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Stanley Ho's high-stakes

At 81, Asian casino billionaire Stanley Ho makes few conces- sions to age. The father of 17 children—the youngest of them aged six—says he swims every day, plays tennis at least twice a week and enjoys ballroom dancing. And no, he adds, he hasn’t thought of retiring from the helm of Sociedade de Turismo e Di- versões de Macau SARL (STDM), one of the world’s most profitable casino companies, based in the autonomous South China enclave of Macau. “I feel that I am fit enough to carry on,” he says.

Ho is going to need that stamina. After monopolizing gam- bling in the historic former Portuguese colony—65 kilometers (40 miles) across the Pearl River estuary from Hong Kong—for the past 41 years, he’s about to be challenged for the first time on his home turf. When Macau reverted to Chinese rule in 1999, the local government opted not to renew Ho’s monopoly once it expired on Dec. 31, 2001.

The Macau government is permitting two of Las Vegas’s most- powerful casino billionaires—Steve Wynn, CEO of Nasdaq Stock Market–listed Wynn Resorts Ltd., and Sheldon Adelson, chair- man of closely held Las Vegas Sands Inc. and its subsidiary, Venetian Casino Resort LLC—to open their own casinos in Macau. The first U.S.-owned casino, Adelson’s Macau Sands, will open by March, according to the Macau Gaming Control Board. “Stanley has had a very successful operation,” says Marc Falcone, New York–based managing director and gambling stock analyst at Deutsche Bank Securities Inc., who visited Macau last year. “But he’s going to face competitive challenges he has never faced before.”

Wynn and Adelson have pledged to invest a total of $1.6 billion in Macau, which has a population of just 440,000 but last year attracted a record 12 million visitors. It’s the only place where the 1.3 billion people of greater China—including Taiwan and Hong Kong—can legally gamble in casinos.

Ho has profited handsomely from the gambling trade. Last year, his 11 Macau casinos earned $230 million on revenue of $2.7 billion. That 8.5 percent profit ratio is better than that of any of the top three U.S. gambling companies: Park Place Entertainment Corp. lost $824 million on sales of $4.6 billion; Harrah’s Entertainment Inc. earned $235 million on sales of $4.1 billion, for a 5.7 percent ratio; and MGM Mirage earned $292 million on sales of $4 billion, for a 7.3 per- cent ratio. STDM is also more profitable than Société des Bains de Mer et du Cercle des Étrangers à Monaco, which owns the Casino de Monte Carlo and last year made a profit of $21 million on sales of $298 million. “Of Macau, Las Vegas and Monte Carlo, Macau arguably has the most potential because of the population it can draw on,” says Ron Kramer, New York–based president of Wynn Resorts, which plans to build its casino directly opposite Ho’s flagship Casino Lisboa.

The Macau billionaire faces competition from U.S. casino operators.

Deutsche Bank’s Falcone wrote in a December 2002 report that each of the 340 tables in Ho’s Macau casinos returns to the house 10 times as much money on average as those of Las Vegas casinos. “Macau represents one of the most-exciting potential opportunities in the gaming industry,” he says. “The demographics are extraordinary. It’s a substantially underpenetrated market.”

Last year, Macau’s economy grew 9.6 percent—nearly four times the rate of Hong Kong’s. That was due to a 20 percent growth in visitor arrivals, according to the Macau government, 90 percent of which were gamblers from China, Hong Kong and Taiwan. Gross domestic product per capita is $15,500—higher than former colonial power Portugal’s $14,100. The economy’s ebullience is one reason Ho and his daughter Pansy, 41, his fifth child and a codirector of his two main companies, STDM and Shun Tak Holdings Ltd., are confident they can take on what Pansy describes as “the onslaught of the newcomers.”

“Why should I feel worried?” Ho asks. Ho, who declined to be interviewed in person, responded to written questions via e-mail. He says that as a young man, he had to fight off Chinese triad gangsters and pirates who tried to cash in on his businesses. “All my life I have loved challenges and never accept no for an answer,” he says.

Over the next two years, Ho is investing $600 million to build three theme parks and two new casinos and to convert part of a downtown office and residential tower into a new five-star hotel. To further strengthen his hand, Ho is talking to MGM Mirage—which is controlled by another octogenarian billionaire, Kirk Kerkorian, 86—about setting up a joint venture casino adjoining Ho’s Lisboa, according to Manuel Joaquim das Neves, director of the Macau Gaming Control Board. “Negotiations with MGM are progress- ing positively,” says Ho, who adds that he expected to reach an agreement by the end of the summer. Alan Feldman, spokesman for MGM Mi- rage, which owns the Mirage, Bellagio and Treasure Island casinos in Las Vegas, says talks have taken place with members of Ho’s team and that no deal has been finalized.

Until now, gambling in Macau has hardly been glamorous. At Ho’s 30-year-old Lisboa casino—a canary-colored pile shaped like a bird cage in the heart of downtown Macau—casually dressed mainland and Hong Kong Chinese pack noisily into gray, smoke-filled basement rooms with faded carpets and peeling walls. Croupiers wear drooping bow ties and off-white shirts.

Signs in Chinese, Portuguese and English tell gamblers: “No spitting.” Prostitutes and loan sharks operate at the casino, says Steve Vickers, excommander of the Hong Kong Police Criminal Investigation Bureau, and now president and chief executive of International Risk, a corporate risk management company. “It’s a sad situation seeing people in the Lisboa coffee shop outside the casino being squeezed for every penny they have left,” he says. Against this backdrop, triads have fought sporadic gang wars over control of the loan-sharking operations—most recently in 1999, when 40 people died in shootouts. Since China assumed control, the violence has declined dramatically. Last year, there were only three murders.

Last year, Ho’s gaming and tourism operations account- ed for 50–60 percent of Macau’s $6 billion GDP, says Fung Kwan, an economist at the University of Macau. The gam- bling taxes Ho paid made up 69 percent of the Macau government’s $1.4 billion in tax revenues, according to the

Macau Monetary Authority.

Spokesmen for the American casino operators say they hope to turn tiny Macau—26 square kilometers (10 square miles) of densely stacked tenements, cobbled streets and centuries-old Portuguese forts and churches—into the Las Vegas of Asia. Their casinos will not only offer U.S.-style gambling; they’ll also have entertainment and convention facilities, their spokesmen say.

Wynn, who was chairman of Mirage Resorts Inc. from 1972 to 2000, has focused on offering nongambling attractions to lure people to Las Vegas, such as erupting volcanoes, glamorous entertainment extravaganzas, luxury retail stores and fine dining. Wynn, 61, sold Mirage Re- sorts to MGM Grand Inc. in 2000. He’s now developing the Wynn Las Vegas— formerly known as Le Rêve—which is due to open in April 2005.

Adelson has concentrated on supple- menting his casino business with entertainment and conventions. In 1979, he developed the Comdex computer show, now billed as the world’s largest trade show. He sold it in 1995 to Japan’s Soft- bank Corp. and then built the $1.2 billion, 3,000-room Venetian beside his Sands Expo and Convention Center.

Adelson’s Venetian in Macau will, like its counterpart in Las Vegas, feature a Grand Canal–themed shopping mall complete with singing gondoliers, a 2,000-seat theater and, possibly, a museum, says Las Vegas Sands President William Weidner. “Macau could become the business travel and tourist destination of choice for an increasingly affluent Asia,” Weidner says.

Investors are betting that Ho can withstand this Las Vegas invasion and continue to prosper. The share price of Ho’s main publicly traded company, Hong Kong–list- ed Shun Tak, jumped 141 percent to 2.15 Hong Kong dollars on July 11 from HK$0.88 on Dec. 31, 2001, when Ho’s monopoly concession expired and was not renewed by the Macau government. During the same period, Hong Kong’s benchmark Hang Seng Index fell 15 percent. Shun Tak owns 11.5 percent of Ho’s closely held STDM, which, in turn, owns his casinos and shares their profits with Ho and a handful of longtime partners.

Eric Yuen, a Hong Kong–based analyst at Dao Heng Securities Ltd. who has a hold rating on Shun Tak stock, says investors figure that Ho’s company is a good investment because it has so many ways of benefiting from the gambling business— in addition to casinos. Gamblers in Macau will be hard-pressed not to spend some money in one of Ho’s hotels, ships, aircraft and shops or to pay fees at his automated teller machines.

Shun Tak owns the fleet of high-speed ferries that operate 24 hours a day, taking gamblers on the one-hour, $16 trip between Hong Kong and Macau. It operates the only helicopter service on the same route and has stakes in two of Macau’s best hotels, the Mandarin Oriental and the Westin Resort. STDM owns a stake in Air Macau, a regional airline, as well as 100 percent of the second-biggest local bank, Seng Heng Bank Ltd., and New Yaohan, the territory’s biggest department store. Between them, STDM and Shun Tak own 80 percent of Macau’s first-class hotel rooms, Ho says.

“We believe Shun Tak offers investors a unique opportunity to effectively invest alongside the family with the most connections in Macau,” Anil Daswani, Hong Kong–based head of conglomerate research at Citigroup Global Markets Asia Ltd., said in a June 5 report. Daswani rates Shun Tak outperform.

Bloomberg Markets September 2003

Investors interested in Macau’s gambling revenues may have more options soon. In March, the Hong Kong Stock Exchange—the bourse nearest to Macau—lifted a ban on companies whose main business is gambling, provided the companies don’t conduct gambling in Hong Kong. (Shun Tak gets only a minority of its revenue from gam- bling, so it hadn’t been previously banned.)

Wynn Resorts President Kramer says his company is still working on the financing of its Macau casino and is looking into a possible Hong Kong listing. “We will continue to monitor the Hong Kong markets and review them over the next year,” he says. Wynn Re- sorts raised $450 million last October by selling shares in an initial public offering that was underwritten by Bank of America Corp., Bear Stearns Cos. and Deutsche Bank AG. The shares, which were sold at $13, rose 34.5 percent to close at $17.49 on July 11. On July 7, Wynn Resorts sold $200 million of 12-year convertible notes—which carry a 6 percent coupon and a $23 conversion price—partly to fund its Macau casino.

Ho says he’s considering whether to list STDM, which opened its first casino in Macau in 1962 and which has held the monopoly ever since.

Ho, who was born to a wealthy family in Hong Kong, moved to neutral Macau at the age of 19 during World War II, as the Japanese army advanced on Hong Kong. After the war, he set up a trading business between Hong Kong and Macau, where the main industries were fishing, firecrackers and incense manufacturing. “It was a village,” says das Neves of the Gaming Control Board.

Ho married Clementina Leitão, the daughter of a wealthy Macanese businessman. His trading business prospered, he says. In 1961, when the Portuguese colonial government asked for tenders for the casino monopoly, Ho and some partners formed STDM and made the successful bid.

“Dr. Ho’s contribution to Macau has been great,” says Hoi Sai Iun, president of the board of directors of the Macau Chamber of Commerce. “But in return, Macau’s contribution to Dr. Ho’s companies has been reciprocal.” (Ho holds honorary doctorates in social sciences from the Universities of Hong Kong and Macau.)

Ho’s revenue from gambling enabled him to move be- yond Macau. He built residential and office buildings in Hong Kong, and in 1984, he won a license to operate a casino in Portugal. Today, he’s the controlling shareholder of Estoril-Sol SA—which owns the Estoril and Póvoa casinos, the two largest of Portugal’s eight casinos—with a 60 percent market share, according to Ho. Last year, Estoril-Sol made a profit of $11.5 million on sales of $230 million. Ho and a part- ner, Jorge Ferro Ribeiro, also own about 70 percent of So- ciedade Gestora da Alta de Lisboa SA, a consortium that’s spending $1.3 billion on a 300-hectare (741-acre) residential and commercial real estate development in Lisbon.

Ho says he’s prepared to go to the most unlikely places to open casinos if he can get a license and make a profit. In 2000, he spent $30 million to open the Casino Pyongyang, which is located across the street from Kim Jong-Il’s Workers Party headquarters in North Korea’s capital. On the Caribbean is- land of Antigua, Ho has set up, an Internet casino at which bikini-clad croupiers imported from China take bets from around the world via a movie camera and cy- berspace. (Many Chinese believe eight is a lucky number.)

Ho, who divides his time between mansions in Hong Kong and Macau, still runs his companies like family busi- nesses, even those that are publicly traded. At Shun Tak, Ho is executive chairman, and three of his daughters—by his second wife, Lucina—Pansy, Daisy, 38, and Maisy, 35, all sit on the 12-member board. So does his sister, Louise Mok, 74. U.S.-educated Pansy is managing director, Daisy is deputy managing director and chief financial officer and Maisy is an executive director. Their brother Lawrence, 27, is managing director of another Ho company, Melco International Development Ltd., a Hong Kong–listed firm that has interests from financial services to floating restaurants. Ho’s companion, Angela Leong, 41, is on the board of Value Convergence Holdings Ltd., a publicly traded subsidiary of Melco, and is a director of the Macau Jockey Club, the horse-racing monop- oly that’s owned by STDM.

Ho says he owns 30 percent of STDM and has a 45 per- cent interest in Shun Tak. He declines to disclose his person- al fortune. Jonas Kan, a Hong Kong–based analyst at Daiwa Institute of Research Ltd., estimates that STDM has a book value of $3.5 billion, which by itself would put Ho’s net worth at more than $1 billion.

Under the agreement between China and Portugal that returned Macau to Chinese rule, the territory is guaranteed 50 years of autonomy as a special administrative region of China. The new Beijing-anointed government headed by Chief Executive Edmund Ho, who’s no relation to Stanley, has said that the government’s aim is to develop a competitive and modern casino industry that would consolidate Macau’s position as the regional center of casino gaming and give the territory “an enhanced reputation for fairness, honesty and freedom from criminal influence.” He’s said he also en- visages broadening Macau’s attractions from pure gambling to conventions and family entertainment.

Edmund Ho sent a team last year to study U.S. gambling regulations, offered three licenses and called for tenders. In February 2002, the government chose Wynn Resorts, Las Vegas Sands and Ho’s STDM, which had tendered through an 80 percent–owned subsidiary, Sociedade de Jogos de Macau. The Macau Sands casino, the first of two Adelson plans to build in the territory, is under construction next door to Ho’s Mandarin Oriental hotel, casino and spa complex. The Macau Sands is due to open early next year as a five-story casino with entertainment and restaurants, says das Neves.

Less than a kilometer away, a site across the road from Ho’s Casino Lisboa has been cleared to accommodate the Wynn Macau. Construction work was slated to begin during the summer, and the casino will open after 18 months, Kramer says, with hotel and entertainment facilities opening a year or two later. Adelson’s second casino, the Venetian Macau, will open in 2006 on reclaimed land near Macau’s airport. The Venetian will have more than 1 million square feet of gambling, hotel, convention and retail space and will include a modern-art museum, Weidner says.

Ho is not sitting idly by. STDM’s new casinos—the chan- delier-laden Crystal Palace and Egyptian-themed Pharaoh’s Palace—opened this year and are aiming for a more-upmarket clientele. “Pharaoh’s is up to Las Vegas standard,” says João Manuel Costa Antunes, Macau’s Portuguese-born di- rector of tourism.

Not everyone is sure this is what Asian gamblers want. Stanley Au, 62, chairman of Delta Asia Financial Group, Macau’s biggest locally owned bank, says the Chinese gamblers who patronize Macau’s casinos prefer Stanley Ho’s rough-and-ready casinos and may not find Las Vegas–style resorts as attractive as the newcomers think.

Macau gamblers prefer table games to slot machines. In Las Vegas, 50 percent of casino profits come from slot machines, says Bill Thompson, a professor of public administration at the University of Nevada, Las Vegas, and a former consultant to casino companies. In Macau, the figure is only 5 percent, says Thompson. “I pity the two newcomers,” Au says. “They are going to have an uphill battle. Gambling cultures can be changed, but it will take time. Here it’s hard-core gambling. Do gamblers want to go see a museum? I don’t think so.”

Ho cites his success in Portugal as evidence that he can compete in a nonmonopoly situation and give customers what they want. “STDM is indeed well experienced in operating in a competitive market,” he says. Will that experience translate into more success for Ho in the newly competitive Macau? So far, investors are betting that it can.


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