Wednesday, August 20, 2008

Gambling Magnate Bets on New Casino

Macau -- With his grip on Asia's gambling capital slipping, Stanley Ho has gone on the offensive.

Last month, the Hong Kong-born gambling magnate announced plans to tear down his flagship Lisboa casino and hotel and build his biggest and most opulent showcase yet, at a cost of HK$12 billion (US$1.54 billion). The 86-year-old also pushed through a long-delayed initial public offering for the company he controls, SJM Holdings Ltd., raising $494 million despite stock-market jitters.

Gambling Magnate Bets on New Casino

SJM shares closed at HK$2.69 Friday, down 13% since trading began.

Since 2002, when this former Portuguese colony allowed others to break into Mr. Ho's longtime monopoly here, Las Vegas heavyweights such as Wynn Resorts Ltd., MGM Mirage and Las Vegas Sands Corp. have taken business from him as they pursue their own Asian growth strategies.

The combined gambling revenue for all Macau's casinos increased 80% to HK$80.6 billion between 2005 and 2007, making it bigger than Atlantic City and the Las Vegas Strip combined. But over the same period, revenue at SJM's operating subsidiary, Sociedade De Jogos de Macau S.A, fell to HK$32.1 billion from HK$33.4 billion, as business dropped off at its older, comparatively cramped casinos.

SJM owns 19 of Macau's 29 casinos and 29% of the market's gambling revenues. Las Vegas Sands, which owns two casinos, is close behind with 21%, according to a Citigroup assessment of data for the first half of this year.

SJM and Mr. Ho, its chairman, "seem to have been treading water," says David Green, who heads the gambling practice at PricewaterhouseCoopers in Macau.

The competitive challenge adds to questions surrounding Asia's largest gambling company by revenue. For 40 years, Mr. Ho was the uncontested casino king of Macau, amassing billions of dollars in profit from the gambling tables he controlled in this specially administered Chinese enclave. An accomplished ballroom dancer, Mr. Ho is worth $9 billion, according to Forbes magazine.

Gambling Magnate Bets on New CasinoGambling magnate Stanley Ho plans to raze the flagship Casino Lisboa and hotel in Macau and replace it with a bigger showcase.

He has yet to name a clear successor, prompting speculation over who might end up on top from among the company's executives and a murky family arrangement believed to include at least three women generally referred to as his wives, as well as 17 children. One faction includes one of Mr. Ho's wives, Angela Leong -- a former dance troupe member who is now a company director and Macau lawmaker -- and SJM's chief executive, Ambrose So, said a person familiar with the matter. An opposing group includes small shareholders and senior managers who want to run SJM as a more transparent, Western-style business, this person says.

SJM denies any power struggle in its upper management. Mr. Ho, Ms. Leong and Mr. So declined to comment.

New Jersey gambling officials are still considering whether to approve a partnership between Mr. Ho's daughter Pansy Ho and MGM Mirage, which opened MGM Grand Macau, a $1.25 billion casino and 600-room hotel, in December. New Jersey officials wouldn't comment further on the decision other than to say they have a pending investigation on the partnership, but cited a 2005 report in which they said they had been in contact with other regulators over what they said were "numerous public allegations" suggesting that Mr. Ho "has ties to Asian organized crime." Mr. Ho has consistently disputed such accusations. Both Ms. Ho and MGM say she is independent of Mr. Ho, and Nevada officials cleared the partnership last year.

Gambling Magnate Bets on New Casino

For all the tumult, Mr. Ho looked secure in Macau, the one place in China where gambling is legal and a magnet, therefore, for the huge market of Chinese gamblers. One of SJM's strengths is its long-standing ties to promoters, so-called junket operators, who bring big-spending, so-called VIP players to Macau from mainland China. VIPs generate 70% of the territory's overall gambling revenue.

Nevertheless, Mr. Ho has lost market share to competitors who have opened grander and more luxurious Vegas-style palaces. SJM is absent so far from Macau's busiest commercial frontier, a strip of reclaimed land called Cotai where others are building enormous casino, hotel and entertainment complexes.

Instead, Mr. Ho is betting on a revitalization of the downtown area, the location of his landmark Lisboa. Mr. Ho and a few other like-minded rivals want to create a cluster of luxurious casinos in downtown Macau that can compete with the integrated resorts rising a 10-minute taxi ride away on Cotai.

SJM introduced its second-biggest casino by floor space, the 88,000-square-foot Ponte 16, in Macau's nearby Inner Harbour neighborhood in February, and a five-star Sofitel hotel managed by France's Accor S.A. opened at the property this month. But a new and improved Lisboa is the most crucial part of Mr. Ho's competitive strategy.

The company opened its all-new Grand Lisboa -- an egg-shaped casino and a hotel tower resembling a golden lotus -- across the street from the old Lisboa in February 2007.

The old Lisboa, which dates to 1970, houses a confusing honeycomb of gambling parlors with names like "Club Wealthy."

Building a successor to this landmark is arguably Mr. Ho's biggest gamble. SJM executives are reviewing proposals by architecture firms and expect to pick a winning design in September. Demolition of the existing building will begin next year, and the next-generation Lisboa will open in 2012, says SJM spokesman John Catt.

"They won't be No. 1 for too long, that's for sure. LVS will overtake them, if not this year then next year or the year after," says Billy Ng, an analyst in Hong Kong at JP Morgan Chase. But as a casino operator with decades of experience, he says, "they will still be relevant."

Write to Bruce Stanley at bruce.stanley@wsj.com



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