Could you tell us your vision of Macau and the casino industry?
William Weidner: Our view of Macau was bullish and thanks to the CEPA agreements and the opening of the border we have become even more bullish. We see Macau becoming Asia's Las Vegas - it's the only place that has a tradition of gaming that allows us to do something of the scope that we intend to do. Our view is to literally build the Las Vegas strip here in Asia. We start with the Sands Macau.
The traditional downtown Macau will always be a day trip destination, and it'll always be the first place that mainland Chinese will go when they come across the main gate. But the way we see it is that over time, Macau will become a destination resort. Instead of a day resort it becomes a multi-day stay resort.
We have gone to the government and presented our vision for developing a sixty thousand-room destination resort broken down into chewable pieces. The first piece we call Cotai Macau, and we're starting the landfill now. It is really aimed at upgrading today's Macau, and our vision is in the long-term to develop Macau as a fully-fledged Asian destination resort.
The whole of Las Vegas has 129,000 rooms and within a five-hour flight there are 450,000 people. Within five hours of Macau, there are close to 3 billion people. For us, there is not enough capacity.
Apart from the gaming angle, do you envisage Macau turning into a big conference centre as well?
It ought to be a multi-faceted tourism and convention destination. Just as Las Vegas, at one time, had no meetings whatsoever, it is now the number one trade show destination in the United States. It is 25% ahead of Chicago in this area. Once you have the infrastructure of entertainment, rooms, golf and those kinds of things, then having a meeting there is a natural. What we've done is taken the same template we've developed in Las Vegas and moved it to Macau. Obviously, we begin with the Sands building, but we're long Macau and think that we want to develop some very aggressive buildings, some very interesting places to be. Las Vegas is arguably the most successful destination in the world, in terms of occupancy and turnover. And Macau now is purely about gambling, so if you add to that gambling 'with a destination feel', I don't think that you can beat it. It's just a natural.
We opened the Sands Casino last Tuesday [May 18]. It has a very modern and high-tech look, but the idea is to develop what we call Cotai Macau. There are two bridges and there is going to be a third bridge linking Taipa and Coloane and the landfill between the two is called Cotai, which will be next to the airport. The overall master plan is to create a kind of a U-shaped strip in Macau and the first phase is to be the Las Vegas strip of Asia.
The Venetian anchors this strip on one end. But this is the first of three phases. The first part of this initial phase is about 12,000 rooms. The capacity of each phase will be between 25,000 and 30,000 rooms. This first phase is a little larger than the third phase, but the three phases together represents 60,000 rooms.
What's the timeline for this development?
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We're beginning the landfill now, and we want to have the Venetian done. But to make it work, it is difficult to do it all by yourself. The Venetian is the demand driver, so what we are doing is building one million square feet of meeting and exhibition space - we have about two million in Las Vegas. We are building a 15,000 seat arena, a 2,000 seat showroom, and these are essentially the demand drivers. Then we invite in individual hotel investors to develop their brands and then create the idea of a strip in Macau. For example, we have signed with a Singapore investor to work with the Four Seasons to develop a hotel - he also owns the Hard Rock name and he'll develop one of those. Another investor from Hong Kong is involved and it looks like he'll be working with Intercontinental.
We will commit to develop the demand driver, which is essentially the exhibition hall and the tourist attraction. Relative to Macau, the Sands building is a pretty spectacular building. It's so different to anything they've seen in Macau. It's so big in comparison to what's there that it is called a category killer.
In the next phase, Steve Wynn is going to build 600 rooms, Stanley Ho is going to build 600 rooms, but they're building those rooms in urban Macau. Our strategy is not to develop urban Macau; it is awfully hard to make a city into a destination because as you walk out of the casino there is a bank next door, there's an apartment building with underwear hanging down. It's very difficult to create an escapist sense out of the middle of a city. The way we look at it is taking a look at downtown Las Vegas and compare it to the Las Vegas strip. The Las Vegas strip just out-motored downtown as soon as it developed enough critical mass to make it a full-fledged destination. You look at 75 years of Las Vegas history, and it started in Reno. Reno was an urban environment and it still is. You walk out of a casino and there is bank, then a dry cleaners and then another casino. Downtown Las Vegas had a little more contiguity but it wasn't master-planned, so it eventually grew out around the bank and the dry cleaner. Then you take the strip which is almost purely a destination resort play. We had the opportunity in Macau to essentially do the same thing, to start from scratch.
With these first buildings Macau has begun to change already. They are really trying to clean up their act. I think the Lisboa looks a lot better than it did. They are trying to respond to the concept of competition, but this thing will just blow them away. The people will walk in to the Sands casino and realise that it is a pretty special building relative to that market. I think it would do well in Las Vegas, it's come out extraordinarily well. When we first started in 1999-2000 to pitch the licences, the numbers were so dramatically overwhelming that we wanted to get here as fast as we could with as much as could, and do it as interestingly as we could. Macau is going to be a terrific destination.
So your forecasts are based on an influx of Mainland Chinese users of the casino?
Partially. The thing that is really incredible about Macau is that there is easy access for seven million people in Hong Kong to get there, and in Hong Kong, there is no place to gamble. In the best places between the Lisboa and the Jai Lai, you can't even sit down and use the product. I don't know why they never targeted the mass market there and I guess they didn't think it was that important. They were too busy with the VIP rooms. There is a huge mass market for Macau, except nobody has ever developed it, so that's what we plan to do. Our target is the mass market on one hand and on the other hand, the high-end market, but in a better way. It is not a very pleasant experience if you're in the high-end in Macau right now, with all the little rooms and guys running around tagging on your coat sleeve. Unless you're really desperate to gamble, I can't see a high quality Hong Kong person putting up with that, as there is nothing designed there for the Hong Kong market.
Do you think the Macau economy is going to grow dramatically in the next 10 years due to the influx of investment and will this be good for local property prices and investment in Macau?
First of all, I think our addition to the marketplace targets markets that have been ignored, such as Hong Kong and other places. I think that the markets in Mainland China are rapidly upgrading. Initially, you get people who are not used to their wealth, but they learn quickly. You go to Shenzhen and see what is available there, and in the last five years, it has totally changed. So Macau was always aimed at the market of gamblers who, if they wanted to gamble, they had to go to Macau. It didn't really target the occasional play market. Macau will change because we'll demonstrate to the market that there is a really lucrative occasional play market. Then you'll see the other places trying to respond by adding areas or changing themselves physically or trying to clean up their act, and trying to add amenities. When you have a monopoly market, the monopolist is generally not very innovative. In a competitive market, it makes those monopolists more innovative because they have to be. You'll see that change anyway. When you see that change you'll see more repeat visitations because they'll become much more customer-focused. As they become more customer-focused, you'll see more amenities develop, targeting more specific markets. The market never really segmented in Macau, because you had one guy looking at one market segment saying, that is my sweet spot of the market. You didn't see a lot of innovation. Now you'll see different people like Steve Wynn, and us saying, where is my niche, how can I create a unique selling point? You'll see a lot more things to attract people to Macau.
You take our place in Las Vegas, where we generate about $420 million of operating cash flow. But of that $420 million only about 22% of profit comes out of the casino. Almost 80% of income comes from non-casino areas. We are a destination resort that happens to have a casino in it.
Right now Macau is a casino that happens to have food around it. As Macau becomes more broadly competitive, the outreach to the market becomes non-casino functions because a table is a table. Even though it seems subtle, there is going to be a fundamental change in Macau.
Do you forecast that the economy in Macau could double in size in the next 10 years, ie see explosive growth?
It already has exploded. Last year there was a 15-16% GDP growth rate, and gaming income is up 30% YoY. Even with SARS last year it was a little over 30%. This year it looks like there'll be approximately 30% growth again. Macau this year may approach $5 billion in casino revenue, and that's as much as the strip in Las Vegas. The average table in Macau wins about 10 times as much as the average table in Las Vegas. There is huge potential and there is literally so much business left off the table.
To give you an analogy, when we analyse a gaming table, the only time we make any money is when a decision is made. A decision is made when somebody bets and they win and lose. When the table is too crowded, you lose productivity. When the dealer is dealing the game and there is a person at every one of the seats, he can get quick decisions. Get the Baccarat done, pick up the money, and pay out the winners. If you have somebody behind you betting, and you look at all the money on the table, it takes two to three times as long to get the decision and be paid back out. Disputes can arise as to who is betting. With a game that is disorganised as the games on the Macau floors, we think there is twice the amount of money in the mass market that can be throughput. Simply by adding capacity, you'll see terrific growth in gaming revenues and a terrific growth in the collection of taxes.
The government there knows how to invest in infrastructure and they've done it consistently from the beginning and if there is anything that Macau has done well it's been infrastructure. The government there, particularly Edmund Ho, are planning how the infrastructure should work. The airport has enough capacity in my view, but only uses about 30-35% of its capacity right now.
So is there a doubling in the marketplace? I think there is easily a doubling in the marketplace.
So that would suggest that buying property in Macau is a bit of a new brainer?
I would assume so. I think Macau's unemployment rate was in the mid-sixes [percent] when we first started building. We employed a lot of people to help with the construction and we hired somewhere in the region of 3,000 people in Macau and trained them. Now I think the unemployment rate in Macau is in the mid-fives. They'll reach full employment relatively shortly and then as we develop more things, they'll have to reach out for more. All the things that drive a property market suggest prices will improve.
This area is poised for explosive growth. That also means Hong Kong, Disney and us and it creates a terrific variety of entertainment, shopping, dining and gaming. We can't see any downside to it. Every strategy has an Achilles' heel, and we can't figure this Achilles' heel out. We have zillions of people who love to gamble and the money is flowing, the FDI is in the pipeline, and it seems to me that there is just a race between the Shanghai River Delta and the Yangtze River Delta, and the Pearl River Delta about which one has the higher growth rates. We just don't see the Achilles' heel here.