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Key Future Indicators Of Macau Casino Over Saturation

One of our readers jcdarosal made some comments on The Macau Board that resulted in a bit of a rambling reply by yours truly, which I think might be worth sharing and expanding on here.

In the past 10 months, the Macau gaming business seems to have adopted a bit of a wait and see attitude towards the next wave of expansion, particularly Phase II Cotai. Analysts, executives and reporters have been discussing the potential for 'oversaturation' in what was previously thought to be a bottomless well of gambler dollars. Macau gaming sector investors also seem to be hedging their bets as well, with casino stocks being hit hard Q4 of 2007, particularly Macau pure play MelcoPBL.

Possibly noticing their vulnerability to Macau's unstable future, MelcoPBL partner Crown Limited snapped up Cannery Casinos in the US state of Nevada and have partnered with IDM Properties to build Crown Las Vegas, which is modeled after supertall structure Burj Duabi in Dubai. I wouldn't be surprised if Crown Limited engages in further property acquisitions in the U.S. (Crown Atlantic City?), sooner rather than later.

Wynn Resorts and MGM Grand Paradise (MGMMirage/Pansy Ho partnership) are both aiming for developing resorts on Cotai, but neither have announced any formal plans other than vague site triangulation and intentions.

So how can we tell if the Cotai bet is going to pay off? Here's a couple of indicators that I've got my eyes on that should provide some insight as to how quickly - or not - Cotai I and II will progress:

Macao Studio City

Based on the construction progress photos I've seen since my trip to Macau in September, it seems that construction at Macau Studio City - which is scheduled for a mid-2009 opening - has slowed dramatically. As a point of comparison, Wynn Resort's Encore project tower (also scheduled for 2009 opening) has topped out and almost completely skinned. Macau Studio City is a large dirt pile with thousands of pilings sticking out of the ground. Frankly, there is no way in hell that Macao Studio City will open in mid 2009. I'm very curious if eSun Holdings and their investors are second guessing the project and its aggressive timeline. If Macao Studio City pushes their phase I opening date back into 2010 or later... expect to see other properties delaying their projects as well. If MCS moves their date, the biggest loser will be MelcoPBL who have a contract to run casino operations at the resort.

Wynn Cotai

Steve Wynn is known for being a little loose lipped from time to time, but in an interview in Fall 2007 he said that Wynn Resorts would be announcing their plans for Cotai development (after one round of postponements already) before Christmas 2007. Well... it's now January 4, 2008 and still no word from The Steve. Granted, we're only two weeks overdue for the Wynn Cotai announcement, but every month that slips away can be considered further evidence that Cotai isn't ready for Phase II yet. When Wynn Resorts makes announcements, I'd consider it to be a ringing declaration that Cotai is 'go'. In spite of his kookyness, Steve Wynn is a pragmatist and won't move one shovel full of sand until he's sure that Wynn Cotai will be, as he has promised - 'the most beautiful hotel I've ever built.'

MGM Cotai

MGM Grand Paradise also announced that they have triangulated property on Cotai and secured financing for the project. With Ho family billions and MGMMirage's deep pockets and Dubai bed buddies, gathering capital for MGM's Cotai project is a cinch. The question here is timing... with MGM Grand Macau freshly unwrapped and posting large numbers already, look for any interviews or press releases containing information about MGM's Cotai plans. The folks at MGM Mirage are a tight lipped bunch when it comes to releasing 'unapproved' information. Additionally, their PR/investor relations department masterfully uses the media to drive stock prices, investment opportunities and other semi-nefarious business dealings like a genius savant chess player. Smart gaming industry watchers should study Kerkorian's faux takeover bid last year as a master class in media manipulation. Regarding MGM Macau, our insiders say the VIP area of the casino is absolutely hot, but the casino can be a bit quiet during the week. The longer MGM waits to make an announcement about Cotai, we can gather evidence in their lack of Cotai investment as confirmation of over saturation... at least for now.


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