Singapore took a first big step toward legalized gambling Friday when it announced Las Vegas Sands ( LVS - Get Report) had
won the bidding to build the country's first casino. While Singapore reversed its decades-old ban on casino gambling in 2005, Macau plans to be the gambling capital of the world, and already has gambling revenue matching Las Vegas' (a.k.a. "Lost Wages"). Colonized by the Portuguese in the 16th century, Macau has long been a vital port for regional and international commerce between China and the rest of the world. (Don't you love how when you steal something from somebody, history calls it "colonization?") Macau's location -- under 40 miles from Hong Kong -- has made it easy for this "Special Administrative Region" of China to become the Las Vegas of Asia. The pioneers are done taking arrows; now is the time when settlers have been cashing in and where making money for investors comes. Shuffle Master ( SHFL) owns the gambling market. With a market share of more than 90% in automatic shufflers, it is truly the infrastructure of gaming. Shuffle Master also has more than 3,700 of the world's 45,000 proprietary gaming tables. Macau has 1,388 tables, and is expected to reach 4,000 by 2009, according to Andes Cheng of South China Research Ltd. Shuffle Master is in the best position to capitalize. Shuffle Master and Melco reached an agreement in April that will allow a gaming technology alliance for a term of 20 years to develop localized gaming technologies in legal gaming areas in Asia, including Macau. That includes an exclusive distributorship of the existing gaming products of both Shuffle Master and its Australian-based Stargames. The agreement also includes Asia-based cruise ships. Stargames is especially important because of a shortage of dealers -- who tend to smirk when you lose -- in the fast-growing Macau region. Stargames, based in Australia, makes computerized casino tables that don't require dealers. To view John Layfield's video take of this column, click here .
Melco's technology arm, Elixir, will come out of this agreement as the best-positioned gaming-technology supplier throughout Asia. Elixir and Shuffle Master also plan to enter into an R&D and manufacturing agreement for future gaming machines, with a plant to be built on mainland China. In January 2006, Shuffle Master reached an agreement with Sona to deliver wagering off property from casinos to handheld devices in, of course, where gambling is legal. Shuffle Master announced in its last quarter that revenue, income and EBITDA were all up around 30%. Shuffle Master has a forward multiple of around 30, with a long-term growth rate of around 25%. Shuffle Master is not without its detractors, though. There have been a few recent downgrades, citing the belief that Macau already was priced into the stock, and that a $150 million convertible debt dilution will add 2 million shares. However, I would like some of these analysts to go to Las Vegas and stay out of Cheetahs long enough to look around. Asian people, like most people, love gambling and have to come all the way to Las Vegas to do it. Real estate on the Kona coast of Hawaii is not an American phenomenon; it is more of an Asian phenomenon. There's nothing like it in Asia. The same goes for Las Vegas. With the close proximity of Macau to all of Asia, it is set to explode. Macau is within a three-hour flight to more than 1 billion people. The VIP room at the Sands hotel, a $4.5 billion monster in Macau, is a place for the super rich. These people are willing to put down more than $60,000 just for a seat at the baccarat table, and ante up $1,250 per hand. Steve Wynn has called Macau "the growth story of the decade." Tourist visits are up 42% year over year.
The "Cotai Strip," a 1.8-mile piece of reclaimed land between two of Macau's main islands, is going to be home to the $1.8 billion, 3,000-room Venetian. Some 12,000 hotel rooms are scheduled to be added by 2009, including the six-star Four Seasons. The resurgent and booming economies in Asia are expected to fill these new forums. NBA exhibition games are being sought, and big-ticket rock concerts and theme parks are planned. This game has definitely started, but there is a lot of time left on the clock. Macau is set to go back to China in 2037; this gives us more than 30 years to make money off of hotels and gambling in Macau until the bad guys take over. However, by then, I have a feeling the quasi-communistic country will embrace gambling, or at least the revenue.