Macau dreaming

James Packer has taken a big gamble in exposing himself to the pressure-cooker environment of Macau, but if he plays his cards right he and his joint venture Melco Crown stand to win big.

Chinese New Year is almost the only time of year when Chinese people turn off, close down and give themselves a well-earned break. And one thing the Chinese love to do when they’re looking for a bit of downtime is gamble. This year, the flagship casino of James Packer’s Macau joint venture, Melco Crown Entertainment, will celebrate its first, and most crucial, Chinese New Year.

Chinese gamblers and holiday makers will flood the former Portuguese colony, now a Chinese special administrative region to celebrate the year of the tiger. And for Melco Crown the initial signs are good – hotel rooms at the group’s new flagship casino and resort, City of Dreams, are booked out and casino president Greg Hawkins is raring to go. But the real race to be won here, as Hawkins well knows, is in branding and standing out in a very big crowd.

Macau is 60 km south-west of Hong Kong and 145 km from the southern Chinese city of Guangzhou – a manufacturing mecca and home to many of China’s wealthy entrepreneurs. Its geography is tiny and consists of the Macau peninsula and the islands of Taipa and Coloane. It has a permanent population of just half a million people. But this tiny outpost also houses around 35 existing or planned casinos; competition is fierce.

Approaching Macau by hovercraft from Hong Kong – a popular activity for day trippers and tourists – mobile phones all around the ship start going off. Before any of the potential punters have disembarked and trudged towards customs, they are receiving marketing SMSs from casinos around Macau, among them City of Dreams, inviting them to drop by. Staff aboard the vessel hand out a brochure offering 15 per cent off spa treatments at, you guessed it, City of Dreams.

Greg Hawkins knows that this period of the resort’s development is crucial. The construction of many casino developments, including one next to City of Dreams and one opposite, were put on hold during the darkest days of the financial crisis, when no one knew what the new world order would look like. But the new world order is upon us and China, Macau’s most important source of in-bound traffic, is firmly in the driving seat. Construction has now restarted at many of the developments and tourist traffic is improving. Infrastructure developments in China, including in the all-important wealthy areas on the coast and in the south, are improving access to Macau, as is the government’s loosening of restrictions on mainlanders visiting the region. The tense, competitive environment is not going to ease up any time soon – it’s only going to get worse.

The casinos aren’t only competing to get people in the door, they’re competing to keep staff. One of the regulatory requirements is that table staff in Macau must be locally employed. The small population pool means there is a dire shortage of labour, resulting in heated competition between employers and very healthy starting salaries. This, in turn, has resulted in many young Macau locals foregoing further education in order to earn decent money in the casinos. It’s the workers calling the shots, to some extent, and employers have to work hard to provide a healthy, attractive environment to avoid high attrition rates.

City of Dreams doesn’t have a gimmick like The Venetian (gondola ride, anyone?) or The Golden Dragon Casino (why go to Rio for Carnivale?). It wants its brand to attract business, and while big rollers are great, it’s the retail market that pays the bills. The design of the development is reminiscent of Crown in Melbourne, with some shared designers, and it even features its own version of Crown Towers – Australians can be seen wandering around looking for the oddity of such a familiar landmark in Macau. It has several entertainment offerings and a Hard Rock Casino to go with its Hard Rock Hotel.

But the fact is that City of Dreams, while open for business and pulling in revenue, is not yet firing on all cylinders. Only a third of the retail space is occupied and there is ongoing construction, including a 2000-seat theatre that will house a permanent show by Franco Dragone, the man behind Celine Dion's blockbuster show "A New Day", in Las Vegas. Whether this means that it has potential to bank on, or that it could potentially miss the opportunity to put itself on the map, is yet to be seen.

Three or four years ago, BHP Billiton’s move into petroleum was staunchly criticised as a complete disaster as costs rose and energy prices went down, but as the world scrambled to secure access to oil, the energy unit became one of the jewels in the BHP crown. While many analysts decry James Packer’s decision to expose himself to the pressure-cooker environment of Macau, the move could prove very lucrative if Macau continues to ride China’s growth story all the way to the bank. The Chinese are getting wealthier and, if Greg Hawkins is right and it does indeed become the entertainment playground for China’s middle and upper classes, there will be a lot of money to make. The question is whether City of Dreams can get in on the action.