least in Hainan--to relieve the pressure on Macau. But the real momentum for mainland casinos comes from the endless demand from Chinese gamblers, some of whom still flock to Vegas (see above).

Beijing could start with a tiny enclave for the elite and foreign tourists near an international airport or in a big city. It could open the door to a massive complex with luxury shops, spas, restaurants, big-name entertainment, conferences and trade shows--perhaps away from the coastal cities to spur development. Which model would capture Beijing’s favor? Which casino mogul ­impresses it the most?

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No official voice in Beijing will speak of the prospect, and everyone in the gambling loop demurs. Says Wynn: “I won’t go there.” Adelson says of mainland casinos, “not in my lifetime.” Instead he plans eventually to surround the mainland. “I’m very happy being at the edge of it,” he says. “There’s room for a number of Las Vegas-style strips,” meaning in Japan, South Korea, ­Taiwan and Vietnam.

The Chinese have already approved the MGM Grand Sanya on Hainan, a lavish, sprawling complex with everything an integrated resort offers except gambling. (MGM Resorts International also boasts the MGM Macau, a joint venture with Stanley Ho’s daughter, Pansy Ho.) The island has a large resort industry, and gaming experts say the strategy behind the project is to be in place when--not if--gambling is legalized. (MGM denies this.) There is talk of others quietly seeking Hainan concessions and that Wynn has filed applications to build resorts somewhere on the mainland that could add gambling later on. He says, simply, “No comment.”

For another model of how to proceed, Beijing doesn’t need to look farther than the Wynn Macau, along Rua Cidade de Sintra on Macau’s old waterfront. It’s small compared with the behemoths of Cotai but lovingly conceived, with eye-popping decor, a fountain reminiscent of Wynn’s old Bellagio in Las Vegas, even a mechanical and multimedia Tree of Prosperity and a Dragon of Fortune that rise from the lobby to swelling music every half hour. “It’s interior design as entertainment,” says design chief Roger Thomas, who has toured the world with Wynn’s checkbook looking for artifacts, fabrics and artwork that will impress upon guests that their money is well spent. It’s easy to envision a high-end hotel along these lines in an enclave for the Chinese elite, far from the crowds of the big cities, served by limos instead of buses.

But it’s China’s rising middle class that is on Wynn’s mind as he sits back in his office after examining his new vases. “The Chinese people hear about what we’re doing, and they have to come here,” he says, remembering the working-class European immigrants who came to his father’s bingo hall in upstate New York and later flocked to his own casinos in Las Vegas. “There are so many similarities between what drives them here and what drove my parents’ generation, the people I knew, to Las Vegas. That’s why I think of them in a way as ‘my people.’”