TOP VIEW While the gambling industry in the U.S. remains primarily focused on Las Vegas and Atlantic City, international gaming companies are eyeing opportunities overseas. Macau’s gambling revenues, for example, topped those of Las Vegas in 2006. Investors should closely examine the multinational firms that have comprehensive strategies for expanding into foreign locales, particularly in Asia, where recent regulatory changes invite foreign companies to build huge resorts with casinos at their cores.

The industry has acted like a mature one in recent years, especially in the U.S., pursuing a state of mergers and acquisitions more typical of Big Oil or Big Pharma. After all, one symptom of hardening of the corporate arteries is the growth-through-acquisition strategy, indicating that industry leaders can gain market share only by gobbling existing market share. But large gaming companies are now moving beyond that approach, particularly the ones that are building colossal casino complexes in Asia in an attempt to tap that burgeoning market.

Macau, of course, is the neon-lit mecca that immediately comes to mind. Most industry observers are concerned about how quickly this 8-square-mile cluster of a peninsula and two islands in the South China Sea is, over the next few years, going to be able to produce enough well-trained staff and well-heeled guests to fill some two dozen new "integrated" resorts—the industry term for the high-end complexes of hotels, theaters, stores, restaurants, convention and exhibition spaces, golf courses and centerpiece casinos. These resorts will soon be the mainstay of the former Portuguese colony, which reverted to Chinese control in 1999.

Singapore recently awarded two casino licenses for the development of integrated resorts, scheduled to open in 2009 and 2010 and designed to double the number of visitors and their expenditures. The casino as part of a complete destination venue represents the standard of the gaming industry today. The megaresorts along Las Vegas Boulevard—The Strip—offer so much diverse, family-oriented recreation and entertainment that casino income accounts for less than 50 percent of overall revenue. Even so, the Big Gaming companies are still not that "big" in relative terms. Industry leader Harrah’s Entertainment ranks only 309th on the Fortune 500; MGM Mirage is the only other gaming company on the list.

Why Buy Macau?
At a 2003 London gaming conference focusing on the United Kingdom’s planned expansion of its staid casino industry, panelists from the U.S. discussed the potential role of American casino companies in developing Las Vegas–style resorts in the UK. An American speaker mentioned Harrah’s. The audience—almost entirely British—became puzzled. Did he mean Harrod’s, the legendary British retailer? The confusion was perhaps understandable; both companies even employ a similar font in their logos.

In the short run, Macau is likely to  end up with more high end integrated resorts than it can support.

On a superficial level, such bafflement strikes a blow against the corporate egos of casino firms. More importantly, it indicates how much room these companies have to grow just to establish international name recognition. Since the conference, Harrah’s has captured more than a few storied properties in Las Vegas and Atlantic City through its 2005 purchase of Caesars Entertainment, a global brand that is arguably more recognizable than the Harrah’s name.

But in the long run, the opening of Macau to foreign operators may turn out to be more important than any acquisitions. Gambling has been legal there since the Portuguese introduced it in 1847, but the territory was little more than a collection of sleepy villages until Stanley Ho, the flamboyant entrepreneur from Hong Kong, started opening casinos there in the early 1960s. By the time the colony reverted to China and became a special administrative region, Ho controlled nearly 70 percent of the total economy, operating the racetracks, the jet-foil ferry service and most of the real estate—in addition to 15 casinos. In 2002, however, the post-colonial government, seeking a long-term economic boost, canceled the 40-year monopoly held by Ho’s STDM conglomerate. Las Vegas Sands and Wynn have since opened properties there, and MGM Mirage and Australian gaming company PBL have plans to open resorts there this year in partnership with Melco, which is run by Ho’s son. In addition, the elder Ho is building his own Vegas-style resort.