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SCMP Reporter

The mammoth Venetian complex aims to attract more than day-trippers

You could be forgiven for thinking that casinos in Macau  are already over the top. The tiny enclave last year overtook the Las Vegas Strip as the world's largest gaming market, and casino revenues were up  47.5 per cent in the first half of this year.

But consider for a moment the Venetian, or 'the casino that ate Macau', as Las Vegas Sands Corp president and chief operating officer William Weidner jokingly refers to it.

At US$2.4 billion, a sum greater than Macau's public works spending for the past five years combined, it is twice as expensive as anything that has ever been built in the territory. Around 15,000 people,  5 per cent of the labour force, will show up for work each day.

The mammoth complex opens in three weeks with a 1.2 million-square-foot convention centre - larger than either the Hong Kong Convention and Exhibition Centre or AsiaWorld Expo - representing five times more convention space than exists in Macau today.

A one million-sq-ft baroque-themed shopping plaza with 350 stores will be the size of Festival Walk and feature three flowing indoor canals offering gondola rides, while actors in classical robes will belt-out opera arias at a scale reproduction of St Mark's Square.

Add a 15,000-seat stadium to the mix.

The casino floor, about the size of three soccer pitches, will be the world's largest by number of gaming tables with 850 units and will include 4,100 slot machines.

And a 3,000-room all-suite hotel tower will deliver, overnight, a 65 per cent increase to Macau's supply of five-star accommodation.

The challenge, of course, will be filling all of this with people.

'Most of the Macau market is day-trippers right now, people who come in and gamble and go home. They don't stay and if they do stay they don't generally stay in a hotel,' said Morgan Stanley analyst Rob Hart.

'Whether or not the Venetian brings oversupply will depend on whether they are penetrating a new market or just cannibalising the old market.'

To a large extent Las Vegas Sands helped create the existing market by opening the Sands Macao in May 2004, the first foreign casino to challenge Stanley Ho Hung-sun's dominance after his 40-year gaming monopoly was ended.

Since it opened three years ago at a cost of US$265 million, the Sands has booked about US$1 billion in operating profit on more than US$3 billion in revenue. A short jaunt away from the existing ferry pier, it averages around 25,000 visitors per day,  35 per cent of all arrivals to Macau.

'The Sands is what it was built for. There are always going to be those who come here primarily to game,' said Mr Weidner.

'But the Venetian and the rest of the Cotai Strip is really positioned against the longer-term-stay market.'

Luring that market to Macau will be a challenge. The average visitor spends only 1.2 days in town. Only 20 per cent of all arrivals stay in a hotel room and of those that do only 20 per cent shell out for five-star accommodation.

And bringing thousands of people to the Venetian, which sits on a stretch of reclaimed land between the islands of Coloane and Taipa that is otherwise a massive construction site, will require unprecedented logistical feats.

Mr Weidner expressed frustration with delays to  improvements to Macau's transport network.

'I'll have to say that the government here has been slow to develop that infrastructure, so we're just going to have to do it ourselves - build it ourselves, develop the transportation systems ourselves, and drag everyone else along,' he said.

So far, the company has purchased 85 tour buses,  10 high-speed ferries and two Boeing 737 aircraft to bring customers to the Venetian, the first of the 12 casino hotels it plans to open on the Cotai Strip at a cost of more than US$11 billion.

Management expects the retail, restaurants and  comparatively low introductory room  rates from HK$1,088 per night will lure sufficient traffic on weekends when many hotels in town currently double their rates.

But from Monday to Friday, the key to filling those rooms will be tapping the booming regional market for conventions and trade shows.

'On the supply side their exhibition space is very well planned and will be cost competitive against Hong Kong,' said Grant Chum, an analyst at UBS.

'But even trade shows aren't a slam dunk for Venetian because it's not like mainland shows can just pick up and migrate to Macau and the Hong Kong Trade Development Council shows are obliged to stay in Hong Kong.

'But as China moves up the value chain, the trajectory of the intellectual-content business meetings will increase dramatically. Both the trade show and convention business offer huge opportunities in mainland China and particularly in the Pearl River Delta.'

And then there is the casino. At the Sands, with 51 hotel suites, high-rollers accounted for 60 per cent of net winnings in the second quarter. It is a high volume but low margin business: hurt by an insufficient number of hotel rooms, the Sands has been forced to pay higher commission rates to the VIP gaming junkets that bring in players, lend them money and collect their gambling debts.

The mathematics of VIP gaming in Macau are straightforward. For each HK$100 in gambling chips purchased by high-rollers at the Sands during the second quarter, the house won a better-than-average HK$3.44. From those winnings 40 per cent or HK$1.38 was paid to the government as gaming tax and about  33 per cent or HK$1.13 was paid to junkets as commission. The casino kept only 27 per cent, HK 93 cents.

At the Venetian the company hopes to shift the balance of the VIP equation back in favour of the house. The high-stakes area has 38 lavish private gaming rooms and more than 134 gaming tables. Management says it has a waiting list of junket agents vying to control traffic to the tables.

Mr Weidner said  the Sands extends direct credit to less then 10 per cent of high rollers, with the remaining lending carried out by junket representatives or reps. That percentage is expected to rise as the Venetian, offering lower junket commissions, will seek to cut out  middlemen entirely by lending directly to more customers.

'The day of the rep controlling the business changes when you have a product like this, when the customer starts saying: 'I want to go there.' A lot of the leverage changes,' said Mr Weidner.

'If you've got facilities like this, you are going to be talking turkey to the reps and saying: 'Look fellas, there's got to be a fair trade here. We've spent billions creating experiences and we've got to get a return from those billions.'

'If the reps want to play ball, fine. And if they don't want to play ball, there's a line of others behind them that will play.'



Feeding the casino that ate Macau