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Despite stalled growth in China, Brazil and Russia, a wave of newly middle-class travelers from the BRICs and beyond will start visiting international destinations in the coming decades — dwarfing the numbers we’ve seen thus far.
Adelson merely zigged where Ho zagged: Carving out an empire in Macau gambling requires that you distinguish yourself in a brash way. That’s something Sheldon knows that his Vegas counterpart Wynn doesn’t.
As Judy Huang’s husband prepared to hit Macau’s gaming tables, the 33-year-old mother from mainland China was more drawn to the Venetian resort’s shopping plaza, home to a fake grand canal, crooning gondoliers and brands from McDonald’s to Dior.
“The mall is important” for visitors with children, Huang said while preparing to board a ferry to Macau from Hong Kong. “At least it will keep us entertained while we’re waiting for my husband.”
Tourists like the Huangs, seeking a mix of fast food, fashion and baccarat, are fueling profits for the Venetian and other resorts owned by Sheldon Adelson’s Sands China Ltd. — and helping the company woo players from local rival SJM Holdings Ltd.
Family-friendly attractions have boosted the appeal of the U.S. billionaire’s casinos for middle-class Chinese, who have helped turn Macau into the world’s largest gambling hub, with $38 billion in revenue last year, more than six times the Las Vegas Strip.
In the first quarter, Sands took the top spot in Macau’s mass-market casino business, overtaking SJM Holdings, whose founder, Stanley Ho, built Asia’s largest gambling empire by catering to high rollers. Sands’ mass gambling revenue in Macau jumped 63 percent to a record $863 million for the quarter, while SJM’s rose 5 percent to about HK$6.22 billion ($801 million), earnings statements show.
“Shopping malls are the biggest selling point to drive mass-market traffic,” said Grant Govertsen, an analyst at Union Gaming Group in Macau. “SJM is missing that essential piece.”
Ninety-one year old Ho held a Macau gambling monopoly for four decades until 2002, when the government issued licenses to foreign players such as Sands and Wynn Resorts Ltd. Today, his flagship Grand Lisboa casino houses pricey Michelin star restaurants and has a performance lineup that includes the French Can Can dance, but offers little shopping or family entertainment.
When Ho’s monopoly began, Mao Zedong led China and Macau was a Portuguese colony. The city became a special administrative region of China in 1999, ending nearly 450 years of Portuguese rule.
Even as the Chinese economy slowed in 2012, growth in gambling from mainstream tourists stayed relatively steady, with mass-market gaming revenue rising an average of 33 percent annually since 2010, according to Bloomberg Industries.
“Macau has transformed itself from a pure gambling center into a brand-new tourist destination,” Lui Che Woo, chairman of Galaxy Entertainment, said after a recent shareholder meeting.
Ho was initially reluctant to copy the Vegas-style glitz of his U.S. competitors. “Ignoring Macau’s special characteristics and duplicating a Las Vegas or an Atlantic City would not be a successful strategy,” the SJM founder and chairman said at a 2009 gaming expo.
By contrast, retail stores from Zara to Tiffany line Sands’ resorts. The sprawling Venetian, Macau’s biggest casino, stands on a piece of reclaimed land called the Cotai Strip, where Sands and other operators have sought to create an Asian version of Las Vegas.
SJM received government approval in May to develop its first gambling resort on Cotai, becoming the last of Macau’s six licensed casino operators to get permission to open there. Ho’s company will need at least three years to build its casino.
“Adelson has the best vision in Macau’s gaming market,” said Richard Huang, a CLSA Ltd. analyst. “He was the first one investing big money into Cotai Strip.”
Ho and his family control Sociedade de Turismo e Diversoes de Macau, owner of about $7.85 billion worth of stock in SJM, according to data compiled by Bloomberg. SJM remains the largest Macau casino operator, running 20 of the city’s 35 gambling venues, versus Sands’ four. SJM also ranks first by revenue in Macau, with $10.3 billion last year. Galaxy Entertainment Ltd. was second at $7.3 billion, and Sands China third with $6.5 billion.
Sands China has risen 14.7 percent this year and trades at 20.3 times estimated 12-month earnings. SJM has gained 8.9 percent and is valued at 14.5 times forward profits. The 79- year-old Adelson now ranks 17th on the Bloomberg Billionaire’s list and has a net worth of about $26.5 billion.
Sands China declined to comment on its mass-market business. SJM didn’t respond to calls and e-mails seeking comment on how it will compete in that market.
Members of Ho’s family who have branched off to set up rival businesses have also courted middle-class gamblers. Melco Crown Entertainment Ltd., where Ho’s son Lawrence is CEO, lures visitors with the House of Dancing Water, a show featuring motorcycle stunts. MGM China Holdings Ltd., where daughter Pansy Ho is co-chairman, had a pavilion showcasing more than 1,000 butterflies last year and now features an aquarium exhibiting more than 1,000 fish.
“Chinese consumers are becoming very demanding,” MGM China CEO Grant Bowie said in an interview. “When you start moving into leisure gaming, which is what the mass market is all about, you need to develop multiple touch points.”
While Macau counts on high-stakes bettors for two thirds of its revenue, the mass market is growing faster. And middle-class gamblers offer fatter margins since casinos often pay commissions to middlemen who bring in the high rollers.
To keep appealing to visitors like Anita Lin and Bill Chen, newlyweds planning to stay at a Holiday Inn for a night, casinos understand they must continue increasing their offerings that go beyond the green felt of the tables. Lin and Chen expected to shop and enjoy the restaurants, sampling local specialties like egg tarts.
And gambling? “Not a lot,” Lin said. “Maybe just 1,000-2,000 yuan ($160-$320).”
Editors: Anjali Cordeiro, David Rocks. To contact the reporter on this story: Vinicy Chan in Hong Kong at firstname.lastname@example.org. To contact the editor responsible for this story: Stephanie Wong at email@example.com.