Opened a decade ago this week, the Venetian Macao has had a seismic impact on the global casino business and beyond.
Its developer, Las Vegas Sands founder Sheldon Adelson, has been elevated from a Vegas B-lister to arguably the leading figure in global gaming, one of the two dozen richest people in the world and a political kingmaker on two continents.
Venetian Macao also broke a 360-year losing streak for the first and last western colony in China.
When Portugal tried to return Macau after its 1974 revolution, China said no thanks. Macau still wasn’t the Pearl of the Orient on December 20, 1999 when China did take back Macau after 442 years of Portuguese administration.
“It was a seedy backwater: prostitution-infested, crime-infested, triad-infested,” Adelson recalled in 2008.
In the wake of Asia’s 1997 economic crisis, Macau’s gross domestic product (GDP) declined more than 15%. Unemployment rose from 3.2% in early 1997 to 7.1% in early 2000, according to government statistics; many in Macau put the real jobless number in double digits.
An estimated 60,000 apartments were vacant in a city of 450,000 people, remnants of an early 1990s property boom and bust driven by rampant speculation.
Those shocks capped centuries of decline for the 16th century hub of Europe’s China trade. Macau’s fall began with Portugal’s 1641 loss of Malacca, the Malay peninsula outpost controlling the sea route to China.
The silting of Macau’s harbors and rise of Hong Kong, just 64 kilometers (40 miles) away, cemented the demise.
To survive, Macau embraced the commercial dark arts: opium, slaves, gold bullion, smuggling, prostitution and gambling, attracting gangland attention in the process. True to form, a full-fledged gang war over the casino high roller trade erupted ahead of Macau’s 1999 handover.
Macau’s Secretary for Security Manuel Soares Monge infamously tried to reassure tourists they had nothing to fear from triad shootouts because Macau’s mobsters were “professional killers who never miss their targets.”
Against this bullet riddled background, in November 2001 Macau invited bids for three casino concessions, requiring a US$500 million bank guarantee with applications. At the time, Macau’s 11 casinos under Stanley Ho’s decades-old monopoly generated about US$2 billion in annual gaming revenue, less than half as much as Atlantic City’s 12 casinos.
To survive, Macau embraced the commercial dark arts: opium, slaves, gold bullion, smuggling, prostitution and gambling, attracting gangland attention in the process
Macau government lawyer Jorge Oliveira, a lead actor in casino liberalization, saw a huge opportunity. “We, being the only center in China where it is possible lawfully to operate casino gaming, it doesn’t require a genius to make money with casinos there.”
Oliveira believed Macau was essentially offering licenses to print money.
Yet US casino companies reacted tepidly. Las Vegas leading lights feared Macau’s sleaze could imperil their US licenses. The 9/11 terror attacks further dampened enthusiasm as reduced US travel crimped cash flow.
MGM Mirage, the leading player on the Vegas Strip by far in 2001, mounted an indifferent bid with a Hong Kong partner, an escape hatch in case of regulatory blowback. “MGM’s CEO [Terry Lanni] didn’t even set foot in Macau,” said a Macau casino executive requesting anonymity. “That showed people they didn’t really care.”
But Mirage founder Steve Wynn, forced out by MGM’s takeover and cashed up in the process, showed keen interest.
Number two Las Vegas player Caesars (then using the corporate name Park Place) partnered with Strip rival Mandalay Bay on a bid. Harrah’s, soon to become the largest casino operator in the world by number of properties, didn’t even submit a proposal.
“A big mistake,” Harrah’s CEO Gary Loveman has admitted repeatedly since. Donald Trump sent Don Jr. to inspect Macau, but didn’t follow through.
Adelson’s kid brother Lenny’s partnership with Hong Kong businessman Richard Suen put Macau on LVS’s radar from mid-2000. A July 2001 meeting with China’s Vice Premier Qian Qichen convinced Adelson the mainland would let far more tourists visit Macau.
Afterward, Adelson contacted US Congressional leadership to ensure a resolution critical of Beijing’s 2008 Olympic bid didn’t pass before the International Olympic Committee’s vote. Congress had already postponed the vote, but LVS gave Beijing the impression it had influenced the calendar. When Macau chose LVS, many looked for Beijing’s fingerprints.
Political coups notwithstanding, LVS couldn’t secure the US$500 million guarantee to bid alone, so it partnered with Taiwan’s China Development Industrial Bank (CDIB). They proposed a temporary casino, then a resort modeled after Venetian, including a hotel, convention facilities and shopping mall.
“We liked very much the proposal of the Venetian,” Oliveira testified at the 2008 trial of Suen’s lawsuit against LVS for unpaid consulting fees for the Macau bid. “The problem was the other side.” Macau authorities were leery of a bidder from Taiwan. So, Macau’s Tender Commission granted bidders two weeks to create new partnerships. When LVS didn’t take the hint, Macau authorities took direct action.
During the predawn hours of January 31, a phone call from Macau awakened LVS general counsel David Friedman at his home in Las Vegas. At a more decent hour, Friedman called Weidner to relay news from their Macau law firm.
The Tender Commission rejected the LVS-CDIB bid, Friedman reported. But, according to Weidner’s testimony, Macau Chief Executive Edmund Ho summoned him to an urgent meeting. Within hours, Weidner and Friedman boarded a flight for Macau.
At the meeting, Ho suggested that LVS pursue a partnership with Hong Kong’s Galaxy Entertainment Group. Led by Lui Che-woo and five of his children, Galaxy’s main interests were mainland property and construction material through K Wah International, listed on the Hong Kong stock market, and hospitality through San Francisco-based Stanford Hotels.
Within days, LVS signed a contract with Galaxy nearly identical to its agreement with CDIB: Galaxy would provide the capital; the companies would negotiate project development and management agreements; and LVS held an option to purchase 30% of the project in three years.
According to Oliveira, Galaxy tried to reduce its initial US$1.1 billion commitment, but he warned that could reduce its chance of success.
On February 8, Macau announced it had granted concessions to SJM and Wynn Resorts – as widely expected – and to Galaxy’s partnership with Venetian, a choice that raised eyebrows.
Though less renowned than MGM or Caesars, the Galaxy-LVS partnership appeared to have the right combination of skills to succeed: Galaxy knew hotels and construction in China; LVS knew casinos and conventions.
Since the two companies were far from being industry leaders, they also seemingly needed Macau more than Macau needed them. It turned out, though, that Galaxy and LVS didn’t need each other.
Muhammad Cohen is editor at large of Inside Asian Gaming and wrote ‘Hong Kong On Air’, a novel set during the 1997 handover about TV news, love, betrayal, high finance and cheap lingerie