Ten years after, the Macau they wished for
By Muhammad Cohen

SINGAPORE - At the Gaming Executive Summit Asia on the eve of the debut of Singapore's casino resorts, much of the talk centered on avoiding the mistakes of Macau. But as it closes a difficult year at a record-breaking casino revenue pace and installs a new chief executive selected by consensus, Macau can let others fret over its mistakes.

Nevertheless, this weekend, as Macau welcomes Beijing's leaders to celebrate the 10th anniversary of its change from Portuguese colony to Special Administrative Region (SAR) of China, both sides may well remember the old saw: Be careful what you wish for.

A year ago, Macau was struggling. From early 2008, China began tightening visa rules, cutting the flow of hardcore gamblers to the territory. For the first time since gaming liberalization became a reality in 2004, casino revenue fell year-on-year over the final three quarters of 2008.

The global financial crisis steepened the decline. Wall Street's meltdown hit Hong Kong, a global financial center that accounts for about of a third of Macau's visitors - the mainland contributes just over half. The crisis also pushed one Macau casino operator to the brink of bankruptcy.

Financial life support
Las Vegas Sands (LVS) bet the company on transforming the Cotai landfill into Asia's version of the Las Vegas Strip and nearly went bust. Auditors issued a "going concern" warning, the corporate equivalent of putting a medical patient on the critical list, requiring intensive care. The company's heavy leverage worked as long as casino revenue kept growing. However, visa restrictions hit its Macau properties, while Las Vegas revenue suffered first from high gasoline prices that cut travel, the recession then slashed consumer and business spending and cut convention business.

On financial life support, LVS tried to sell its vast Venice-themed, one million square foot (93,000 square meters) Grand Canal Shoppes mall at the Venetian Macao, but found no takers. As part of its struggle to remain solvent, the company suspended work on its US$12 billion Cotai construction plans, leaving Venetian Macao and its Four Seasons appendage out there alone, far from Macau's main gaming hub.

A story around town said Macau's six casino licensees met at the end of 2008, lamented their woes, and looked at the year's record gaming revenues of 108.8 billion Macau patacas (MOP; $13.6 billion). According to the story, one mogul proposed the toast, "Here's to bad years." Regardless of that story and the sentiment behind it, 2008 had proven that Macau was no longer a sure bet.

Still dreaming
Fast-forward a year and, despite a dismal start to 2009, the outlook is significantly brighter. In June, Melco Crown opened the $2.1 billion City of Dreams (COD) complex. The resort, located across the street from the Venetian, constituted a vote of confidence in Macau at a dark moment and a major step toward critical mass on Cotai. In its first 30 days, the integrated resort drew more than 1.2 million visitors and netted more than $1 billion in gaming revenue. In September, COD opened its third hotel, a Grand Hyatt alongside a Hard Rock and Crown outlet, bringing the resort's room total to 1,400. Next year, COD will add an underwater spectacle created by Franco Dragone, once the creative godfather of Cirque du Soleil.

After the COD opening, Macau's gaming revenue began to recover. Third quarter revenue set a new record at MOP31.8 billion ($3.97 billion), and the trend continues. October set a new single-month record of MOP12.6 billion, and preliminary figures for November show revenue again topped MOP12 billion, positioning 2009 for another gaming revenue record.

As casino revenue grew, so did optimism about the gaming industry. Wynn Resorts listed its Macau subsidiary on the Hong Kong Stock Exchange in October. It sold a 25% stake in its Macau business for HK$12.6 billion ($1.63 billion), pricing the offering at the top of its range. The company will open the Wynn Encore resort adjacent to its current downtown property next year.
Barely a year after teetering on the brink of bankruptcy, LVS also went to the market. The company floated 30% of its Macau business in Hong Kong, raising $2.5 billion. LVS says it will use a portion of the proceeds to restart construction in Cotai. Both share sales were lauded as moves toward greater Chinese participation in the city's gaming sector, as well as signals of investor faith in the future of Macau.

As new Chief Executive Fernando Chui Sai-on is sworn in on Sunday amid celebrations of the tenth anniversary of Macau's return to Chinese sovereignty, Chui and the Macau power elite that chose him can be pleased that the year, and indeed the decade, has turned out so well.

Motherland's apron strings
When the Portuguese vacated Macau in 1999, leaving behind a centuries-long legacy of misrule, Macau and Beijing had no reason to expect to find a prosperous, successful city 10 years later, let alone one that has attracted billions of dollars in investment. But, for all the good news, 2009 has cemented the reality that Macau is utterly dependent on Beijing for its prosperity.

The rebound in gaming revenue is courtesy of Beijing easing visa restrictions. In recent months, the government has reportedly loosened the rules, tightened and loosened them again; "reportedly" because it's all been done without any public announcements. Mainland visitors have money to spend in the casinos largely thanks to China's massive stimulus program.

The mainland's easy money lending policies to combat the global recession put froth in equity markets. That plus improved gaming revenue enabled the Wynn and LVS stock offerings to succeed. None of it would have happened without Beijing's help.

Macau's dependency on the mainland has a dark side, too. It made grassroots Macau fiercely loyal to Beijing and local power brokers terrified of offending it. But that doesn't necessarily produce the results Beijing wants.

United front
When Macau chose its new chief executive in June, Chui was the sole candidate nominated by the 300 member election committee that votes for the territory's leader. After the $100 million Ao Man Long corruption scandal broke, street protests that turned ugly in 2007 - with police accidentally wounding a passerby - and with the economic crisis threatening jobs and highlighting Macau's growing gap between haves and have-nots, the elite felt it was important to show a solid front. Even elections for the electors were staged by consensus, with precisely 300 candidates seeking 300 places.

A member of outgoing Chief Executive Edmund Ho's cabinet, Chui hails from one of Macau's most connected families, with a brother in the legislature, and generations of loyal service to Beijing. China's leaders may well have preferred a chief executive selection process that at least made a show of addressing underlying causes of discontent. Instead, they got no debate, no outlet for concerns, and a new leader who represents the worst of the past decade, even more enmeshed in the clubby, corrupt establishment and more deeply in the pocket of business interests than the more personable Ho.

Macau's corruption pales in comparison with the mainland but Macau's gambling helps fuel and enable China's problem. Casinos provide a convenient channel for money laundering and evading currency restrictions for mainlanders. Also troubling for Beijing is that about half of Macau's revenues winnings go into American corporate pockets.

When liberalization began, Macau needed Las Vegas' expertise. "Bringing American developers into Macau was about know-how and financing," Morgan Parker, the president of US-based mall developer Taubman's Asia division until October, explained. "Now, the American companies are distressed borrowers, and the mystery of building a big resort has been demystified."

The Americans have thus far largely failed to expand the scope of Macau's tourism market but Las Vegas expertise helped turn the city into a far more efficient leech sucking money out of China. Over the next decade, Macau and Beijing may well work together to get rid of the Americans. But even if Macau becomes 100% Chinese owned, it will still be a leech. As Macau celebrates 10 years of Chinese sovereignty, there's no alternative in sight.

Special correspondent for Macau Business magazine and former broadcast news producer Muhammad Cohen told Americaís story to the world as a US diplomat and is author of Hong Kong On Air, a novel set during the 1997 handover about television news, love, betrayal, financial crisis, and cheap lingerie. Follow Muhammad Cohenís blog for more on the media and Asia, his adopted home.