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Joint Venture Between Australia's Richest Man and the Son of Macau's
 Casino Pioneer Ready to Challenge Nevada's Top Casino Operators
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By Howard Stutz, Las Vegas Review-JournalMcClatchy-Tribune Regional News

Oct. 25, 2007 --MACAU -- Nevada's top casino operators are busy spending billions of dollars to transform this area of Southern China into Asia's version of Las Vegas.

Meanwhile, a joint venture featuring Australia's richest man and the son of Macau's controversial casino pioneer is seeking its own piece of the action.

Melco PBL, a partnership between the gaming of arm of James Packer's Publishing and Broadcasting Ltd. empire and Lawrence Ho, son of Hong Kong billionaire Stanley Ho, opened its first casino in May. The $500 million Crown Macau on Taipa Island has 216 hotel rooms. The public casino is boutique-sized and on five levels. Crown operates several private luxury gaming salons on the property's 37th floor, all with expansive views across the harbor of the casino cluster on the Macau Peninsula.

The company, which became listed a year ago on the Nasdaq National Market, isn't stopping there.

Melco PBL is spending $2.8 billion to build City of Dreams on Macau's Cotai Strip, directly across the road from The Venetian Macau. Under construction and expected to open in 2009, the project has reportedly shunned the idea of an underwater casino but is still planning a 420,000 square-foot gaming space. Multiple hotel products totaling 1,700 rooms are under construction, including a 366-room Hard Rock and a 1,005-room Grand Hyatt.

The company also controls a site on the Macau Peninsula next to the Sands Macau and near the Ferry Terminal. Recently, Melco PBL told investors it would build a project called Trinity, which would have a casino with 215 gaming tables and 500 slot machines, residences and a boutique hotel. The project would open in 2010.

Melco PBL also operates the Mocha Clubs, a chain of Macau slot parlors, and has an agreement to operate the casino at the Macau Studio City, which is being built on the opposite end of the Cotai Strip from City of Dreams.

Clearly, Melco PBL is looking to challenge Las Vegas-based Las Vegas Sands Corp., Wynn Resorts Ltd. and MGM Mirage for Macau supremacy. At the Crown Macau, Melco PBL is focusing on the high-end VIP market, which accounts for roughly 70 percent of Macau's overall gaming revenues.

Gaming consultant Jonathan Galaviz of Las Vegas-based Globalysis said Melco PBL is able to capitalize on its experience both in Australia and Asia.

"Obviously, they have a good understanding of the competitive dynamics in the market," Galaviz said.

In 2006, PBL purchased a gaming subconcession owned by Wynn Resorts for $900 million. PBL, one of Australia's largest media and entertainment groups, is traded on the Australian Stock Exchange and has a market capitalization of $11 billion. PBL went into partnership with Lawrence Ho to capitalize on different gaming opportunities in Macau.

PBL operates the Crown Melbourne, one of Australia's leading hotel-casinos.

Separate from Melco, PBL paid $22.5 million in May to purchase a 37.5 percent stake in a holding company that is planning a hotel-casino project on the site of the now closed Wet 'n Wild theme park on the Strip between the Sahara and the under-construction Fontainebleau. Crown would operate the resort.

Crown Macau CEO Greg Hawkins said Packer, the son of the Australian business magnate Kerry Packer, who died in December 2005, wants to make Crown a global brand. Having Crown casinos in Las Vegas, Macau and Australia would create a worldwide database.

"From the PBL perspective, we see a natural evolution where that top-end customer database grows and customers can move around to different Crown resorts, be it here, Australia or Las Vegas," Hawkins said.

Deutsche Bank gaming analyst Bill Lerner said Melco PBL is a company getting into gaming in a big way, individually and together. The companies lost out in the bidding process for one of two casino sites on the island nation of Singapore.

"They might even look at Japan if something happens there," Lerner said.

Melco PBL's initial effort in Macau caught some interest. Crown Macau was introduced to Southern China television audiences through an infomercial designed as a mini-movie, "Where Great Things Happen," that starred Hong Kong actor Chow Yun-Fat, who became known to American audiences through "Crouching Tiger, Hidden Dragon," and "Pirates of the Caribbean: At World's End."

The Crown Macau is tucked into a small land parcel on Taipa, surrounded by high-rise residential apartments, separated from the casinos on the Peninsula and the developing Cotai Strip. The 38-story building has just 216 hotel rooms, all with view of the Macau Peninsula. The hotel lobby is on the 38th floor.

"I think the physical location where we are, nestled between the hub of activity on the Macau Peninsula and the Cotai Strip, is not a negative in our view," Hawkins said. "Everything we are trying to do is to capture a niche market, which is VIP gaming and the top of the mass market. That's the space we want to exist. We don't want to be everything to everybody. We want to capture a space in this property that appeals to that particular market."

Crown Macau's five-level casino has 220 table games and 500 slot machines, but the real action is on the 37th floor, where several luxury gambling salons are available to high-end customers willing to put up at least $30 million Hong Kong (roughly $3.9 million American) in the casino cage for gambling.

The spacious hotel rooms have three price levels; $569 for a deluxe room, $1,554 for a deluxe suite and $1,664 for a premier suite (all in American dollars). Crown Macau also has upscale Japanese, Chinese and French restaurants. The French restaurant offers an outdoor patio and lounge area with views of the Peninsula.

"Ninety-five percent of the story is premium play and VIP customers," Lerner said. "They may have gotten off to a slow start, but it seems to be ramping up rather quickly."

Lawrence Ho, CEO and co-chairman of Melco PBL, said in August during the company's second-quarter earnings release that going after a high-end customer was the correct move.

"Our decision to position Crown Macau as an up-market VIP property is proving to be a sound one," Ho said in a statement. "Based on the initial operating results at Crown Macau, which has been characterized by increasingly strong VIP play, we have determined to seek opportunities to further enhance our VIP capacity at the property, combined with a commensurate consolidation of our mass market capacity."

Hawkins said the Crown Macau location on Taipa does not lend itself to the mass-market, walk-in customer base experienced at the casinos operated by Stanley Ho along the Peninsula. But that isn't the market Crown is targeting.

However, as the company's City of Dreams project moves forward on the Cotai Strip while the Peninsula development takes shape, Melco PBL will be in position to capture all segments of the Macau market, setting the company aside from the American casino operators.

"As a casino destination, Macau has historically been fundamentally different than what you would experience in other parts of the world," Hawkins said. "It's an incredibly competitive environment, and from that perspective, we have to make sure we fully understand the strategic directions taken. All the concession holders, including the Americans, have to understand the framework and the fabric of what makes Macau tick."

THE SERIES

-- Sunday: Macau is in the cross hairs of a multibillion-dollar building boom largely fueled by Nevada's major gaming companies, which are exporting Las Vegas-style casinos into a market starving for action.

-- Monday: Thanks to the growing casino industry, unemployment is just 3 percent in Macau. But where will all the workers come from to staff the new casinos now under construction?

-- Tuesday: More than 80 percent of the table games in Macau are dedicated to the game of choice for Asian gamblers: baccarat. But the use of slot machines is growing, and Nevada's slot makers are trying to capitalize on the market.

-- Wednesday: Macau's Cotai Strip has more than 20,000 hotel rooms in various stages of construction. By 2010, the Cotai Strip will resemble the heart of the Strip in Las Vegas.

-- Today: American gaming giants Las Vegas Sands Corp., Wynn Resorts Ltd. and MGM Mirage are establishing footholds in Macau. But an Australian company, in partnership with the son of Macau's casino pioneer, is ready to challenge the experienced casino operators.

ON THE WEB

For a photo slide show and video of Macau from Review-Journal reporter Howard Stutz and director of photography Jeff Scheid:

--http://www.reviewjournal.com/webextras/macau

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To see more of the Las Vegas Review-Journal, or to subscribe to the newspaper, go to http://www.lvrj.com.

Copyright (c) 2007, Las Vegas Review-Journal

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