Gambling and the Law®: Casinos Coming to Asia

by I. Nelson Rose | Published: Jan 14, 2005

The explosion of legal gaming that is sweeping the world has finally reached Asia.

Most Asian nations have had some form of legal gambling for decades, usually lotteries and racetracks. Some are quite successful: Japan has one of the world's largest lotteries, and nothing comes near the Hong Kong Jockey Club when it comes to bets on horse races.

Illegal and gray-market gambling have also always been big. The most blatant are the tens of thousands of pachislo machines, indistinguishable from slot machines, which now out-gross traditional pachinko machines in Japan. These gaming devices are technically legal because they do not pay out in cash. Players are paid in tokens, which the mob conveniently buys for cash.

But the gaming industry has seen few major breakthroughs in Asia, until recently. Now, every government is looking at major expansions, including bringing in casinos.

The proliferation has even hit the biggest market of all – China.

The 1950s image of an overpopulated, economically struggling, Marxist backwater is far from reality for much of 21st-century China. The People's Republic of China (PRC) does have more than 1.2 billion people, but the country is going through an economic boom that is so spectacular that more than one observer has called it a bubble.

I am writing this in July in Beijing. Every day, the newspapers contain stories that would be unbelievable anywhere else. For example, the China Daily reported, "China's tax revenue grew 26.2 percent in the first half of the year." Imagine what America's budget deficit would look like if "income tax from individuals and companies was up 28.2 percent" from the same time last year.

There are hundreds of millions of people now in the middle and upper classes. Particularly in the southern and coastal regions, and in major cities like Beijing and Xian, incomes are skyrocketing. Villas are advertised in the Shanghai papers for US$250,000 to $5 million, triple the prices of 1999.

The richest part of China is the semiautonomous Hong Kong. The South China Morning Post reported that retail "sales leaped 19.7 percent to $16.5 billion in May," due mainly to increased tourism from the mainland.

Legal gambling is already one of the prime beneficiaries of the loosening of restrictions and a booming economy. The Hong Kong Jockey Club was only first allowed to take bets on soccer in August 2003. For its first 11 months, it reported a handle of HK$16.1 billion (US$2.06 billion) and a gross profit of HK$3.3 billion (US$423 million). I don't know of another sportsbook in the world that makes 20 percent on more than $2 billion in bets on all events, let alone on only one sport.

The former British colony of Hong Kong has only sports betting (and the world's most successful racetrack). The former Portuguese colony of Macau has casinos.

Hong Kong became a Special Administrative Region of China in 1997, Macau in 1999. Fear was rampant at the time. Was the Communist government in Beijing going to tolerate what were arguably the most wide-open, capitalist cities in the world? The answer has been, surprisingly, yes.

When Portugal controlled Macau, a company owned by one of the richest men in the world, Stanley Ho, had a monopoly on casinos. It would not have been surprising if the new government had outlawed gambling; China still considers gambling one of the few sins worthy of the death penalty. Instead, three years after the turnover, the new rulers of Macau decided to issue more casino licenses and put them out to bid. Stanley Ho did win one, but so did Steve Wynn and a Hong Kong group that issued a sublicense to another American, Sheldon G. Adelson, owner of the Venetian in Las Vegas.

In May 2004, Adelson, aided by his on-site top executives, including VP and General Counsel Thomas Smock, opened the Sands, the first new casino in Macau in 40 years.

I visited the Sands two weeks after it opened. It is a magnificent, western-style casino, which has been enormously successful by testing and, where necessary, disregarding accepted wisdom. For example, it was said that Asian gamblers would not play slot machines. The Sands installed a few video poker machines in a dark corner. The games have proven to be so popular that the casino has ordered hundreds more.

How gambling will spread depends almost entirely upon the unique laws and politics of the region.

Until recently, residents of mainland China could visit Macau only as part of a tour group. China now allows its residents to travel there independently, and the exit and entry point between Zhuhai and Macau has become one of the busiest border crossings in the world.

A string of casinos is being built in Macau, intentionally designed to conjure up comparisons with the Las Vegas Strip. Laws will first have to be changed. For example, the traditional Macau casino was nothing more than a room with table games. It made sense to keep out minors at the door. But hotel casinos have restaurants, shows, and gamblers who bring their children. Tom Smock has told me that legislation is already pending to let minors enter the buildings.

Steve Wynn forced another change in the law, when he refused to begin construction of his massive hotel-casino project until the Macau government allowed casinos to issue credit to players.

The PRC is committed to aiding the growth of casinos in Macau and sports and race betting (and shopping) in Hong Kong. Construction is beginning on the world's second-longest bridge, spanning 19 miles across the China Sea, to connect Macau, Hong Kong, and Zhuhai.

The government has even allowed an Institute for the Study of Commercial Gaming to be set up at the University of Macau. Jason Zhicheng Gao, a noted professor and expert poker player from Canada, has been recruited as the organization's first director.

China hopes to have the best of both worlds. It can get all the jobs, tax revenue, and economic growth from legal gambling while keeping it somewhat isolated in its remoter regions of Hong Kong and Macau.

But China cannot control what other countries do. By the time you read this, Singapore also may have voted to legalize casinos. Adelson's Sands said it would invest $2 billion if Singapore gave it a casino license. Thailand, Taiwan, and even Japan are debating the issue.

Chinese players call slot machines "tigers." It will be interesting to see how governments will react when they realize that it is they and not the players who have caught a tiger by the tail.