Asian operators give Vegas casino titans run for their money

MACAU/LAS VEGAS (April 17): Billionaire Sheldon Adelson, who became one of the world's richest men by creating a casino empire in Las Vegas and Macau, is doubling down on his bets in Asia, the hottest gambling market on the planet where his Singapore operation made $1 billion the first year it was opened.

The 78-year chairman of Las Vegas Sands, the world's biggest gambling company by market capitalization, looked supremely confident when he opened his new $4.4 billion casino last week in the former Portuguese colony of Macau, the world's largest gambling destination where bettors spent $33.5 billion last year compared to Las Vegas, which took in $6 billion.

Speaking at the opening of his Sands Cotai Central on April 11, Adelson outlined plans to spend billions more developing casinos in Vietnam, Korea and Japan, in addition to the $35 billion he plans to spend on a Spanish casino-resort complex.

Rivals Wynn Resorts and MGM Resorts are also staking their own claims throughout Asia for growth.

It's not all an American story however. Asian players like Malaysia's Genting, Hong Kong-listed Galaxy Entertainment and Melco Crown, are aggressively raising the ante as they expand on their home turf.

RISE OF THE ASIAN TITAN

The race to conquer the Asian casino world is already heating up in the Philippines where Asian brokerage CLSA forecasts gambling revenue to grow from US$1.3 billion in 2011 to US$3 billion in 2015 once three new resorts are completed.

Genting, controlled by Malaysian businessman Lim Kok Thay, controls and is developing casinos in the Philippines through its Genting Hong Kong unit, while parent Genting Group is developing a casino in Vietnam with local asset management group VinaCapital, according to Vietnamese media.

Galaxy and Melco, which both sit on prime real estate on Macau's coveted casino strip, are also interested in investing in the Philippines, Cristino Naguiat, chairman of the state-owned Philippine Amusement & Gaming Corp, told Reuters in February.

The firms currently developing or operating casinos in the Philippines include Belle Corp BEL.PM, Bloomberry Resorts, Universal Entertainment (6425.OS) and Travellers, a joint venture between Genting and Alliance Global AGI.PM.

“Countries like Singapore have provided a very good template for emerging jurisdictions looking to liberalize gaming entertainment,” said Steven Tight, president of international development for U.S. giant Caesars Entertainment, which owns Caesars Palace in Las Vegas.

Caesars does not operate a casino in Macau, but is itself expanding in Asia and is building a luxury resort in China's southern tourist destination, Hainan, where gambling is illegal.

Genting Singapore, armed with a hefty cash reserve of some S$3.9 billion ($3.1 billion) as of March 2012, has in the past two months raised around S$2.3 billion in debt, suggesting it is likely to push ahead with expansion plans and global acquisitions in the near term, analysts said.

LOSS OF FACE

The Asian expansion by U.S. operators has not been without controversy. Government officials in several potential Asian gambling jurisdictions considering which operators will be awarded a license are growing weary of the negative headline risk that Las Vegas operators bring with them, executives said.

Sands and Wynn are both embroiled in legal battles in the United States and Macau. Sands is fighting lawsuits filed against it by its former Macau chief executive and a former Taiwanese business partner while Wynn is being investigated for a HK$1 billion ($130 million) donation to the University of Macau.

Alleged bribes for Philippine regulators became the centerpiece of litigation in the United States between Wynn and its largest shareholder, Kazuo Okada. The case is now before a federal court in Nevada.

Okada, one of Japan's richest men whose Universal Entertainment manufactures pachinko machines, is building a casino resort in the Philippines and is reported to be investing in South Korea.

“Since entering Macau, all three Las Vegas-based operators have had international headlines that have caused humiliation and loss of face' for their Chinese partners and government officials,” said Matthew Ossolinski, chairman of Ossolinski Holdings, a global emerging markets fund that invests in casinos and other gambling-related companies. “Some government officials in Asia are now wondering: is it worth it?”

LEAVING LAS VEGAS?

Meanwhile, U.S. operators committed to a future in Asia could make a bold move to leave Las Vegas by delisting and selling their U.S. properties, which could free them from various U.S. legal constraints.

“It would be creating a sort of international hybrid gaming company: an established, world-class operator without the American legal baggage,” said fund manager Ossolinski, who predicts the next five years will determine who dominates Asian gambling for the next 20 years.

U.S. operators are also on guard against Asian companies muscling in on their territory in the United States. Genting has been buying waterfront real estate in downtown Miami over the past year, including buying the Miami Herald building, in the hopes the state will legalize gambling.

As Asian firms look to dominate in Asia by relying on their local networks and knowledge, they are also tapping the intellectual resources of Las Vegas by hiring Las Vegas-based lawyers, architects, live entertainment producers and information technology companies.

“It won't be long before Asian firms start acquiring and developing properties in Las Vegas as a part of creating a global footprint,” said Jonathan Galaviz, managing director and chief economist at Galaviz and Company LLC, an economic research and government strategies firm. - Reuters