WSJ on China's gambling bubble

| About: Las Vegas (LVS)
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The Wall Street Journal (subscription required) reports that despite Macau's gambling growth, investors had best be cautious. Here are the key points and a quick thought:

US companies capitalizing:

  • Las Vegas Sands (ticker: LVS), operates a casino in China's Macau territory, has risen 64% since its IPO.
  • Wynn Resorts (ticker: WYNN), plans to open a Macau casino in 2006, has risen 105% over the last year.

Reasons for Macau's success:

  • Tourism from mainland China to Macau reached 9.5
    million in 2004, more than 4X the number in 2000.
  • Chinese love gambling.
  • Macau is the only place on mainland China where casinos are permitted.

Las Vegas vs Macau:

  • Analysts say Macau will surpass Las Vegas as the world's largest and most-profitable gambling and convention center.
  • Macau's gamblers primarily play high-stakes games
    like baccarat, while Las Vegas gamblers play slot machines and
    other mass-market games, such as blackjack and roulette.
  • Merrill Lynch forecasts that 2004 gambling revenue was $5.2 billion in
    Macau, an increase of nearly 50% over the previous year. That compares
    with about $5.3 billion in revenue last year for the casinos along the
    Las Vegas strip.
  • According to the CEO of LVS, there is more potential in Macau than Las Vegas.

General concerns:

  • Overdevelopment as new operators rush in hoping to lure the world's high-rollers, many of them Asians, away from Las Vegas.
  • Treatment of minority
    shareholder rights, lingering crime and


  • Goldman Sachs estimates that the number of Macau gambling tables will rise to 3,700 by 2008 from 845 at the end of last year.

Hong Kong listed companies with direct exposure to Macau's gambling, hotels, transportation and tourism:

  • Shun Tak Holdings
  • Melco International Development
  • Far East Consortium

Quick thought: Despite a government ban on Internet gambling, companies like CryptoLogic (ticker: CRYP), a software and services provider to the worldwide Internet gaming market, seem to believe that there is a future. Read quotes from its latest conference call here.