Thursday, March 22, 2012

IPM News Presents Asian Casino Report: The Vegas Pack

 
by Joe Kleiman, IPM Online News Editor

(March 21, 2012) -- In this, the second of a three part series on the Asian megacasino market, IPM News looks at how three major Vegas players have found a goldmine in the Chinese territory of Macau.

NOTE: The history of gambling in Macau and other parts of Asia will be covered in part three of this series.

All revenue figures are in US Dollars and reflect casino revenue only.  Additional revenue from hotel stays, entertainment, dining, and retail are not shown.

THE MACAU DIFFERENCE
Over the past thirty years, Las Vegas casino operators have had to deal with domestic competition outside of the Las Vegas market.  After a failed attempt to drum up new business by changing the Strip into a family friendly destination, Vegas operators decided to take on the competition head-on by expanding into other markets, operating and often owning casinos and resorts in such markets as Atlantic City, the riverfront communities along the Mississippi, and the Gulf Coast.  Another major revenue stream for the Vegas companies became the management of casinos owned by Native American Tribes and state and local municipalities.

Then in 2001, something happened in China that would open up the opportunity for casino attendance and revenue on a scale to exceed Vegas numbers - the Chinese government eliminated a Hong Kong - Macau syndicate's monopoly on gambling and began issuing casino licenses in Macau to other operators. 

In terms of potential customer base,  more than one billion people are estimated to live within a three-hour flight from Macao and more than three billion people are estimated to live within a five-hour flight from the city.

In terms of revenue, according to the State of Nevada Gaming Control Board, in 2011, the 256 casinos in the state (not just Vegas) that grossed $1 million or more earned a combined $10 billion in gross casino revenue.  On the other side of the world, the Chinese Special Administrative Region's Gaming Inspection and Coordination Bureau reported that during the same period, the 33 Casinos in Macau earned a combined gross casino revenue of $33.5 billion.

Five of those Macau casinos are multi-billion dollar resorts owned and operated by Las Vegas casino companies. 

MGM INTERNATIONAL
MGM International has a storied history in Las Vegas, and is the culmination of the merger between two of the industry's biggest players - MGM Grand and Mirage Resorts.  Overall, it operates nineteen properties worldwide.  In Macau, the company partnered with Pansy Ho, the daughter of Stanly Ho, who, starting in 1962, controlled a 40-year monopoly on casino operations in Macau.


The MGM Grand Macau opened in 2007.  The resort’s focal point is the signature Grande Praca and features Portuguese-inspired architecture, dramatic landscapes and a glass ceiling rising 25 meters above the floor of the resort. The property has a casino floor area of approximately 29,496 square meters, with 1,184 slot machines, 427 gaming tables and multiple VIP and private gaming areas. The hotel comprises a 35-story tower with 582 deluxe rooms, including 468 standard guest rooms, 99 luxury suites, 15 private luxury villas. In addition, the resort offers luxurious amenities, including 9 diverse restaurants and bars, world-class pool and spa facilities, and 1,593 square meters of convertible convention space.

The MGM Grand Macau, which cost $1.25 billion to build earned $2.6 billion in 2011.  The company has plans to invest at least $2 billion on a second casino resort in the Cotai district, near the Macau International Airport.

LAS VEGAS SANDS
Las Vegas Sands, the first foreign company to develop a casino resort on Macau under the current licensing rules, has a 70.3% ownership of Sands China Ltd, which owns and operates The Venetian Macao Resort Hotel, the Four Seasons Hotel Macao, Cotai Strip, the Plaza Casino, and the Sands Macao.  In a separate venture, Las Vegas Sands also owns and operates the Marina Bay Sands in Singapore, which holds one of only two casino licenses in the city state (more on Singapore in part three).


The $8 billion Marina Bay Sands in Singapore opened during 2010 and features approximately 2,600 rooms and suites located in three 55-story hotel towers. Atop the three towers is the Sands SkyPark, an extensive outdoor recreation area with a 150-meter infinity swimming pool and several dining options. The integrated resort offers approximately 160,000 square feet of gaming space with approximately 600 table games and 2,500 slot machines; The Shoppes at Marina Bay Sands, an enclosed retail, dining and entertainment complex with signature restaurants from world-renowned chefs; an event plaza and promenade; and an Art/Science museum. Marina Bay Sands also includes approximately 1.2 million square feet of meeting and convention space and two state-of-the-art theaters for top Broadway shows, concerts and gala events. 2011 casino revenue was $2.36 billion

 
The $2.4 billion Venetian Macao is the anchor property of the company's Cotai Strip development and is located approximately two miles from Macao’s Taipa Temporary Ferry Terminal on Macao’s Taipa Island. The Venetian Macao includes approximately 534,000 square feet of gaming space with approximately 550 table games and 2,000 slot machines. The Venetian Macao features a 39-floor luxury hotel tower with over 2,900 elegantly appointed luxury suites and approximately 1.0 million square feet of unique retail shopping with more than 300 stores featuring many international brands located in the Grand Canal Shoppes at The Venetian Macao. The property is home to more than 50 restaurants featuring an international assortment of cuisines. In addition, The Venetian Macao has approximately 1.2 million square feet of convention facilities and meeting room space, a 1,800-seat theater, the 15,000-seat CotaiArena that hosts world-class entertainment and sporting events and a Paiza Club.  2011 casino revenue was $2.4 billion


The $1 billion Four Seasons Macao, which is located adjacent to The Venetian Macao, has approximately 91,000 square feet of gaming space with approximately 170 table games and 180 slot machines at its Plaza Casino. The Four Seasons Macao also has 360 elegantly appointed rooms and suites; several food and beverage offerings; and conference and banquet facilities. The Shoppes at Four Seasons includes approximately 211,000 square feet of retail space and is connected to the Grand Canal Shoppes at The Venetian Macao. The Four Seasons Macao also features exclusive Paiza Mansions, which are individually designed and made available by invitation only. 2011 casino revenue was $583 million.



The $600 million* Sands Macao, the first U.S. operated Las Vegas-style casino in Macao, is situated near the Macao-Hong Kong Ferry Terminal on a waterfront parcel centrally located between Macao’s Gonbei border gate with China and Macao’s central business district. The Sands Macao includes approximately 197,000 square feet of gaming space with approximately 420 table games and 1,100 slot machines. The Sands Macao also includes a 289-suite hotel tower, spa facilities, several restaurants and entertainment areas, and a Paiza Club. 2011 casino revenue was $1.25 billion





The company's presence in Macau continues to expand.  On Monday, Las Vegas Sands Corporation released the following press release:


Sands China Ltd., a majority-held subsidiary of global integrated resort developer Las Vegas Sands Corp., announced today that Sands® Cotai Central, the newest addition to the company's Cotai Strip® development, will officially open on Wednesday, April 11, 2012.

This phase of the property's launch features more than 600 rooms and suites under the Conrad hotel brand and more than 1,200 rooms from Holiday Inn. It also unveils significant meeting, convention and retail space as well as several distinctive dining offerings. The opening marks another milestone in the company's efforts (more than US$8 billion invested to date) to help Macao reach its full potential as an international business and leisure tourism destination.

It also brings the Cotai Strip one step closer to fulfilling the original vision of Las Vegas Sands and Sands China Ltd. Chairman Sheldon G. Adelson.

"There were few believers in my vision for the Cotai Strip when the site was basically under water. With the completion of Sands Cotai Central, that same spot will be home to thousands of hotel rooms, millions of square feet of retail, meeting and convention space, dozens of restaurants and so many other attractions," said Mr. Adelson.

"The opening of Sands Cotai Central is a game changer for the future of Macao as a leisure, entertainment and business location. On behalf of our entire company, we are proudly looking forward to introducing visitors from around the world to the largest integrated resort development ever constructed," he stated.

In addition to the Conrad and Holiday Inn, Sands Cotai Central will soon feature approximately 4,000 rooms and suites from the world-renowned Sheraton brand. The Conrad, Holiday Inn, and Sheraton hotels at Sands Cotai Central represent the largest in the world for each of the respective brands.

Along with the hotel rooms, retail, and restaurants, Sands Cotai Central also includes plans for its own theatre, expanding the entertainment options for business and leisure travelers at the center of the Cotai Strip. The soon-to-be announced line-up of entertainment will further attract tourists from all over the world.

"Sands Cotai Central is going to be a truly spectacular property in Macao; the grandeur of the architecture itself is already a must-see destination," said Edward Tracy, president and CEO of Sands China Ltd. "Sands China Ltd. has always been committed to bringing the most unique and exciting new experiences to our customers. It's our mission to create more reasons for visitors to come to Macao and to stay longer once they arrive. We also want to thank the government and all of our team members for their efforts in getting us to this momentous day."


Construction costs for Cotai Central are estimated at $4 billion.

*Sands Macau opened as a casino-only operation, which is reflected in the construction costs.

WYNN

Wynn Resorts is the result of a partnership between Las Vegas casino developer Steve Wynn and Universal Entertainment Corporation, owned by Japanese businessman Kazuo Okada.  The company has developed almost identical Wynn and Encore branded casino resorts in both Las Vegas and Macau.  As with the other American brands ported to Macau, the properties there have been modified to meet the culture and superstitions of their Chinese clientelle.


Opened in 2006, Wynn Macau and Encore Macau operate as a single resort.  Wynn's Macau operations feature approximately 1,008 hotel rooms and suites, 486 table games, 930 slot machines and a poker pit in approximately 265,000 square feet of casino gaming space, casual and fine dining in eight restaurants, two spas and a salon, lounges, meeting facilities and approximately 54,200 square feet of retail space featuring boutiques from Bvlgari, Cartier, Chanel, Dior, Dunhill, Ferrari, Giorgio Armani, Gucci, Hermes, Hugo Boss, Louis Vuitton, Miu Miu, Piaget, Prada, Rolex, Tiffany, Tudor, Vacheron Constantin, Van Cleef & Arpels, Versace, Vertu, Zegna and others. Wynn Macau also includes a show in the rotunda featuring a Chinese zodiac-inspired ceiling and interchangeable gold "prosperity tree" and "dragon of fortune" attractions.

Construction costs for the both Wynn and Encore Macau were around $1.2 billion.  2011 casino revenue for Wynn's Macau operations was $3.5 billion.  The company has also purchased 53 acres in the Cotai district, and plans, pending government approval, on constructing a full scale integrated resort containing a casino, approximately 2,000 hotel suites, convention, retail, entertainment and food and beverage offerings on this land.  Estimated construction cost on the new project is $2.5 billion.

Wynn Resorts had also been looking into opening a casino resort in the Phillipines as part of the new Entertainment City Manilla Project.  The company opted out of participating, due to the proximity to Macau and potential negative impact on the existing casinos.  However, Universal Entertainment announced plans to commence construction on a $2.3 billion casino at that location independent of Wynn Resorts.

This has resulted in a rift between Wynn Resorts and Kazuo Okada.  Mr. Okada was removed from the Wynn Macau Board of Directors last month and the company has announced an upcoming special proxy meeting of shareholders to vote on removing Mr. Okada from the Wynn Resorts Board of Directors.

On February 19, 2012, Wynn Resorts filed suit against Mr. Okada, issuing the following press release:

Wynn Resorts, Limited today announced that its Compliance Committee has concluded a year-long investigation after receiving an independent report detailing numerous apparent violations of the U.S. Foreign Corrupt Practices Act by Aruze USA, Inc., its parent company Universal Entertainment Corporation and its principal shareholder, Kazuo Okada. Mr. Okada is a Director of Wynn Resorts, Limited, and of Wynn Macau, Limited, a majority-owned subsidiary of the Company.

The Compliance Committee, chaired by former Nevada Governor Robert Miller, engaged several investigators, including Freeh, Sporkin and Sullivan, LLP, led by Louis J. Freeh, the former Director of the U.S. Federal Bureau of Investigation, which conducted a thorough independent investigation. Freeh’s investigators uncovered and documented more than three dozen instances over a three-year period in which Mr. Okada and his associates engaged in improper activities for their own benefit in apparent violation of U.S. anti-corruption laws and gross disregard for the Company’s Code of Conduct. These troubling discoveries include cash payments and gifts totaling approximately $110,000 to foreign gaming regulators.

“Mr. Okada and his associates and companies appear to have engaged in a longstanding practice of making payments and gifts to his two chief gaming regulators at the Philippines Amusement and Gaming Corporation (PAGCOR), who directly oversee and regulated Mr. Okada’s Provisional Licensing Agreement to operate in that country,” according to the Freeh Report. The report further stated that Mr. Okada and his associates have “consciously taken active measures to conceal both the nature and amount of these payments.”

Based on the Freeh Report, presented to the Wynn Resorts Board of Directors on February 18, 2012, the Board determined that Aruze USA, Inc., Universal Entertainment Corporation and Mr. Okada are “unsuitable” under the provisions of the Company’s Articles of Incorporation. The Board was unanimous (other than Mr. Okada) in its determination. The Board has requested that Mr. Okada resign as a Director of Wynn Resorts. The Company will immediately inform the Board of Directors of its Hong Kong listed subsidiary, Wynn Macau, Limited, of its actions and will recommend that Mr. Okada be removed from the Wynn Macau Board.

Pursuant to the finding of “unsuitability,” the Board has redeemed Aruze USA, Inc.’s 24 million Wynn Resorts’ shares. The terms of redemption are outlined in Wynn Resorts’ Articles of Incorporation, which have been in place since the Company’s inception. Following a finding of “unsuitability,” the Articles provide for redemption at “fair value” of the shares held by unsuitable persons to protect the Company’s gaming licenses. The Company engaged an independent financial advisor to assist in the fair value calculation and concluded that a discount to the current trading price was appropriate because of restrictions on most of the shares which are subject to the terms of an existing stockholder agreement. Pursuant to the Articles, the Company has issued a 10-year $1.9 billion promissory note in redemption of the shares. The note matures on February 18, 2022 and bears interest at the rate of 2% per annum.

“The Compliance Committee and the entire Board are deeply disturbed by the behavior of Mr. Okada, and we have fulfilled our obligations to our stockholders, the State of Nevada and the Wynn community,” said former Governor Miller. “As Directors of a gaming company privileged to hold licenses, we have a duty to uphold the highest ethical standards and comply with the laws and the terms of the licenses upon which our business depends. Unfortunately, it is very clear from the Freeh Report that Mr. Okada repeatedly flouted these requirements.”

The Freeh Report is the culmination of a year-long investigation by the Compliance Committee based on increasing concerns the Board had relating to the activities of Mr. Okada and Aruze USA, Inc. in the Philippines and statements made by Mr. Okada to Wynn Resorts’ Directors that gifts to regulators are permissible in Asia. Mr. Okada is the only Director of Wynn Resorts who has continued to refuse to sign the Company’s Code of Conduct or participate in mandatory Foreign Corrupt Practices Act training for Directors.

Wynn Resorts today filed a lawsuit against Mr. Okada, Aruze USA, Inc. and Universal Entertainment Corporation in Nevada District Court, Clark County for breach of fiduciary duty and related offenses.



Mr. Okada has since issued a countersuit.