Macau remakes gambling world, outshines Vegas | NevadaAppeal.com

Macau remakes gambling world, outshines Vegas

Hannah Dreier
The Associated Press
In this Sept. 20, 2012 photo, Croupiers sit at a baccarat gaming table inside a casino during the opening day of Sheraton Macao Hotel at the Sands Cotai Central in Macau. Macau is in the midst of one of the greatest gambling booms the world has ever known. To rival it, Las Vegas would have to attract six times as many visitors essentially every man, woman and child in America. Wynn Las Vegas now makes nearly three-quarters of its profits in Macau. Sands, which owns the Venetian and Palazzo, earns two-thirds of its revenue there. (AP Photo/Kin Cheung)
AP | AP

LAS VEGAS — Most people still think of the U.S. gambling industry as anchored in Las Vegas. They might think of vestiges of the mob, or the town’s ill-advised flirtation with family-friendly branding in the 1990s.

But they would be wrong.

The center of the gambling world has shifted 16 time zones away to a tiny spit of land on the southern tip of East Asia.

An hour’s ferry ride from Hong Kong and an afternoon flight from half the world’s population, Macau is the only place in China where casino gambling is legal.

Each month, 2.5 million tourists flood the glitzy boomtown to try their luck in neon-drenched casinos that collect more winnings than the entire U.S. gambling industry. The exploding ranks of the Chinese nouveau riche sip tea and speak in hushed tones as they play at baccarat, a fast-moving game where gamblers are dealt two cards and predict whether they will beat the banker.

The textile factories that stood shoulder to shoulder with small-time gambling halls as recently as the early 2000s have given way to hulking American-run enterprises larger than anything found in the states. The gangs, prostitutes and money-launderers that once operated openly in this town half the size of Manhattan have at least receded from public eye.

“It was a swamp,” said Sheldon Adelson, CEO of Las Vegas Sands, as he looked back on his early, risky venture in the forgotten colonial outpost.

“They wanted to change the face of Macau from the gambling dens to that of conventions and resorts,” he added during recent testimony, flashing a jack-o-lantern grin and boasting that it would have taken a genius to imagine the profits that he could reap there.

Macau now powers three of the four largest American casino companies. Sands, Wynn Resorts Ltd and MGM Resorts International rode out the recession thanks to the gambling appetite of a region where notions of luck and fate are baked into the culture, and there is no religious taboo on games of chance.

But as U.S. corporations have remade Macau, Macau has remade them.

The town’s criminal undercurrent has resurrected the specter of corruption the industry worked for so long to escape. MGM has lost its license to operate in Atlantic City, while Sands and Wynn are under federal investigation for violations of a touchstone anti-corporate bribery law.

The quest for Asian riches is changing Las Vegas as well. Casino bosses are tweaking their flagship casinos to look and operate more like Macau-style properties. As they succeed, hints of organized crime are returning to Sin City, this time in the form of Chinese gangs.

But the moguls are undeterred, increasing their investment at every opportunity.

“This industry is supply driven, like the movie Field of Dreams: ‘Built it and they will come.’ I believe that,’” said Adelson, racing ahead of his attorney on the witness stand in Las Vegas, where his company is being investigated for bribing Macau lawmakers and collaborating with the Chinese mafia. “Nobody wanted it. Everybody thought that I was crazy.”

At 79 and greatly enriched now by his growing field of five Macau casinos, the diminutive GOP super donor adopted a professorial tone and explained that in 2003, Macau officials gave him a plot of land far from what passed at the time for a main drag. They encouraged him to fill in the surrounding bay.

“I thought, ‘Do they want us to fail?’” Adelson asked, patting the ring of brown hair arranged across his round head.

When China reassumed sovereignty of Macau from Portugal in 1999 and abolished a longstanding gambling monopoly, U.S. companies rushed in to try their luck. Since then, annual revenue in the former backwater has grown tenfold, stacking up to $38 billion; four times that of Las Vegas and Atlantic City combined.

Wynn Las Vegas now makes nearly three quarters of its profits in Macau. CEO Steve Wynn, dubbed the “King of Las Vegas” for his role in shaping the contours of the Strip, stirred a minor scandal in 2010 when he said he might ditch Sin City and move his corporate headquarters to China.

Sands, which owns the Venetian and Palazzo on the Las Vegas Strip, earns two thirds of its revenue in Macau. Adelson’s first casino opening there caused a stampede that ripped doors off their hinges. He now describes Sands as “an Asian company with a presence in Las Vegas and the U.S.”

When regulatory troubles forced MGM Resorts to pick between Macau and New Jersey, the choice was obvious.

“The Macau market is now larger than the entire U.S. gaming market. Unfortunately for Atlantic City, it’s gone the other way. It’s smaller now than when we entered it. The fortunes of the two couldn’t be more different,” MGM CEO Jim Murren said.

Macau is in the midst of one of the greatest gambling booms the world has ever known. To rival it, Las Vegas would have to attract six times as many visitors; essentially every man, woman and child in America.

But like early Las Vegas, Macau has a long history of ties to crime syndicates, in this case sinister brotherhoods that first came into being on the mainland more than a century ago called triads. The magnate who controlled gambling in Macau for four decades, Stanly Ho, did little to discourage gang warfare on the peninsula.

Sleepy town squares became incongruous backdrops for machine-gun shoot-outs, bombings and even assassinations of top-level government officials. In the late 1990s, a senior police official tried to reassure tourists by saying that Macau had “professional killers who don’t miss their targets.”

The history and regulations governing the enclave continue to make it tricky for modern casinos to avoid gangs, illegal money transfers, and at least the appearance of bribery.

“There are some countries where you either have to pay to play and break the law, or you have to not do business there. I think the jury’s still out on Macau,” said Steve Norton, an Atlantic City veteran who now runs a casino consulting firm in Indiana.

Adelson himself seemed to confirm this point on the stand this spring, when he casually mentioned that Sands had forgone a partnership with a successful Hong Kong-based casino operator because of a disagreement about organized crime.

“They had expressed their judgment that they were going to do business with either reputed, or– triad people, and we couldn’t do that,” Adelson said, sipping from an oversized coffee cup.

Local policies are partly to blame. China bans its citizens from transferring more than $50,000 off the mainland each year; a pittance at many high roller tables, and nowhere near enough to account for the towers of chips that change hands in Macau. It also bans casinos from pursuing gambling debts.

Casino bosses are now working to lure their Macau customers to Las Vegas, in part because Nevada imposes one fifth of China’s 39 percent tax on winnings. The biggest casinos on the Strip have imported baccarat, now Nevada’s biggest moneymaker, Asian pop sensations and Chinese delicacies. They’ve outfitting their hallways in red, and set up Macau-style VIP rooms that cater to high rollers.

“The Las Vegas casinos are adopting that new Macau look, trying to appeal to the high-end Asian gambler. They can make a lot more money from a big gambler here,” said David Schwarz, director of the Center for Gaming Research at the University of Nevada Las Vegas.

Asian visitors now account for 9 percent of tourists to the desert metropolis, up from 2 percent in 2008. And the Strip is preparing to welcome its first Asian-owned casino; a $5 billion Chinese-themed extravaganza called Resorts World, complete with pandas and pagodas.

But some of the crime associated with Chinese gambling halls may be migrating to the Strip as well.

In March, 26 year-old Xiao Ye Bai began serving a life term for stabbing a man to death in a crowded karaoke bar near the Strip. Prosecutors said Bai was a martial-arts trained enforcer for the Taiwan-based triad United Bamboo, sent to collect a $10,000 gambling debt.

Unlike some other states, Las Vegas allows junket operators to work in casinos without the full background checks required for virtually every other employee, from blackjack dealers to CEOs.

Some of Hong Kong operators licensed in Nevada have been found unsuitable by other jurisdictions, including Singapore.

Steve Vickers, who spent 18 years in the Royal Hong Kong Police Force and commanded the its criminal intelligence bureau, believes that nearly all junkets that cater to Chinese tourists must tangle with organized crime.

“You won’t find the triad names listed as the junket operators, but they are behind it, because who is it that can reach into China and enforce the debts, move the money? Only one kind of person can do that,” he said.

Authorities in Nevada, New Jersey and Washington DC are investigating all three of the U.S. companies with properties in Macau.

— New Jersey regulators objected when MGM teamed up with Stanley Ho’s daughter, Pansy, because of the senior Ho’s triad links. The state found the partnership “unsuitable” in a blistering 2010 report, and forced MGM to sell its stake in the Borgata casino in Atlantic City. MGM and the family of Pansy Ho deny the allegations.

Nevada, where casino revenue provides about half of the state’s general fund, examined the MGM partnership and found it acceptable. Mississippi and Michigan also approved. This year, New Jersey allowed MGM to re-apply for a license.

— Wynn is under investigation for donating $135 million to the University of Macau in 2011. A former board member says the payment was a bribe and a violation of the Foreign Corrupt Practice Act. In a footnote in a March legal filing, U.S. prosecutors revealed they were looking into the donation, but did not elaborate.

Established in 1977 as part of a series of reforms intended to restore the nation’s standing after the Watergate scandal, the Foreign Corrupt Practice Act bars U.S. companies from paying off officials to win business, though it makes an exception for small administrative payments that do not confer unfair advantage.

The Department of Justice has recently stepped up its enforcement of the act. As the business world becomes more globalized and other countries adopt similar laws, U.S. companies can no longer argue that enforcing the ban gives an edge to rivals.

But Macau regulators draw fewer bright lines around corporate gift-giving than their American counterparts, according to I. Nelson Rose, a professor at Whittier Law School in California who writes a blog called Gambling and the Law. What might look like a bribe on American soil is a routine part of the culture in Macau, he said.

Wynn says it acted properly. Nevada regulators looked into the donation before the federal investigation was made public and found no wrongdoing.

Both Sands and Wynn are facing related lawsuits from individual shareholders who claim mismanagement has damaged the company.

It sounds bad. But is it?

Probably not, according to Fitch ratings analyst Michael Paladino. At worst, the companies could get fined.

“They can handle that,” he said.

He noted that the largest fine paid in modern corporate history— imposed on German engineering giant Siemans A.G. for bribery— amounted to about $1 billion. That’s equivalent to one month’s profits for Sands.

Nevada regulations prohibit casino companies from doing anything anywhere in the world that could “reflect discredit upon the State of Nevada or the gaming industry.”

Similar statutes exist in New Jersey, Pennsylvania, Mississippi, Michigan, Illinois and Connecticut, where the companies with properties in Macau operate.

In the 1980s, these rules helped push out the mob bosses that had taken refuge in the casino industry and usher in its modern corporate era, though the FBI and other federal agencies did the heavy lifting.

A Congressional report issued in 1999 found that American gambling was finally free from the taint of organized crime.

That was the same year China opened Macau to U.S. investment.

State regulators have so far refrained from public action, preferring to stay out of federal investigations until a conclusion is reached, Nevada Gaming Board Chairman AG Burnett said. But that does not mean they are sitting idle.

“I think there’s an impression out there that the control board doesn’t hammer companies, but the truth is that a lot of what goes on is dialogue between the board and the companies that the public doesn’t necessarily see,” he said.

Conventional wisdom is that no casinos will lose their licenses over the Macau allegations, even if they prove true.

And in any case, Sands, Wynn and MGM have already put their China operations into subsidiaries which could eventually be spun off entirely.

“If I were one of these operators, I might start tallying up how much my U.S. operations are worth and how much my Macau operations are worth and thinking about moving,” said Vickers, the former intelligence officer, who now consults about risk management in Hong Kong.