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Chinese Money Fuels Las Vegas Revival

Oct 09 , 2014

Since ending its casino monopoly, Macau has overtaken Las Vegas as the gambling capital of the world. US casino operator Las Vegas Sands began the gold rush when it opened Sands Macao in 2004. Macau passed Las Vegas in 2006, the year Wynn Resorts opened the Special Administrative Region’s first Las Vegas style resort. Barely half the size of Manhattan, Macau tallied gross gaming revenue of $45.1 billion last year, almost seven times that of the Las Vegas Strip.

Las Vegas Sands and Wynn get a far bigger chunk of their profits from Macau than Las Vegas. MGM Resorts International, which opened MGM Macau in 2007, makes more from that one property than from MGM Grand Las Vegas, Mandalay Bay and Bellagio, its top three Vegas moneymakers, combined. Macau has thrived largely thanks to Mainland Chinese players.

While Macau thrived, Las Vegas dived. Profits from Macau helped keep its American companies afloat as Las Vegas was hit hard by the 2008 Great Recession. Now Las Vegas is coming back, with key contributions from Chinese players at the tables and behind the scenes.

Las Vegas actively courts Chinese visitors. The Las Vegas Convention and Visitors Authority has offices in Shanghai and Hong Kong. In 2012, the most recent year for which figures are available, 263,000 Chinese visitors came to Las Vegas, 39% more than the year before. Chinese New Year celebrations have become a Vegas staple. In January, Mainland China produced “Panda!” opened at The Palazzo, a LVS resort, and most Strip properties now include dining and entertainment aimed at Chinese visitors.

On the casino floor, baccarat, the preferred game for Chinese high rollers, has gone from a sideshow during the early 2000s to Nevada’s top revenue producer among table games. Last year statewide baccarat revenue was $1.6 billion, or 37.5% of all table game revenue. The impact of baccarat is most pronounced on The Strip, which rakes in all but $7.5 million of statewide baccarat revenue, accounting for 45.2% of its table game revenue. In the first half of this year, baccarat on the Strip grew 14%, according to Morgan Stanley. Analysts say baccarat play is heavily concentrated at LVS, Wynn and MGM properties.

“You naturally expect Macau casinos to tap their customer base in Macau and China by cross-selling their properties in Las Vegas to their Chinese VIP players. Hence, the most significant effect of Chinese on Las Vegas and its gaming revenue will likely be at the VIP level,” says Desmond Lam, an associate professor of marketing at the University of Macau and author of Chopsticks and Gambling, which examines the relationship between gambling and Chinese culture. “These customers have high spending power – and not just for gambling.”

Though Macau and even Singapore, where LVS and Malaysia’s Genting Group run the world’s most profitable casino resorts largely thanks to spending by mainland Chinese, are easier to reach and more culturally attuned to them, Chinese players remain drawn to Las Vegas, Lam observes.

“Cultural similarity and proximity to home country may be a disadvantage in this case as Chinese tourists seek a different and more foreign experience,” he says. “There are more resorts in Las Vegas, each with multiple attractions beyond gaming. Moreover, gaming can be conducted with greater privacy in Las Vegas given that it is further away. Together, Las Vegas resorts provide stronger and more diverse customer value.”

To serve the growing number of Chinese visitors, new Asian oriented resorts are being developed, breathing fresh life into the Strip with profits from booming gaming markets across the Pacific. Last year, Genting said it would spend up to $4 billion to complete Boyd Gaming’s abandoned Echelon resort. Boyd stopped construction on the project in August 2008, and the rusting girders provided a graphic reminder that Las Vegas was one of the US regions hit hardest by the 2008 economic crisis. Genting plans to rebrand the property as Resorts World Las Vegas and create reproductions of China’s Great Wall and Terra Cotta warriors. The company even hopes to convince Beijing to provide pandas.

In July, Australia’s Crown Resorts, a partner in Melco Crown Entertainment that operates Macau’s City of Dreams and Altira, spent $280 million to acquire a 34.5 acre (14 hectare) prime site on the Strip that had lain vacant since late 2007, when investors demolished the New Frontier Hotel then abandoned the project in the wake of the 2008 recession. Crown chairman James Packer, the son of legendary Vegas high roller Kerry Packer, shifted the family billions from media to gaming and has made Crown Australia’s most successful casino company, largely by attracting Chinese VIPs. Crown aims to repeat the formula in Las Vegas.

Wealthy Chinese are also moving to the other side of the table, increasingly investing in Las Vegas casinos and other properties, often utilizing the US EB-5 visa program that grants residency for investments of $500,000 for job creation or in economically depressed areas, such as Las Vegas since 2008.

“The EB-5 program has transformed Las Vegas and many other destination cities into a gateway for hundreds of Chinese immigrants to get their foot in America’s door,” Global Market Advisors partner Andrew Klebanow says, noting that 85% of EB-5 investors are Chinese. “Some of the biggest Las Vegas developments over the past five years have tapped the EB-5 program for hundreds of millions of dollars, including $100 million from Chinese investors for the Downtown Grand and $150 million from Chinese and Thai investors in SLS Las Vegas.” The $300 million Dynasty resort project says Chinese form the majority of 300 investors waiting to invest $500,000 in the project through the EB-5 program.

From every angle, Chinese money is making the neon in Vegas shine brighter again.

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