Keywords: diversification, the “grand theme”, Paul Steelman, what amenities work in Macau and what do not, “educating” the Chinese gambler to be better consumers, interdependence of gaming and non-gaming facilities, Starworld, 3-4 star facilities to cater to Chinese middle class, retail brands vs themed environments
G2E Asia 2010
00:00 Paulo Azevedo: How to achieve the global [00:00:03], not only the Baccarat and little more than that. Welcome. I don’t know why no is I don’t intend to get out of this room without an answer and so you are my victims, I mean, my honored guests, the distinguished speakers from this panel. Let me introduce to you Peter Caveny. Basically, most of you know Peter is Principal Investor Relations of Galaxy Entertainment Group. Andy Nazarechuk. So it is very difficult to pronounce the surname, Dr. Andy. Andy is from the University of Nevada Las Vegas, the Singapore Campus, so you can also learn I’m sure. You will help us to understand Macau and Singapore because of the clear involvements and completely different and of course, Paul Steelman, the architect of the moment in Macau for a couple of years now, the CEO Steelman Partners. Ladies and gentlemen, again, thank you so much for attending this panel. Let’s first see a small presentation from Andy. Andy, thank you so much.
01:34 Andy Nazarechuk: Thank you. Thank you Paulo. Thank you. Good afternoon everyone. Thank you for having me today and again, today’s session, let’s talk about non-gaming amenities that would deliver the mass market. I think I’ve been talking about this for years and no one has ever listened, so I hope that today we’ll get to that point where I want you to understand the importance of amenities. And then like anything else I think that instead of giving you a lecture, I’m going to give you a quiz and a test. I’m going to see how good you are in identifying what you want because that’s when you hear all these sessions. If you don’t understand who your customer is, if you don’t understand what they want, then you’re never going to be successful in providing that level of product or service that they require. So are you ready? Yeah?
02:21 Paulo Azevedo: Ready.
02:22 Andy Nazarechuk: Yeah. Good. Okay. So amenities. Who wants to tell me what are amenities? Anybody? Let me give you an example. Here you go. You go into your hotel room, you walk into the bathroom, and you know, there it is. There’s my amenity. So this is a test now. Walk into another room. Ah, there’s my amenity. So let’s try this again. One or two. Okay? So let’s see. Anybody, how many for one? Oh my God, somebody may like orange here. Is this hard to find? I know you can’t find the stuff very easily. Nobody? What? Would you use this? If you walk into this room, would you use this amenity package? Yes, you would – because you have no choice. Right? See when you have a choice and then all of a sudden, this becomes required. So okay, fair enough. So, how many for this one? I want to see participation. Raise your hand. If you don’t want to raise your hand now, it means you secretly like the other one. Alright, good. You did very well.
Let’s go back to the little higher version of this. Okay. Let’s go to the pool. Do we like this one? Anybody? I can’t see you. This is number one, number two, number one, number two. The purpose of both of these is exactly the same. You put your bathing suit in, jump into water and get wet. True? This is actually in the market. So this is from the Palm, I think. I don’t know, is this one of yours Paulo?. I don’t know. I should have gotten with you. If I get somebody else, I apologize. Alright, so we’re back again. Anybody for pool number one. We’ll sit by the pool this afternoon. We have a very basic pool right here. Thank you. It’s clean, it’s inner, it’s a hotel pool. How many for number two? Okay. You’re doing very good on this test. So we’ve identified that some of you like — that when you have a choice, you compare. When you have those experiences, you will go back to those places that you’ve been before.
Let’s try that one because this is going to be more tougher. Baccarat. This is more for the locals. Okay. Baccarat table, you know what, I hate to be the one to tell you they are all the same. Any casino in Macau or anywhere around the world, they’re all the same. So if you don’t want to play at this table, this is number one or number two, not even a good pitch. Okay, number one or two? Okay, let’s go. How many for number one? Raise your hand. It’s the same game okay. Yeah. You like to play by yourself over there. Okay. Okay, fair enough. You’re still, so let’s see. So we actually have some say yes and two [00:05:30], you know. People you want — you choose the one you are more comfortable with. So this one is one of those rooms with fancies, gawdy pictures like [00:05:39]. Okay, but some people like that.
Again, another question. Let’s try another one. This one looks familiar. This is a famous picture, right? Do you want that crowded environment or you prefer to play alone? That’s another choice. Okay, so how many would rather play at this table. This is one for this table. Anybody? Let’s go ahead and choose here. Is it crowded exciting place or empty, quiet casino. Let’s go. Number one, how many for number one? Okay. That’s why it was busy. You guys are all there. Number two, how many for number two. Okay, see. We’ve identified that there is a different market for where you want to play.
Now, the whole question is how you make an amenity exciting. Can you make a Baccarat table exciting? Anybody have an idea? How could you do it? I’m going to bring you –. This is like the final exam that we’re coming to. This is going to be the toughest for some of you. This will beyond your capacity to understand this question. We’ll understand that in a minute. Some of you will say, “Oh yeah!” So, we have another choice. Do you want to play at this table? Yes. Or do you want to play at this table. Now, this is a real — this is the final exam. If you know who the croupier is here, then you understand this question. The younger people are going, “Who?” So let’s try this again. Okay. You’re creating an environment. Las Vegas was created on the fact that it was an entertainment destination. Many people think that Las Vegas is a gaming destination. It never has been. It was created for some entertainment destination. If you go back to the early days of Las Vegas, the Flamingo Hotel which everybody sees the movie about Bugsy Siegel. Yeah, that’s really cool, but the building workers sent rom LA was the one that build that property and brought all their celebrity friends from LA and put them in that showroom. So the environment that he created was this kind of environment. There were celebrities around. So, Sean Connery or who’s been here? Anybody?
07:52 Paulo Azevedo: Frank Sinatra.
07:54 Andy Nazarechuk: Frank Sinatra. Now, some of our younger people are going, “Who’s he?” Right? But these are actual shots from Las Vegas whose back in those days, the entertainers would participate and be around be contactable. Now, those days have changed because now you have 10,000 people creating some kind of problems, but when you looked at that, what did they do? They did something that you couldn’t do anywhere else and it’s still the same Baccarat table as everywhere else in the world. We do that today? No, not really. But do we make those games more interesting, more fun, more unique, so that people when they come to a property, they remember that game, not just for the game but for the experience that you created. So what is an amenity? Amenity is a choice, and if you’re an operator, you can go through everything that you do and come up with two pictures. This is us and this is somebody else. Which one do you want to be? So if we looked at the amenity, this definition — if you look at any tangible or intangible benefits of the property especially those that increased attractiveness or value that contribute to its comfort or convenience. A great definition. Tangible. Yes, the parking lot, the front door, your room, your bed, your covers, your lighting, your wallpaper, the carpet, all those things are tangible things. And you’ll say a lot of people will say, “Oh, they’re not that important.” Well, if it’s not that important, then close it down. You have the restaurant, food, [00:09:26] I have. We always have the discussion with casino people. Food and beverages are not that important. They came to gamble. Then, close your restaurants. Shut them down. Ah, it’s not at –oh, so it is important because they just won’t go to place that has just casinos. They want to have a place where they can also get something to eat. So what kind of food do you offer? Well, you’re back into the choice. So now everybody here is you’re seating in this room. Where are we now – we’re one of the biggest amenities in Macau, a million something square foot convention center. This is an amenity. Why are you here? You are here because this facility is here as an amenity to the business people that decide the whole exhibition. If this amenity wasn’t here, where would you be? Not here, you’ll be someplace else. You’ll be back at the Stratosphere tower, not the stratosphere tower, the other tower — the Macau tower because that’s where this convention started several years ago. And did it moved? Because this amenity is better than ours. Bigger, they provide better services, whatever comparison is, which has more space really and the more space becomes an amenity. So when you look at the amenities, you have to look at your property, you have to look at your department, you have to look at whatever you’re doing and you evaluate your service, your products on the quality of that choice. It’s simple. It is really simple.
So when you look at the amenity package, what is Macau now– you have to look at amenities and we’ll show yes. I’m going to show you a little bit about Singapore. What is the amenity at the Marina Bay Sands? Whoop, there it is. Because it is providing a level of comfort, is providing a level of tangible facility that you cannot experience anywhere else in the world. So if you want to go up to the 55th floor and swim in a pool, I don’t where you think. You’ll probably do that somewhere, but you can’t. This is going to be better. So they decided to create this attraction which is a certain kind of amenity in order to attract people to their property. So, yes, you’ll be going up to the observation deck. Okay. Everyone’s going to go there. How many people are going to the observation? How many people want to go to the Sky Garden at Marina Bay Sands? Another test question, you see. Why? Because it’s there. Right? So another question. If it wasn’t there, would you go there? How many of you got to the 55th floor of the Swissotel in Singapore? They have a beautiful helipad up on top. Right? Yeah. You meant to say view, but it doesn’t — you are going to go here. That’s simple. What else do they have here? Restaurant, okay. You’re going to take client out for an important dinner, where are you going to go? It’s on the top of the world. The swimming pool, I started with you know, swimming pool. I started to figure how to keep the water from like being like a big wave in that building but it’s going to be a fantastic pool. And again, pool side amenities – actually the club floor at the hotel is actually the Sky Garden. So instead of being on a club floor where you have your coffee and your business center and all that stuff, but actually that facility will be on the Sky Garden, so that when you meet with you clients and say, “Come on up to the Sky Garden. I’ll have a couple of coffee with you. We can talk business.” So that is an amenity that is specifically designed for that clientele that is going to be using that facility, and of course, we added a couple more restaurants. So when you look at the Marina Bay Sands, it has an overall package, it’s great. Now this is the shopping retail center. What you notice here is the Venetian Hair shopping, everybody has shopping, but what do you notice about this one, it’s got a big window. And so when you — and I’d walked to the space. The space is absolutely fantastic. When you look out that window, you see the skyline of Singapore. It’s an air-condition-controlled environment. It is the comfortable place for you to hang out, have lunch, to meet your friends, to do some shopping, to stay a few days, and meet all those other services that people have. So when you go to this particular facility, you get to experience all those things because it’s there and built in a way that’s designed for the people to use it in the large place. So, in Singapore, it’s built two of the best integrated resorts. Universal Studios is a great concept for Sentosa. The Marina Bay Sands has taken all these experiences from Las Vegas, from Macua and they have built a unique, iconic facility, but the key to the whole for years that it is the amenities. Those things that are tangible and intangible that attract customers and take care of the ones you already have. So I hope as you go through the rest of our sessions, we’ll keep that in mind. Thank you very much.
13:57 Paulo Azevedo: Thank you so much Andy. Paul, we don’t have much time unfortunately of being advising G2E to increase the time for this kind of panels when we have some a nice guest, so of course, nobody listens to a poor Portuguese reporter, but please make note of this — this is my turf, okay. Macau is my turf. If you don’t ask any questions later, I will track you down. Paul?
14:36 Paul Steelman: Thank you, thank you very much. I appreciate being here. I saw that picture of Frank Sinatra and it brought me back to the story when I was a very young architect about 31 or so years ago with [?] and I was working for a company many of you might have heard of– Research International. I was summoned to this room, knocked on the door and Frank Sinatra opened the door and he said, “Oh, you’re the architect, yeah?” and I said “Yeah. Mr. Sinatra, yes, I’m the architect.” He said, “Well, come here. I need the kitchen built over here. I want an Italian kitchen in my suite” and he said now and he drags up to his little deck. His suite was on the third floor behind the main porte cochere. So we got like a little tiny deck that was no bigger than this and he says now, “This is where I want the hose built.” A hose? I said, “Well what — a hose outside. It’s New Jersey, it’s cold, is this not –.” He said, “Yeah, yeah. I’m going to put my tomato plants out on the deck and I need a hose to water the tomato plants.” I said, “Well, I think the maids would take, you know, just a watering job and actually—.” He said, “Wait a second. Are you giving me a hard time here?” I said, “No, Mr. Sinatra. I’m not giving you a hard time.” I wound up putting in that hose bibb for him. It cost $42,000 in 1980. It probably was $400,000 at the time. I don’t think he ever really watered his tomato plants to be honest with you.
I did a little quick thing. I know we have a little bit of time and I wanted to take a little approach. I think Andy’s presentation were pretty interesting of what, you know, how you actually look at these amenities and what they actually do. We call tandem-base gambling. But what we want to start out with, what we know works in Macau and you know, we know that grand theme experiences work in Macau. These are justified by the numbers. Kind of a modern building with glass each type of structures. Those types of experiences are not really what the mass market is too interested in. We’ve actually seen that in Las Vegas as well. So the grand-themed experiences were … noodle restaurants. I always kid everybody — it is the philosophy of eating in this town. There is a noodle restaurant, and I do think on Saturdays and Sundays, the food court in this building is one of the most amazing places you can ever go. And so we know that the food courts worked well. We also know grand attractions like the Tree of Prosperity or other type of attractions really attract that mass market. Two very, very succinct operational points. We also know that the high-end retails seem to work very, very well throughout the entire community here whether it’s at the MGM, whether it’s here, whether it’s at the Four Seasons which might be one that most shopping centers ever created. The arenas and the concerts, we do know that they do work and there are a lot of people from Hong Kong that actually do come over and there are some spectacular events that have happened here and the numbers show that it is a great thing to do. We also know that casino lounge acts, you know, if positioned correctly worked very well in attracting business, satisfying an entertainment desire for free adjacent to the casino and actually create what we think are very, very good casino touch points where we can make a little bit more money per square meter. Three, four and five-star hotels all the more here. So I mean there is no issue about that. Grand spaces, everybody, you know, you see the cameras come out in this hotel or in a different lobby spaces, grand spaces worked and they really are pretty incredible if you’re building is organized around them. They can really be attractions and attraction generators. Lucky drawings and raffles: I mean, I don’t know how many people today I saw with Wynn umbrellas. I mean it’s incredible. The whole town has a Wynn umbrella walking around and a little disconcerting I think for the Lisboa, you know, there’s 48 people walking with a Wynn umbrella to it. But be that as it may, that lucky attraction zone and how we actually give away stuff, it’s a prime generator of people and we know that that amenity will work.
We also know a lot of things haven’t really worked, gigantic convention centers. I mean, this convention center, although Andy praised it, I mean it’s probably a little too big. If you ask me this, this is the fourth largest building ever built in the world. High-end restaurants, there’s a lot of high-end restaurants in this building and others that are vacant and go unused and you know, have 20 people at night. Anybody doing that in the food and beverage business would be losing a shirt, and so there are probably too many high-end restaurants that are around, especially in some of the bigger. The large buffets, I mean, we did the large — one of our larger buffets in the Sands Macao and throw it all out because the price point didn’t work with the buffet, although the buffet was an incredible buffet. It was absolutely incredible, but we wound up tearing it all out.
Bars and lounges, I mean yeah for the people in this room may be hanging out in bars and lounges, but most of the bars and lounges in this town are really empty. As a matter of fact, they’re even pretty empty in Las Vegas. We always kid in City Center – they built 18 bars and lounges which is just incredible and I don’t know of whoever did came up with their numbers to in fact do that, but it’s incredible to build that type of bars and lounges. I would say that the architects are all bunch of drones. Nightclubs aren’t working. They haven’t ever worked. Most of them being torn out and as they’re not associated with pool or something outdoors, it doesn’t work out. The Sands Theater took years to actually open. The theatre extravaganzas, I mean here, the people are not wasting the money or they consider a waste of money to actually patrionize, to go to, some of these shows. And then paid retail attractions – I think there’s like one-tenth of the people take the boat here as they in Las Vegas.
So if we’re going to build a new resort, what would you do or what would you change, what we see our clients feel. Three-star hotels, big need for in this town, — three-star hotels or three-star prices. We actually think that there’s a big need. We think a lot of the new resorts where we focused at in those directions. I called it home cooking. I meant it’s amazing that we don’t have a restaurant from Zhuhai in any of these buildings to make. If you go over to Zhuhai to eat with some of the most incredible restaurants are on the seaside there, the prices are one-tenth of what they are here and it’s all filled with local Macau people in the weekends because the restaurants are too expensive here. So I called it home cooking. We need to more that. Attraction retail, once again this piece of attraction retail is good. We actually think that all retail, it shouldn’t really be focused on Louis Vuittons. It’s got an actual attraction within it. Bringing the outside in, if you would have heard Steve Wynn’s conference call for the financial report talking about his new Cotai Resort – he is going, you know, he’s going to take [out] the barriers between inside and outside and really emphasized landscaping or planting — the suburban amenities, and we think that this is a big thing. I think that we do now are based on almost every casino we’re designing. Regarding pool casino, here’s one of our new proposals. For actually having a casino, putting an amenity in the casino — that’s what we call the garden pool casino. It’s actually gaming in a pool and we did the Harrah’s Atlantic City pool which has had above 85 million dollars of win and Harrah’s Atlantic City totally changed the demographic. It’s a pretty incredible situation, I mean, would you ever think that in Harrah’s that most of the people are elderly and were in there in the Atlantic City. Now, it has become the youngest hip place. As matter of fact, that particular pool being open four nights a week is the third most successful nightclub in the east coast of America — shocking. Large western retailer: we’re doing a Vasopro. Nobody’s here like Vasopro. Those types of retailers we think are destined to be in Asia. The themed attraction, we called it the “casino walk the magic path”. Actually, putting the attractions[in the casino] instead of on the fringes, not in the lobbies, those types of things are actually putting some of these attractions in casinos that have been tried before. If it has music or has repetitive sounds, we have to be cautious of it, you know, gaming win goes down around the attraction. But sometime when we’re marketing everybody to a lobby, it really doesn’t make sense. So that amenity should really be placed in the casino. Believe it or not, we’ve had two theme parks now built with casinos, one in Sentosa that we’re all anxiously awaiting the results. The theme parks on their own in Asia are tremendously profitable businesses — tremendously profitable. This is one of the theme parks we’re doing in Vietnam. The numbers of this theme park will make more money than most every casino in this town. I mean they are just absolutely incredible, and we actually think that there is some need to actually attach some of these parks to get the mass business here, and we’ll see what Sentosa is doing. Theme rides and attractions, we proposed several here. Brand names. A lot of people have heard that Playboy is coming to this facility. Exterior lighting extravaganzas. I mean people come here to take pictures of these things outside. If you’re not doing a Lisboa lighting scheme or something like that, you’re making a mistake. Theme restaurants that actually have a name that’s associated with it. Like this is Toby Keith’s. It was an incredible restaurant. There’s 11 million gross. I mean its fun. It’s cheap food and it’s very themed. Attraction architecture, we actually think attraction architecture is a good possibility for things to do here in Asia, and we have designed a new eco resort and this is a self-power, self-generating solar resort, all built with cradle to cradle standards. We think it’s a way of the future. Thank you.
24:29 Paulo Azevedo: Thank you so much Paul. You’ve been busy. So I guess there’s no doubts whatsoever in our minds that we all need this service designs. Sheldon Adelson said, or at least a journalist like me said which sometimes is not exactly something, “Build it and they will come”. Good grief and that is true here in Macau. If we compare again revenues rights, if we look back to 2009, the best year ever when the whole world was crumbling down. A new record in January, a new record in April, and three more billion Hong Kong dollars in May, so more than 2 billion US dollars just in May, 17 billion. So that it means in gaming revenues — thank you so much. Not so bad. But build it and they will come. But do we want them? Do we want this crowd or just this crowd or we do want more than this kind of crowds who play until they draw. It’s fine. They’re enjoying and they spend a lot of money. For Macua, it’s incredible, 40% from the taxes it pays a lot of things and unfortunately, we’re still not building as much as we should. We the government, society in Macau to cope with the development, but that’s another story. Now, build it and they will come, and we are building, but people, as Paul says, are not enjoying fabulous restaurants. [00:26:36] here this facility, 5 million US dollars just to design, 40 million Hong Kong dollars just for design, and they closed. So they didn’t succeed to attract people. So we need more people or we need time to educate a new kind of crowd and basically, it’s the only question now will ask to all of our guests starting with Peter Caveny. Peter? Good grief. We have been waiting for your property next door here right? So you will deliver these to us next year.
27:22 Peter Caveny: Yeah.
27:23 Paulo Azevedo: And StarWorld is a very nice property, but it’s not an integrated resort. You will build an integrated resort which is bringing more amenities, tangible and intangible, and you will give us, but how much is a risk for you and for Galaxy Group and to Steelman Group, how long will you invest to have the results to have a return on the investment of a non-gaming. How risky it is and more important than that, should all the gaming apparatus being — shouldn’t they do this now and educated a crowd. Should we educate our crowds? Help me on here.
28:20 Peter Caveny: Thanks Paulo. Good afternoon everyone. For those people who don’t know me, we’re Galaxy Entertainment Group. Three-and-a-half years ago, we opened the first property here in Macau and it’s called Skyworld, and today, this is the second highest volume of VIP casino in the world. That’s more volume than Venetian and more volume than Grand Lisboa. The reason for success is research, and last year, we received 22 million visitors to Macau and 11 million people came from mainland China. I’ll make a prediction here today. Very shortly you will see 50 million visitors to Macau. You will see 100 million visitors to Macau. What’s appearing and what’s going to attract them and how we go in general is very simple. The capacity for the Gongbei gate is 11 million people and 11 million came last year. By the end of this year, it’ll double the 22 million capacities. Construction is being done now. If you wish to come from Guangzhou to Macau, it takes you two hour on a bus. It’s a challenge … how to get in. 75% already complete. This is a high-speed train from Guangzhou direct to Macau, 47 minutes day 1. It’ll move 400 thousand people a day and being placed to 600 thousand is due to open at the end of this year or of early next year. 26th of December last year, there was a high-speed train 350 kilometers an hour from Wuhan direct to Guangzhou. So we’re reaching beyond the Guangdong region. At the end of this year, that high-speed train goes straight into Shanghai. By the end of 2012, it goes into Beijing. If you just take that one train line from Beijing direct to Macau, that’s 408 million wealthy Chinese who wished to come to Macau. That’s 35% of the GDP of China. It’s a 10-hour sleeper trip. Today, Guangzhou airport is the 21st largest airport in the world. It’s bigger than Singapore. It’s been doubled in capacity, and within 12 months, it’ll be the third biggest airport in the world, only second or third behind Heathrow and Atlanta. 125 cities in mainland China will be able to land in directly to Guangzhou and get high-speed train to Macau. So what I’m trying to share with you is an answer to Paulo’s question — do we feel comfortable? We feel very comfortable because we’ve done the research and understand how we are going to get the people here. So, before you leave the city, drive around the corner and you’ll see a beautiful gold building. We’re building the most spectacular iconic building that has ever being built in the world. People asked me, “How can you do so much business at a little property called Starworld.” We’re the secret. It’s called Asian-heart world class service. We give the people the very best service in entire world and no one matches it. And for those people not aware of it, service in the United States is here, service in Asia is here, and you don’t have enough to pay for it. So it’s all about identifying on research what people want and providing it to them. Let these gentlemen identified it. They want great hotels, but they don’t want to pay at St. Regis price. So we put three hotels in the different price points. They want the best range of food — the biggest selection, the best price points, they want entertainment, they want to have an experience, and what’s going to change the city is by [00:31:57] 10-hours sleep at night. I’d go on the Internet and I’ll book four nights’ accommodation, I’ll book 12 restaurants, I’ll book two spas, and get in the pool for three days and gamble. So in answering the question which we’re very comfortable based on our investment.
32:15 Paulo Azevedo: Okay. I still have some doubts though Peter. Even though it’s like you’re right. They — and when I say they, I say China. We are talking basically that Chinese markets which has been helping Macau so much. They have the numbers. The have the will to visit us. Do they have the will to do more than gaming and buying at small shop at Louis Vuitton that to me that does 50 million Hong Kong dollars a month on retail, because we do still see a lot of retail empty. We do see, like Paul Steelman said, a lot of restaurants empty, and we do see Zaia and you know, fighting for numbers and, thank goodness, City of Dreams is also bringing 250 million US dollars in new show, but it’s going to be costly. They probably will need to wait a couple of years ago. So Andy and Paul, what should we do? How to educate — should we educate. Let me just say that Steven Wynn a couple of months ago got me an interview and he told me that, “Paulo, you are completely nuts.” I said, “Yeah, well, tell me something that I don’t know.” And he says, “You know, it took 30 years in Las Vegas. During the late 1990s, we have no clubs whatsoever. Look at Vegas now, yes. You have fantastic clubs. You don’t have the money, but yes, it took 30 years to grow an Entertainment City.” So shall we wait that much? How can we bring the crowds to enjoy, to buy, to go further into the beach wave’s entertainment that you’re bringing to Galaxy here? How can we do it Andy?
34:39 Andy Nazarechuk: Well, you know, one comment from Paul’s comment before, and you have to understand and you’ll appreciate this – when Sheldon Adelson came to Las Vegas, he built the Sands Expo and that was a 500,000 square feet convention facility with no hotel, and he only put one convention in here and that would last about three days. So the rest of the year, it sat there empty and people laughed at him. And so what he did, he added another 500,000 square feet, so now he has a million square feet and no hotel, and then he built the Venetian Hotel in Las Vegas. So this property is not built for today. If you look at this property today, way too big, but this property is built for 10 years from now when all these infrastructures catches up to bring those people here. This property will be the key MICE convention facility in Macau because it’s here, and so those groups that came to us – 400,000 people that are going to come a day, those 15 million people that someday will come to Macau, all you need is a small percentage to say, “We want to have a convention for 100,000 people, where are we going to have it.” It’ll be here. So if you looked at Las Vegas, its convention industry is a destination. If you want to have a convention in United States for a 135,000 or 140,000 people, you have to have it Las Vegas because they have a 140,000 hotel rooms, because they have the convention space, because they have the infrastructure. Macau has the convention space. We have the hotel rooms in this property, but they don’t have the infrastructure. So the facilities, as Paulo said before, you know, yes — build it and they will come, so they built it to try to figure how to get here. And so when you increased that capacity, it’s definitely going to work. And the second comment is and I think Paul can appreciate this too, you know, Las Vegas — it did take 30 years for Las Vegas to get where it was and then you took that model — you took the top of the line and dropped it in Macau and Macau is going what’s that? You know, Las Vegas went through it. My favorite hotel in the world is Silver Slipper, Castaways. You know, we go back a day, those were fun places. They were small, they had great food, the prices are cheap, and then we started building themed hotels. You know, what’s a themed hotel. Caesars Palace is a theme hotel. So what happened then? Then we started to build the ultra-themed hotel, the Paris Hotel, the New York — New York, the Luxor, and then we moved to Mandalay Bay which is sort of a themed hotel. The Bellagio which is not really a themed hotel. The Wynn property. You know, now we are not into theme, these three phases happened in Las Vegas over 30 years and the top tier you took and dropped in Macau, so the market has to catch up.
So I think I agree completely with Paul that there’s a big opportunity in Macau for those mid-market properties that are a little bit, you know, brand-oriented did but they are not the Gucci and the Prada store. You know, the most profitable casino in Las Vegas for many years per square foot was Sam’s Town, and when Sam’s Town was out in the [00:37:47], it attracted the local market. They provided cheap food. It had a great casino, great atmosphere, and great entertainment. When that property generated more money per square foot than Caesars Palace did, but Caesars Palace is a beautiful property. So you have to really determine what you want. You want to generate revenue or do you want to have a cool-looking place, and a lot of people will make that decision. Then, if you can do, get a balance of both, then I don’t think that Galaxy — that based on the Galaxy, Galaxy is going to have 50 different kinds of food and beverage operations in that property. So there will be such a wide menu of choices that people will say, “Oh, I went there and tried, you know, tried this restaurant. I’m going to stay for a couple more days.” In Macau, the average stay is still 1.2 somewhere in there. The average stay at the Marina Bay Sands that was recorded yesterday was a 4.5 days. So if you look at that, if you have someone stay an extra day in Macau for any reason, then your revenues are going to go up, and that’s going to happen.
38:47 Paulo Azevedo: Paul, are we saying here that we need to downgrade our stylish offer in Macau?
38:56 Paul Steelman: Well, I wouldn’t call it downgrade. I mean it’s hard to design every single property. I’m sorry — it’s hard to design every single property to be a five-star property. A little bit like Andy said. I mean some of the most successful places in Las Vegas were, you know, places like Sam’s Town. I mean when we designed the Sands here, we did not really want to create a five-star property. We wanted to create a budget conscious, budget-oriented property, and have the new and unique offering for, you know, a very thought-out design market. There are many gamblers and many tourists that like outrageous things and like to see outrageous amenities, but those amenities don’t have to cost a lot of money. That’s the bottom line and they don’t have to be five star. Not everybody – if you would ask any chef what would he much rather have, an occasional restaurant where a guy went once a month or on his anniversary or would he much rather have a restaurant that the woman feels comfortable in casual clothes going four nights a week. The chef would always tell you, I will take that casual restaurant and go four nights a week. A little bit some of the five stars feelings that have gotten into this market are really not set up for the mass-gambling customers that are coming here and consequently non-enjoyable. So I don’t think we have to downgrade. I think some of the best hotels in the world that are a lower star rating. I mean, for years there was only one five star gaming hotel, Harrah’s hotel for years. I mean the Mirage and Bellagio carry four star ratings, and so I think that’s something that we need to do and I think it’ll be a powerful part of this market, but it will be something new and will not be something copied.
40:58 Paulo Azevedo: But it’s understandable that we [00:41:00] from Macau, and after the liberalization of gaming all the operators want it. They have this need to offer the best. It’s understandable.
41:12 Paul Steelman: That’s understandable, yes. No question.
41:15 Paulo Azevedo: I’ll go back to you and put you again on the hard spot, but meanwhile let me ask my friends here if there’s any questions. Okay, good. Yes, just a second please.
41:37 Female: Well, first of all Paulo, thank you for mentioning City of Dreams because Franco Dragone’s show is going to be most hottest show ever.
41:43 Paulo Azevedo: I saw you there. I saw you entering the room.
41:46 Female: Thank you. I have two comments and may be this is not the panel or maybe it’s the MGTO because we’re talking about diversification of non-gaming. The real question that I have to ask you or the panel is today, everybody in this room are what I called gaming-centric people and so therefore, when you talked about non-gaming, I think we looked at non-gaming as supporting gaming. So therefore the future of Macau if it’s truly to be a resort or leisure destination, does it have to have a interdependence or is it absolutely independent – that is my question and you know, where do we see this go. And the second question is for Paul. You talked about luxuries sort of not working and my question to you is, you know, the market in China is all about wanting the growing middle market. They want the brand because it’s part of prestige. So wouldn’t it be that luxury does work but, you know, there’s 10,000 Louis Vuitton stores every corner you turned, so it’s really about a differentiated luxury, branding it well, marketing it well, and executing it well. So you are really special luxury brand.
42:55 Paulo Azevedo: Right. Let’s start with you Paul on the second question.
43:02 Paul Steelman: Was there a real question there? I listened to it and I agree with everything but wasn’t sure if there is a real question, but yeah I do, I do actually understand what you’re saying. I think that yes, China is about the luxury brands. There is no question about that and of course, the feeling special is how the brand is then presented to itself. I think what really rubs, I think a little bit, our facilities the wrong way when all these get put together is that many of the brands will start to dictate what the actual designs of the buildings that they go into. Let’s take for example the Louis Vuitton store at MGM has its kind of blue exterior that they are screaming to the outside that it’s not a series of shops for an entertainment attraction event. They are bigger themselves. Louis Vuitton is bigger than the shopping center, than the place, than the hotel. And let me tell you, I think that’s kind of a dangerous thing. It’s not the Louis Vuitton hotel. It’s the, you know, what hotel is it? A lot of people won’t even remember, but it’s the Mandarin Oriental Hotel. So, consequently, I’d have many meetings with them about when they explained to me the luxury and basically, they want to showcase their products and that make sense. Everybody wants to showcase their products. But when they, you know, allow them to be placed in a themed environment and the themed environment is really the attraction for the mass customer. That is where I think that there’re some difficulties and I think that that’s a problem in our design right now yet and we do know that there’re a lot of brands that are not here. We just did a survey. We put one of our shopping centers we’re designing in the Vincom show last week in Las Vegas. That’s a shopping center in Vietnam, and we have about 50 spots that we have to lease and there are no luxury retailers. It’s more of a city center or city walk type of thing, and we had 175 interests from retailers and food, restaurants and service all over the world that wanted to lease in this particular mall in Vietnam which is just an incredible interest to us. I mean we were shocked at the overall acceptance of it. There were some people — actually its four years from being finished, some people want to sign leases today. It’s like wow, it’s incredible. Anyway, I hoped I answered that.
45:31 Paulo Azevedo: Let’s going forward to the first question which is a very interesting for instance, Mandarin Oriental, a new hotel in Macua is opening soon this month and there’s no gaming, so let’s see how well it will perform. Of course, it’s connected to MGM and the mall and so on so. But non-gaming — can it be completely independence or it will always need to be dependent on gaming facility integrated resorts. Peter or Andy?
46:14 Andy Nazarechuk: You know the only way you can build this beautiful property is with a casino. You know, and when you put the numbers through it and build a property like this without the revenues generated from the casino would not be justifiable. You know, the point about closing the buffet before, which is a good point, but if you looked and you know, I always spring back to Las Vegas. Las Vegas was famous for 25 or 30 years for having the cheapest buffets in the United States. You go there and pay a $1.99 and you can have prime rib steak, shrimp, whatever you wanted. It was fantastic. That was the story that spread throughout United States. You didn’t say go to Las Vegas to gamble, you said you got to go there for those $1.99 buffets, right? And then what happens? Well, then the price became 5 dollars and 10 dollars and 30 dollars and now it’s up to 50 dollars or 80 dollars, and now, you know, we have the best restaurants in the entire world and we have a little problem in the economy last year. And what happens now, we’ve created a market that doesn’t exist anymore. You know, so where is Las Vegas famous for –because now and will for all of you that have never been, now is the best time to go to Las Vegas. You can go — you can stay at the Venetian in Las Vegas for 99 dollars, get a free show, free dinner coupons, and probably, they’ll give you massage and a spa too. You know, it’s an amazing value because where did they get the revenue? The casino is still generating the revenue. When you have both, then you have the perfect world, and I want to say I have to compliment Peter because when I stayed at Starworld a year and a half ago, I walked into that room and I said this one is the best rooms I’ve ever seen. Not that it wasn’t the biggest or the most glamorous, it was well designed, it was comfortable, it was something that I felt that while I walked in I said, you know, I don’t know how I got a suite — I think that’s why I was a high roller which is a big mistake. But the quality, the service, the overall atmosphere, there was something about it that was created that is an attraction. That is back to that intangible part, so when you looked at independent –. If you wanted to build the a three-star hotel just for accommodations and provide for the people that are coming in here — yes, and there’ll be a market for even lower quality properties to budget hotels if you can find space for them somewhere. But to build an independent hotel in the Cotai strip or in Macau at this point, I wouldn’t advise it if it wasn’t — the purpose was to be a destination.
48:38 Paulo Azevedo: Basically, what you’re saying is two things. If we want to eat cheap, we need to spend a million first in the casino? Second, just go to the casino town when operators are starving for cash to pay their bills. Well, Peter, is StarWorld — when you guys launched StarWorld, there were good restaurants, there’s a small whisky bar, but there’s not many shopping malls and so on, and so on because you work directly to the needs of the Asian market. The research you said — who’s coming to Macau and spending the bucks and they are not spending on other amenities. They want this. Okay, you did that. However, now, Galaxy group is changing right and offering much more. What I want to ask you is exactly what kind of lessons did you learn with Venetian here first and then City of Dreams that you will try to replicate with Galaxy, and the lessons that you learned that you will try not to replicate with Galaxy?
50:06 Peter Caveny: I think the issue is that you go to America, people would want basketball, baseball, beer and hotdog, and if you go to London, they’re Caucasians so you assumed they want the same and they don’t. They want fine dining, a show — such a different market. So I think when we moved to China, transplanting a direct copy of the American product may not fit the model perfectly. There might be just some rough edges on it.
We’re very comfortable because let me share with you for two years we’ve had people from Beijing, Shanghai, Guangzhou, Shenzhen, the four powerhouse drivers of the whole China economy and their brief was to go to every luxury hotel and book in. Go to every luxury restaurant and eat everything on the menu and go to every luxury nightclub and have a good time. But the project was then — give us the feedback and it’s interesting — while I was talking about a Japanese fusion restaurant that opened in Macau, cost 5 million US dollars to fit out. When we asked that people — is there demand in China for Japanese food which is a pretty good question and they said absolutely — huge demand, but that’s not the question. The question is got to be telling me what’s style of Japanese food that Chinese people will eat. They introduced the sushi. They don’t know what fusion is. There’s not one single fusion Japanese restaurant in the whole of China, based on which food for them doesn’t go here. May be in five years’ time, their palate changes, they become educated in the sense of the food, they like it.
I’ll give you another example. People say that you can’t have a resort without a casino. Eleven million people came from mainland China came last year. How many people from mainland China went to Sanya, the resort and hanging out? Twenty million, twice as many. No casino. What was the cost for a Hilton basic room in Chinese New Year? — 14,000 RMB, 1,800 US dollars. You’re making a lot of money there. We are simply saying to people, we’ve got great hotels, we have the biggest selection food in the whole world for you, we’ve got great service. You want to stay in the beach? We’ve built one on top of the casino, a 100 feet up in the air. It’s 10 football fields, American football fields. There’s a swimming pool 300 feet by 350 feet with four foot wave – you can actually ride a surfboard on it. So we’ve got the resort, so we’ve got hotels, we’ve got the food, we’ve got the resort. By the way, we’ve got one other thing, the biggest casino in the world and we’ve got the infrastructure to bring it there. So, I think that can be successful but the key issues identifying the target market and finding out what they really want, what’s the appeal and then provide the product accordingly.
53:14 Paulo Azevedo: Peter, thank you so much. 10 minutes, oh, it’s fine. Yes, Vena. Please.
53:30 Celina: Sorry about that. I have a question and it was based on Peter’s discussion about mainland Chinese coming into Macau, and I noticed that you’re focused a lot on the rail transport and the Gongbei gate and you were talking about the Guangzhou airport. I was reading it this morning’s newspapers here in Macau about air traffic has decreased in Macau. Now, I know it’s been an airline that has failed here, but I wonder that this is what we are hearing yesterday from Michael Chen about proximity of destinations. Now, definitely there are a lot of airports in China, but what is, may be from a more local point of, maybe Paulo can answer, maybe it’s the MGTO but what’s happened at the airport here. We have a major aviation conference going on and show at the airport as well. So what are we doing about the infrastructure to bring in all these people and these also, you know, the comment yesterday about Marina Bay Sands having a partnership with Singapore Airlines? So I wonder how important the airport is in bringing in these people to an integrated resort?
54:42 Paulo Azevedo: Thank you Vena. Any Macau government officials in the room? I guess not. But we should have asked in letters as, you know, it’s one of the key factors in Macua. Peter?
54:58 Peter Caveny: The recent for the low traffic to be able to flow into Macau is because of the air landing rights. There are only 11 aircrafts allowed to land there and as a result, you as an airline operator can’t decide to land there if you can’t get permission to land. The other aspect is that for mainland China is if you fly domestic internal flight, it’s a relatively inexpensive ticket, but Macau and Hong Kong are international so there’s like 200% tax. You take a flight and say there are flights from Wuhan to Macau, that’s the sixth richest city in China, but there’re only four flights a week and the aircraft only carry a 120 people. So that’s only 480 people. That’s not going to move a needle. One of these is you drive to domestic airport in Guangzhou which is down the road 47 minutes from the superfast train, 70 million capacity, 125 cities in mainland China direct flights in, it’s a domestic destination. That’s how you’re going to move it. Until the process in Macau changed where it’s opened up free air space, you’re simply not able to bring your crafts in. Most of the people that travelled on the airlines to Macau were really Taiwanese businessmen. The plane would touch down. It would change its course and then take off to China to do business. Now, that it’s freed up, the flights between Taipei and mainland China, that’s when there’s a drop in the numbers of the people coming through the airport there.
56:30 Paulo Azevedo: It’s a wonderful… Who’s visiting Macau for the first time? Who’s here for the first time? One, two, three — wow. All the others, it’s not the first time. No wonder I know you guys. Well, basically, to give you a little bit of a background. In 1995, the former Portuguese government allowed and gave the monopoly rights to Air Macau. By doing so, they basically closed the door to a very important way of attracting their companies [?] which is to allow them to be a flag carrier. By being a flag carrier in Macau, you don’t pay rights, you don’t pay so much. So, the only way we can have other flag carriers based in Macua, if it’s the monopoly – Air Macau opens a sub-concession. Where did we see this movie before? The sub-concessions. So it happened with Macau, but of course Macau didn’t allow Viva Macau — not allow as well to fly to my main destinations which is China, so if Viva Macau needed to go to other destinations and guess what — they went bankrupt. So until we succeed to open the Macau skies and to allow other companies to be flag carriers here in Macau, we will find the same problem and this problem must be addressed in my humble opinion, but then again I’m a very opinionated person. To tackle with infrastructure problem in Macau, thank goodness, Guangzhou railway is reaching Zhuhai soon. We will have, hopefully, in 2015 the lights or railways and so on, so it will help us, hopefully. Any more questions? Okay, Peter.
58:59 Peter Caveny: I think the key point when I expected that infrastructure before just to clarify, most of that will be completed within 12 months or 15 months. This bridge is 2015 – That’s a big bridge for Hong Kong – but most of the infrastructure was started about just 12 months or 15 months, you can see a total change in the city. People will be able to come for leisure or to come for standard stay. I want to go to a resort, I want to experience this but I can’t get in. It’s the hallmark that’s going to change.
59:25 Paulo Azevedo: Okay, then. Any investors in town? We’re going to hear your IPO soon right? Jonathan?
59:35 Jonathan: I’ve got a question for Paul. So Paul, what can you say about tourism in China is actually 10 years old and a lot of these people may not have ever been exposed to all these amenities. So as we get more exposure, do you think they’ll begin to appreciate it more or do you think they’re going to spill wine or fried rice and play at the tables?
59:58 Paul Steelman: I think that as they are exposed to more amenities, as wealth grows, you know, and the convention business grows, you know, the key marketing aspect to the amenities being actually accepted. Think about Las Vegas. Las Vegas had like the Silver Slipper and places like that. A lot of people like them, great food, good entertainment, but really the restaurant amenity business did not really kick in until the convention guest showed up. And once the convention guest shows up here in a big way, then these types of amenities that are prevalent in so many casino buildings will in fact do a much better business as time goes on. That’s our perception.
01:00:49 Paulo Azevedo: We are almost in the end, so they’re talking that is the finish but I need one more question. Just because I don’t know how.. I really don’t like to follow the rules. One last question.
01:01:03 Male: Yeah, hi. This is a question for Peter. Based on your figures and numbers and the potential growth probably about 20% of the potential … if any, do you have concerns, any obstacles to that growth or any comment on that?
01:01:24 Paulo Azevedo: Any concerns?
01:01:25 Male: Yeah. I mean based on your numbers and figures, what probably at about 20% of the actual, you know, growth potential for Macau here, and I’m just wondering if you see any concerns or have, you know, any obstacles that might sort of impede that growth.
01:01:42 Peter Caveny: I don’t think we’re even near 20%. We’re a way less than that. Based on the data that people think today, it’s assumed 20% is a fair number. If you really think about the disposable income growth in mainland China, it’s doing so rapidly and there’s so many people coming up to middle class – 200, 300 to 400 million. The growth is astronomical. Now, you’re talking about private liquidity in mainland China – 4 trillion, 5 trillion dollars. We’re talking about just the growth that’s going to be so great. It’s just incomprehensible and I don’t see any barriers at all. It’s just simply we’ve got to get the infrastructure to be able to allow people to comfortably access entertainment resorts paradise.
01:02:34 Paulo Azevedo: We have are four minutes late, so one more question. Last one. Anymore? Last question. One last question, two, three. Ladies and gentlemen, thank you so much. [01:02:51]