Harrah's Entertainment recently announced the acquisition of a large golf course on Macau's Cotai Strip® area. Although the company says it will be used for golf, I can't help but think Harrah's true intention is to one day build a casino complex there. So, I thought it would be helpful to write a brief introduction on Harrah's and it's Asian dilemma, since many Asian readers who have not been to Las Vegas or are not involved in the gaming industry may not be familiar with the company.
Harrah's Entertainment
Harrah's is the largest casino company in the world. The company has a strong presence in the US's two main gaming markets (Las Vegas and Atlantic City), owns dozens of casinos throughout the United States, and also owns casinos across three other continents. Harrah's three main casino brands are Harrah's, Caesar's, and Horseshoe. In total, Harrah's hosts over 100 million visitors per year and generated close to $10 billion in revenue in 2006. Generally speaking, Harrah's caters to more of a mid-tier, mass market customer, vs. the high-end customer that companies like Wynn and MGM target.
Harrah's is currently a publicly traded company (HET) but is in the process of being taken private through an LBO.
Harrah's Has No Asian Presence
Harrah's competes primarily with MGM-Mirage, Wynn Resorts, and Las Vegas Sands (LVS) in the US and increasingly throughout the world. However, Harrah's has missed out on some of the most lucrative new markets in the world - Macau and Singapore.
Not only do these missed opportunities in Asia probably sting the egos of Harrah's executives, it could potentially start stinging the company's wallet as well. The Asian high roller is a very important aspect of Las Vegas gaming, and the big Vegas companies all fight over these customers.
Companies like MGM, Wynn, and LVS now have a big advantage over Harrah's since they have casinos in Macau that they can now use to cater to, and cross-sell to, its Asian customer base. But more importantly, Harrah's is losing out on a huge growth driver - the one billion Chinese who may never visit Las Vegas, but will become familiar with, and visit, the Macau casinos of Wynn, LVS, and MGM.
Harrah's Buys Golf Course
In September, 2007, Harrah's announced that they will be acquiring the 175 acre Macau Orient Golf Course in Cotai. This plot of land is the last attractive parcel of land left on Cotai. The golf course is located next to the Lotus Bridge border crossing from Hengqin to Macau and adjacent to the upcoming Macao Studio City.
In Harrah's press release discussing the acquisition, Harrah's said the following things:
"This investment reaffirms our commitment to Asia and to the Macau market. We are delighted to have a compelling amenity to offer our best customers in one of the most exciting and dynamic markets in the world."
"Golf courses are a proven attraction for our customers. We are eager to improve the golf course to make it one of the most authentic links-style courses in the Pearl River Delta enhancing the quality of attractions available for visitors to Macau."
Harrah's Dilemma
Did you notice how the word "casino" was not used in the Harrah's quotes above?
Let's be realistic. Sure, its great to offer your customers a golf course in Macau, but that's not the real reason you spend all that money on 175 acres of land in one of the most desirable locations in all of Asia. You buy the land to generate as much revenue and profits as possible, and in Cotai that means gambling.
Harrah's problem is that they do not have a Macau gaming concession, so they can not operate their own casino.
Harrah's Solution
One alternative for Harrah's is to wait, and hope, that one day the Macanese government issues more gaming concessions. That could be a long wait for Harrah's, if it ever happens at all. And while Harrah's waits, they lose out on the most lucrative gaming market in the entire world.
The second alternative would be for Harrah's to build their casino and hotel complex but hire a concessionaire to manage the casino aspect while Harrah's would run everything else . Sound familiar? That's what Macao Studio City is doing.
It is hard to believe that Harrah's would hire one its arch rivals (Wynn, LVS, or MGM) to run its casino, and Harrah's could lose all of their licenses in the US if they teamed up with someone as controversial as Stanley Ho, so that only leaves one other casino manager - Melco PBL.
Just be Thankful
We may not yet know what Harrah's true intention is for Macau, but we should all be thankful that Harrah's has arrived in Macau. Harrah's knows all about gambling, entertainment, and bringing its customers back for more. So whatever they do plan for The Cotai Strip® , it will probably be something amazing.
