Galaxy Entertainment, new to the casino business, prospers in Macao

New York: The Galaxy Entertainment Group had no business entering the casino business when it made its bid for a gambling license in Macao.

Competing in Macao, after all, meant going head to head with Stephen Wynn, who practically invented modern-day Las Vegas, and Las Vegas Sands, parent company of the Venetian, which over the last several years has opened two properties in Macao, including the world’s largest casino resort. This month, the MGM Mirage opened its giant Macao property.

And then there was Stanley Ho, the Hong Kong billionaire who for four decades held the territory’s only gambling license.

Galaxy, by contrast, was created in 2001 by the Lui family, a clan based in Hong Kong that for 20 years had been building office towers and residential buildings in China (and also Hong Kong and the United States) but had no experience in the gambling business.

Yet Galaxy has managed to hold its own in a crowded market, capturing a 20 percent share of gambling revenues in a locale that surpassed even the Las Vegas Strip last year in terms of the money gamblers cumulatively lost.

Macao, a Portuguese colony that was returned to China in 1999, is the only place in China where casino gambling is legal.

Galaxy, which went public on the Hong Kong stock exchange in 2005, operates the StarWorld Hotel and Casino in central Macao, along with several smaller gambling halls around town. The company is building a giant casino resort that, when completed, will rank as one of the world’s largest.

Francis Lui, the company’s deputy chairman (the Hong Kong equivalent of chief executive), recently sat down for a breakfast meeting in New York, where he offered his views on Macao, the intensity of the Chinese gambler and why he thinks he will outsmart his more experienced rivals.

These are excerpts from that conversation:

In recent years, the story line on Macao has been simple: some of Las Vegas‘ largest casino companies are challenging Stanley Ho, the man who for decades had a monopoly on casino gambling in Macao. But then there’s your company, Galaxy, which doesn’t fit into that narrative.

Our achievement has surprised a lot of people. We don’t have the same legacy as Stanley Ho, and we don’t have the same history of successful operations like Steve Wynn or the Sands, but our family has been operating in China since 1985. We know the customer the best.

You might know the customer best but you also had no experience running a gambling operation.

We had never done any gaming before this, that is true, but we know a thing or two about putting up quality buildings pretty fast.

Because we’re local and have a lot of very good connections, we’re able to construct our properties much cheaper than our competitors.

So your upfront costs are lower. But you’re still competing for customers with some huge brand names.

We’re the closest casino to the ferry, right in the heart of downtown. Most people come just for the day: they arrive in the morning, they gamble for half a day and then they go home. These people want a convenient location; they don’t want to go to a big property 25 miles away.

Then why is Galaxy building its own mega-resort next to the Venetian on the Cotai Strip?

In order to maintain our market share, we need to build bigger and better properties. But our strategy is value for money. People want good quality and good service, but the Asian customers prefer to spend their money in gaming rather than dining and on hotel rooms.

Your competitors seem to think otherwise. Their strategy is essentially to recreate Las Vegas in Macao.

We feel that they’re getting ahead of the customer. Asian players will spend most of their money at the gaming table rather than paying USD 300 a night for a big room or pay USD 100 for a meal.

But you’re borrowing from the Las Vegas playbook yourselves. The promotional materials for the property you’re now building claim it will have the world’s largest indoor wave pool.

We see that as a small price to pay to keep the customers in the property. We don’t see that as a profit center. As opposed to our competitors, which see entertainment, as well as retail and dining, as major profit centers.

Naysayers back in the 1990s said the same about Las Vegas – that few would splurge on fancy meals or expensive hotel rooms. But the big casinos in Las Vegas now earn more than half their revenues from non-gambling sources.

Maybe in a few years, when they grow a little more sophisticated, our customers will bring the girlfriend, the family. Maybe they’ll enjoy fine wines and French restaurants. But right now, we feel people come to Macao for one experience. They don’t come here for the shopping experience, or the entertainment experience, or the retail experience. They come here to gamble.