The Hotel Lisboa used to be the only game in Macau. The birdcage-shaped casino has welcomed Chinese playing baccarat, blackjack and sic bo — an Asian dice game — amid smoke-stained walls and frayed carpets for 35 years.

Now, the Lisboa and other casinos in Stanley Ho’s gaming company, Sociedade de Jogos de Macau (SJM), are facing a horde of competitors. Ho, who had a government monopoly on Macau gaming for four decades until 2004, has seen his share of gambling revenue dive to 55 percent from 100 percent — and it’s still shrinking.

All around the Hotel Lisboa, crowded into a territory measuring just 28 square kilometers (about 11 square miles), gambling billionaires Sheldon Adelson of Las Vegas Sands Corp., Steve Wynn of Wynn Resorts Ltd., and Kirk Kerkorian of MGM Mirage are building new resorts complete with artificial canals, singing gondoliers, luxury shopping malls and celebrity chefs. Local investors who have joined the fray include Hong Kong-based Galaxy Entertainment Group Ltd. and kung fu film star Jackie Chan.

Blurring the battle lines is the maneuvering and feuding within the sprawling Ho family. Patriarch Stanley Ho, 85, a billionaire in his own right, says he wants to sell as much as USD 1.9 billion worth of shares in closely held SJM to raise funds to go head-to-head with the Americans. That plan has so far been blocked by a lawsuit brought by his sister, Winnie Ho, 84, who holds a minority stake in SJM‘s parent company and says she wasn’t consulted about the share sale.

Father of 17

Meanwhile, two of Ho’s 17 children have formed joint ventures with his Western rivals. Pansy Ho, 44, chief executive officer of the family company, Shun Tak Holdings Ltd., has used her own money to form a 50-50 partnership with Kerkorian’s MGM Mirage, which is building the USD 1 billion MGM Grand casino-hotel within walking distance of her father’s flagship Lisboa.

And Lawrence Ho, chairman of Hong Kong-listed Melco International Development Ltd., has teamed up with Australian tycoon James Packer to invest as much as USD 3.3 billion in three casinos in Macau. Lawrence, 30, and Packer, 39, raised USD 1.14 billion by selling shares in their joint venture, Melco PBL Entertainment (Macau) Ltd., on the U.S.‘s NASDAQ Stock Market in December. The stock rose 11.9 percent, to USD 21.26 on Dec. 29, in its first ten days of trading.

In all, foreign investors are staking USD 20 billion on making Macau, a former Portuguese colony that’s now a special administrative region (SAR) of China, into the gambling capital of Asia.

Market of 2.2 Billion

„In 10 years, Macau will resemble Vegas on steroids,“ says Brian Summers, who helps manage USD 28 billion at Santa Fe, New Mexico-based Thornburg Investment Management Inc., including USD 240 million worth of Las Vegas Sands shares. Summers points to the demographics. Macau (population: 500,000) is the only place in greater China — the mainland, Hong Kong, Macau and Taiwan –where its 1.3 billion people can gamble in casinos.

In total, 2.2 billion people live within five hours‘ flying time of Macau, according to CLSA Asia-Pacific Markets, compared with 410 million in the same radius of Las Vegas. „They like retail, they like to gamble, their income is rising and they’re being offered something they’ve never had before,“ Summers says of the Asian gamblers.

Macau is already the biggest single gambling market in the world. In 2006, Macau’s casinos raked in an estimated USD 6.8 billion, probably overtaking the Las Vegas Strip, says Rob Hart, a Hong Kong-based gaming and property markets strategist for Morgan Stanley. The Strip took in approximately USD 6.5 billion.

„Forget about the dating services,“ jokes Adelson, 73, chairman of Las Vegas Sands. „You can’t make a better match than bringing casinos to Asians.“

40,000 Gamblers a Day

Adelson’s 740-table Sands Macau, which opened in 2004, is doing such good business that he recouped his USD 260 million investment in eight months, he says. At the Sands Macau, the world’s biggest casino when ranked by the number of tables, as many as 40,000 gamblers a day, almost all of them casually dressed Chinese, besiege the croupiers.

On a stage above the throng, Western bands belt out pop numbers. Next door, in the relative calm of the Paiza Club VIP suites, high rollers, again mostly Chinese, relax in leather armchairs between USD 10,000 games of baccarat.

Out in the lobby, a yellow Lamborghini is being raffled. At the curbside, convoys of courtesy buses drop off new customers, some of them lured by text messages sent to their cell phones.

„Want to be a millionaire?“ reads one. „Take the direct bus from China to Sands and you immediately qualify for the instant millionaire draw.“

Next Market: Singapore

The gambling frenzy goes beyond Macau. Foreign investors are also targeting Singapore, Japan, Vietnam and other Asian countries, as governments move to lift decades-long restrictions on casinos, says Sean Monaghan, a Singapore-based analyst with Merrill Lynch & Co. „The breadth of change is going to be monumental,“ Monaghan says.

The next gambling venue that will open up is Singapore, where in May the government issued its first casino license to Adelson’s Las Vegas Sands. He will spend USD 3.6 billion building a casino and a 2,500-room hotel and convention center on reclaimed land in Marina Bay, near Singapore’s downtown.

In December, Singapore authorities announced that a second license — the last to be granted for at least 10 years — had been awarded to Asia’s biggest casino company, Kuala Lumpur- based Genting Bhd., controlled by billionaire Lim Kok Thay, 55. Across Asia, casino companies will spend as much as USD 71 billion over the next five years, according to Monaghan. Annual gaming revenues for the region could double to USD 23 billion in 2010 from USD 11.9 billion in 2005, according to a 2006 PricewaterhouseCoopers LLP report.

Sands‘ Stock Triples

Investors are buying into the plan to clone Vegas across Asia. Las Vegas Sands‘ New York Stock Exchange-listed shares have more than tripled, to USD 92 at today’s close, from its initial share sale in December 2004. Wynn Resorts‘ stock rose sevenfold, to USD 96.27, since it listed on NASDAQ in 2002.

MGM Mirage stock hit a 52-week intraday high of USD 57.80 on Dec. 20, and closed at USD 57.57 today. Shares of Melco International were up 18-fold to 19.22 Hong Kong dollars today from their price on Dec. 31, 2003. The stock of Hong Kong- listed Shun Tak Holdings, Ho’s Macau-focused conglomerate, has more than quadrupled to HKUSD 12.32 since Dec. 31, 2003.

Even though Stanley Ho is losing market share in his casinos, his web of business interests ensures that gamblers visiting Macau can’t help putting money into his pockets. He still owns 16 of the 23 gaming houses in Macau. Through Shun Tak and other companies, Ho owns a controlling interest in ferry and helicopter services that carry passengers between Hong Kong Island and Macau.

Ho’s Exploding Volcano

Ho also has a 33 percent stake in the airport and 14 percent of the main local airline, Air Macau. Ho owns the biggest department store, New Yaohan, and the second-biggest bank, Seng Heng Ltd., and has property investments that include the five-star Mandarin Oriental and Westin Resort hotels, plus a theme park complete with artificial exploding volcano. Among his latest projects: a new budget airline, Macau Asia Express Ltd.

While Ho held a monopoly, Macau casinos catered to hard- core gamblers who spent most of their money at the tables. Adelson, Wynn, Kerkorian and Packer, CEO of Australia’s Publishing & Broadcasting Ltd. and son of the late tycoon Kerry Packer, are all betting that gamblers from China will be able and willing to pay for fine dining, cabaret shows, shopping trips and other extras that lure non-gamblers to Las Vegas.

Investor Jackie Chan

That’s a risky assumption, at least in the short term, says Anthony Carter, CEO of Galaxy, which is investing USD 1 billion in the territory. „Adelson and Wynn are visionaries,“ Carter, 61, says. „In Macau, I’m not sure the timing of their vision is correct.“

Galaxy’s founder, Hong Kong billionaire Lui Che-woo, 75, has opened five casinos in Macau meant to appeal to Chinese who want to spend most of their budget on gambling. That means no designer shopping or Western food.

Jackie Chan, the Hong Kong-born actor who has starred in hit martial arts movies including Rush Hour and Rumble in the Bronx, meanwhile, has taken a 5 percent stake in the USD 80 million Emperor Grand hotel and casino. „It’s one of my wisest decisions,“ Chan, 52, says of his investment.

Hong Kong entertainment mogul Albert Yeung, 62, is the principal owner of the Emperor, which features cheaper rooms than those offered by Wynn and Adelson. Its most ostentatious adornment: 78 one-kilogram gold bars inlaid in the lobby floor.

New China Gateway

The frenzy of casino development is rapidly transforming Macau. Portuguese traders set up the colony of Macau in 1557 — 284 years before the British arrived in Hong Kong. By the late 19th century the enclave had become a trading backwater, losing its position to the British city across the Pearl River estuary.

Today, a visitor arriving by air sees acres of construction amid the dreary Hong Kong-style apartment blocks and restored Portuguese colonial architecture. The Macau government is expanding the airport and has opened a second border crossing, called the Lotus Bridge, with mainland China. That makes Macau an even shorter bus or car ride for many of the 110 million Chinese who live in neighboring Guangdong province, 1.2 million of them in the city of Zhuhai adjacent to Macau.

In all, a total of 250 million Chinese living in Guangdong and 28 cities across China are allowed unfettered individual travel to Macau, according to the Macau government tourism office. The rest can visit on organized tours.

Macau now earns 70 percent of its revenue from casino taxes. The economy has doubled in four years to USD 12 billion, or USD 24,000 per capita, making the enclave the fourth richest region in Asia after Japan, Singapore and Hong Kong, according to Macau government figures. In the third quarter of 2006, gross domestic product rose 11 percent compared with the same period in 2005.

Fleeing the Japanese

Stanley Ho was born into a wealthy Hong Kong family of mixed Chinese and European descent. His family’s fortunes changed for the worse before and during World War II, when the Japanese invaded Hong Kong. At age 21, he fled to neutral Macau, where he set up a trading business and married a well- connected Portuguese-Macanese woman, Clementina Leitao.

Casinos had been operating in Macau since the 1930s. In 1962, the monopoly franchise was awarded to Ho and a group of partners. Back then, the territory’s most noticeable landmark was the 17th-century hilltop facade of ruined St. Paul’s church. In 1972, Ho contributed the Hotel Lisboa.

Change began in 1999, when Portugal handed Macau back to China under a Hong Kong-style one-country, two-systems arrangement that gave Macau administrative authority over many local issues not related to defense and foreign affairs.

Travels Restrictions Eased

The first major decision of the new Beijing-appointed local government was to end Ho’s monopoly in a bid to attract fewer professional gamblers and more entertainment and conventions. At the same time, the Chinese government eased travel restrictions for mainlanders.

Tourist arrivals shot up to 18.7 million in 2005 from 12 million in 2002, with 60 percent of the visitors from the mainland. The number for 2006 was expected to top 20 million, according to Hong Kong-based CLSA Asia-Pacific Markets.

Ho says he is determined to rise to the challenge posed by Adelson and company. „All my life I love challenges, and I never accept no as an answer,“ he says.

A Hong Kong tennis champion (he’s won the Chinese Recreation Club doubles competition for older players every year since 2002), Ho also swims daily and says he has no thoughts of retirement. He was scheduled early this year to open his new USD 625 million Grand Lisboa, a 40-story hotel-casino shaped like a golden lotus petal that will tower over the original birdcage.

Stanley vs. Winnie

„Unlike the others, which are replicas of their Vegas models, our Grand Lisboa is unique and original,“ he said in e-mail answers to questions. „Our company will have a definite edge. As the pie is growing bigger and bigger, I believe there should be enough for every player in the market.“

First, Ho needs to make peace with his sister. Winnie Ho owns a 7.3 percent stake in Sociedade de Turismos y DiversÕes de Macau, or STDM, which owns 80 percent of Sociedade de Jogos de Macao, the firm that controls Ho’s casinos and that Ho wants to take public. In her suit, filed in March, she claims the board meeting that approved the share sale was invalid.

She told Bloomberg Television in an interview broadcast on Dec. 11 that her brother had tried to get her to sign away her shareholding for less than it was worth. She says the company, which she helped run for 25 years, owes her unpaid dividends amounting to HKUSD 3 billion (USD 386 million) and that SJM should not sell shares until she’s paid.

Buyout Offer

„We don’t need all these lawyers if he plays by the rules and the law and pays me back the money he owes me,“ Winnie Ho said in the interview. „But that’s just Stanley, always thinking he can just walk over anybody.“

She said she was prepared to buy out her brother, adding: „the most important thing is for Stanley to give up control of the company and get out. We’ll find competent people to run the business.“

Through his law firm, London-based Herbert Smith LLP, Ho refused to respond to his sister’s specific charges. „Suffice to say, we are instructed that our client and STDM refute entirely all of Madame Winnie Ho’s allegations,“ managing partner Herbert Smith wrote in a letter to Bloomberg News.

The arrival of outside gaming interests in Macau has brought Stanley, Pansy and Lawrence Ho under the scrutiny of overseas gaming regulators. Under the laws of New Jersey and Nevada — the two biggest casino gambling venues in the U.S. — casino owners, their employees and vendors must be licensed. To renew their licenses, casinos have to demonstrate they and their business partners are free of ties to crime anywhere in the world.

Scrutiny from the U.S.

The MGM-Pansy Ho joint venture still has to be approved by the gaming control commissions of the two states, where MGM owns casinos. In mid-December, spokesmen for the commissions said they were still investigating Pansy Ho’s background. „This is not out of the ordinary,“ says New Jersey Casino Control Commission spokesman Daniel Heneghan. „If you look at our prior licensing investigations, our investigators have traveled the globe.“

Last year, Australia’s Victorian Commission for Gambling Regulation (VCGR), whose rules are modeled on those of New Jersey, launched a routine investigation of Melco PBL Entertainment and its principals, including Stanley and Lawrence Ho.

When the investigation started, Stanley was chairman of Melco International, one of the joint venture partners, and also owned 7 percent of its shares. In March 2006, he resigned as chairman, saying he wanted to avoid a conflict of interest. In November, he announced in a term sheet sent to investors that he would sell 4.3 percent of the shares. He still owns 2.6 percent of Melco, according to Bloomberg data.

Australia Okays Venture

In August, the VCGR approved the joint venture, saying in a statement, „our investigations have satisfied the VCGR that Dr. Ho is not in a position to exert any influence with respect to this venture.“

Peter Cohen, CEO of the commission, said in a December interview that because Stanley Ho had resigned as chairman, the commission concluded he wouldn’t play a „significant“ role in the management of the company, so it called off its investigation of his suitability as a joint venture partner. Asked if the VCGR had tracked Ho’s business history, Cohen, 49, said, „we did not check, so we don’t know.“

Both Pansy and Lawrence say they are in competition with their father — Pansy through her interest in the MGM Grand and Lawrence through Melco PBL, which is scheduled to open its first casino on the Macau island of Taipa in April.

„Stanley Ho’s kingdom is unraveling,“ says Michael Backman, 39, a London-based author of books on Asian family business networks. „Within the family it looks like it’s every man for himself.“

‚A Family Strategy‘?

Others are not so sure. „It looks like a family strategy,“ says William Eadington, 60, professor of economics at the University of Nevada at Reno and a consultant to the U.S. and other governments on the gaming industry, when asked about Stanley Ho’s continuing investment in Melco and Pansy’s position as managing director and CEO of Shun Tak Holdings.

Pansy, a regular on the Hong Kong social circuit, says family members are not collaborating in their casino operations. She says she didn’t even know her brother had acquired a casino concession until she read it in the newspaper.

„When we go home and gather together, we only talk about family matters,“ she says.

Stanley Ho agreed to be interviewed only by e-mail. When asked about his children’s ventures, he wrote: „Their partnership with international players will bring in new casinos and gaming-related facilities, as well as recreational and hospitality facilities, which will help bring more tourists to Macau.“

Junketeers Shift Allegiance

Ho’s Macau casinos have traditionally depended on a particular kind of tourist: gamblers who arrive on organized junkets from elsewhere in Asia. It was the junket operators who brought the high rollers to Macau’s casinos, lent them money and collected their debts.

They used to work exclusively for Ho, delivering gamblers to the Lisboa’s VIP rooms, which are run by franchise owners who share the house’s winnings with Ho and pay the junket operators a commission for each chip a junketeer buys.

In 1999, before Macau was handed over to China, 40 people died in what Portuguese law enforcement authorities called a gang war among Chinese organized crime groups, called triads, over control of some VIP room franchises at the Lisboa.

Now, Ho says junket operators are bypassing the Lisboa and its franchises and are bringing some of their best customers to the Sands and Wynn casinos. Referring to his own casinos, Ho told Bloomberg: „Smaller VIP halls, which may not be as competitive as others, are faced with some problems.“

Adelson Chases Gates

Says the Sands‘ Adelson of Ho’s complaint: „I find it startling. Apparently he hasn’t got to the point where he realizes there’s competition.“

Adelson has ridden his casino investment to a huge fortune. His 69 percent stake in Las Vegas Sands stock had a value of USD 22 billion on Dec. 29. Though slowed by a nervous- system ailment that forces him to use a walker, Adelson said in an interview in Las Vegas that he aims to overtake Bill Gates to become the world’s richest man. Gates’s 9.54 percent stake in Microsoft Corp. is worth USD 28 billion, according to Bloomberg data.

Adelson also has 50-story ambitions for Macau. He plans to spend as much as USD 11 billion re-creating the Las Vegas Strip on what he calls the Cotai Strip, a 1.2-kilometer (0.7-mile) long isthmus of reclaimed land linking Coloane and Taipa, the two islands that together with the Macau peninsula make up the Macau SAR.

19,000 New Rooms

That development will include a USD 1.8 billion replica of his Las Vegas Venetian resort, a 1.2 million-square-foot (110,000-square-meter) convention center and nine hotels, he says, including a Four Seasons. All together, Adelson’s properties will comprise 19,000 rooms and 3 million square feet of retail space.

Wynn, 64, is matching Adelson chip for chip. His 600-room, USD 300-a-night Wynn Macau offers a 220-table casino, seven restaurants and 26,000 square feet of luxury shopping. In the casino’s opening weeks last year the gambling czar pulled in thousands of potential customers by hanging paintings by Renoir and Matisse in the hotel lobby and placing a USD 10 million Ming vase in the Wynn Club, a 100-room VIP annex for high rollers.

Wynn is building an extension, scheduled to open in February that will almost double the size of the casino. And he has plans for three more resorts on the Cotai Strip. „I’ll be building here for the next 10 years,“ he told Bloomberg television in September.

There are obstructions in the path of the new casinos‘ long-term success. Among the possible pitfalls: an oversupply of hotel rooms and gaming tables. There are currently 13,000 hotel rooms in Macau, and occupancy rates are only 75 percent, according to the Macau Tourism Association. By the time Adelson and his rivals finish their current projects in 2009, there will be 30,000 rooms.

Ubiquitous Saunas

In addition, while more than 50 percent of Las Vegas’s tourism revenues come from non-gaming activities, most Chinese still come to Macau only to gamble, according to the tourism association. The average length of stay is 1.17 nights, compared with 3.5 in Las Vegas. And half of those who do stay overnight don’t take rooms in hotels, preferring to rest up for a few hours in Macau’s ubiquitous saunas.

Skifeng Ke, who helps manage USD 21.5 billion for Edinburgh- based Martin Currie Investments, says he won’t be buying any Macau-related casino stocks, partly because of the intense competition and partly because he thinks a recent Chinese government clampdown on corruption could scare mainlanders away from the enclave.

„You’ve got competition, you’ve got the anti-corruption campaign,“ says Ke, who’s based in Shanghai. „In the short term, business will be affected.“

Bribery Accusation

On Dec. 6, Ao Man Long, Macau’s secretary for transport and public works, was detained on bribery charges, according to a statement posted on Macau’s government Web site. Ao, 50, also engaged in „irregular financial activity,“ the statement said, without giving details. His attorney, Luis Mendonca Freitas, was traveling in Europe this week and wasn’t available for comment, according to his office.

Adelson and Wynn say Macau’s demographics are too good for their ventures to fail. Sitting at his Las Vegas Sands boardroom table, a pitcher of iced tea and a bucket of ice before him, Adelson rattles off the number of potential visitors from Asian countries: 250 million from China, 128 million from Japan, 24 million from Taiwan, 75 million from Thailand.

„Ya get it?“ he asks. „How much rocket science do you need, and how much arithmetic do you need, to say that the amount of the market I need is so infinitesimal? It’s just like a person in the desert needs water. These people need entertainment. There’s no question in my mind we’re going to achieve the level of success we’re shooting for.“

‚Betting the Bank‘

Still, Eadington has doubts about the gaming entrepreneur’s huge investment. „Adelson is betting the bank on Asia,“ he says. „He may be right, but when you are moving as fast as he is, you can make significant strategic errors.“ One mistake, he says, would be to discount future competition from locations like Japan, Taiwan and Thailand.

David Green, head of the Macau practice of PricewaterhouseCoopers, agrees. „The way it’s developing in Macau is encouraging, but sooner or later growth will slow,“ says Green, 53, a former gaming regulator in Australia. „My concern is that capital will then move on to the next big thing. It will be Singapore, then Taiwan, and so on.“

A visit to Macau demonstrates both the potential and the challenge facing the Las Vegas investors.

American Edge

Engineer Yau Jing Long, from Shanghai, says he and his wife love the Sands, where they’ll spend USD 3,000-USD 4,000 over three days, playing baccarat until 4 a.m. „It’s intense — you really feel the gambling atmosphere,“ Yau, 56, says. „The aisles are wider and the tables posher than at the Lisboa.“

The Yaus are staying with friends, however, and aren’t in the market for a hotel room.

Neither is Hao Sheng, a Beijing ceramics company executive who’s on his way to the Wynn from the Lisboa. With an income of 350,000 yuan (USD 40,000), he’s rich in a country where middle class is often defined as a salary of USD 6,000 a year. Yet he says he prefers to gamble at Ho’s Lisboa. „It’s a symbol of Macau, and my friends and I like to go there,“ Hao, 44, says. „We joke that we’re trapped inside the birdcage. Everyone in China knows the Lisboa, but many of them still haven’t heard of the Sands or the Wynn.“

Hao says he visited Macau three times in 2006 and spent up to 100,000 yuan each trip. Yet he balks at even the USD 200 a night discounted midweek rate at the Wynn. He prefers to stay across the border in the Chinese city of Zhuhai and walk into Macau to gamble. „It’s much cheaper and almost as convenient,“ he says.

Hao’s refusal to tailor his gambling habits to the Las Vegas model suggests that, at least for the short term, the American billionaires may not have made the sure bet they say they have.