Tuesday, December 15, 2009

Macau's Newest Casino Drops Frills to Focus on Gambling

MACAU – This Chinese gambling mecca's newest casino has a unique selling point: Its location is just a three-minute dash from the city's main port of entry.

Stanley Ho's SJM Holdings Ltd. spent US$190 million building the Casino Oceanus in just over a year. It features no hotel rooms or so-called VIP rooms for high-rollers, and no fancy restaurants. The bulk of the 345,000-square foot property is devoted to 260 gambling tables and 560 slot machines.

SJM's bet: that the property will snare a large chunk of gambling dollars from day trippers, who make the one-hour ferry ride from Hong Kong and are less concerned with flashy shows than with getting to the nearest baccarat table.

"Oceanus is the first casino that passengers reach upon arriving at the ferry terminal," Ambrose So, SJM's chief executive officer, said Tuesday. "You see these people rushing in through customs and immigration, and then it takes you just three minutes to get here. You can gamble for three or four hours before your wife even knows you're in Macau."

In many ways, SJM's tack runs counter to the strategy taken by a number of SJM's rivals, including Sheldon Adelson's Las Vegas Sands Corp. and Mr. Ho's own son, Lawrence.

Lawrence Ho's newly opened City of Dreams casino-resort, which cost about US$2.4 billion to build, is spending another US$250 million -- more than the whole cost of his father's Casino Oceanus -- to bring in an aquatic acrobat-themed circus production in a purpose-built 2,000-seat theater with a large water tank.

Mr. Adelson's massive Venetian Macao casino-resort offers a bevy of entertainment and dining options and about 3,000 hotel rooms, also at a cost of about US$2.4 billion. The company is working on an even larger property across the street.

Mr. Ho's no-frills approach has served him well. Even after Mr. Ho lost his decades-long gambling monopoly in 2002, he has managed to hold onto the biggest share of the Macau gambling market -- in large part by giving his customers what they want.

In the case of Oceanus, Macau's 34th casino, SJM took the site of an old department store controlled by Mr. Ho and refashioned it into a three-story casino.

Some concessions were made to luring visitors. The exterior of the building is made to resemble the Beijing Olympic's iconic "Water Cube" -- a move aimed at drawing in Macau's large mainland Chinese clientele. Oceanus is also displaying a US$250,000 Italian white truffle and the US$350,000 sequined glove worn by Michael Jackson as he premiered his "moonwalk" on national television in 1983. Both items were won at auction this year by Mr. Ho's business partners.

In many ways, Oceanus is well-tailored to the habits of Macau's visitors. Macau's average length of stay is about 1.4 days, with the vast majority of visitors to Macau making the day trip from Hong Kong. Gamblers typically plunk down about half of their gambling dollars at the first property they visit, and margins at mass-market tables are about 40%, compared with the thinner 10% margins on VIP tables.

Analysts at CLSA Asia-Pacific Markets estimate that SJM will recoup about a third of its investment on Oceanus in a year, given its location and SJM's single-minded focus on delivering a low-cost pure gambling experience to its visitors.

"Its lack of interest in the non-gaming segment is evident in its offerings," said CLSA analyst Huei Suen Ng, who notes that SJM's strategy -- with non-gambling revenue accounting for just 1% of its revenue -- is best-suited for SJM's home base, near the ferry terminal.

Mr. So, SJM's chief executive, said Tuesday that about 80% of Macau's visitors come through the main ferry terminal, and that Oceanus is the closest casino to a land crossing from the mainland Chinese city of Zhuhai. "When they see the glowing attraction that is Oceanus, they will come to have a look," Mr. So said. "We should be able to make our investment back very quickly."

Write to Jonathan Cheng at jonathan.cheng@wsj.com


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