Tiny Macau has not only become Asia's casino capital, but gaming experts say it could soon replace the Las Vegas Strip as the world's largest gambling market in terms of revenue.
Macau's gross gaming revenue is already almost on the same level as that of the famous Strip, the 6.5 kilometer string of hotels and casinos in Las Vegas. Official figures show that last year, Macau's casinos had revenue of about $5.6 billion, compared with the $6 billion the Las Vegas Strip casinos made.
Macau has some way to go before catching up to Las Vegas as a whole. The total gaming revenue for Las Vegas, including areas such as Clark County and the Boulder Strip, was $9.7 billion.
But Macau has reached its current level with less than half as many gaming tables, and only six percent of the slot machines, found in Las Vegas.
Mary Ellen Olson, an analyst in Hong Kong for credit rating agency Standard and Poor's, says Macau's high revenue is driven by its different gambling culture. In Las Vegas most of the money is made from slot machines, while in Macau, casinos focus on V.I.P., or Very Important Person, gamblers.
"One of the reasons at the moment why it has such a high revenue level compared to Las Vegas, even though it's much smaller in terms of percentage of tables, is because it has so many high-end gamblers that tend to come to Macau and spend a lot of money, so there is very high win-per-table rates," she explained.
Olson says the number of mass market gaming tables and slot machines in Macau also is growing quickly and Macau could soon overtake Las Vegas as the biggest gaming market in the world. She predicts that the city's annual gaming revenue could exceed $10 billion within the next five years.
A number of factors have led to Macau's rapid transformation from a sleepy backwater 66 kilometers southwest of Hong Kong to the gambling capital of Asia.
In 2001, two years after the former Portuguese enclave was returned to Chinese control, the Macau government opened its doors to foreign gaming operators. This ended the 40-year monopoly of Macau's casino king, Stanley Ho, who ran a string of rather unglamorous gambling halls around the city. Macau's first Las Vegas-style casino, the U.S.-owned Sands Macau, opened in 2004 and immediately became one of the city's biggest gambling centers.
David Green, director of gaming practice for the accounting firm PriceWaterhouseCoopers in Macau, says the Sands' success far exceeded expectations.
"The Sands property, which cost $330 million (U.S. dollars) paid for itself in 11 months - now that's unheard of," he said. " It just doesn't happen in any business, let alone this one."
Another major factor was that China eased travel restrictions for millions of its citizens. Casinos are illegal in mainland China, while rising incomes have helped create a demand for betting facilities. More than 10 million mainland Chinese traveled to Macau last year, about 60 percent of all visitors. Most of the rest were from nearby Hong Kong.
Mary Ellen Olson says Macau's proximity to China provides it with one of the largest bases of potential gambling customers found anywhere in the world.
"Within an hour's drive of Macau it is estimated there is 100 million people and about a billion within a three-hour flight," she said.
Kareem Jalal is editor of the Macau magazine "Inside Asian Gaming". He points out that while Macau is very successful in terms of gambling revenue, income from other sources such as hotels, dining and retail has not grown as fast.
"Even if Macau does overtake the Las Vegas Strip in terms of gambling revenue, still it will be lagging far behind in terms of entertainment, dining, other revenue," he said.
He says in Las Vegas, the casino-hotels get half of their revenue from non-gambling activities.
Visitors to Macau on average spend only one night in the city and so far, there is little entertainment available besides gambling. Las Vegas, by contrast, also offers stage acts including famous entertainers, lavish swimming pools, high-class restaurants and expensive shopping malls.
But this will soon change. A number of new upscale casino resorts are being built in downtown Macau, such as the Wynn Macau, built by Las Vegas casino king Steve Wynn. Besides gambling and accommodation, the glitzy casino palaces will also offer entertainment, dining and shopping.
The biggest change, however, is expected to come about when the first resorts on the so-called Cotai strip open for business next year. Olson says the landfill between Macau's outer islands of Coloane and Taipa will be transformed into a Las Vegas-style destination with huge casino-hotels.
"It's going to have entertainment, a food industry, convention industry as well as gambling - that's really the Las Vegas model that's being transplanted into Macau," she said. "As that takes off you should see the non-gaming revenues rise as a percentage of the gaming revenues."
But a number of pitfalls remain. David Green says one of the key issues is how well the city's infrastructure keeps pace with the new developments and the growing number of people coming to Macau.
"You are talking visitor numbers that over a three to five-year period probably going to double," he noted. "The stresses that puts on infrastructure are extraordinary, particularly transport infrastructure."
A major concern is labor. Macau has a workforce of just 260,000 people, yet each new resort needs several thousand staff. Macau's government has not enacted liberalized immigration rules that would enable casinos to hire staff from mainland China or other Asian countries. Macau needs to address that issue urgently if it is to become the world's biggest gaming market.