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High Stakes in Macau

Stanley Ho and his no-frills casinos have fended off Sheldon Adelson and Steve Wynn in the world’s biggest gambling market. Now, the billionaire’s ill health is making succession a pressing concern.

On a sultry June morning in Macau, casino billionaire Stanley Ho strode into the Venetian, the gambling palace of American archrival Sheldon Adelson, and reflected on life, death and how not to succeed in the world’s biggest gaming market. For almost half a century, Ho, 87, had reigned as King of Gambling in the 10-square-mile dot on the steamy South China coast. Even when he lost his government-bestowed monopoly in 2004, Ho resisted the glitzy casino re- sorts of Australian billionaire James Packer and U.S. moguls Kirk Kerkorian, Steve Wynn and Adelson.

delson’s vision proved particularly grandiose: He’s spending $12 billion to create a Vegas‐style strip in Macau complete with a replica of his Nevada Venetian and its canals and singing gondoliers. Ho wasn’t impressed. “The success of one market model cannot be migrated to another,” he told an audience at an international gaming expo in Adelson’s 3,000‐room Venetian that June day, switching between perfect English and his mother tongue, Cantonese. “Ignoring Macau’s special characteristics and duplicating a Las Vegas or an Atlantic City would not be a successful strategy.”

Unnoticed by most Westerners in the room, Ho, who’d defied advancing age with daily swims and spins on the ballroom dance floor, uttered an aside in Cantonese that would prove prescient: “How many decades can a man live?” he asked rhetorically.

Two months later, Ho’s role atop the Asian gambling haven that generated $13.8 billion in revenue last year—more than Las Vegas and Atlantic City combined—took a precarious turn. On Aug. 4, Hong Kong’s Adventist Hospital confirmed news‐ paper items that reported Ho had been admitted for treatment. On Aug. 13, Ho’s spokeswoman, Janet Wong, said reports in Chinese papers that he had suffered a stroke were unfounded and he was progressing well. Neither of Ho’s publicly traded companies made a statement to the stock exchange.

In the absence of further details, investors scurried to study the sprawling Ho family tree—including Ho’s 17 children by four different mothers—to determine who might take over. An octogenarian who’d carried the Olympic torch in Macau last year, Ho had never announced a successor. “Fit and healthy as I am, I have no plans to retire,” he wrote in a June e‐mail to Bloomberg News.

Investors who have bet on Ho and his no‐frills gambling halls have had reason to cheer. SJM Hold‐ ings Ltd., Macau’s largest casino operator by reve‐ nue, enjoyed 23 percent to 31 percent of the market this year through July, according to Portuguese news agency Lusa, which publishes monthly fig‐ ures. SJM shares gained 74 percent this year through Aug. 10, compared with a 33 percent rise for Wynn Resorts Ltd. and a 36 percent plunge for MGM Mirage. Las Vegas Sands more than doubled in the same period, after plummeting 99 percent to a low of $1.42 in March from its October 2007 high. Las Vegas Sands and Wynn got more than 60 per‐ cent of their revenue from Macau last year.

Ho’s Shun Tak Holdings Ltd., which runs most of the high‐speed ferries and all of the helicopters that deliver gamblers to Macau from Hong Kong, soared 166 percent this year through Aug. 10. Son Lawrence Ho’s Nasdaq‐listed Melco Crown Enter‐ tainment Ltd., which is 34 percent owned by his Melco International Development Ltd. and 34 per‐ cent by Packer’s Crown Ltd., owns two Macau casi‐ nos, including the $2.1 billion City of Dreams. Melco Crown shares rose 66 percent.

So far, Ho’s strategy—along with SJM’s lack of debt and booming stock price—has dealt him a winning hand in Macau. Adelson, 76, who arrived in the former Portuguese colony in 2004, piloted Las Vegas Sands through a potential brush with bankruptcy in November by raising equity. His plan to re‐create the Vegas experience in the Chinese territory hasn’t fared as well. Adelson has delayed construction on nine hotels and casinos with 21,000 rooms, leaving swaths of the nascent Cotai Strip covered by steel and concrete skeletons. Kerkorian, 92, with his MGM Mirage, has amassed $12.4 billion of debt worldwide, and his company reported a $212.6 million net loss for the second quarter. Adelson and Wynn, 67, have announced plans that will enable them to boost capital by selling shares in their Macau businesses on the Hong Kong stock exchange.

Ho, who says his nickname is a misnomer be‐ cause he doesn’t bet, has managed to outfox the newcomers by offering unadulterated gambling to Chinese content to live on noodles and cigarettes as they head for halls like his $1 billion Grand Lisboa. In Macau, which is about one‐sixth the size of the city of Washington, the 23.5 million visi‐ tors who came last year stayed an average of 1.3 nights compared with 3 nights in Las Vegas, which augments dice rolls with Broadway‐style shows and restaurants. Macau’s gamblers have been known to catch some sleep in massage parlors rather than pay for a hotel. “When the Americans showed up, they thought they would literally re‐ shape Macau like Las Vegas,” says Alex Motola, who helps manage $40 billion, including Las Vegas Sands shares, at Santa Fe, New Mexico–based Thornburg Investment Management Inc. “The Macau audience is less focused on the ancillary things around gambling. Stanley, with his wealth of experience, understood that better.”

Now, the Hos are struggling with a concern that vexes all family‐run businesses, especially those in Asia, says David Webb, a former independent director of the Hong Kong exchange. “In Europe, many family companies have been around much longer,” he says. “There’s an internal meritocracy that en‐ ables them to choose whichever is the best qualified cousin to be chief executive.”

Ho’s current companion, Angela Leong, 48, mother of his five youngest children, is one likely candidate to head SJM, says John Koh, who helps manage $1.1 billion at MEAG Hong Kong Ltd. Leong is already an executive director at SJM.

Three of Ho’s daughters by his second wife hold top positions at Shun Tak and may continue running that company, Koh says. Pansy Ho, 46, an art lover who sits on the international advisory board of Sotheby’s, has been Shun Tak’s managing director for 10 years. Daisy, 44, is deputy managing director and chief financial officer; Maisy, 41, is an executive director. “He’s obviously got very bright children,” says Sean Monaghan, a Singapore‐based investment consultant. “Angela Leong is also very well respected. He’s been a force for so long that his children have become a force as well.”


FTI International Risk’s SteveVickers says.

First, Ho’s women, children and siblings will have to get along. In 2006, Winnie Ho, one of Stanley’s 13 brothers and sisters, filed more than 30 lawsuits against him. The dispute over who owned the company’s family‐held shares delayed SJM’s initial public offering, after Winnie, 86, claimed she was owed $386 million in dividends. Stanley Ho denied the allegations through his lawyers; the $494 million share sale went ahead in July 2008. In an‐ other squabble in 2001, Stanley Ho threatened to disinherit daughter Pansy when she briefly dated the son of a business rival.

Pansy and her stepmother Angela, who are virtu‐ ally the same age, have had their differences. Both are on the board of Sociedade de Turismo e Diversoes de Macao, Ho’s private company that owns 61 percent of SJM. Ho’s third wife, Chan Un Chan, is an STDM shareholder, as are Winnie Ho and an‐ other sister, Louise Mok. “There has been serious family feuding,” says Steve Vickers, Hong Kong– based chief executive officer of FTI International Risk Ltd., who has performed investigations for potential Macau investors. “Stanley Ho was the magma that held the tectonic plates together,” he says. “I don’t think any one of his wives or children will be strong enough to operate in the way he did.”

Ho’s family also has to navigate the challenges confronting all of Macau’s gambling tycoons. Next year, two casinos will open in Singapore—one of them Adelson’s $5.25 billion–plus Marina Bay Sands—to attract high rollers that account for two‐ thirds of Macau’s annual casino revenue. Closer to home, the Chinese government is restricting entry visas to Macau for mainland Chinese.

With a population of 544,000, Macau depends on nonlocal gamblers. After the Portuguese handed the territory back to China in 1999, Beijing pitched in by relaxing visa restrictions for its citizens. The result‐ ing boom pushed up Macau’s gross domestic product 27 percent in 2007 yet also boosted inflation to more than 9 percent. Locals, who were already steaming about the bribe taking and money laundering of Ao Man Long, the territory’s secretary for transportation and public works, took to the streets to protest inflation‐fueled rising prices. Ao, 53, was jailed by a Macau court for 281⁄2 years in April.

Chinese state media also began reporting that officials from the mainland were spending illicit funds or laundering money through Macau casinos. In May, two former managers of a Bank of China Ltd. branch in nearby Kaiping, who’d fled to the U.S., were jailed for more than 20 years by a Las Vegas court for defrauding the bank of $485 million


Companies with stakes held by members of the Ho family—SJM, Melco Crown and MGM Grand—control more than half of the the world’s biggest gaming center.

Free‐spending Chinese cadres are just one blot on Macau’s global ambitions. In 2005, the U.S. Trea‐ sury blacklisted Macau’s Banco Delta Asia SARL for allegedly laundering money for North Korea. The bank, owned by Stanley Au, a former candidate for chief executive of Macau, denied the U.S. claims. Macau’s government took over management before returning the bank to Au in 2007. The U.S. agreed to allow Macau to release the money that year. The Treasury’s ban preventing the bank from accessing the U.S. financial system remains. This year, Kim Jong Nam, eldest son of North Korean dictator Kim Jong Il, was spotted in Macau and interviewed by Japanese television. “Bank Delta Asia was the tip of the iceberg,” Louie says. “Macau is a financial win‐ dow for North Korea.”

While Macau struggles with its international image, the recession is pinching gaming venues worldwide. In the first six months of 2009, Las Ve‐ gas Strip casino revenue fell 15 percent—adding to what had been a record 11 percent fall in 2008. Macau’s gambling revenue dropped 10 percent in the first seven months of this year in part because of the visa restrictions. Atlantic City’s revenue was down 15 percent in that period.

In his office high above one of Hong Kong’s trendiest nightlife districts, Lawrence Ho ponders the impact of the gloomy economy on his City of Dreams. The megacasino, across from Adelson’s Venetian on the now‐stalled Cotai Strip, opened on June 1. That was two months before Nobel Prize– winning economist Paul Krugman predicted that a global recovery would take two years or more. On the plus side, the younger Ho says, it’s good to be up and running when your rivals are hurting. The downside? “If City of Dreams doesn’t open well, it’s the endgame for us,” he says.

One of his U.S. institutional shareholders agrees. “The way City of Dreams performs in the next few months will be critical not just for Melco Crown but also for the Cotai Strip and the long‐term growth of Macau,” says Charles Norton, Dallas‐based portfolio manager of USA Mutuals’ Vice Fund. So far, the signs indicate that Ho and Packer might keep their shirts. After a June when high rollers made too much money, the house won more of the bets placed in July and the first week of August.

Stanley Ho hasn’t had such worries because he didn’t go for the glitz. Ho, who is gutting a department store to refashion it as a $200 million casino called Oceanus, says thrift and local know‐how leave him in better shape than his rivals. “Macau is limited in size and land is expensive, so gaming and leisure development must be more efficient,” he wrote in his e‐mail. “We follow a very conservative financial strategy. No matter how thorny the problem is, I will find a way through.”

Ho was forced to rely on his wits early on. Born into a prosperous Eurasian family in 1921, he fled to Macau from Hong Kong ahead of the invading Japanese army in World War II. Ho started trading everything from kerosene to airplanes up and down the Pearl River Delta, once even fighting off pirates, according to Joe Studwell, author of Asian Godfathers: Money and Power in Hong Kong and Southeast Asia (Profile Books, 2007). He married Clementina Leitao, daughter of a prominent Macanese family. Macau was a commercial backwater with fishing, firecrackers and incense as the only industries. Yet Ho recognized Macau had one big advantage: Gambling was legal. Macau is still the only place in Greater China where people can bet in a casino.

In 1962, the colonial government awarded Ho and his partners a monopoly. Ho lured hard‐core bettors into halls that had fading paint and croupiers whose bow ties wilted in the humidity. His garish, yellow Hotel Lisboa, shaped like a bird cage, offered one concession to refinement: “no spitting” signs in Chinese, Portuguese and English. Gangs led by criminals with nicknames like “Broken Tooth” fought to run casino VIP rooms. Prostitutes and loan sharks patrolled casino entrances and exits.

When China took control of Macau in 1999, the People’s Liberation Army calmed the violence. Ho’s STDM had long dominated the Macau economy, contributing 75 percent of tax revenue each year. Beijing named him to the Chinese People’s Political Consultative Committee, which advises China’s leaders. Angela Leong became a member of the Macau legislature. One thing China wouldn’t do was extend Ho’s gambling monopoly. Instead, Macau’s leaders voted to clean up the industry. The government allowed five new licenses and invited Las Vegas operators who’d already passed muster with U.S. regulators to apply. There was lots of cleaning up to do, says Frank Fahrenkopf, president of the Washington‐based lobbying group American Gaming Association, who visited Macau in the last days of Ho’s monopoly. “Seedy is a polite word for what it was like,” he says.

Adelson was first in. His $260 million Sands, a gold‐colored building with 740 gaming tables, had a big selling point: It was next to the ferry and helicopter terminal and close to the land border with mainland China. Raffle tickets for the chance to drive back to China in a Lamborghini enticed gamblers. Compared with Ho’s tired offerings, the Sands created such novelty value that it paid for it‐ self in the first eight months. Encouraged, Adelson plowed ahead with the Cotai Strip in another part of Macau, starting with the Venetian. He declined to be interviewed for this story.

Wynn wasn’t to be outdone. In 2006, he opened the $300‐a‐night Wynn Macau across from Ho’s Lisboa. Wynn hung Renoirs and Matisses in the lobby and displayed a $10 million Ming vase in the VIP Wynn Club. The same year, Lui Che‐woo, 77, a self‐made Hong Kong billionaire, introduced the StarWorld. Even though it was fashioned in the Stanley Ho pure‐gaming mold, Lui’s casino was more modern. Lui also unveiled plans for his own megaresort on the Cotai Strip. In October 2007, he sold 20 percent of his Galaxy Entertainment Group Ltd. to Permira Advisers LLP, Europe’s biggest buyout firm, for 6.5 billion Hong Kong dollars ($840 million). Even with the cash injection, Lui too has been forced to slow construction.

As his rivals slugged it out, Stanley Ho wasn’t standing still. Convinced that his no‐frills model still worked, he decided on a newer version of the Lisboa next door to his fading flagship. This time, Ho went for a 40‐story high‐rise shaped liked a giant lotus and named it the Grand Lisboa. With 430 rooms and 240 tables but no designer malls, convention center or shows, it cost $1 billion—less than half the price of the $2.4 billion Venetian. Even so, the Ho family hedged its bets. As Stanley laid plans to battle the foreign invaders, his daughter and son were doing deals with them. In 2004, Kerkorian’s MGM Mi‐rage announced it had taken Pansy Ho as its 50 percent partner for the MGM Grand Macau. The curvy gold‐and‐silver waterfront landmark with MGM’s lion roaring out front in July had a 12 percent market share. Pansy Ho might even end up with all of the MGM Grand, says Gabriel Chan, a Hong Kong–based analyst at Credit Suisse Group AG.

In May, MGM Mirage dis‐ closed that investigators from the New Jersey Division of Gaming Enforcement, which oversees an MGM investment

in an Atlantic City casino, had deemed Pansy an unsuitable partner. The investigators recommended MGM sever ties with her, giving no public explanation. MGM Mirage said it disagreed with the recommendation and would defend the partnership. Pansy Ho declined to comment until she could decide how to respond to the recommendation. Should MGM sell its Macau investment, she would be the most logical acquirer, Chan says. Either way, the investments of Pansy and Lawrence, 32, mean that five years after losing its monopoly, the Ho family retains full or partial control of more than half of the world’s biggest gambling market.

In this rarefied arena, pride has become almost as big a motivator as profits. Adelson and Wynn have extended their Las Vegas rivalry to Macau while Adelson and Ho have exchanged barbs. Adel‐ son told Bloomberg News in 2006 that his Macau investments would help him overtake Bill Gates and Warren Buffett in wealth. “Huge egos are at play,” Lawrence Ho says.

Amid the sniping, investors are watching City of Dreams for clues to whether Macau’s Las Vegas–style strip will get back on track. Second only in size to the Venetian, the City of Dreams complex features Hard Rock and Crown hotels, 519 gaming tables, 1,350 slot machines and a 200‐outlet shopping mall. A Hyatt hotel is set to open soon.

At the June unveiling, firecrackers lighted the tropical sky as Lawrence Ho, Packer and their wives led the festivities. Macau residents rushed the tables, ignoring for once the even‐larger shadow of the Venetian across the road. Ho says he needs to attract about half of the 70,000 people a day who pass through the Venetian and get them to spend money at his venue. In July, the two Lawrence Ho–Packer casinos had a 17.8 percent market share compared with 21.6 percent for Adelson.

Stanley Ho wrote in his e‐mail that he, Lawrence and Pansy—with their rival visions for Macau’s gambling future—aren’t teaming up to quash the opposition. “They are my children but also my competitors,” he said. Lawrence and Pansy say they never discuss work when the Hos have their regular dinners. “If you know our family, there are more interesting things to discuss than business,” Lawrence jokes.

Stanley Ho’s health makes any debate about the direction of gambling in Macau more urgent. “Be‐ tween 2004 and 2007, the American casinos made a lot of noise,” says Billy Ng, a Hong Kong–based gaming analyst at JPMorgan Chase & Co. “Who‐ ever was willing to invest won. But now the game has changed. Whoever is leveraged most loses.”

That could change again in an economic recovery, Ng says. “I do not see why the Vegas model won’t work in Macau eventually,” he says. “Chinese are pretty receptive to shopping and entertainment.”

As his children embrace Las Vegas–inspired megaresorts and his own company sticks with the tried‐and‐tested no‐frills Macau style, the King of Gambling may have successfully hedged his bets—as long as his heirs concentrate on fighting the opposition and not each other.

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