The gambling oasis of Macau is proving so tempting that even Chinese government officials can’t resist a night at the tables. But can its operators, including several Irish people, ensure it’s well placed to weather the credit-crunch storm?
IT IS A long way from Synge Street to the glittering lights of Macau for Dubliner Ciáran Carruthers. The luck of the Irish is not much help to the chief operating officer of the Star World Hotels and Casino at the moment, as he sees earnings slipping in the wake of the global economic slowdown.
Lady luck in no longer smiling on Macau, Asia’s Las Vegas and the world’s biggest gambling market. While the green baize tables still hop with activity in the former Portuguese colony, it’s a far cry from the heady days of just 12 months ago. Back then, the croupiers in Macau scooped up more money than Las Vegas and Atlantic City put together, and a dramatic expansion plan was supposed to transform Macau into Asia’s biggest tourist destination.
Macau was a sleepy Portuguese dependency, but a smooth return to Chinese rule in 1999 marked the arrival of billions of dollars in gambling cash from the mainland, where gambling is strictly illegal. Casino owners from Las Vegas started huge gambling and hotel facilities on reclaimed land and the southern Chinese city was transformed into the gambling destination of choice for China’s high-rollers. They, along with millions of other mainland tourists, helped Macau overtake Las Vegas as a gambling resort, earning nearly €8 billion last year from the tables alone.
But now Macau is fighting the same hex as the rest of the world – the global economic crisis. Both local casino operators and the Las Vegas big names are cursing their luck.
Combined with restrictions on the number of visas issued to mainland Chinese VIP gamblers or high-rollers, Macau is having to deal with less money spent on the tables and less cash to spend on expanding the enclave into a hypermodern gambling-and-tourism nexus.
The Irish are everywhere and Macau is no exception, with a handful involved at the top level of the gambling industry. It emerged in December that the former Anglo Irish chairman Sean FitzPatrick has invested in a casino here. Frank McFadden, from the Ardoyne in Belfast, is the president of joint ventures and business developments at Sociedade de Jogos de Macau (SJM), a casino company owned by local kingpin Stanley Ho, the father of gambling in Macau.
Stanley Ho is a legend in Macau and is one-eighth Irish, according to rumour. He responded to the loss of SJM’s monopoly in the territory and the advent of Las Vegas interlopers by building the Grand Lisboa, which looms lotus-style over the whole of the territory, like a reminder to the Nevada arrivistes of where the whole story started. McFadden is bullish on Macau’s prospects.
“Macau has seen unprecedented growth in the recent past, surpassing even Las Vegas. That growth went beyond most people’s expectations. What we are seeing now is just a natural adjustment. The fundamentals are still rock solid. In the long term, Macau will grow with China. Like China, Macau has one way to go – up,” he says.
ONE OF THE Americans who came to Macau was Las Vegas supremo Steve Wynn, and the tables in his downtown pleasure palace are still doing very well, and are being carefully watched by Clareman Ian Coughlan, who is president of Wynn’s Macau operations.
Star World Hotels and Casino is operated by the Hong Kong group Galaxy Entertainment, controlled by billionaire Lui Che-woo. “Chinese visa restrictions have had an impact, but the biggest negative impact has been from the slowdown in the economy. Our fourth quarter was down on the third quarter by 8 per cent, but we were still up by 31 per cent on the year. It’s time to take some of the heat out of the market and get back to some semblance of normality,” says Ciáran Carruthers.
Two-thirds of Macau’s gamblers are mainland Chinese, most of them from just across the border in Guangdong.
The Chinese government, keen to stop corrupt government officials from gambling away the city coffers on the throw of a dice, as well as keeping Chinese domestic consumption high in the face of a slowing economy, has put restrictions on the number of mainlanders allowed to visit Macau, limiting them to one visit every three months. Yet, a recent investigation revealed that some government cadres visited three times a week to try and sweeten the local government balance sheets with a roll of the dice.
More than 50 government officials from Guangdong are accused of fluttering €2.2 million of public money and six have been jailed or fined, including four years for Wu Xingkui, deputy leader of the Communist party in the town of Yunfu. He had previously headed up an anti-gambling taskforce. China’s Vice-President Xi Jinping, one of the rising stars in the Politburo and tipped to become a senior leader at the end of President Hu Jintao’s tenure in 2010, visited Macau recently and urged the territory to diversify its economy as a way of dealing with the slowdown.
GAMBLING REVENUES in Macau rose 45 per cent for the first nine months of last year, but average casino winnings slumped to €714 million each month in the last four months of 2008, down 20 per cent from the average monthly take of €890 million between January and August.
Along the Cotai Strip, a finger of reclaimed land merging the Coloane and Cotai islands, building has come to a standstill on major hotel, casino and shopping projects, including developments by international brands such as Shangri-La, St Regis and the Sheraton group.
It’s here where the slowdown can be seen most keenly, at places such as the Venetian Macao. This is a €1.75 billion project by billionaire entrepreneur Sheldon Adelson. Opened in August 2007, it has 3,000 hotel suites and has set down a marker for future development – the casino is breathtaking in its scale, and is topped off with with gondoliers.
This vast pleasure palace is modelled on its Vegas equivalent, itself built on the bombastic principles of Venice as envisaged by the Renaissance princes. It opened in August 2007 but late last year slashed the numbers of gondoliers plying their trade along the purpose-built canals.
In December, Las Vegas Sands Corporation cut 500 casino workers at the Venetian, around 2 per cent of the total workforce, and halted construction of five new hotels, huge shopping centres and new casinos in Macau.
Star World has also mothballed its Cotai Strip development until the global economy turns in its favour. In all, 10,000 foreign workers and 2,000 workers from Macau have lost their jobs so far.
Stopping construction on this huge project has also translated into social costs in mainland China. Thousands of migrant workers from southern China have been sent back across the border, joining the ranks of unemployed factory workers in the engine of the mainland economy already reeling from crashing exports. The Beijing government is worried that unemployment in industrial zones in Guangdong could lead to social instability on a major scale.
News that China did not plan to relax travel restrictions to the enclave hit shares in Macau casino operators hard this week, with Galaxy’s share price taking its worst hit in four years in Hong Kong trading, and SJM also feeling the pain.
More broadly, the fear in Macau is focused on a different end of the income scale. VIP high-rollers make up 70 per cent of revenues in Macau, and the casinos are redoubling their efforts to bring in the junkets of mainland gamblers who keep the roulette wheels spinning. However, many of the high-rollers have defaulted on repayments, an unthinkable development in the heady days of 2007.
The credit crunch, combined with ever-more efficient controls on the gaming areas, means VIP high-rollers can no longer rely on having loans extended by the house with the ease of yore.
Carruthers has watched Macau expand incredibly quickly and while he is clearly not happy the economy is slowing down, he feels that the slowdown will give the gaming business in the territory a chance to take stock and perhaps change the focus to mass-market gamblers, the punters who made Las Vegas so strong.
“The VIP business has come off and it’s not going to rebound in the next 12 months. But I believe the quality mass market will continue to be strong,” he says.
“The worst predictions for this year still have Macau having a better year than Las Vegas ever had. If I was a betting man, I’d say Macau is still going to be very strong for 2009.”