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Across the Universe

The debut of Galaxy Entertainment's new property in Macau's Cotai area establishes the company as a leading international gaming operator

Across the Universe

In February 2002, almost 20 companies awaited word from the Macau government about whether they would be one of three organizations to receive gaming concessions in the SAR. And since one of those concessions was guaranteed to the former monopoly holder, Stanley Ho’s SJM, the companies were really competing for just two slots. So it was a surprise, to say the least, when an unknown company called Galaxy Entertainment captured one of the coveted ducats.   

After granting a sub-concession to Las Vegas Sands through a previous agreement, Galaxy quietly went about building an organization in Macau that reached its peak in May when Galaxy Macau debuted in the Cotai region of the SAR. The new resort joins Melco Crown’s City of Dreams, and Las Vegas Sands’ Venetian and Four Seasons, giving the Cotai region a critical mass that should help it surpass Macau’s Peninsula region as the main driver of gaming revenues in the SAR.

In addition to providing more capacity in Cotai, Galaxy Macau increases the appeal to the mass market, a goal of the SAR government.

Against this backdrop, revenues in Macau continue to soar. In April, gross gaming revenues were up more than 44 percent from April 2010 to $2.56 billion. In the first four months of 2011, revenues are up more than 43 percent from the same period in 2010.      

At Galaxy Macau, officials believe they are opening at exactly the right time. The integrated resort has been under construction—off and on—for more than five years. The property will change the playing field in Macau, says the company’s chairman and founder, Dr. Lui Che Woo.      

“The Macau SAR government’s stated goal, in accordance with the 12th five-year plan, is to build for its economic future by diversifying its leisure and tourism industry,” Lui says. “We believe Galaxy Macau will lead this development by offering what has been missing so far from the local integrated property market. From the beginning, our vision has been to develop and operate a resort that delivers international-caliber standards but also captures the heartfelt service culture and unique flavor of Asia—something we call ‘World Class, Asian Heart.’ This is especially critical for success in a market where Asian travelers are so dominant. In this way, we can make guests from around the region feel right at home, while at the same time provide an authentic Asian resort experience for visitors from around the world.”      

Dr. Lui’s son, Francis Lui, the vice chairman of the Galaxy Entertainment Group, says the property’s Asian themes and brands are designed to appeal to the 97 percent of Macau visitors who come from Asia.

“We are very excited about the opening of Galaxy Macau, after years of inspired creation and hard work backed with a firm conviction that a project rooted in Asian ideals and delivered by Asian people could achieve the highest international standards,” says Francis Lui. “This wouldn’t have been possible without the contributions of so many people, especially our talented and dedicated staff and our esteemed partners. We’re all very excited to open our doors to Macau and the world.”

Galaxy Planets

Galaxy Macau includes three iconic Asian hotel brands: the 250 suites and 10 floating villas of the Banyan Tree Macau; the 500-room Hotel Okura Macau; and the 1,500-room Galaxy Hotel, which will become Galaxy Entertainment’s flagship Cotai hotel. Galaxy Macau also marks the entry into the Macau market for both the Singapore-based Banyan Tree Hotels and Resorts and Okura Hotels & Resorts Worldwide, Japan’s most prominent hotel company.      

Banyan Tree also brings with it the first Banyan Tree Spa in China’s Pearl River Delta. At 2,800 square meters, the Banyan Tree Spa Macau—the biggest in the Banyan Tree group—will include 21 treatment rooms as well as a private spa floor for its hotel guests.      

At a total investment of HK$15.5 billion (US$2 billion), the 550,000-square-meter Galaxy Macau’s most prominent feature is the property’s spectacular 52,000-square-meter Grand Resort Deck. A 350-ton white sand beach frames the 4,000-square-meter Skytop Wave Pool—the world’s largest of its kind—which generates waves that reach as high as 1.5 meters. Several pools, tropical and Japanese gardens, a traditional Japanese tea pavilion and private cabanas will dot the Grand Resort Deck area, making it attractive for private and corporate functions.      

Galaxy Macau features more than 50 international dining outlets, with more than half of them serving Asian cuisines, making it the widest such selection in Macau under one roof. Visitors to Galaxy Macau can eat once a week for a year and never eat at the same restaurant twice.       

Galaxy Macau’s in-house entertainment includes multiple live stages and clubs such as the ultra-exclusive China Rouge, a hybrid private membership club, performance theater, bar and restaurant conceptualized by renowned Hong Kong designer Alan Chan to evoke a modern vision of 1930s Shanghai. In addition, Galaxy Macau plans a nine-screen, 3D, multi-function cinema theater to open later this year. The theater will be state-of-the-art and the first of its kind in Macau. The property will also feature a retail boulevard offering a unique shopping experience of Asian as well as international brands.       

On the gaming floor, Galaxy Macau is configured for 600 table games and 1,500 slot machines, as well as several luxurious VIP rooms.

Team Galaxy

From the company’s first Macau gaming operation—the first of the company’s “City Club” brand of casinos—through the opening of StarWorld, the popular Peninsula casino resort, Galaxy Entertainment has been building a strong executive staff. Starting with Francis Lui, who directs the operations of the company, seasoned executives have joined to create a dynamic and diverse management team.

Lui began his career in his father’s business, working his way up from the bottom at the K. Wah Group, a leading Asian construction company. In the 1980s, he directed the company’s investments in mainland China, totaling well over US$1 billion. He is active in politics, serving as a committee member of the 11th Chinese People’s Political Consultative Conference, and has been a member of the Shanghai Committee of the Chinese People’s Political Consultative Conference for three consecutive terms.      

Other members of the Galaxy brain trust:

• Michael Mecca, president and chief operating officer, has had a long and distinguished gaming career. Most recently the president and CEO of Planet Hollywood, Mecca has held leadership positions with Station Casinos, Mandalay Resorts, Caesars World, Crown Casinos and others.      

• Raymond Yap, senior vice president of international premium market development, is responsible for the strategic marketing activities of Galaxy Macau. Yap has many years of hospitality experience, including the last 11 at Genting Group, where he became senior vice president of theme park and First World Plaza operations. Under his leadership, he was successful in transforming the business to become Malaysia’s premier theme park.      

• Robert Drake, group chief financial officer, directs the company’s finance and helps to position the company in the financial world. Before joining Galaxy, Drake served as vice president, finance of Harrah’s Entertainment’s Western Division.      

• Gillian Murphy, senior vice president of non-gaming operations, will be responsible for the experience outside the casino. Her background began with luxury hotels, working for Hilton, Loews and Radisson properties. She later joined Caesars Entertainment and became vice president of corporate hotel development. She was also responsible for the development of MGM Grand at Foxwoods prior to joining Galaxy.      

Mecca says the most important members of the team are the line employees, who guarantee the high level of service that will create loyalty among Galaxy Macau customers.

“Ensuring an excellent customer experience is the challenge,” he says. “We have had to recruit 7,600 team members to staff the resort and to train them to ‘World Class, Asian Heart’ service standards. Our training, our practice and our simulation have gone very well. We are very proud of our entire team.      

“To achieve this we have been extremely fortunate to have received an overwhelming number of applications for positions at Galaxy Macau. Our No. 1 selection criterion was: people with the right attitude. We can always train a skill but you need a happy, sincere person to deliver upon our promise.”

Lui says the difficulties of staffing the property with Macau locals was overcome because Galaxy has become a preferred employer.      

“Many people view Galaxy as an employer of choice because of our growth profile and subsequent career advancement opportunities,” he says. “We are proud to say that by the opening day, Galaxy Macau will have created 7,600 new jobs to the Macanese economy, in which two thirds of them are Macau local citizens. It is our belief that Macanese people should also benefit from Macau’s rapid growth in the recent years.”

Focus on Mass Market

Lui believes that Galaxy Macau will quickly become a favorite of the Asian customer. The property’s theme—“World Class, Asian Heart”—means the company knows its customers, says Lui.      

“All facilities at Galaxy Macau are designed to appeal to guests from Asia and around the world who want to experience authentic Asian service culture and offerings,” he says.

Lui cites the hotel brands, the many Asian restaurants and Macau’s only private nightclub, China Rouge, as elements that will appeal to the company’s customers.      

“The casinos are specially designed to make our guests from mainland China, Asia and around the world feel welcome and comfortable, and to stay longer in our property,” he says.      

Lui points to the mass market as being crucial to the success of the property.

“We believe, in the future, people will come to Macau for a holiday, not just for baccarat,” he says. “That is how Galaxy Macau is positioned. The number of visitors to Macau experienced double-digit growth year on year. The total visitations to Macau increased by 15 percent to 25 million in 2010. We expect a further 10 percent to 20 percent growth this year is attainable. Our goal is to make the pie bigger by offering a new and unique integrated resort to the visitors, to extend their average length of stay and spending in our properties. We expect the average duration of stay will be extended from 1.5 days to 2.5 days.      

“We are confident that the wide variety of entertainment offerings of Galaxy Macau will attract a new and different type of tourist to the city, especially from mainland China, Hong Kong, Taiwan, North Asia and Southeast Asia, by leveraging our customer base with our hotel partners, Banyan Tree and Okura. The improved accessibility to Macau will stimulate more visitations to Macau.”      

Jonathan Galaviz, the principal in Galaviz Company, a U.S.-Asian consulting firm, thinks the new property positions Galaxy Entertainment to really capitalize on the mass market.

“I’ve been saying for over 10 years now that the real market opportunity for Macau in the long run is the mass market, the upper-middle-class mainland Chinese consumer,” he says.      

Sean Monaghan is senior analyst covering Southeast Asia consumer and gaming for HSBC. He believes the addition of Galaxy Macau will be an overall positive for the region.

“The resort has great mass-market products, and the opening should drive further mass-market tourism to Macau,” he says. “While the mass market is growing strongly, the VIP segment continues to experience much stronger growth.”      

Galaxy Macau hasn’t forgotten the VIP market, however. Lui says the property is well-configured to host those customers, as well as mass-market guests.

“The VIP segment is very important to us,” he says. “StarWorld is a VIP-centric property and it has recorded 11 consecutive quarters of EBITDA growth. That proves our strategy is correct, and more importantly, the quality of our services is guaranteed.      

“As the wealth effect continues in China, growth prospects in VIP gaming will remain solid. And therefore, we will continue to focus on and strive for excellence in the VIP segment.”

Lui downplays the possibility that Galaxy Macau may cannibalize play at the company’s Peninsula flagship, StarWorld.      

“StarWorld’s success is a direct result of its great location, great products and best service in town,” he says. “We are confident that StarWorld’s competitive edges will help StarWorld continue to perform solidly and continue to be a leader in Macau in the future.

“Moreover, we have signed new junket operators for Galaxy Macau. We are very confident all our junket operators can deliver what they committed to us and will not cannibalize StarWorld. We believe there is plenty of demand in Macau, and the market is only likely to continue to get bigger.”

Financial Fortunes

Galaxy Entertainment Group was the first of the Macau gaming companies to go public in July 2005. Investor confidence has been repaid many times over, and today, Galaxy is positioned to become a true leader in the international gaming industry.

CFO Robert Drake says the company has accomplished several goals over the past year that bode well for the future.      

“Over the last 12 months,” he says, “we have completed several financing initiatives which significantly reduced the cost of debt of GEG, from approximately 8 percent to below approximately 5 percent, materially enhancing the financial efficiency of the group.      

“The initiatives included the closing of a six-year HK$9 billion (US$1.15 billion) club loan, the successful issuance of RMB1.38 billion (US$212.5 million) RMB denominated corporate bonds, and the early redemption of 2010 Floating Rate Notes and 2012 Fixed Rate Notes.”      

Debt has also been reduced by converting it to equity, according to Drake.

“As of December 31, 2010, the outstanding amount of the group’s zero-yield, zero-coupon convertible notes was US$165 million, or approximately HK$1,287 million,” he explains. “Subsequent to year-end 2010, 100 percent of the outstanding convertible notes were converted into approximately 173 million common shares. This has resulted in a further strengthened balance sheet and an increase in GEG’s free-float of common shares.”      

Monaghan says the reputation of Galaxy has continued to grow.

“Galaxy has a credibility and significance that is visible in the strong growth in share price over the past year,” he says. “This new resort is transformational for the company. Galaxy Macau is at the same quality and scope as any of the other major properties in Macau and should provide a very healthy return on investment.”      

Macau long ago surpassed the gaming revenues generated in Las Vegas, and this year will likely exceed all the gaming revenue of the U.S. commercial casinos. Lui says this growth is likely to continue indefinitely.

“We have seen strong market growth in 2010,” he says. “Last year, Macau gaming revenue increased by 58 percent, compared to 2009, to approximately HK$183 billion (US$23.5 billion). And the momentum continued in the first quarter of 2011. We are confident about Macau’s future growth and its positioning as the world’s leisure center, as it will continue to benefit from the robust Chinese economy. With the development of new infrastructure and facilities such as the Beijing-Guangzhou High-Speed Railway, the Guangzhou-Zhuhai Railway, the Hong Kong-Zhuhai-Macau Bridge and the expanded Gongbei Border Gate, Macau will be more accessible than ever before. The construction of the Macau light rail from Gongbei to Cotai is also expected to commence operation in 2014. All these factors will contribute to the continued growth of the Macau tourism industry.”

Galaviz sees only one potential threat on the horizon for Macau, something out of the control of the operators there.

“My economics training tells me that one of the major risk factors for Macau will be any potential threat in the future to Asia’s macro-economic situation,” he says.

With Galaxy entering the Cotai region, Lui says that area will be key to the future of the SAR.

“We are very confident about the future of Cotai—the emerging, fast-growing gaming hub in Macau,” he says. “After the opening of Galaxy Macau, we will be the only gaming operator in Macau to have flagship properties in both the center of the Macau Peninsula and the emerging entertainment area of Cotai. We believe we are in an excellent position to capture the future growth and opportunities in Macau.”      

He looks to possible development in other areas of the SAR, as well.      

“The Chinese central government and local government in Guangdong have high expectations on developing Hengqin Island,” he explains, referring to an undeveloped part of Macau close to the Chinese mainland. “We believe the development of Hengqin will be a great complementary to that of Macau and will play a very important role to support Macau’s economic diversification and sustainable growth in the future. We would explore opportunities in Hengqin Island if we were invited to develop there.”

Beyond Macau, Lui says the future is not quite so clear.

“It is too early to discuss development plans after Macau,” he says. “We still have the largest gaming-permitted land bank in Cotai, and so we will continue to focus on its development in the near future.

“What I would say is, with a vision to be Asia’s leading gaming and entertainment company, GEG will not stop in Cotai. We will make our next move in line with market demand and in the best interest of the company and our shareholders.”

Roger Gros is publisher of Global Gaming Business, the industry's leading gaming trade publication, and all its related publications. Prior to joining Global Gaming Business, Gros was president of Inlet Communications, an independent consulting firm. He was vice president of Casino Journal Publishing Group from 1984-2000, and held virtually every editorial title during his tenure. Gros was editor of Casino Journal, the National Gaming Summary and the Atlantic City Insider, and was the founding editor of Casino Player magazine. He was a co-founder of the American Gaming Summit and the Southern Gaming Summit conferences and trade shows. He is the author of the best-selling book, How to Win at Casino Gambling (Carlton Books, 1995), now in its fourth edition. Gros was named "Businessman of the Year" for 1998 by the Greater Atlantic City Chamber of Commerce, and received the Lifetime Achievement Award from the American Gaming Association in 2012.