It was a year ago when a frail Kerry Packer carefully made his way into the Hyatt Hotel in Sydney for breakfast with his mate, Las Vegas casino legend Steve Wynn.
Packer wanted to know what he thought about his son James Packer’s deal with the 28-year-old Lawrence Ho, the son of Macau casino veteran Stanley Ho, to go into the casino business together in the former Portuguese colony.
Casino operators such as Wynn, Sheldon Adelson’s Las Vegas Sands and the MGM Mirage group are betting billions of dollars that Macau, the only place in China with legalised casinos, is set to become the Las Vegas of Asia.
By doing a deal with Ho, James Packer – who will be in Macau on Monday for the ground-breaking ceremony for the $ 1.4 billion City of Dreams casino – is putting the Packer family’s Publishing and Broadcasting Ltd’s money on the table beside the other big players in Macau in the biggest gamble of his short corporate life.
„He was ill,“ Wynn recalled about his meeting with Kerry Packer in an interview with The Australian this week from Macau, where he is preparing for the opening of the $ 1 billion Wynn Macau in September.
„It was hard for him to walk,“ Wynn said.
„What do you think of the deal Jamie made?“ a concerned Packer asked Wynn, famous for his lavish Las Vegas mega-casinos such as the Bellagio and the Mirage.
„Are the kids on the right track?“ Packer wanted to know.
Wynn, who got a casino licence in Macau in 2002 after the Government ended the 40-year monopoly of Stanley Ho, assured „KP“ that „Jamie was in the right place, at the right time“.
A year later Wynn would be offering his mate’s son more than just reassurance. James Packer got a chance to step up into the seriously big time of owning a full casino licence in Macau.
From being the junior partner in a venture with the son of the man who had controlled Macau gaming for 40 years, James Packer was suddenly in the driver’s seat with 60 per cent of the equity and management control of the venture. This from a position of holding two Australian casinos that have profited mightily from Asian high-rollers and which will inevitably be hit by the rise of Macau.
Wynn told The Australian that James Packer and Lawrence Ho had been „bugging the hell“ out of him for months to buy his casino licence subconcession, which could be the last of its kind in Macau. (Each of the three groups granted casino licences in Macau in 2002 was allowed to sell one subconcession.)
While he had approaches from many other players, wanting to get into the market, Wynn said he finally decided a few weeks ago to sell it to James Packer. When he made up his mind to do the deal, Wynn says he rang James Packer with a take it or leave it proposition: $ 1.2 billion. Not negotiable.
„I’ve made up my mind,“ Wynn told James. „We are not negotiating. Here’s the price.“
The high price – several times more than some analysts had been expecting – stunned the market.
Wynn revealed that he had made the offer by phone directly to James, allowing Publishing and Broadcasting Ltd to buy the subconcession in its own right.
It was a critical decision which gave Packer the leverage to press Lawrence Ho to increase PBL‘s economic stake in their Macau casino joint venture from 40 per cent to 50 per cent.
„By me giving it to Jamie, it gave him enough leverage to increase his ownership to 50 per cent,“ Wynn said.
„I could do a favour for a friend,“ he added.
Melco, a Hong Kong-listed company controlled by Lawrence Ho, will buy into PBL Macau, the company which will own the licence, after the deal is done. They will share the profits but PBL will retain a 60 per cent equity in the company.
Wynn admits that the $ 1.2 billion price tag for the licence was „healthy“ but says it was a „terrific deal by Packer“. Before the Wynn deal, Packer and Ho had planned to operate their two proposed Macau casinos under the licence held by SJM, the company controlled by Stanley Ho. This meant they had to pay SJM 20 per cent of all gross revenues. Wynn estimates that the two will recover the $ 1.2 billion after four to five years on the savings from not having to pay the 20 per cent.
By having a full licence in Macau, Packer and Ho can also open as many casinos with as many gambling tables and poker machines as they like.
Having a controlling stake in a full casino licence will also make life easier for PBL when it comes to the ongoing probity investigation into the deal by Victorian and West Australian gaming authorities.
By stepping back from the colourful Stanley Ho, who has been mentioned by the New Jersey casino authority as having possible links with organised crime, Packer has a much cleaner deal all round.
The deal is yet another stunner in the amazing career of the energetic Wynn, who has been in the gaming business since he worked as a 15-year-old in his father’s bingo parlours. Still an avid skiier, Wynn, who looks much younger than his 64 years, has a history of some great deals – selling off casinos in New Jersey and Las Vegas – to fund his next venture. The father of two girls, Wynn may be casting a fatherly eye over James, but he admits there were also several other hard-headed factors in his decision to sell the Macau subconcession to PBL. Thanks to Lawrence’s links with his father Stanley Ho, who still controls most of Macau’s casinos and many other parts of the local economy, PBL/Melco was able to secure a 11ha piece of land on Macau’s new Cotai strip.
The strip of reclaimed land between two islands is the site for the ambitious City of Dreams casino/hotel/apartment project – one of several major projects planned for the area, including the massive Venetian casino under construction over the road by the Las Vegas Sands group. The first casino of the PBL/Melco venture, the $ 300 million Crown Macau, is under construction not far away, set to open next year, pitching to high-rollers with a six-star hotel. But the much larger, more ambitious City of Dreams project is squarely aimed at attracting the burgeoning middle classes of China.
The City of Dreams site is right next door to the 22ha site which Wynn has secured for his second Macau venture – potentially blocking out Packer’s water view.
Wynn is not giving away any details of this project, focussing on preparing his smaller Wynn Macau – near Stanley Ho’s legendary Lisboa – for opening in September.
„The Packers are legitimate people who aspire to do things well,“ Wynn said.
Wynn, who is always passionately involved in the design of his casinos, indicates that they could work together to make sure their designs for the adjoining sites are complementary.
„We have plenty of time to revisit everything as neighbours. We should take a really good look at what we want to say to the world about Macau and our input on Cotai. The three of us (Wynn, James Packer and Lawrence Ho) will have dinner and talk about it.“
As Wynn well knows, keeping up the tone of the the multi-billion-dollar new neighbourhood in Macau will be critical to the reinvention of the city as the casino and resort capital of Asia.
Macau has long been known as a seedy part of Asia, a favourite of money launderers and loan sharks, and with a thriving prostitution business.
Before its handover from Portugal to China in 1999 – it operates as a Special Administrative Region similar to Hong Kong – Macau was also known for a spate of gangland killings.
At 7am on Monday this week, prostitutes could be seen standing on one of the plazas leading from Stanley Ho’s Lisboa, while tired casino workers, wearing their black uniforms and white blouses, headed home at the end of their shifts.
Anyone wanting to enter Macau casinos has to pass through metal detectors.
Macau has already surpassed Las Vegas in terms of gambling turnover, boosted by the opening of the first Western-style casino – the Sands – in 2004. Thanks to the busloads of tourists from mainland China, visitors to Macau grew by 40 per cent in 2004 and by another 12 per cent last year to 19 million.
But as Wynn says, the real new Macau is only just beginning to emerge from the dust of the pile drivers and cranes which now surround the city as the new breed of Western-style casino operators come to town with plans to spend more than $ 25billion.
He says 2007 will be the year when people really begin to see the physical evidence of the changes in Macau. Leighton Asia is also riding the Macau boom, having almost completed Wynn’s first Macau project and moving on to work on its extension.
The company is eagerly awaiting news of Wynn’s plans for his next major project on the Cotai strip.
While James Packer has an important friend at court, he has stepped into a hugely competitive market with extremely experienced, well-funded players.
MGM Mirage of Las Vegas and Lawrence’s older sister Pansy are building a new casino next door to the new Wynn Macau while Stanley Ho is pushing ahead with a New Lisboa. Sheldon Adelson’s massive Venetian project is expected to open mid-2007, the first of a series of Sands-related projects along the strip including the Four Seasons.
In Adelson’s models of the Cotai strip, the City of Dreams appears as a small parkland.
PBL can be assured that Wynn not only has full confidence in Macau’s prospects, he plans to back them with serious money.
„We (Wynn Resorts) are going to be active in this market to the full extent of our energies and creativity,“ Wynn said.
„We will be taking advantage of our enormous capital reach.
„We literally have access to an unlimited amount of money – and that’s before we sold the subconcession.
„Macau is a place in the line of fire. Of all the places on the planet you would want to be, this is it.“
Wynn sees a little of his younger self in James Packer and Lawrence Ho, with the potential to become major players in the Asian gaming market.
‚Those kids – those young men – are potentially the most talented combination I’ve seen in a long time in this industry,“ he says.
„Neither of them are American – one is Chinese, one is Australian.
„It’s a fascinating combination now they have a licence in China.
„I think they are up for it.
„It’s going to be a good one to watch, and I’ve got a good seat.“