In the spring of 2004, gaming tycoon Sheldon Adelson placed a stupendous gamble, a quarter-billion dollar bet on a new casino.
That his company, Las Vegas Sands Corp., would drop a quarter-billion on a new casino/hotel was no surprise. The Sands epitomized Vegas cool in the 1950s, and gave birth to what became the Rat Pack – Frank Sinatra, Sammy Davis Jr., Dean Martin, Joey Bishop and Peter Lawford.
And by the mid-2000s, Vegas hoteliers were more than a decade into their latest process of creative destruction, one-upping one another by building ever-larger, ever-grander hotels-as-adult-theme-parks along Las Vegas Boulevard.
But Adelson did not place his bet on the gambling Mecca his company helped define.
He placed his bet on Macau.
His gamble paid off in spades. Ultimately, Adelson would win back his quarter-billion dollar bet in just eight months, and go on to win billions more in profits.
But his success had nothing to do specifically with gambling. It was not about casinos, the rise of Macau or the decline of Las Vegas. It was not even about China, per se, though the Middle Kingdom is clearly a leading player in the new drama unfolding.
It was about the end of an empire … and the rise of a new middle class.Pockets of Growth Continue to Thrive Despite the Economic Chaos
Instead of flying 15 hours across the Pacific to reach the neon Vegas Strip, when the Western world fell apart amid the global financial crisis, Asia’s gambling-crazed punters opted to travel just a few hours to the equally electric Cotai Strip in Macau … to hotels like Adelson’s Sands Macao and the Wynn Macau, the Chinese outpost of Vegas-based Wynn Resorts Ltd. that opened in 2006.
Asian tourism to Vegas fell away even as Asian tourism to Macau jumped to 97.2% of the island’s visitors in 2010 (from 91.8% just two years earlier). The absence of Asians – particularly the wealthy whales who once flooded Las Vegas – helped crush Vegas’ gaming revenues, which plunged to just $5.2 billion in 2010, a 20% slide from the 2007 peak.
Yet, Macau’s gaming revenues exploded during that same period – to more than $23.5 billion from just $3.6 billion in 2003, the year before Adelson planted the Sands flag in China. Moreover, Macau’s gaming revenues have continued to grow every year, even as Vegas continued to fall and as Western economies sunk ever-deeper into economic turmoil based on structural flaws that many of today’s developing economies don’t face.
The economic decline that has buffeted Vegas underscores a powerful, irreversible shift that most investors fail to see and don’t understand – the rise of the middle class in places like Indonesia, Nigeria, Colombia, China and elsewhere outside the Western world.
The wave of prosperity that lifted Las Vegas – and America – in the decades between 1945 and 2001 is receding here at home and is, instead, now lifting consumers in countries many Americans can’t even find on a map.
Just as Macau displaced Las Vegas as global gambling’s new Mecca, the emerging consumers now rising up in the world’s developing nations are starting to displace American consumers on a far broader scale.
For many in America, that’s a call to arms – a reason to rail against China and its undervalued currency or to block free-trade agreements on misplaced concerns that they are the cause of the decline in America’s middle class.
For those who think with a bit more savvy, it’s the reason you look overseas for investment opportunities.
America is moving into the shadows as the sun shines on a new breed of younger, more-energetic economies – and that’s not a reason for lament. It’s the same in life – the youth of yesterday are today’s slower-moving middle-aged workers and retirees, and that older generation naturally yields to the vigor and innovation of youth. Likewise, larger economies ultimately must cede the mantle of growth to the up-and-coming nations.
That’s the sea change now underway in the world, and it will define global economies for at least another three decades. You either get on board with that trend and exploit it for profit … or you complain about it and miss the opportunities this global trend is giving you.Make Big Money in Macau’s Casinos…Without Gambling
One way to capitalize on this change is to look at what’s happening in those Macau casinos and follow the money.
The gambling growth in Macau (as well as gambling centers now growing in Singapore, Malaysia and Cambodia) means increasing profits for the companies that supply the casinos with all their gear. And you’ll find one of the leaders in that industry down in Australia … a company called Aristocrat Leisure Ltd.
Action to Take: BUY Aristocrat Leisure, symbol ALL on the Australian stock exchange, up to A$2.50.
Due to worries about a global economic slowdown tied to the West, gambling stocks have come under pressure in recent months, so look upon Aristocrat as a longer term play. Ultimately, though, Aristrocrat is one of the leading suppliers of video-slot machines, and gambling across Asia has nowhere to go but up.
My price target for the shares is north of A$5.
Until next time, keep a global view…
Editor, Emerging Market Strategist
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.