In Macao, “a pharaonic exercise in overbuilding” may be a canny strategy for a post-crisis economy. Once the Chinese government drives the money launderers from the Macanese temple and develops adjacent Hengqin Island into a family friendly plethora of resorts and attractions, Macao’s image could be almost wholly reinvented. Or, as Templeton Emerging Markets Group Chairman Mark Mobius says, “Once they scrap the image of being a center for money laundering and other illicit activities, Macao will be transformed into an entertainment center like Las Vegas.”
At the forefront of this is Galaxy Entertainment, which is proceeding with all deliberate speed on additional casino construction as well as Hengqin projects. Wintergreen Fund Advisors manager David Winters adds, “Our sense is that Galaxy will be the big winner when the clouds clear and the rain stops and the fear subsides. They have built a beautiful facility, have a lot of land bank, don’t have any debt, and are ahead of the curve in providing what the government wants.”
Galaxy has tended to be overshadowed by the brand-name casino operators in Macao, in part because it was a complete newcomer to the industry when it received its gaming concession a decade ago. However, Chairman Lui Chee-woo — did you know he’s had an asteroid named in his honor? — and deputy chairman (and son) Francis Lui now regularly vie for the top of market share in Macao. Their flagship Galaxy casino and StarWorld alone outgross the Las Vegas Strip. Of the Macao/Hengqin synergy, the younger Lui says, “It will be like having Las Vegas and Orlando, Florida, right next to each other instead of 2,000 miles apart.” And if that happens, it will achieve much of the economic diversification that Peking wants to see happening in the Pearl River delta.
While allowing that “Trying to understand Beijing is like trying to read tea leaves through frosted glass,” Mosaic Investments President Stephen Monticelli praises the Luis: “The rules in Macao are that Beijing makes the rules, and Galaxy fits exactly in with what Beijing wants Macao to become.” Even the increased reliance on (higher-margin) mass-market players works in Galaxy’s favor and will even more so when a highway to Hong Kong is completed, greatly expediting access for the average consumer.
Galaxy needn’t fear much from the expedited concession-review process that has been initiated at Chinese President Xi Jenping. Corporate-risk consultant Steve Vickers says “It cannot be assumed” that all concessionaires will keep their licenses, with another Chinese company added to a U.S.-dominated mix or a concession being added expressly for a Chinese firm’s benefit. For now — and with visa restrictions being ever more loosened — Macao is the Luis’ oyster and that doesn’t look to change anytime soon.
* Recent discussion in the investment community of a possible sale of The Mirage is making MGM Resorts International hot under the collar. When Howard Stutz started asking MGM about Wall Street speculation the matter, company spokesman Clark Dumont blew a gasket and wrote, “We do not comment on rumor and speculation based on ‘multiple sources’ that are unnamed, and ‘press reports’ that do not exist, to my/our knowledge.” Tell that to Stifel Nicolaus Capital Markets and Wells Fargo Securities. By contrast, mooted buyer Starwood Capital simply declined to comment, which makes me think there’s some fire to go with all the smoke.
* If you’re looking for a good gamble in Las Vegas, then Wynncore is someplace to avoid. Sadly, Steve Wynn is probably right that his tightwad policies will be quickly emulated along the Strip.
* In a Hail Mary pass, Wisconsin Attorney General Brad Schimel is taking his beef with the Ho-Chunk Nation to the Supreme Court. He’s been trying to bar the tribe from offering video poker. The Seventh Circuit Court of Appeals had earlier pointed out the inconvenient truth that Schimel cannot deprive the Ho-Chunk of a game that is legal in the state. But, deaf to reason, Schimel soldiers on.
* Reports of Reno‘s death as a gambling destination have been greatly exaggerated. Washoe County ended FY15 with a 3% gain, the third such gain in as many fiscal years. That was better than the Las Vegas Strip, down 4% in the year.