Ante Up
Internationalization promises a jackpot for gaming companies nimble enough - and rich enough - to capitalize in new markets
By Mary Scoviak, Contributing Editor -- HOTELS Magazine, 5/1/2006
The hottest hands in the casino/hotel industry are placing their bets on globalization. Giants such as U.S-based Harrah’s Entertainment, MGM Mirage, Las Vegas Sands Corp. and Wynn Resorts, Malaysia’s Genting International, the Bahamas’ Kerzner International, Australia’s Public & Broadcasting Ltd. (PBL) and South Africa’s Sun International are not cashing in their home-market chips—far from it. More than 40 casino hotel projects are already on the drawing boards or in the thinking stages in the United States alone. But the lure of opportunities on the table in the massive Chinese and Southeast Asian markets is too good to resist. With the introduction of or expansion of gaming under study everywhere from the United Kingdom to Russia, and from the Bahamas, Central America and Chile to Vietnam, the number of stay-at-home corporate players is dwindling. Both regional and international players are anteing up per-project development bids of US$1 billion to more than US$7 billion to stake a claim on the global jackpot.
Go For The Gold
“Macau is at the center of the gaming universe,” says Frederic Gushin, managing director, Spectrum Gaming Group, Pennington, New Jersey. For now, the revenue model is all about gaming. Sources estimate that even the highly successful Sands Macau draws 80% to 85% of its revenues from
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gaming—much like Las Vegas’s casino hotels did until the late 1990s. With US$5.7 billion annually in gaming revenue, no one is complaining.
How much new casino hotels along the Cotai Strip believe they can diversify their revenue streams will impact both the pace and type of future development. Unsurprisingly, change will be a phased process. The first wave is starting—with nine planned projects that will add not only high-end guestrooms but also amenities from restaurants to spas and entertainment venues. As for the scale, think Atlantic City more than Las Vegas.
With only 10,000 guestrooms for 22 million visitors, operators can play for the top of the market. “We will see the big names roll out at the 4- to 5-star level in Macau, followed by a back-fill of 2- to 3-star operators who should come on line fairly quickly,” predicts Prentice Salter, chairman, Macau-based Super Resorts. Initially, he sees convention attendees and business travelers on expense accounts driving steady demand for Macau’s new luxe room inventory. “But, long term, the mass market is going to be Macau’s bread and butter. That market will not run away if interest rates go up or the economy turns down,” Salter says.
That future is clearly reflected in the range of hotel flags that will fly on the Cotai Strip. Las Vegas Sands Corp.’s Venetian Macau is sponsoring a master planned development that opens up new options for travelers and new development opportunities for non-gaming operators—from Four Seasons, St. Regis, Shangri-La, Conrad and InterContinental to Hilton, Sheraton, a core Holiday Inn and regional brands such as Cosmopolitan and Dorsett. Infrastructural improvements should help grow the market, specifically a new bridge that should link Hong Kong and Macau in 2010.
“Long term, the issue is whether demand growth is able to measure up with the surge in supply of hotel rooms and gaming facilities over the next three to five years,” says David Ling, managing director, HVS International, Singapore. “Macau may be a nothing ventured, nothing gained or high risk/high return market profile. The goods news for now is that the Sands is doing well.”
Increasing sophistication will be essential. Macau may be jockeying to position itself as a competitor for Las Vegas, but it should be looking over its shoulder at the same time. The billion-dollar question is when, and if, China will up open gaming licenses for other cities, such as Shanghai, Guanghou, Shenzhen and Beijing. The answer may be at least five years away, say industry insiders. The most likely scenario is a wait-and-see program in which China can learn from Macau, let interest build and then capitalize when the time is right.
The more immediate competitive threat is coming from Singapore. More like Las Vegas, Singapore will be about balanced revenue opportunities. Unlike Macau, Singapore has an established market both for business and tourism. It is a mature financial hub, with growing attractions to support development of convention and conference business. It is culturally rich and diverse. “Singapore’s government has made it clear that it wants to create a multidimensional entertainment experience. Gaming will be part of the draw, but not the only part,” says Jonathan Grunzweig, chief investment officer and principal, Colony Capital LLC, Los Angeles. “The opportunity is tremendously appealing for purveyors of entertainment to capture growing markets into the future.”
Singapore has a long-term vision that should translate to growth opportunities from the 5-star market to the budget tier. The Marina Bay development is the entrée for the top market players who can build a competitive advantage around a complex of convention centers, retail, restaurants, shopping and museums. But it is not the only game in town. The Sentosa integrated resort will offer gaming in a family-friendly environment that should tap the volume market. “Bidders who lose the Marina bid can quite easily mobilize their team to work on the Sentosa bid. It wouldn’t be surprising if a company such as Wynn Resorts, with the sale of the recent subconcession to the Melco-PBL partnership for US$900 million, would give further consideration to the Sentosa site because of its increased flexibility,” says Elaine Sahlins, senior vice president, HVS International Gaming Services, San Francisco.
Other Asian countries such as Vietnam and Thailand will be keeping a close watch on how Macau and Singapore address gaming’s growing pains. And, they will not be alone. The Philippine government looks likely to renew gaming licensing for another 25 years. Mongolia is also in the process of reviewing legalized gaming. India is making efforts to develop the casino industry in Goa, Sahlins says. “Tax and revenue generation are big issues for most countries,” Salter says. “Most governments are asking themselves, ‘Why are we letting all of this revenue leave the country?’”
UK & Europe: The Wait
Although the lower house of the Russian parliament passed the first reading of a bill on government regulation of gaming in late March and countries from Slovenia to Spain have gaming on their agendas, the UK is at the heart of Europe’s development potential for major casino hotels. Forty cities reportedly are battling for a Las Vegas-style super casino license, and a who’s who of international and domestic casino players are trying to secure preferred status with local authorities to be well-positioned when the decision is handed down.
The consensus on when that decision will come is that it will be “slower than you would like, and slower than it should be.” Grunzweig, who recently returned from Colony’s London office to its Los Angeles headquarters, is unsurprised by an approach based on careful progress. “There are lots of companies seeking to participate in the UK’s next wave. The government has to ask them what they bring to the table. The politicians are charged with overseeing a system that has been in place for 40 years, and has worked, albeit in perhaps somewhat anachronistic ways. It is not realistic to think they can allow the internationals to come in and be given carte blanche,” he says.
Grunzweig says it is equally unrealistic to think that the big players will simply overlay their business models on the UK. “How do you provide entertainment in London that competes with the West End or the museums? What do you offer to your tourists—not to visit Windsor
Castle or the British Museum? What do you offer local—cut into your pub time for a bit; just sit here and play the slot machines for another hour?” he asks. Most post-deregulation start-ups will be looking at a regional draw, predicts Alan Feldman, senior vice president, public affairs, MGM Mirage. “Generally we will see smaller operations in the UK and Europe than in Las Vegas, Macau or Singapore. The exception would be a London project which would link a casino hotel with a convention center. That could draw convention business from the rest of the European Union and beyond,” he says.
As for the rest of Europe, MGM Mirage and others will take their time. “We are perfectly fine not being pioneers in Eastern Europe,” Feldman adds.
Grunzweig suggests that opportunity funds will be equally wary. “We would be skeptical about deploying a significant investment in, say, Spain or Central/Eastern Europe as a one-off investment. There are too many advantages to competing through, or as, a platform,” he says.
In the long term, France may be one. At this point, gaming is limited to cities with smaller populations and no major tourism draws. With the French government looking to build revenues, that could change. As in the UK, the most likely development course would be for internationals to collaborate with local partners.
Vegas, Atlantic City Antes
Like Dubai, Las Vegas continues to confound naysayers by continuing to grow. “Macau may outpace Las Vegas in terms of gaming revenues, but it cannot get the critical mass in hotel rooms that convention planners need overnight. You cannot bring in 60,000 people if you have 10,000 hotel rooms,” Salter says.
That is why Las Vegas and Atlantic City will see significant new investment, says William R. Schmitt, executive director, CIBC World Markets, New York City. Though increased competition will provide challenges—such as conservative RevPAR gains for Las Vegas in the low-to-mid single digit range for 2006-07, CIBC sees more positive increases in gaming revenues—in the mid-to-high single digits. “Las Vegas is still the hottest gaming market in the United States. But there are untapped opportunities in Atlantic City as it transforms into a more Las Vegas-like model with more rooms and non-gaming revenue sources at similar profitability,” Schmitt says.
As competition tightens, the offer will continue to improve. The trend is to move beyond complexes to communities, such as MGM Mirage’s US$7 billion Project CityCenter with its city-like mix of hotel brands, restaurants and entertainment options. Hotel-within-hotel concepts, like the high-end Water Club planned for Atlantic City’s Borgata Hotel Casino & Spa continue to proliferate. “We will see greater variety in price points,” says Larry Mullin, Borgata’s president and chief operating officer. As hot as the condo-hotel concept in the industry, Shannon Okada, senior associate, HVS Gaming Services, does not see it as a driver for casino resort development. “Gaming licenses often are conditional upon having adequate capitalization or a minimum number of rooms, as in Atlantic City’s 500-room minimum. It is more likely that hotels will be developed with a condominium component, like that being introduced by Starwood’s W and other brands,” she says.
Consolidation is a major theme for the foreseeable future. The recent bidding war for Aztar Corp. is just an indication that the feeding frenzy is not over. “Consolidation of casino companies is a natural step. Increasing overall market share by taking advantage of cross marketing opportunities becomes essential,” Sahlins says. Takeovers may also be the easiest entrée into foreign markets. “Acquisition is a quicker and often less risky method of entry into a new market,” she adds. In either case, small companies may find themselves vulnerable. “We expect more consolidation. Operators that are relatively small, have strategic assets and are not saddled with older, less competitive properties are the most likely takeover candidates,” Schmitt adds.
| Update On Macau |
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Know the players: The government issued three casino concessions in 2002 to SJM, controlled by long-time concession holder Stanley Ho; Wynn Resorts, Las Vegas; and a joint venture composed of Galaxy and the Las Vegas Sands Corp. Only the Sands is up and running. The Wynn project should open late this year or early in 2007. A joint venture between MGM Grand and Pansy Ho is under construction. If regulatory approvals come through, the project will open in early 2007. Longer term, Las Vegas Sands is planning the Las Vegas Strip in Cotai and already has signed agreements with operators such as Hilton and two of Starwood’s brands, Sheraton and St. Regis. Know the odds: Gaming companies locked out of the licensing race are looking for ways to enter this highly lucrative market. PBL scooped up a US$900 subsconcession from Wynn Resorts. While current growth plans underscore the potential of Macau, there is some degree of unease among foreign regulators and some operators that the market is regulated insufficiently, that organized crime has involvement in the gaming industry and that the legal system remains opaque. The issues and the will of Macau regulators to regulate Macau to minimal international standards ultimately will set the standards for casino licensing and operations. Know the competition: For the present, Singapore is the obvious gaming magnate. Its Marina Bay request for proposals (RFP) has been issued; the Sentosa RFP will be issued. Also consider South Korea (where most hotel casinos are open only to international visitors), Malaysia, Tinian, Australia and Goa. For the future, if the governments proceed, consider Japan, Thailand and expanded opportunities in Vietnam. Contributed by Frederic E. Gushin, managing director, Spectrum Gaming Group, Pennington, New Jersey, and Paul Bromberg, chief operating officer, Spectrum OSO Asia Ltd. |
| Odds-On Favorites In Singapore |
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Macau may be the front runner in the race for gaming revenues, but Singapore has an allure all its own. Four gaming powerhouses are jockeying for two lucrative casino licenses. Who has the inside track? Jeff Simpson, business editor and columnist for the Las Vegas Sun, calls it this way: 3 to 2, MGM Mirage. MGM Mirage, and its Singapore partner CapitaLand seem the safest bet for a resort that accomplishes Singapore’s goals for the casino development. The company promises a Cirque du Soleil show, Chief Executive Terry Lanni is widely respected in Asia and the company compares favorably to its competing bidders. The company is believed to have the deepest executive staff in the business, a factor that should weigh heavily in MGM Mirage’s favor. 3 to 1, Harrah’s. Harrah’s is quickly trying to establish its brands internationally, and wants to build a Caesars in Singapore. Harrah’s is partnering with Singapore’s Keppel Land, but has less experience operating billion-dollar-plus megaresorts than does MGM Mirage. Its bid includes iPort, a new-wave entertainment center that will capitalize on many creations of Oscar-winning director James Cameron. Las Vegas executives I talk to are split on iPort. Some say it is too early to say whether the high-tech, rapidly changing concept would fit in as part of a casino complex, while most others scratch their heads. Harrah’s international inexperience may hurt its bid; I see Harrah’s getting edged out by MGM. 8 to 1, Las Vegas Sands. The owner of the Venetian and Sands Macau, Las Vegas Sands wants to build a convention-oriented project, but I think Singapore officials won’t want to pick a company so focused on big Macau and Las Vegas Strip expansion. The company’s lawsuit-happy history and sorry Nevada regulatory record won’t help. Nevada gaming regulators said in 2004 the Venetian transgressions were significant. “The reason the complaint is so serious is that it concerns activity that could erode the public’s confidence in gaming,” Gaming Control Board Chairman Dennis Neilander told me at the time. 10 to 1, Genting International. The frontrunner for the Sentosa island site, I think Genting’s convention and hotel-centered proposal is the biggest long shot. If MGM gets the Marina Bay site, I’d make Harrah’s a co-favorite with Genting to win the Sentosa site. |
| Global Aspirations |
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Major casino/hotel players want a piece of the global action. The ones to watch: MGM Mirage: Immediate targets include Macau (where a 600-room/suite/villa casino hotel will open in 2008) and Singapore. The UK also is on the radar—specifically London. Las Vegas Sands Corp.: The Sands Macau will have an elegant sister, the Venetian Macau, which will have a “connected” 400-room Four Seasons Hotel and 600 Four Seasons-serviced vacation suites. Singapore clearly is a priority. Las Vegas Sands is also on the list of national and international players vying for the UK’s “super casino.” Harrah’s Entertainment: Singapore is the big international bet, but it is not the only game in town. Harrah’s is developing a Caesars-branded casino resort in the master planned Ciudad Real development south of Madrid with El Reino de Don Quijoite de la Mancha, which will include an 850-room luxury hotel, a casino and a 3,000-seat Colosseum theater. Subject to completion of definitive documentation, it plans to operate a Caesars-branded resort hotel and casino as part of the mixed-use Baha Mar project in Nassau, Bahamas, alongside Baha Mar Resorts and Starwood Hotels & Resorts. Harrah’s also may be a pioneer in Central Europe. It recently signed a memorandum of understanding to develop a hotel and casino in Nova Gorica, Slovenia, in a 50-50 joint venture with HIT Group, Slovenia’s premier casino operator. Wynn Resorts: Macau is the major focus, with the first phase well under way and a second phase already announced. Wynn is also planning the development of the Encore resort along side Wynn Las Vegas. Genting International: The current attention of this overseas investment arm of Malaysia’s Genting Group is focused on Singapore. But, it has a much broader vision. Genting International already ranks as a leading integrated resorts specialist with over 20 years of international gaming expertise and global experience in developing, operating and/or marketing internationally acclaimed casinos and integrated resorts in different parts of the world, including Australia, Malaysia, the Americas, the Philippines and the United Kingdom. Formal interest has been expressed in the UK’s super casino. Publishing & Broadcasting Ltd (PBL): This Australian group, in conjunction with Lawrence Ho’s Melco, already has plans for two Macau casinos and are said to be considering a third. PBL hit the headlines with its US$900 million purchase of a Macau subconcession from Wynn Resorts in February. Kerzner International: This is one to watch, particularly if Colony Capital’s bid for the company is successful. Asian newspapers report Kerzner has shown an interest in Macau. Singapore also could be under study. Also on the radar: Accor Casinos; Isle of Capri; Resorts International, Mohegan Sun; Station Casinos and Sun International. |
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