Cigar Aficionado

Macau Then and Now

Macau Then and Now
What was once a shantytown of the east has become the most profitable gambling city in the world

I first heard about Macau nearly 20 years ago, while soaking in an infinity pool on a rooftop high above Hong Kong, in the old Regent Hotel. It was my first trip to Asia and a sunburned American expat described a place that sounded like a degenerate’s paradise. He talked about cockfighting, gambling, guns for sale, drugs, prostitution—all in one building. I figured he was referencing the Lisboa, then the only legal gambling spot in Macau, and if he was, the exaggeration would have been by about 50 percent. I assumed as much, but I wanted to believe it all—having no idea that Macau would one day run over Vegas in gambling revenue and become a cash cow for Wynn, MGM and particularly Las Vegas Sands Corporation, the entity that owns Venetian.

Several years after that, still clueless about the impending rags-to-riches future, I made it to Macau while on assignment in Hong Kong. Some wise guys from the world of horse racing and I checked out the track there; they shared lurid stories about horses being drugged, jockeys getting beaten and Triad guys shooting up the streets. After checking out the Lisboa that night, I reeked of cigarette smoke, felt as if I had been sprayed with knockoff perfume and considered myself lucky to not have been pick-pocketed. I slept in what must have been the shoddiest Mandarin Oriental on the planet—the late MGM executive Terry Lanni called it “Mandarin minus”—and then the nicest overnight spot in Macau.

My conceptions aside, Tom Hall, an online gambling magnate and distant relative of Stanley Ho, the mysterious operator who somehow held the only casino gambling license in Macau for 40 years, remembers the place a bit more prosaically. “When I was a boy, we used to go there to eat,” says Hall. “It’s a push to say that Macau was a fishing village back then, but it was quiet—before it went mad in the 1990s with Triad trouble, when people got kidnapped. One thing rarely considered, though, is that the ground on which the Lisboa stands was probably the most valuable piece of real estate in the world, more valuable than the New York Stock Exchange.” Often, it was the only option for China’s casino gamblers, resulting in over-the-top action. “I remember going there with HK$5,000 [today, about US$650], putting my bet down at the blackjack table and having a bunch of people betting behind me. Whoever bet the most could make the decision on the hand.”

Visiting the former Portuguese colony this past April, I see that Macau has become completely unrecognizable from 20 years ago. Rough edges have been buffed smooth. Familiar logos of Wynn and MGM dot the sky after dark. In the case of Wynn, the exterior of its casino directly mimics that of Wynn Las Vegas, with a shiny, rose goldish facade that seems designed to reflect the sun and radiate optimism. SUVs and limos shuttle big players. Slot machines sing familiar songs. Lobby ceilings soar, players pack in at the baccarat tables and there is nary a roulette wheel or craps felt in sight. The blackjack games are all continuous shuffle. Families literally take over the baccarat spots, with elders tensely squeezing cards and cousins back-betting behind cousins. Alcohol seems to be a bit of a rarity here, but carts loaded with milky tea roll through nonstop.

Wondering about the fascination with baccarat, I pose a question about its popularity to John Shigley, chief operating officer of gambling at MGM Macau. He offers a reasonable hypothesis that goes beyond my theory about the game simply seeming classy in a James Bond kind of way. “You’d think that intelligent, hardworking people would want blackjack [a game where you can impact the outcome],” says Shigley. “But it’s all baccarat, where you can’t alter the outcome. They want it that way. It’s about finding your luck and destiny in the cards that are being dealt.”

Similarly, luck and destiny have turned positive for American casino operators. Though Caesars Entertainment is not set up there, the other three big-time American casinos have opened shop in Macau. And the financial statistics are mind blowing. According to Shigley, in 2007 Las Vegas generated $7 billion in revenue and Macau was right behind it. Last year, he says, Vegas did $6.5 billion and Macau did $45 billion. “The growth in Macau was bigger than the revenue in Las Vegas,” he marvels. “It will be the same this year.”

Take a short stroll from MGM, through the neon-soaked streets of urban Macau, where you can’t miss the abundance of sketchy looking jewelry stores that never seem to close, and you arrive at StarWorld, a Western-style casino owned by Hong Kong–based Galaxy Entertainment. Upstairs is where a gigantic poker game known as the Macau Big Game takes place. Generally, it’s Chinese sharps in the gambling business, a couple of clueless fish and a well-known pro adding luster to the proceedings. Tonight, the pro in attendance is Johnny Chan. He’s been coming to Macau since the 1990s, back when you were able to buy property here as a gambit for snagging citizenship.

Between hands, Chan remembers the golden age of Stanley Ho’s Lisboa. “People spit on the floor and they had the dirtiest toilet in the world there. But they cleaned it up pretty good. Now, it’s almost like Vegas here, except the gamblers play much higher. They don’t quit until they lose it all. Guys come for 48 or 72 hours and, either way, they spend 50 hours gambling. I’ve seen a player play for a week, napping at the table for five hours at a time. He would get stuck at poker, walk to baccarat, then come back to poker and play some more. Nobody really beats baccarat, but he was lucky and he beat it that week.”

One reason for the nonstop gambling might have to do with the fact that other diversions are limited. A poker player friend of mine who’s camped out in Macau, playing hold ’em at the Wynn, characterizes life there thusly: “It sucks. There’s nothing to do here but drink and gamble.” Of course that is great for the casino companies. MGM’s Shigley recalls customers who’ll spend hours socializing with him in their home cities and then brush him off the second they get on property in Macau. They can’t wait to hit the tables.

Johnny Chan concurs with all of the above: “In Vegas you have shows and entertainment. Here it’s all gambling and luxury shopping. But it works, it works, it works. The casinos here are making a lot of money.” It can be argued that the surest sign of growth in a gambling destination is not necessarily the crowds inside casinos but the presence of construction cranes on the outside. That notion is what has me up early one morning, hustling out of my room at the Wynn (close to a carbon copy of the company’s luxe digs in Vegas) and hailing a taxi for the Cotai Strip, a stretch of landfill that Sheldon Adelson, whose Sands China Ltd. owns the Venetian in Macau, has turned into what just might be the world’s most valuable parcel of former swamp.

It’s the second gambling district in Macau. The first, situated downtown, feels a bit like downtown Las Vegas. Cotai has been designed to mimic the Las Vegas Strip. But the land is all owned by Adelson, who clearly had vision when others lacked it.
Putting aside the cranes for a moment, the Cotai Strip is a flurry of the most famous names in hospitality. “On the Cotai Strip, we go from the world’s biggest Holiday Inn, with rooms selling for US$150 per night, to the Four Seasons where they go for US$550 per night,” says Edward Tracy, president and CEO of Sands China. “We have a St. Regis under construction here and we’re also building the Parisian, which will be a 3,000-room mega resort. It gives us the power to give consumers what they want.”

A little confused here, I wonder if Sands runs the gaming and rents the land to these various hotel companies. Tracy—who, when he first visited Macau in the 1980s, came upon gamblers wanting to stroke his blond hair for good luck—waves me away. “We own the hotels,” he says. “We own gaming. We own everything. We have a little over 9,000 rooms right now.” The success of Cotai, just like the success of the Vegas Strip, lies in the fact that customers can go there and reside within close proximity to lots of hotels, outside of an urban environment. Similar to the Strip, it feels like a resort district rather than an urban cluster where neon-spewing casinos have been set down. It also has the space for the construction of mega resorts, without the footprint constrictions of downtown Macau.

Adelson’s competitors get the point, which brings us back to the cranes. MGM, City of Dreams (a joint venture between operators in Hong Kong and Australia), JW Marriott, an offshoot of the Hollywood Roosevelt Hotel and the Wynn are all building sprawling outposts there. It’s as if they’re constructing a fully realized Vegas Strip in years instead of decades. While I’m not nearly as doubtful as Steve Wynn had once been—Adelson has told me that, long before he decided to build a casino there, Wynn derided the Cotai Strip as “the stupidest idea I’ve ever heard”—it does leave me pausing to consider that the Western casino bosses may have become overly optimistic, perhaps expanding too quickly for a market that may never really exist. I pose this to MGM’s Shigley, and he counters, “We’re capacity constrained. We’re close to 100 percent occupancy every night and do very little [non-gambling] business. Almost all of our rooms go to casino guests. We could do more if we had more rooms.”

He speaks as if the Cotai Strip is the Macau version of Manifest Destiny. Along those same lines, the Venetian’s Tracy does not seem the least bit worried about bringing competitors so close to his Macau flagship’s doorstep. He dismisses the Wynn properties as “great big box casinos” and seems to be at a loss for figuring out what MGM does specifically. Nevertheless, he adds, “Having major competitors spending hundreds of millions to promote their projects will benefit us. Customers may come here at the invitations of other casinos, but they will visit us. We are the best-known brand in China. The key to our success is how many visitations we create.”

To get a handle on how huge the sheer volume is in Macau, you need to recognize that the skyscraping revenues get generated even though they’re severely carved up in a way that they never would be in Las Vegas. To begin with, the Macau government takes a 39.5 percent rake right off the top in the form of taxes. Besides that, the casinos are saddled with a network of junket operators who bring them gamblers. When I ask MGM’s Shigley how he likes that, he laughs softly and replies, “How do I like it? They take 60 percent of our revenue.”

While he’s too discrete to go into detail about how he really feels, an off-the-record source who keenly observes the scene in Macau is a lot more forthcoming. We’re walking through one of the major properties, crossing the casino floor, and he points out a gaming area penned in by railings. Several of these are spread around the casino. “They’re where you play if you were brought in by a junket operator,” the source tells me. “The casino provides dealers and tables and the surveillance, but the gamblers play with special chips that have the junket operator’s name on them.”

The junket operator functions as a sort of super host. “Casinos here don’t offer lines of credit to most players,” continues the source. “Let’s say you are a factory owner in Mainland China, and you want to gamble in Macau. You work out an arrangement with the local junket operator there. He brings you to Macau, sets up your hotel room and your meals, and you gamble in his area with his chips. He also fronts you the money you need. Let’s say it’s HK$1 million [about US$129,000]. You get in there and gamble with his credit line. Then he has a 40 percent to 60 percent stake in your action. If you lose, he keeps, let’s say, 60 percent of your loss. If you win, he pays you 60 percent. So let’s say his player comes to Macau and loses the entire HK$1 million. For starters, HK$395,000 goes to the Macau government. That leaves HK$605,000. Sixty percent of that goes to the junket operator. So he gets HK$363,000 and the casino ends up with HK$242,000 or about US$31,000. But, often, the junket operator makes more than his obvious cut because his customer will be playing for two or three times his official limits and they settle up later. The casino and the Macau government see none of that money.”

Considering that you’re only allowed to bring US$2,600 across the border from Mainland China to Macau, I’m wondering how these gamblers manage to play for such high stakes. I pose the question to Tom Hall and he tells me that there are all kinds of ways. Asked to name two, he responds without hesitation: “Loads of Chinese people live right over the boarder and have multi-entry visas. To earn pocket money, they do runs, carrying the legal limit, multiple times per day [and hand off the sum to junket representatives]. That may not sound like much, but when you have 6,000 people doing it, it adds up.” He lets that sink in before offering another scenario. “Go up the escalator at StarWorld and you notice a 24-hour jewelry store. Same thing at Venetian. These stores are affiliated with shops in other Chinese cities. I go to the store in the other city and buy a Rolex for HK$1 milllion, keep the receipt and wear the watch on my trip to Macau. Then I go to the casino’s jewelry store and return it for HK$975,000. I have not brought money into the country, I sold my watch, I did not break a law. You wanted two examples, so I gave them to you. But there are loads of other ways.”

In lieu of all the finagling, it’s easy to doubt the assertions of casino executives who like to point out that junket operators are licensed, proceeding completely on the up and up, and that tales of them being tied to the Triads is the stuff of movies. Johnny Chan, who’s played his share of poker with junket guys (usually, they’re vaguely described as “Chinese businessmen”), sees things being a little more catch-as-catch-can. In Macau, with the junket operators, he says, “There are no applications. The weirdest thing you ever saw is a guy getting more than US$1 million just on his name. I’ve seen gamblers borrow millions without signing a piece of paper. It’s very different from the U.S. It’s what makes Macau the gambling capital of the world.”

Most alluring of all, perhaps, is that all of this has been achieved without a whole lot of effort beyond simply offering nice hotel rooms and Vegas-worthy casinos in which to gamble. It seems like a Field of Dreams situation. Wynn tried opening a nightclub in Macau. It flopped. Shows have been attempted; they generally went nowhere. Celebrity chefs, such as Joël Robuchon, have been brought in to open culinary palaces, but they aren’t really much of a draw. “The most important thing to the gambler here is a good bowl of noodles at his table,” says MGM’s Shigley. “They want to play. It’s amazing. They just want to play. That is good for the gaming business.”

That may be the case now. But it probably will not be the case forever. Tom Hall tells me that some of the major junket operators have turned themselves into entertainment promoters, renting halls and arenas in Macau so that they can put on events that will give their players reasons to visit. Contradicting what others describe as an unquenchable hunger for action, he says, “At a certain point, you can’t keep calling people and asking them when they want to come out to gamble again.”

Just as they were with the launching of Cotai Strip, Venetian executives are way ahead of the curve on this one. On the afternoon that I am there, a red carpet has been rolled out in front of the casino and Chinese pop stars make their entrances for a music awards show scheduled to take place there in the evening. Earlier this year, the Rolling Stones played a sold-out show in the Venetian’s arena, Rihanna did the same thing last year, China’s version of “The Voice” had been filmed there and boxer Manny Pacquiao beat Brandon Rios in the arena. While Americans had an opportunity to watch the fight on Pay-Per-View, it aired for free across Mainland China, courtesy of the Venetian, as a vehicle for showcasing what’s on offer. “David Beckham was here for that,” says Tracy. “Along with A-list Chinese celebrities, there were B-list personalities [from the West] like Paris Hilton and Stephen Baldwin. He’s still a star in China. They remember The Usual Suspects. We had the greatest Chinese comedian here and he sold out 15,000 seats. You couldn’t sell 15,000 seats for a comedy event in the U.S. if Rodney Dangerfield came back from the dead.”

Maybe the confidence of Macau executives comes from their relatively easy success there. Maybe it comes from a projection that Macau revenues could hit $90 billion by 2018. There’s talk about a country of 1.3 billion with loads of upside.

“Junket operators go to the northern provinces, meet with people who don’t even know what baccarat tables look like and introduce them to gambling,” says Tom Hall. And there’s no fear about anything slowing down gambling’s gravy train. The Chinese government seems to have little incentive to stop issuing visas for travel from Mainland to Macau, and the supply of players still seems endless, at least for the moment. With Cotai growing, there’s a hope that Macau can offer full-blown resort amenities in much the same way that Vegas does, and the belief is that it will keep the original crop of gamblers, and their families, engaged.

Nobody even seems worried about the fact that the rest of Asia has witnessed the success of Macau and wants a piece of it. Casino gambling is poised to be legalized or expanded or launched in places like Vietnam, South Korea, Thailand, Japan and the
Philippines. Tracy is showing no worry at all. “I hope they go to places like the Philippines,” he says. “It will help our position. The Philippines ain’t Macau, which, in 10 years, has grown from a gaming-centric backwater market to the dominant market of the world. It took Las Vegas 50 years to hit its pinnacle.” He considers this for a beat, then adds, “Once our customers go to see the little guys, they’ll want to see the big guys. They’ll come here.”

No doubt, the movers and shakers of Macau will have bowls of warm noodles and open watch shops waiting.

Michael Kaplan is a Cigar Aficionado contributing editor.